From the Archives | China’s Techno-Economic Statecraft Amid US-China Strategic Rivalry

AI and the “New  Whole-State System” 

By Tian He and You Ji

This article was originally published in Volume 67, Issue 4 in Fall 2023.

Since the 19^th Party Congress of the Communist Party of China (CPC)  in 2017, China’s leadership has increasingly prioritized artificial  intelligence (AI) as a core aspect of national and military power enhancement. In the spring of 2017, ex-Premier Li Keqiang included AI in his government work report to the People’s Congress for the first time, a  notable indication of its importance to the government. For Chinese  President Xi Jinping, “accelerating the development of a new generation of  AI is an important strategic handhold for China to gain the initiative in global science and technology competition.”[1] He stressed that AI is a strategic technology heralding this round of scientific and industrial revolution and industrial change, and has a “lead goose” effect with a  strongly stimulating nature. In 2017, recognizing the importance of AI  development, Xi said that the People’s Liberation Army (PLA) would  achieve mechanization, make great progress in informatization, and greatly  improve strategic capabilities by 2020. 

Technological competition between the United States and China has  exerted profound impacts on global technological sectors. The Chinese  government has reiterated the need to double down on efforts to address the  country’s weak links in strategic technologies—particularly in  semiconductors. At the 20^th Party Congress in 2022, Xi said that China must  accelerate the development of “emerging strategic industries” and “a new  set of engines to boost growth,” which emphatically includes AI and its  application in the age of “intelligentization.”[2] The center of this government  effort is the development of the “New Whole-State System” (xin juguo tizhi)  to spearhead China’s technological breakthrough in strategic sectors. Since  the 20^th Party Congress, Xi has called for improving the country’s New  Whole-State System in driving breakthroughs in core technologies amid  intensifying US-China technological competition. [3]

This article argues that the AI example illustrates how China resorts  to the New Whole-State System to stay ahead in critical technology areas.  This research defines the New Whole-State System as a way of creating a  comprehensive mechanism for the state to mobilize all sectors in the high tech realm to generate quick and qualitative progress in AI development, to keep pace with the United States in the race for high-tech development. “All  sectors” refers to both state and private sectors, civilian and national defense  sectors, as well as domestic R&D institutions and their international  counterparts. Conceptually, the New Whole-State System is a technoeconomic statecraft approach to facilitate domestic economic  competitiveness and technological capability, driven by external geo economic or geo-political pressure.[4] Such a whole-state approach in  advancing AI has allowed Beijing to generate faster effects in three  dimensions: economic, social, and military. Particularly, the military  application of AI testifies to how China’s economic statecraft works  effectively in PLA war preparation. As US restrictions on China’s access to  advanced chips tighten, Beijing’s whole-state system approach in AI R&D  is a strategic response by which it hopes—through continued mobilization  of all available human and material resources—to sustain a long and fierce  competition with the United States. 

Building the New Whole-State System: China’s Techno-Economic  Statecraft and Innovation Mechanism Restructuring 

In this section, three crucial components of China’s New Whole State System building will be examined: (1) the adoption of economic  statecraft to boost domestic emerging strategic industries; (2) the reform of  the institutional arrangements for science and technology; and (3) ensuring  private-sector mobilization and participation in state-led technological  development. As we will show, US restrictions have created further impetus  for the Chinese leadership to enhance the New Whole-State System. It is  within this increasingly strengthened institutional arrangement for  technological development that the Chinese government and its private sector allies have achieved rapid progress in AI development. 

Techno-economic Statecraft

Strategy setting and implementation is  part of a bold whole-state endeavor to fully tap national potential in  scientific and technological innovation through techno-economic statecraft.  Even before the deterioration of US-China relations, Chinese leaders  believed that the world was undergoing a rapid technological transformation  aimed at boosting military and national competitiveness, and that this  transformation would be a zero-sum race between top powers. Under such  pressure, China felt the need to reorganize its innovation system to avoid being left behind. [5] The intention to pursue domestically oriented  economic statecraft first surfaced at the 18th National Congress in 2016,  when the party proposed “implementing the strategy of innovation-driven  development.” The official document represents Beijing’s strong ambition  in international high-tech competition as a way to realize the Chinese dream  of national rejuvenation and becoming a world power by mid-century.[6]

The US-China trade war in 2018 and US sanctions against Chinese  tech companies made the government painfully aware of the urgency of  developing a whole-state system to pursue indigenous innovation through  economic statecraft. The concept of the New Whole-State System has been  repeatedly featured in Xi’s policy reports, such as those delivered to key  Party and governmental forums including the 20^th National Party Congress,  China’s Fourteenth Five-Year Plan (2021–2025), and Long-Range  Objectives to the Year 2035. [7] By then, the formulation of techno-economic  policies to boost science and technology (S&T) innovation was already  central to the overall development of the party and the country. In 2018, the  Party Central Committee reorganized the Ministry of Science and  Technology with the main goal to “strengthen, optimize and transform  government science and technology management and service functions.”  In December 2021, for the first time, the Central Economic Work  Conference in Beijing included science and technology policy as one of  seven major policies. [8]

The announcement of national strategies has a special meaning in  China’s mobilizational approach to AI development. It is a top-down official  call for all relevant sectors to gather around the state’s priority-setting; it  dictates the direction for financial investment in key areas of R&D; and it draws a roadmap for phased planning and implementation. Since the turn of  the millennium, China has overtaken Germany and Japan to become the  world’s second-biggest R&D spender after the United States, and the gap in  R&D funding between the United States and China has been closing fast  despite modest increases in US funding since 2000. [9] The push for  innovation-driven development requires significantly increased R&D  investment across all parts of the economy. From 2016 to 2023, China’s  R&D investment has maintained double-digit growth. In 2019, China’s total  investment in R&D exceeded 2 trillion in Chinese Yuan (CNY). [10] By 2022,  this number reached CNY 3.087 billion, an increase of 10.4 percent over the  previous year. [11]

Institutional Reform

The successful operation of the New Whole State System depends on whether an effective state apparatus is in place to  smooth its functions. This is the reason for the reform of the state’s  institutional arrangement for S&T development. In March 2015, a series of  deep organizational restructurings began under the directives of the Party  and the State Council.[12] Since then, China’s institutional reforms in the high tech sector have helped lay a foundation for building a national innovation  system and for facilitating the integration of technological R&D and its  market commercialization. During another round of State Council  restructuring in 2018, the Ministry of Science and Technology was reorganized, incorporating the State Administration of Foreign Experts  Affairs in the hopes of utilizing the international pool of high-tech talents  more efficiently. In addition, the ministry took on the management of the  National Natural Science Foundation of China. The purpose of this  restructuring was to have tighter oversight of national R&D programs in  accordance with the Party’s emphasis on high-tech development— especially in the areas of semiconductors and AI—and enhance fund  allocation towards nationally identified science and technological projects. A new round of institutional reform was promulgated in the General  Assembly of the People’s Congress in March 2023. Central to the reform is  the establishment of the Party Central Leadership Committee of Science and  Technology, which has shifted the overall responsibility for advanced  science and technological R&D from the State Council to the Party’s  Politburo. This is a familiar practice of the Party/state’s effort to centralize  and unify leadership on issues of strategic importance. Aiming at promoting  basic scientific research and enhancing infrastructure for conducting  nationally prioritized projects, this reorganization has created mechanisms  to concentrate national resources to solve those technical “bottleneck”  problems in the context of US restrictions, e.g., advanced chip R&D. Under  the joint supervision of the Party and relevant state agencies such as the  Ministry of Science and Technology, these “bottleneck” issues will be the  focus of the New Whole-State System to resolve.[13] For example, the newly  restructured Ministry of Science and Technology, together with the Natural  Science Foundation of China, recently launched the “Artificial Intelligence  for Science” project to seek breakthroughs in basic science, as well as in key  science and technology fields, such as pharmaceutical development, gene  research, and biology breeding. 

Another important area of institutional reform for science and  technology development concerns intellectual property protection. One of  the most commonly used metrics to gauge inventive activity is the number  of patent applications submitted under the Patent Cooperation Treaty (PCT)  of the World Intellectual Property Organization (WIPO). In terms of PCT  patent applications, China surpassed the United States in 2019 and  maintained a rate of 16 percent per year in 2020. According to government  statistics, between 2012 and 2022, China authorized 3.953 million invention  patents. As of September 2022, the effective number of invention patents was 4.081 million. [14] China’s ranking in the Global Innovation Index Report  rose from 34^th in 2012 to 11^th in 2022, a steady increase for 10 consecutive  years.[15] A major state push to enhance China’s Intellectual Property Rights  (IPR) system to drive innovation-led growth was seen at the end of  September 2021 when China released “The Outline of Building an IPR  Powerhouse (2021-2035),” an important milestone in policy, through a top down design at the state level in the intellectual property system.[16]

Private-sector Mobilization.

From the outset, mobilizing and  ensuring the private sector to participate in the country’s technological Great Leap Forward has been a key objective of Beijing’s institutional  reform of science and technology management. On November 12, 2013, the  Third Plenary Session of the Eighteenth Central Committee passed the  “Decision of the Central Committee of the Communist Party of China on  Several Major Issues Concerning Comprehensively Deepening Reform.” 

The decision highlighted that the core issue of deepening China’s economic  reform is how to properly handle the relationship between the government  and the market: the market needs to play a decisive role in resource  allocation and the government must play its role of industrial guidance  through policies to attract vigorous participation of the private sector in the national high-tech development. Prior to the publication of this document,  the state’s strategic depiction of the market in resource allocation was that  of a “basic role,” which has now changed to a “decisive role.”  

Following the new US restrictions on Chinese access to high tech,  the crucial role of the private sector in China’s state-led technological  development has grown further. In 2021, the Intellectual Property  Development Research Center of the State Intellectual Property Office  showed that of the top ten domestic enterprises with the most invention  patents, seven were private enterprises (including Huawei, Tencent, OPPO,  and Vivo).[17] Among them, Huawei had significantly upped R&D  investment to tackle US restrictions, reaching an annual R&D expenditure  of CNY 161.5 billion in 2022, or 25.1 percent of the company’s annual  revenue. [18] Overall, the private sector accounts for more than 60 percent of  GDP and has contributed to more than 70 percent of technological  innovation achievements.[19] The reorganization of the Ministry of Science and Technology  (MST) in 2023 is expected to further strengthen the private sector as a  crucial component of the New Whole-State System. As the task of  formulating S&T-related industrial policies has been re-assigned to the  Ministry of Industry and Information Technology, which maintains closer  connections with the high-tech industry, the private sector is expected to  have greater participation in China’s state-led technological development.  Wang Zhigang, Minister of Science and Technology of China, has said that  the new MST would increase support for all types of enterprises; state owned, private, large, medium, small, and micro-firms, and would integrate  them into the national course of scientific and technological innovation.[20]

China’s AI Ambitions: State Plans and Private Enterprises 

The Government’s AI Strategies

China’s pursuit of its AI ambition  can be assessed from two major national industrial upgrading programs  stipulated by the State Council: The “Made in China 2025” program  released in 2015 and the 2016 National 13^th Five-Year Plan for developing Strategic Emerging Industries (SEI). Both programs highlight several key  industries, from robotics and information technology to green energy  vehicles and aerospace equipment—all underpinned by artificial  intelligence. China officially targeted the development of AI as a national priority in July 2017 when the State Council announced the New Generation  AI Development Plan (AIDP). The plan explicitly identified AI  development as a stimulant and guarantor to enhance national  competitiveness and protect national security.[21] China’s AI vision strongly reflects the government’s attempt to  integrate AI into the economy. In 2019, the government released a major  policy document to “integrate AI and the real economy.” The document  stressed two objectives of integration: 1) that the new generation of artificial  intelligence will bring a new technological and industrial revolution and  enable China to achieve industrial upgrading in the new era; and 2) that AI  will help alleviate the productivity issue in the context of China’s aging population, enabling the government to provide better social services to  society.[22]

Achieving faster economic growth is certainly a major goal for the  government. According to the AIDP, AI will be the impetus for a new wave  of industrial change that would “inject new kinetic energy into China’s  economic growth.” According to an analysis by Price Waterhouse Cooper  (PwC), an accounting firm, China is the country with the greatest potential  for AI growth, with a potential GDP increase of up to 26 percent by 2030.[23] Additionally, estimates indicate that over the next 20 years, AI may result  in a 12 percent rise in employment. [24] President Xi Jinping has repeatedly  emphasized the importance of AI to the nation’s overall economic  development because of these potential advantages.  

Improving social governance is the second motive for China’s AI  integration plan. The AIDP stresses that in addition to an economic  downturn, China is dealing with new social unrests that impede its efforts to  build a “harmonious society.” Thus, the AIDP was designed to apply AI in a range of public services to enhance people’s lives and make the regulation  of social services more efficient. Certainly, AI application in social  governance also enhances state control over citizens in terms of monitoring  and surveillance. To give a prominent example, the entire social credit  system, launched by the government in 2014 to monitor the behavior of  ordinary citizens and use it for offering benefits or limiting privileges, is  founded on facial recognition and big data analysis technology fueled by AI  algorithms. 

The key to achieving China’s dual goals of generating economic  growth and improving social control is the development of a “smart economy.” A report issued by the Development Research Center of the State  Council has recognized AI as a driving force of the smart economy, with the  backup of 5G, cloud computing, big data, Internet of Things, edge  computing, blockchain, quantum computing and other new-generation  information technology. [25] An AI-enabled smart economy will profoundly  change the economy and society in six aspects: production methods,  working methods, lifestyles, social governance, social culture and security  patterns. For example, as the “White Paper on China’s Smart Economy  Development” argues, the smart economy has played an extremely  important role in fighting the COVID-19 epidemic. Non-contact  temperature measurement based on AI application was widely deployed in  densely populated areas such as railway stations and subway stations to  achieve accurate and rapid screening of potential patients and enforce mask wearing in public places. [26]

The government recognizes that integrating AI into the economy is  unachievable without the development of major IT infrastructure. AI  applications require intelligent computing centers to provide the required  computing power services, data services and algorithm services. China’s  capacity for computation and data processing is unequally spread, with  many data firms situated in the country’s east, where land and power are expensive.[27] To address this issue, China has started an “Eastern Data and  Western Computing” effort to build more cost-efficient and low-carbon data  and computing centers in the country’s west. As part of its commitment to  advancing IP network solutions, Huawei is actively involved in planning  and constructing national hub nodes. [28]

In addition to the attempt to boost the country’s AI capability to  achieve socioeconomic goals, the Chinese AI strategy also has a security  dimension. President Xi has underlined the importance of technology in geopolitics: “Advanced technology is the sharp weapon of the modern state.  An important reason that Western countries were able to hold sway over the  world in modern times was that they held the advanced technology.”  Chinese leaders have little to agree on with their counterparts in  Washington. Yet they genuinely agree with what US National Security  Advisor Jake Sullivan says about AI: “Advancement of science and  technology are poised to define geopolitics in the 21^st century.”[29]

AI is most meaningful in matters of national security and defense. It  enables Beijing’s catch-up efforts vis-à-vis Washington. China hopes to  eventually compete with the United States on an even footing to develop  emerging technology. China’s national AI policy—“The Development Plan  on the New Generation of Artificial Intelligence”–has named civil-military  fusion (MCF) as one of the “main objectives” for AI development, which  could serve as a shortcut to “corner-overtake” the United States in an arms race.[30]

The Rise of Chinese AI Firms.

The Chinese government has strongly  urged the private sector to follow its AI agenda. It has reportedly invested  billions of dollars annually to assist private-sector AI research and  development through official guidance funds. Although private firms are given funding to engage in applied research and experiment, this  supplements the state sector’s pursuits of basic research. [31] With the government’s broad policy support for AI-related sectors,  AI firms have been quickly developing in China. Chinese businesses are  particularly effective in creating genuinely new and competitively priced  goods and services centered around AI applications, furthering the state of  the art in AI research. According to one report published by an AI-focused think tank in China, by the end of 2019, there had been a total of 797 Chinese  artificial intelligence companies, accounting for about 14.8 percent of the  world’s total of 5,386 artificial intelligence companies, second only to the  United States. [32] Leading companies are distributed in fields such as drones,  speech recognition, image recognition, intelligent robots, smart cars, wearable devices, and virtual reality. 

The main competitive advantages of China’s AI companies are  concentrated in the fields of algorithms and application software. Among  the most promising are China’s three most powerful internet companies:  Baidu, Alibaba, and Tencent. These tech giants have already provided an  important source of private investment for building the top ten data center  cluster areas, as delineated in the “Eastern Data and Western Computing” project.[33]

Chinese firms’ lack of competitiveness in the fields of basic  hardware and software limits the country’s ambitious AI vision. There have  been efforts to address these shortcomings. In 2019, Huawei sought to tackle  the weakness of China’s AI industry by developing hard technology  platforms. Relying on its technological advantages in chips and basic  software, Huawei has successively launched Huawei Mobile Services  (HMS), the Hongmeng operating system, the Kunpeng computing  ecosystem and a 5G autonomous driving ecosystem. One major focus of the  government’s policymaking is the semiconductor industry. Smart chip  companies such as Huawei HiSilicon, Cambrian Technology,  Semiconductor Manufacturing International Corporation (SMIC) and Ziguang Zhanrui have become key promoters of AI technology in the  application of smart terminals, smart security and smart cities. The Ministry of Science and Technology selected Baidu, Alibaba,  Tencent, iFlytek and fifteen other domestic firms in 2017 to be members of  a “national team” (guojiadui) to pioneer China’s AI development. They now  shoulder the responsibility of leading the creation of AI open innovation  platforms (AIOIPs),[34] receiving full support from the central and local  governments in obtaining state-sponsored regional R&D projects and  related public data resources. These are now the leading firms in China to  target specific segments of artificial intelligence applications, including  basic AI software and hardware, smart home AI technologies and AI supply  chain building. They work on software and hardware integration, optimizing  algorithms and improving computing power through the strong support of  hardware.[35]

AI Application to Facilitate China’s Military Transformation and  Modernization 

The PLA’s AI Modernization Agendas

To Beijing, AI is the  foundation of technology sovereignty, whose importance has been  demonstrated by the ongoing geo-technological war over a number of new  frontier technologies, such as algorithms, advanced semiconductors, high end computer chips, quantum computing, big data, brainmatics, brain computer interfaces, computational neuroscience, and brain-cognition and  so on. According to the State Council’s Program for Developing the New  Generation of AI, China would mobilize its national R&D strength to  develop AI by comprehensively tapping resources of state research institutes  and private sectors, to attain the initiator’s advantage vis-à-vis its  competitors, e.g., America. By 2030, it could lead global AI development.[36]

This ambitious goal, while powerfully inspirational, would be an  empty slogan if all the prescribed R&D efforts do not fit practical  applications, e.g., in enhancing national security and defense. The third part  of this article addresses the issue of how China pursues AI’s military application’s as an effective shortcut for defense modernization, especially  for the PLA’s concrete steps of war preparation.  

The PLA has been an early advocate and learner of AI-based  intelligentized warfare. Its new national defense strategy has been reshaped  under President Xi, with a significant shift away from preparing for an  informatized and limited war against regional threats, e.g., an Asian  territorial dispute, to fighting an intensified and scaled intelligentized war  against major power adversaries, e.g., the superpower.[37] This new type of  preparation highlights the centrality of AI components that make warfare intelligentized. 

Chinese security experts have noticed Russia struggling to deal with  Ukraine’s smart weapons such as HIMARs and loitering munitions, which  useAI technology. NATO’s superiority in AI technology has helped to create an unbalanced battlefield transparency in favor of the Ukrainians.[38] The PLA has thus observed how AI changes combat operations. PLA  commanders conclude that the integration of convolutional neural networks (CNNs) into advanced chips make it possible for the weapons’ sensor  systems to recognize, track, analyze, and attack enemies in real time. This  has substantially increased each strike’s ability to paralyze the enemy’s key  command and logistical depots. [39] The accumulated effect of such strikes  could be strategically decisive. AI is changing the paradigm of warfighting  and patterns of combat engagement in a profound way, with AI software and  sensors organically embedded in smart weapons systems.  More specifically, the PLA has identified at least five areas of AI  application in military operations.

1. Unmanned combat platforms that would be used for pinpoint  destruction of enemy targets, from individuals (decapitation) to  weapons systems, to command/logistical posts; handling dangerous combat missions, e.g., mine-swiping; and the transportation of  urgent materials to difficult terrains.
2. Effective aid for decision-making through fast data collection,  processing and analysis. For instance, AI can greatly shorten the  loops of OODA (observe-orient-decision-acts). The PLA has  simulated planning of a campaign-level air-strike operation that  took 50 people and 20 hours to finish. But with the help of AI, the  job was done within one hour. [40]
3. Intelligence gathering, battle-field monitoring and enemy tracking  that provide essential situational awareness against enemies.  
4. Cyberwarfare. AI systems can quickly and automatically detect, decipher and react to the enemy’s internet attacks and cyber  espionage. AI also aids detection of opponents’ vulnerable points in  their networks and thus helps to design counterstrikes.
5. AI is the creator of black technologies which serve as a core driver  for developing novel capabilities in the name of new concept  weapons systems. The generational gap in military equipment  emerges if one side of the arms race is more capable of using AI for new methods of weapon invention, design and production, and their opponent is unable to match this. The consequence is the upset of  military balance of power, with negative impacts on a country’s  strategic position in world geopolitics.
   

Targeting UAVs as an AI-Centered Capability Booster

AI covers a  wide range of military applications to enhance combat effectiveness.[41] The  PLA has identified R&D and equipment for combat unmanned aerial vehicles (UAVs) as the point of entry into the AI race with other top powers.  A number of causes led to this strategic choice. First, the PLA closely  followed US UAV operations in the Global War on Terror and realized that  the novel use of UAVs could generate revolutionary effects in conventional  warfare. A consensus was soon reached among senior officers that a new  era of AI-aided combat operations had arrived. If the PLA could not catch up, they would have to face the consequences of a generational gap in  weapons sophistication with the US military.[42] 

Secondly, as the PLA applied its own AI-based unmanned platform  in its war drills, it soon discovered that its traditional method of engagement  had been rendered obsolete by UAV technology. In 2014, the 16 Group  Army in Northeast China employed its long-used tactic of hiding its attack  troops near the enemy defense line under the cover of darkness and snow.  They did not know that “the enemy” in the exercise had detected their exact  position at night with infrared equipment in reconnaissance UAVs and was  able to direct precision shelling at the hidden troops. This lesson was quite  a shock to PLA commanders who now realized how backward their  battlefield tactics had become.[43] Mass deployment of the drones in all PLA  units was regarded as a quick and cheap way to modernize. China has therefore devoted enormous resources to developing  UAVs since the late 1990s. It now boasts a complete range of military  drones and the largest production capacity in the world. The following is the  list of some prototypes of PLA UAV series that were exhibited at the 2022  Zhuhai Airshow:

1.  The Caihong series, including CH-1, CH-3, CH-5. CH-7, with a lift weight of 3.5 tons, is the latest model capable of high altitude, high  speed, and long endurance flights in combat zones, focusing on  reconnaissance, monitoring, and guiding other weapons to strike  moving targets of high values with its heavy payload of large  missiles. The CH-5, carrying sophisticated sonobuoys, is specialized  for maritime missions, similar to US MQ-9Bs. [44] 
2. The Feihong series. Its most famous version, FH-97A, is China’s  first design of a prototype of Loyal Wingman that can accompany a  manned aircraft and provide the latter with intelligence, information  and firepower support. This capability shows the level of AI  achievement. Through a data-link system, the Feihong UAVs are an integral part of the internal networking of drone formations and part  of the collaborative networking with manned aircraft. [45]
3.  The Wing Loong series. The W-L 3 drone is the heaviest of its kind  when compared to other medium altitude and long endurance armed  reconnaissance UAVs. It has intercontinental range and can be  heavily armed with a wide collection of pods, bombs, and missiles,  including air-to-air ones such as PL-10E. With a boxing wing, the  WL series can be converted into aircraft carrier UAVs, and has a  similar shape and mission to the aborted US X-47B.[46]

As AI is extremely beneficial for both civil and military uses, it is  sometimes impossible to distinguish between the two types of applications.  China’s whole-state approach, aiming to produce rapid results in the  economic and social dimensions of the AI industry for civil purposes, can  quickly become appropriated for the specific military uses discussed above.  This situation is the context in which the United States and China are in a  race to gain the most prominent position in the AI industry. 

US-China Strategic Rivalry in AI

In a speech in 2019, then US  Defense Secretary Mark Esper pointed out that “advances in AI have the  potential to change the character of warfare for generations to come.  Whichever nation harnesses AI first will have a decisive advantage on the  battlefield for many, many years. We have to get there first.” [47] Thinking likewise, China has identified AI as a critical area of geopolitical  competition with the United States and its allies, including the European  Union and Japan. It shares the US view that the outcome of this competition  determines who will be the top player in the twenty-first century. Therefore,  it is a must-win race for the PLA. America, meanwhile, believes that China’s  AI-driven modernization is a major threat to its leadership in world affairs.  

As mentioned earlier, AI development relies on three prerequisite technologies: algorithms, computing power, and big data. All of these need to be integrated with advanced microchips. Washington has thus implemented several administrative decrees to suffocate China’s R&D of  advanced chips. It has imposed measures, e.g., the Chips and Science Act,  on allies and companies that export advanced chips and manufacture  equipment to China. The Netherlands is under enormous pressure not to sell  Advanced Semiconductor Materials Lithography (ASML) chipmaking  equipment to China. In Asia, the United States has used diplomatic channels  like the Chip 4 alliance to pressure South Korea, Japan, and Taiwan to cut  off the supply of chips to China. Without access to advanced chips, it is  difficult for China to design next-generation high-tech solutions and  manufacture dedicated AI hardware such as AI-powered UAVs. Chinese  researchers would be stripped of the necessary hardware and software  equipment for AI design and simulations. 

Specifically, Washington has banned Huawei’s participation in  high-tech cooperation with Western countries and blacklisted Da Jiang  Innovations and other AI firms in its “Entity List.” The reason is obvious:  advanced computer chips hold the key to the development of the high-end  semiconductor industries, which in turn hold the key to future AI  development. Cutting out the very source of advanced chip supply would  substantially slow down and delay China’s progress in AI development. The Pentagon’s overall assessment of China’s AI power is that the  latter has reached a rough parity with America’s AI capability. The Final  Report of the National Security Commission on Artificial Intelligence  (NSCAI) argues that “China’s plans, resources, and progress should concern  all Americans. It is an AI peer in many areas and an AI leader in some  applications.” [48] This assertion may have exaggerated China’s AI progress,  but clearly China has made great strides in AI R&D and application, e.g., in  military employment. For instance, China put on a UAV show in the  opening ceremony of the 2022 Beijing Winter Olympic Games. Six hundred UAVs simultaneously performed a massive drone light show in an orderly  and precise manner. The United States had previously put five hundred UAVs in a similar show. The military significance of this show lay in  demonstrating that the PLA had mastered the basis for initiating swarming  UAV attacks in a war. More broadly, the PLA has gone beyond UAV  swarming tactics to develop swarming unscrewed surface vehicles for its ground force. These vehicles have also been installed with anti-swarming  weapons systems, including laser guns. [49]

China has the visible advantage of having the largest civilian UAV  industry in the world. Chinese commercial AI companies account for 70 percent of the global UAV market. Famous Chinese brand firms such as  Tencent, Alibaba, TikTok, and Jingdong (JD) lead the world in algorithms  and intellectual property patents. Over the last 10 years, Chinese national  patent agencies approved four million design patents, exceeding any other  country in the Organization for Economic Cooperation and Development (OECD). [50] Engineers in leading firms are using brain-computer interfaces  to combine human and machine elements together for deep learning so as to  quickly achieve commercial applications.  

Some of these inventions have dual-use functions. For instance, Da Jiang Innovations (DJI), one of the world’s leading drone manufacturers exported AeroScope (a drone tracking and identification system) to both  Russia and Ukraine before the Ukraine War. After the war erupted,  Ukrainian Deputy Prime Minister Mykhailo Fedorov criticized DJI for  shutting down Ukraine’s AeroScope functions while allowing Russians to  use it continuously. DJI denied the allegation. [51] Interestingly, on August 12,  2022, the Russian embassy in Beijing published a message on Weibo with  remarks by the former chief of staff of the Russian Armed Forces that the  DJI products had revolutionized the tactics of long-range rocket launchers on the battlefield. In fact, Chinese civilian drone producers’ algorithms are  very advanced, and their products are cheaper and more practically useful  than those produced by Western companies. This type of development can  serve as a solid foundation for AI application in the defense sector in case  of armed conflict, as demonstrated by the Russia-Ukraine conflict. 

Looking Forward

Beijing claims that it enjoys the advantage of having a national  mobilization system in developing high-tech and AI industries, a system this  article defines as a whole-of-the-state approach for resolving “bottleneck”  technological problems. The history is mixed, however, in this regard. On the one hand, if one looks at China’s fast acquisition of nuclear weapons and  satellites in the 1960s, Beijing’s claim could be justified, given that China’s  scientific and technological foundation was extremely thin at the time. The  whole-state approach helped the central state both mobilize mass  participation in the economy and extract resources from all sectors to  spearhead breakthroughs in strategic defense during the Cold War. During  China’s opening and reform period, the whole-state approach was also  fundamental to the relatively fast development of science and technology,  which served as a critical driver for China’s rise. 

On the other hand, the country’s lagging chip industry has proved  the potential defects of this so-called “whole-of-the-nation” approach in  boosting high-end technological development. China’s whole-state catch-up  strategy risks becoming another “Great Leap Forward” movement with  misplaced investment and subsidies. For example, the recent financial  struggles of China’s state-backed Tsinghua Unigroup—a major Chinese  firm once regarded as a key player in China’s bid to improve national  microchip self-sufficiency—has illustrated the limitations and potential  risks of the government’s intention to use state-guided funds and plans to  catch up with the United States in a competition over the future of  technology. Nevertheless, Beijing sees the AI game as a “people war” and is  determined to press ahead with all national resources, human, financial, and  material. In the AI area, for instance, the country that can pool more  resources will win the upper hand in a protracted and increasingly fierce  competition.[52] China is currently behind the United States in key scientific  and technological sectors but is catching up in key realms of AI exploration,  including those with military applications. Overall, the US-China high-tech  race is increasingly resembling the nuclear arms race, the conventional  weaponry race, and above all the race between different socio-political and  ideological systems. China’s strength in formulating techno industrial policy and the institutional capacity to coordinate  national mobilization will continue to propel it forward as a  major AI leader.