Jiang Xiaojuan warns against overemphasizing import substitution
Jiang Xiaojuan warns against overemphasizing import substitution
The former Deputy Secretary-General of the State Council underlines reform and opening up as more important new drivers of growth than policy support.
Jiang Xiaojuan, currently President of the 中国工业经济学会 China Society of Industrial Economics and Professor at the University of the Chinese Academy of Social Sciences, recently argued that “doing everything it can all by itself” is not optimal for China, apparently cautioning against emphasizing import substitution over opening-up and international collaboration.
Below is a translation of the March 12 op-ed in Beijing Daily, the capital city’s flagship Party newspaper, by the former Deputy Secretary-General of the State Council.
江小涓：全球化再次加速，我们该怎么办
Jiang Xiaojuan: As globalization picks up speed again, what should China do?
China's capability for diversified integration in global technology cooperation is taking shape
For a long time, international cooperation in science and technology has been perceived in China as merely a "market for technology." However, the relationship between technology and the market encompasses various possibilities—not just "market for technology" but also "technology for market" and "technology for technology." In China's case, it’s not just Chinese market for foreign technology.
Firstly, there remains huge potential for "market for technology" in China. Currently, multinational corporations cannot compete with others in the Chinese market unless they introduce the best technology in the world.
Secondly, "technology for market" is rapidly developing. Many Chinese enterprises are now using their technology as bargaining chips to gain market access and capital overseas. For instance, in February 2023, Contemporary Amperex Technology Co. Limited (CATL) 宁德时代 announced cooperation with Ford to build an electric-vehicle battery factory in Marshall, Michigan, to produce new lithium iron phosphate batteries. Ford bore the cost of investment and construction while CATL provided patents, technology, and services. However, in July, the factory faced an investigation in the U.S. House of Representatives, which halted the construction. By December, Ford announced to restart construction of the factory, planning to start production by 2026. This exemplifies the trend of using technology to gain market access, as now many Chinese enterprises investing overseas have competitive products or technologies. The essence of what China now refers to as the new major tech-intensive exports fundamentally is Chinese technology for foreign market access.
Thirdly, China’s bargaining chips for "technology for technology" are increasing. In today's global production chains, Chinese enterprises' technologies may not always be the most cutting-edge ones, but they occupy essential positions in the leading industry value chain. That enables China to keep pace with the development of other countries' industries while participating in the global division of labor within the highest-end industrial chains.
The rapid development of both "technology for market" and "technology for technology" models has significantly altered China's position in global capital flows, with its foreign investment and outward investment reaching parity for four consecutive years. China's capability for diversified integration in global technology cooperation is emerging, highlighting the importance - for China - of liberalizing and facilitating international capital flows.
China must not proactively get off the track of globalization
How should China balance "opening up and globalization" with "self-reliance and self-improvement"? It is often described here in China that, given the comprehensive domestic industrial chains, controlling a complete industrial chain is the way to respond to external challenges. However, is this really what China wants? As domestic industrial capabilities continue to improve, a critical decision for China in its participation in the global division of labor emerges – where is China heading when products and technologies can be entirely developed domestically? Is there a need to shift from a global division of technology to a strategy of "import substitution"? In today's context of technological and industrial globalization, the idea of "doing everything it can all by itself" is not the optimal path. Such an all-encompassing industrial structure misses out on the benefits of division of labor, including economies of scale, rapid technological innovation, access to global resources, and a share of the global market.
When balancing autonomous innovation and technological division of labor, factors such as stability, security, and efficiency should all be considered. Currently, China faces special disadvantages. On one hand, the cutting-edge technologies most needed in China are often controlled by monopolies or oligopolies, differing significantly from the situation of a "competitive market" for technologies China imported in the past. On the other hand, non-economic barriers like unfair suppression complicate China's technology importation, making it impossible in some fields. Therefore, it is crucial to concentrate efforts on making breakthroughs in overcoming “stranglehold technologies”, advancing in key technologies, making more headway towards self-innovation and security, and emphasizing self-reliance and self-improvement. This all marks a significant shift from China's past approach. However, every coin has two sides and there is always a need to balance domestically developed technologies and introducing know-how from overseas. Utilizing foreign technologies allows for a higher starting point in advancing China's technological independence and strength.
Moreover, the higher our level of indigenous innovation, the more we can use "technology for technology" to reach higher levels and advance international scientific and technological cooperation. In a complicated environment, the most crucial aspect is to have the concept and capability to maintain a good balance.
In conclusion, the stable development of China's economy requires policy support and, more importantly, reform and opening up as new drivers of growth. With globalization accelerating again, the external environment offers various opportunities. Faced with challenges attempting to squeeze China out of the track of globalization, China must not "get off the right track" itself. Instead, it should overcome obstacles, seize new opportunities, and participate in the global division of labor in a multi-pronged manner, to continuously break new grounds in leveraging opening up to empower development and reform.
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