China cannot afford another crackdown on its tech companies

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Instead of trumpeting China’s technological progress, Premier Li Qiang struck an unusually gentle tone in a nationwide speech on policy plans.

I’ve heard him speak in person several times over the years, including his first and only press conference as prime minister in 2023, and he’s as motivating as any Chinese politician. But his candid portrayal of the challenges and tech goals Thursday was more measured in tone.

That suggests one thing: regardless of the geopolitical situation or the state of the economy, China sees technology as the key to its future.

Getting there requires a departure from China’s state-dominated economic priorities. Businesses and investors also need encouragement, as it wasn’t long ago that Beijing was tightening oversight of tech companies.

But changes are happening. A senior official told reporters over the weekend that businesses should take a greater lead in helping policymakers evaluate which technology challenges to solve and research results.

This is quite a change from Beijing’s top-down industrial policy – ​​a model that has begun to gain admirers. This approach has caused concern in Washington, which has tried to follow suit with its own version with the CHIPS and SCIENCE Act.

But more state involvement does not bode well for China’s aviation ambitions, according to a report published last week by Scott Kennedy of the US-based think tank Center for Strategic and International Studies.

Instead, he said, China’s private sector is leading the way in things like electric vehicles, rapid advances that have boosted Beijing’s status as a global tech powerhouse.

State-organized infrastructure is still important. Government-built charging stations helped electric cars go to the mass market.

Now, China is releasing computing power to its homegrown AI companies as part of its 15th five-year development plan, which began in January.

But innovation is already happening in the private sector. Last week, before Li’s speech, I stopped by the offices of Beijing-based startup Linkerbot. The company makes mechanical hands for humanoid robots that have gained global attention over the past year.

The company pushed back on the idea that it would benefit from specific policy support. Instead, overall industrial development has made its technology move quickly from research labs to actual business use, the startup said.

Linkerbot said it will sell its robotic hands to customers not only in China, but also in Europe, Japan and South Korea. And in the refrain I hear most, LinkerBot claims at least one-sixth the production time of foreign competitors at one-tenth the price.

Beijing’s pivot to giving more room to the private sector came when President Xi Jinping met with tech entrepreneurs last February.

But change at a deeper level takes time and resources that governments don’t always have.

Wisdom Tree’s Liqian Ren summed up Beijing’s attitude: “We don’t have much money to help you, so you’re pretty much on your own, but we’re not going to crack down on you.”

Investors are getting a clearer sense of where Beijing’s red lines lie, such as monopoly or hyper-competitive behavior. At the same time, private companies still have their own profit-driven incentives and remain a critical source of employment in China.

Ironically, the electric car push has forced traditional state-owned giants to adapt or risk further erosion of their market leadership by BYD and other upstart companies.

State owned Changan Automobile responded by working with Huawei on in-car technology. The collaboration helped the company climb to third place in China’s new energy vehicle rankings by domestic sales last year, ahead of Tesla.

Technological progress has attracted international attention.

Chang’an, located in the southwestern metropolis of Chongqing, said that over the past year, it has hosted numerous government delegations, industry partners and customers from Europe, Southeast Asia, the Middle East and Latin America.

In about a month, a US delegation of more than 100 young science and technology professionals is traveling to the city, said Chen Wei, chairman of Chongqing-based fintech company Yukun Keji.

Chen, who will present to the US delegation, is one of Chongqing’s delegates to the National People’s Congress, as is Chang’an’s chairman, Zhu Huarong.

It’s a state-versus-private-market dance that businesses in China have long had to navigate.

But this year, the stakes are higher. With tariffs, war abroad and sluggish growth at home, China’s tech companies bear a growing national responsibility. It does not want to discourage Beijing.

March 12: China’s National People’s Congress ends its eight-day session

March 16: China retail sales, industrial production and investment data for January and February