China has big plans for select cities to become tech hubs. Image: Facebook

China aims to overtake foreign rivals it lags behind in the technology sector and has laid out detailed plans on how to achieve the feat in its recently released 14th Five-year plan, which was discussed at the recently concluded parliamentary session.

The annual increase in China’s combined R&D expenditure by the state and private sector in the next five years must outpace the forecast 6% annual GDP growth by at least 1 percentage point, to hit 3.36 trillion yuan (US$516.8 billion) from 2020’s baseline of 2.4 trillion. 

The all-encompassing five-year plan puts a heavy focus on a handful of critical frontier technologies and equipment ranging from nanometer chips to high thrust aerospace engines to vital nuclear reactor cores – all areas that Chinese importers of related foreign products have problems with due to the West’s sanctions and embargoes. 

China is aiming for self-reliance and breakthroughs in case it becomes isolated behind a new Western tech iron curtain. To step up innovation and commercialization, the aggressive tech drive has designated four key cities as national innovation hubs in the five-year plan.

These proving grounds will see more inflows of talent and funds as the central leadership funnels resources and concentrates efforts. Beijing, Shanghai, Shenzhen and Hefei – the capital of the eastern Anhui province – have emerged as the standout winners in the national science and innovation hub sweepstakes. 

Minister of Science and Technology Wang Zhigang was quoted by Xinhua as saying that the four cities would be the “wheels of innovation and centrifuges of changes and new ideas” to power the nation’s new tech drive.

Wang also highlighted the ambition of cramming 30 years’ worth of research and the adoption of vital sciences and technologies seen in the West into about 10-15 years with the aim of making China a genuine science and technology superpower by 2035. 

Shanghai and Shenzhen will feature more predominantly when China assigns specific tasks to the two cities to produce breakthroughs. 

A related implementation policy paper signed off by Wang and dispatched to the two cities’ officials – and reviewed by Asia Times – noted that both cities must double down on research, manufacturing and the marketization of advanced chips, integrated circuits, artificial intelligence and next-generation communications standards and solutions and eventually “break the West’s stranglehold on these key frontiers.” 

Chinese chipmaker SMIC’s headquarters in Shanghai. Photo: Handout

Both cities and the firms based there are on the front line of the tech rivalry between China and the United States, with Shenzhen’s Huawei, ZTE and Tencent, as well as the Shanghai-based chipmaker SMIC, recently becoming lightning rods for US sanctions and export bans.       

An official with the Shanghai Zhangjiang district government, where SMIC’s head office and key foundry plants are located, told Asia Times that the implementation policy paper would guarantee ample funding to Shanghai to build a bigger ecosystem pooling industrial leaders like SMIC, key producers like Will Semiconductor Co Ltd and other smaller researchers and manufacturers to form synergies.

“Just like the way designers now cram more transistors into a chip to rev up speeds, the nation’s approach is to bring together more Chinese chip firms in Shanghai and Shenzhen and for them to compare notes and swap talent and hopefully breakthroughs could be achieved in the process,” said the official, who declined to be named. 

He added that SMIC would aim to rival TSMC and compete for orders from Apple for its latest chips in the next five years or so, provided it could procure cutting-edge lithography machines from overseas or their domestic alternatives, which are being developed by some state labs and universities in Shanghai, could come close to international standards.  

The Shanghai official also revealed that other chip design and manufacturing projects outside the two cities could face stricter scrutiny since numerous investors had failed to follow through on funding commitments amid a previous chip industry expansion spree, which left local governments in limbo. 

For top policymakers, Shanghai and Shenzhen have bigger prospects of carving out a niche because, on top of the pair’s sizable clusters of tech firms, research institutions and manufacturers, both also boast robust capital and stock markets.

Despite its early stumbles, Shenzhen’s Growth Enterprise Market board has been on a stable footing, while the Shanghai bourse also has its STAR board that caters to tech startups and emerging new players. 

A view of the waterfront Lujiazui financial district in Shanghai at night. Photo: iStock

Xinhua noted in a commentary that being the nation’s two largest financial and capital hubs, Shanghai and Shenzhen would offer an advantageous “Silicon Valley plus Nasdaq” combination where tech and finance could feed off each other and the market could play its role. It noted that too much state pushing and backing sometimes backfires and stymies innovation.   

More private capital is also expected to flow into the two cities as statistics from Shenzhen government’s Financial Affairs Office show that in the southern city alone 466.5 billion yuan was raised in the past five years in more than 10,000 equity financing deals there to fund tech startups. 

The city of Beijing, meanwhile, will be assigned a bigger research role with its large concentration of top universities and state labs and will trial new technology and patent transfer platforms for companies elsewhere across the nation to commercialize, according to the Beijing Daily. 

Hefei, the other city chosen as a national tech hub, is expected to make further headway in quantum technology and nuclear research, including achieving nuclear fusion. The city is home to the Chinese University of Science and Technology as well as a research lab constellation initiated by the Chinese Academy of Sciences.