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Apr 24, 2022
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Import substitution in Chinese

Import substitution in Chinese

Photo: Zuma/TASS

Decades of destruction of domestic industries and their replacement with Western imports in our country has made Russia dependent on countries that have suddenly become “unfriendly” (but is it all of a sudden?). The ideology of “development” according to Gaidar’s principle “let’s sell hydrocarbons and buy everything we need” led to the fact that the country suddenly found itself without spare parts for aircraft, without auto production, without machine tools, and may be left without the most necessary – medicines and medical equipment . A clear example: it turned out that Russia is not able to provide itself with such a trifle – a vital medicine for the thyroid gland. Even the pride of the Russian aircraft industry “Superjet” will not fly without Western components.

A stratum of elites and businesses has formed, oriented exclusively towards the West, which has made fortunes and won commanding heights by parasitizing on the importation of Western goods and ousting domestic ones.

The import substitution announced after 2014 in many industries, primarily in high-tech, was carried out, as can be judged, on paper. Evil tongues claim that now “competent comrades” have come to the offices of some state corporations to find out why imports that are critical for the economy have not been replaced by domestic production over the years. Despite the considerable funds allocated from the budget. It is widely known how beautiful reports about the import substitution of certain important components appeared: Russian labels were glued to Asian samples, and this was presented as a domestic high-tech development that made it possible to replace the Western counterpart. TV, through the mouths of people whose thoughts were (and some continue to be) in the West, painted a blissful picture of the greatness of Russian science and technology.

For these failures (if not to say sabotage), no one has suffered and is not responsible. A good example is the former head of Rosnano Anatoly Chubaiswho for decades was at the pinnacle of power, led the state corporation, and now quietly left for the West. Now Rosnano calls on the Prosecutor General’s Office to check this organization when Chubais was in power. Although, in my opinion, wrecking there was visible to the naked eye. He was talked about at all corners, including parliamentary parties, in particular the Communist Party. Hundreds of billions of rubles of budgetary funds during this period were, in fact, stolen without any real return. The state corporation responsible for the development of high-tech projects in Russia failed in import substitution.

The most surprising thing is that the situation has not even begun to change over the past two months: the former personnel are in their places, government agencies continue to slowly draw up plans for import substitution, most of which are not destined to come true by definition. There is not even a hint of the “mobilization economy”, which the leader of the Communist Party of the Russian Federation spoke about not so long ago Gennady Zyuganov.

All this threatens the country with a catastrophe, which may break out as stocks of goods and spare parts in critical areas of the economy are depleted. The failures are especially evident against the backdrop of the creation of a domestic high-tech economy in modern China.

Initially, the market reforms of 1978 in China were aimed not only at industrialization in a backward and purely agrarian country, but also at creating a domestic base for high-tech industries. This was purposefully done by the Chinese authorities, proceeding from the long-term national interests of the country. Already in the early 1990s, China attracted more than just foreign investment in industry. The creation of foreign or joint ventures was regulated in such a way that they arose in the most important industries, carried with them modern technologies. Foreign business was placed in such conditions that, striving for super profits at the expense of cheap Chinese labor, it was forced to share modern “know-how” with the Chinese.

So the system of attracting investments was built. At joint ventures, deputy directors, as a rule, were Chinese specialists who studied not only all the intricacies of doing business, but also the subtleties of the production technologies used. The process of acquiring innovative experience and mastering modern technologies was led by the state, backed by the Chinese Communist Party. Foreigners working in China were convinced that the secrets of production, which they did not voluntarily share, would be copied by the Chinese. Americans talk with horror about the whole system of technology borrowing, in which even the Chinese army was involved.

It is important to note that the task of acquiring and mastering modern technologies was seen as political, state and party. Therefore, all attempts on the part of foreign business to protect “know-how” in a judicial or administrative order, as a rule, did not lead to the desired results. It was and is a completely different paradigm of development: to learn from others and create our own, and not to destroy our own and give Westerners the opportunity to profit and run the country. Moreover, according to foreigners, in terms of attitudes towards technology, they did not see the difference between state corporations and private Chinese business. Both those and others were engaged in the acquisition of technological experience and the creation of their competencies and industries within the framework of a national task. A state system for processing technological information and implementing it in the domestic economy was created, in which hundreds of powerful innovation centers operate.

At the next stage, China began to create its own powerful corporations, both public and private in high-tech areas. Now they have achieved leading positions in the world in such areas as communications, artificial intelligence, space, pharmacology, biotechnology, medical technology and many others. The world’s largest automotive industry was created from scratch, which is now pushing Western trendsetters on the world market.

Few people in Russia know that China is the main target of containment by the West. Since 2008, almost 40 percent of all sanctions and restrictions in the world have been imposed against Chinese companies in order to undermine the development of China and limit its access to modern technologies. But this goal is unlikely to be achieved. China is at the stage of development when the country itself is able to create any technology and put it into production. It’s just a matter of money and time.

As of early 2021, Western bans and restrictions affected at least 60 of China’s largest high-tech firms. But how is China reacting to this? Here is an example from the most sensitive strategic area. At the end of 2021, the world’s largest chip and microcircuit manufacturer, Taiwan Semiconductor Manufacturing Company (TSMC), cut sales to Chinese customers by 72%. By the way, after the start of the special operation in Ukraine, this company completely stopped cooperation with Russian companies. And we can not oppose the ban practically nothing. There is no technological base in Russia, because we thought that supplies would be eternal (everything would be sold for money). The PRC, in response to the imposed restrictions, allocated gigantic funds for the construction of four similar industries. Moreover, this was done long before the special operation in Ukraine and the “end of the unipolar world.” And very soon, China will be able to fully provide itself with microchips and processors.

The main claim of the President of the United States Trumpwho started a trade war with China, was “stealing technology.” According to US analysts, every year Western businesses operating in China incur losses of two to three trillion dollars due to free technology leakage. To reassure the American partners, the Chinese pretended that the state decided to put an end to this matter. Legislation for the protection of foreign intellectual property and technologies was tightened, and the rules for foreign investment were weakened. But in practice, this has done little to change China’s approach: building its own high-tech industry to ensure world dominance. The slogan “to catch up and overtake the USA” is rigorously put into practice here.

The leading role in this process is still played by the state, which not only creates the appropriate rules of the game (market incentives, restrictions), but also allocates gigantic funds for its own developments and scientific research.
A special place here is given to the state program “Made in China 2025”, which was first adopted in 2015. It was aimed at reorienting the economy to the domestic market and accelerating the development of modern industries. Initially, the program provided state support for 10 high-tech sectors: next-generation information technology, high-performance machines and numerically controlled robots, aerospace and aviation equipment, marine engineering equipment and marine shipbuilding, modern railway equipment, energy-saving and new energy vehicles, electrical equipment, agricultural machinery , new materials and biopharmaceuticals, as well as high performance medical devices.
Thus, the policy of import substitution was purposefully continued, primarily in the field of high technologies, which provides for the conquest of a significant market share (from 40% to 90%) by local manufacturers in key industries. By 2025, domestic production will cover up to 60% of the demand for equipment for high technology and innovation, 40% of the chips used in communication devices. According to the reports of the Chinese statistical office and annual government reports, the implementation of the program is ahead of schedule.

The Chinese government estimates that science and technology accounted for 60% of the country’s economic growth in 2019. China occupies a leading position in many areas of R&D, demonstrating technological breakthroughs in some areas where, until recently, China lagged far behind the world leaders. These, for example, include achievements in the field of reusable spacecraft technologies or fusion energy technologies.

China’s technological advances in recent years have been underpinned by high spending on innovation. In 2019, at the current exchange rate, they exceeded $600 billion, which is more than 60 times higher than the level of 2000. According to the estimates of the American company Congressional Research Service, China’s share in 2001-2018 in global spending on innovation increased from 4.9% to 26.3%, which put it in second place in the world after the United States, whose corresponding figure for the same period decreased from 39.8% to 27.6%.

China has also overtaken the United States in terms of the number of so-called unicorn companies (high-growth private technology start-ups with a capitalization of over $1 billion). In 2020, there were 233 of these in China, or almost 40% of all “unicorns” in the world. In the US – 227 (38.7%), in the UK, for example – 24 “unicorns”. China’s achievements in technological development are also evidenced by the World Economic Forum’s (WEF) updated ranking released last year, which is based on the number of enterprises of the future that are fully powered by the technologies of the fourth industrial revolution. According to WEF experts, there are 69 such enterprises in the world, of which 20 are located in China, 19 in the European Union, 7 in the USA, 5 in Japan. Among such enterprises under construction, which should soon be put into operation, China accounts for one third.

In this way, China ensures national security. If it is blocked by the West, following the example of Russia, it will not find itself in a situation where there are no medicines, spare parts and the most necessary. And the West will not risk taking such tough steps against the PRC, since they will harm, first of all, their initiators. But China’s pursuit of technology isn’t just for self-sufficiency and security. By creating high-tech industries with high value-added products (as opposed to the sale of oil and gas by Russia), he dramatically raised the standard of living of the population. High incomes further stimulate the development of the domestic market and the Chinese economy as a whole. China is not afraid of either sanctions or blocking of gold and foreign exchange reserves. Everything he needs, he can produce on his own.

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