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Alex Lo

In the Art of War, Sun Tzu famously counsels “know your enemy, know yourself.”
With America’s second cold war, this time against China, Washington may have seriously misdiagnosed China’s foreign conduct, ambitions and ultimate goals.
None is perhaps more glaring than the suppositions behind a key plank of its China containment strategy – the tech war.
It reflects a projection of its own strengths and weaknesses in science, technology and industry, gleefully unaware that China has rather worked in reverse.
The typical value chain in the tech industries is defined by the starting phase of research and development and design, the middle phase of manufacturing, and then the final phase of marketing the product.


US tech giants make most of their money from the beginning and the end of the value chain. Apple’s iPhones are an extreme example; likewise Nvidia’s advanced semiconductors.
By contrast mainland China – and before it, Taiwan, South Korea and Japan – has mastered and built an entire industrial base on manufacturing, the middle part of the value chain – whereby incremental innovations are made during production processes, as opposed to flashy breakthroughs at the start and sales hypes at the end.
By its sheer population size, skilled workforce, science and engineering graduates, as well as production and manufacturing experiences accumulated over decades, China has been able to scale up the nation’s whole industrial base in a way that none of the other Asian economies could match, and that the US may never be able to match again, despite the latter’s “johnny come lately” industrial policy which it once disdained.
This is perhaps a crucial East-West industrial divide that has been much neglected. Instead of the old famous historical question from Joseph Needham “why didn’t the [first] industrial revolution start in China?”, the new question that needs to be answered is, how has China joined and dominated the fifth industrial revolution – for artificial intelligence, telecommunications, robotics, quantum computing etc?
The US tech war is mainly premised on denying advanced technologies – that is, the beginning and the end of the tech value chain – to the Chinese. These two stages are indisputably dominated by US firms and research institutes, whether private or government funded.
Having no access to the most advanced tech, so the thinking goes, the Chinese will not be able to produce technologically advanced products to move up the value chain.
But China has shown it’s possible to push and refine manufacturing to bring forth incremental tech breakthroughs and advanced products.
Even before Washington openly pursued its tech war, President Xi Jinping has made “moving up the value chain” the main goal of China’s industrial state policy, whether it was “Made in China 2025” or becoming a hi-tech “manufacturing superpower”.
While it was no doubt a response to the structural slowing in China’s economic growth, as well as ageing population and labour shrinkage, it’s turning out to be the best response or countermeasure to Washington’s tech war.
Pivoting in manufacturing doesn’t just mean doubling down on a moribund exports-driven economy. It means rearranging the priorities in the value chain as traditionally understood – by improving and scaling up manufacturing processes to replicate and improve on existing technologies.
And so in gaming, you have the commercial blockbuster, Black Myth: Wukong. For AI breakthroughs, there is DeepSeek. In telecoms, there was Huawei’s Kirin 9000S chip, which runs at 5G speeds.
It’s not an accident that Chinese tech and industrial breakthroughs keep making news headlines during a period when America’s tech war has intensified and expanded.
In a word, for America, it may be a tech war with advanced manufacturing as a component. For the Chinese, it’s a manufacturing war driven by tech.
It’s also not an accident that US containment policy has kept hitting bumps, if not a wall. For example, in 2022, former US president Joe Biden had to relax retroactive tariffs of up to 250 per cent on solar panels from China because most American consumers couldn’t afford alternative, non-Chinese-made solar panels or else these were simply unavailable.
At least for now, but especially with the return of Donald Trump and his anti-climate agenda, the world, and the West, will still have to depend on China in the global drive to decarbonise, including its dominant electric car industry.
US policymakers are, of course, well aware of all these. At least those with the Biden administration were, but with that of Trump, not so much.
Besides isolating China, Biden’s Chips Act and the Inflation Reduction Act have also been about “reshoring” and “friendshoring” – to rebuild American manufacturing at home.
But what works for China doesn’t necessarily work for the US. Washington’s need to maintain its global US dollar dominance works at cross purposes with its re-industrialisation. Quite simply, you need relatively cheap labour and a depressed currency to drive exports in the way China had been doing until recently.
American workers are among the world’s most expensive, especially those skilled ones in tech fields. And a crucial negative side-effect of “King Dollar” is that it encourages a trade deficit vis-a-vis surplus and exports-driven economies such as China’s.
America certainly has the knowledge but not necessarily the know-how to reindustrialise. No one understands the designs of the most advanced chips better than American engineers. But they don’t produce them, preferring rather to let Taiwanese firms such as TSMC do the job.
Now that TSMC is committed to offshoring some production to the US, it has discovered it’s hard to hire qualified local workers and managers for its American chip factories, or fabs, and to scale up production.
(Politically, TSMC might, of course, want it that way to keep the most advanced and valuable chip production on the Taiwanese island.)


Since the end of the Cold War, the US has chosen to deindustrialise and financialise its economy. It actively promoted globalisation to offshore production or manufacturing, national choices which were justified by the economic doctrine of the comparative advantage of nations and neoliberal economic policy exemplified by the so-called Washington consensus.
At the time of the last global financial crisis, China and America had roughly the same share of global manufacturing output, at 18 per cent each. But by 2018, China hit almost 29 per cent while the US was at about 17 per cent.
China piggybacked on all those American economic choices to become the manufacturing superpower it is today. Now it’s probably too late for the US to reverse course with its tech war. The US remains an industrial powerhouse, second only to China. But it’s unlikely their respective global manufacturing positions will reverse any time soon.
It may well be that China will never surpass the US economically or geopolitically, due to a host of internal problems, or what Marxists like to call contradictions.
But for now, rather than slowing down China’s advanced industries, the US tech war itself may accelerate them instead.


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Don’t blame China’s Jingye for failing to save UK steel industry

My Take

Why America is fighting the wrong tech war against Beijing

China has shown it’s possible to push and refine manufacturing to bring forth incremental tech breakthroughs and advanced products. Photo: AFP

China gets taste of victory in US tech war thanks to talent, supply chains, organisation

Chinese President Xi Jinping shakes hands with Huawei founder Ren Zhengfei at a symposium that brought together the country’s leading tech entrepreneurs on February 17. Photo: Xinhua

Why the US should stop trying to target Chinese tech

The DeepSeek app on a mobile phone in Beijing on January 28. Photo: AFP

An influencer films a video for his new RedNote account, after leaving TikTok, in Times Square in New York on January 16. Photo: Reuters

Will Hangzhou, China’s start-up upstart, dethrone Shenzhen or join forces?

 Illustration: Brian Wang

Opinion

China Opinion

China has pivoted on advanced manufacturing processes to encourage incremental innovations rather than flashy breakthroughs


China has pivoted on advanced manufacturing processes to encourage incremental innovations rather than flashy breakthroughs.


US-China tech war

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

My Take | Why America is fighting the wrong tech war against Beijing

China has pivoted on advanced manufacturing processes to encourage incremental innovations rather than flashy breakthroughs