The high level of trust among Western and Japanese tech partners is based on common values in the “Western economic order”. China is tightly integrated into the world economy but some still see it as not quite inside this economic order. Photo: Shutterstock
Opinion
The View
by Winston Mok
The View
by Winston Mok
As China courts global tech partnerships, it must bridge the trust gap
The US tech barricade has made China’s tech outreach both necessary and harder than ever, in a climate of geopolitical tensions and falling corporate trust
Creative solutions are needed, such as setting up centres of collaboration in trusted third countries like Singapore
As China comes under growing technological restrictions by the US and its allies, it is forced to look increasingly into indigenous innovation. But no matter how formidable its talent base, and notwithstanding its leadership in certain areas, it is difficult for China to compete against joined-up advanced nations. Hence, China has made overtures to multinational corporations to collaborate on technology.
But if Western companies are already restricting sales of their most advanced products and equipment to China at America’s behest, how would they collaborate on research and development? Even as the restrictions against China make such cooperation necessary, the forces behind them make it difficult.
This is despite the US rhetoric on its technological constraints on China and national security considerations, reiterated by US Treasury Secretary Janet Yellen on her recent visit to Beijing, remaining unpersuasive.
To frame the challenges for China’s cooperation with foreign companies on technological innovation, it would be useful to examine China’s changing roles in the international economy. Western companies and their governments see China in a range of roles, including as supplier, market, competitor and adversary.
Like many other East Asian economies before it, China started as a sourcing destination for Western companies producing labour-intensive products.
As China’s economy developed, it became one of the world’s largest consumer and industrial markets. General Motors and Mercedes sell more cars in China than in their home markets. The US semiconductor industry derives more than 30 per cent of its revenue from China.
Like Japan and South Korea before it, China has moved up the value chain. Japanese and Korean carmakers, supported by state-guided industrial policies, once posed the greatest challenge to the US automotive industry. But as US allies, their industrial development – while hurting US workers – was deemed an acceptable price to pay during the Cold War. China’s Huawei Technologies, however, has been treated very differently by the US.
Multinational corporations scout the world for profits and markets. They have competitors, rather than adversaries – unlike governments. To retaliate against growing US restrictions on technology exports to and investments in China, Beijing is limiting the export of two minerals critical to semiconductor manufacturing. Such tit-for-tat has made the call to diversify from China a self-fulfilling prophecy.
Yet while China’s economy is increasingly seen as a competitor by a few advanced economies, it remains most countries’ largest trading partner and more complementary than competitive for most of them.
The success of ASML, the world’s only maker of the most advanced equipment critical to modern chipmaking, is down to a unique combination of international cooperation. This is what makes it so hard for any country to replicate on its own, even for the US and Japan. The hardship imposed on China’s semiconductor industry by ASML’s restrictions highlights both China’s need for international cooperation and its challenges in seeking it.
03:36
China restricts critical metal exports following Western semiconductor curbs in latest trade war
China restricts critical metal exports following Western semiconductor curbs in latest trade war
The high level of trust among Western and Japanese tech partners is possible because they share common values in the “Western economic order”. China is tightly integrated into the world economy but some still see it as not quite inside this economic order and so a potential challenger to it. Recent developments have exacerbated such differences.
While professing to be neutral, China is clearly taking a very different stance – and with good reason – on the Ukraine war. Germany and France must treat China respectfully given its importance as a market, but their different positions on the Ukraine conflict have undermined trust.
As leading patent producers, Japan and South Korea are China’s natural technological partners. But the Taiwan Strait tensions have drawn them closer into the US orbit. Recent investigations on foreign consulting firms in China have also raised alarm among multinational clients.
02:28
Beijing raids offices of consulting firm Capvision in widening crackdown over national security
Beijing raids offices of consulting firm Capvision in widening crackdown over national security
For international companies to collaborate with China on innovation, it requires deeper trust than when they are merely investing in China’s manufacturing. Yet trust between China and some advanced economies appears to be decreasing, making collaborations challenging.
In this climate, it is a big request for multinational corporations to collaborate with China on frontier technological developments, especially when they are sometimes restricted from selling their most advanced products to China. In corporate boardrooms, what might tilt the balance in their calculus of risks and rewards for taking a plunge with China?
A more realistic approach may be for China to base its collaborations in “neutral” third countries with a good reputation for the rule of law. For example, while China is ranked a respectable 47th globally in its protection of intellectual property rights (Italy, for instance, is 46th), it would give multinational corporations greater reassurance for an innovation centre to be based in second-ranked Singapore – well above the US at 13th and Germany at 15th. Singapore would also be a more trusted base for any investor-state dispute resolution.
Chinese President Xi Jinping visits the exhibition centre of the Suzhou Industrial Park in eastern China’s Jiangsu province on July 5. The industrial park was established in February 1994. Photo: Xinhua
Last week, President Xi Jinping toured the Suzhou Industrial Park, a Sino-Singapore joint venture that has become a hub of innovation. Why can’t a smaller version be set up in Singapore?
In the era of remote working, most people in an international collaborative team do not need to be based in Singapore. While legally domiciled in Singapore with a kernel of staff, such an international collaborative effort may be organised with distributed teams: most people may work from the home countries of multinational companies and in China. The largest base of staff near Singapore may well be in Bali, which offers an attractive lifestyle for international talent.
If China wants to push for international collaboration in innovation amid the trust deficit, it must explore creative ways to overcome the gap.
Winston Mok, a private investor, was previously a private equity investor
