Chinese Academy of Sciences report highlights the risk of economic stagnation without technological advancements
China, the world’s second-largest economy, is facing a potential “middle-technology trap” that could hinder its transition to a high-income country. A recent report by the Chinese Academy of Sciences warns that without original technological advances, China may struggle to move up the value chains and sustain economic growth through innovation. As the United States tightens technology curbs, Chinese manufacturers are finding it increasingly challenging to catch up with developed nations. This concern has gained significance following a recent tone-setting meeting in Beijing, where leaders emphasized the need for technological breakthroughs and industrial innovation.
The Middle-Technology Trap:
The concept of the “middle-technology trap” was first introduced by Zheng Yongnian, a prominent political scientist, and his research team. It describes a scenario in which developing countries benefit from industrial transfers due to their low-cost advantages but face long-term economic stagnation when these advantages diminish. Local firms struggle to catch up with the core technologies retained by developed nations, leading to a lack of original technological advancements.
China’s Manufacturing Strength and Challenges:
China’s manufacturing sector currently accounts for nearly 30 percent of global added value, almost equal to the combined total of the United States, Japan, Germany, South Korea, and India. The country ranks second in research and development spending, only behind the United States. However, its technological strength remains in the third tier globally. The Chinese Academy of Sciences report warns that China’s manufacturing sector is still positioned downstream in the global value chain, making it vulnerable to being hamstrung by developed countries at the low and mid-end.
Addressing the Middle-Technology Trap:
To break free from the middle-technology trap, China’s leaders have pledged to prioritize technological innovation and industrial upgrades. The central economic work conference statement emphasizes the need to promote industrial innovation through scientific and technological breakthroughs, particularly in subversive and cutting-edge technologies. The conference also identifies future areas of growth, including commercial space flights, biotechnology, and artificial intelligence. China aims to mobilize resources, improve the resiliency and security of key manufacturing chains, and identify new industries, models, and momentum.
The Role of Openness and Reforms:
In addition to increased spending on research and development, China needs to adopt a more open policy and implement sweeping reforms to achieve technological upgrades. Zheng Yongnian suggests that China should attract international talent by opening its doors to scientists from around the world. Even amid decoupling with the United States, China should seek to attract scientists from Russia, Eastern Europe, India, and other developing countries. Furthermore, Zheng emphasizes the importance of opening up national industrial experimental laboratories to more private enterprises. He also advocates for reforming the enterprise system to enable state-owned firms and large private companies to share resources and expand the supply and industrial chains.
China’s ambition to transition to a high-income country and lead in the global tech race faces the challenge of the middle-technology trap. As the United States tightens technology curbs, China must focus on original technological advancements and industrial innovation to avoid economic stagnation. The country’s leaders have recognized the urgency of the situation and pledged to prioritize technological breakthroughs and identify new areas of growth. However, to achieve sustainable economic growth, China must also embrace openness, attract international talent, and implement necessary reforms. By doing so, China can navigate the middle-technology trap and secure its position as a global technological powerhouse.