Sino-American Relations: A Contest of Innovative Capabilities

Sino-American Relations: A Contest of Innovative Capabilities
Remarks to the Chief Intellectual Property Officers’ (CIPO) Forum
Shenzhen, Guangdong, China

Ambassador Chas W. Freeman, Jr. (USFS, Ret.)
Senior Fellow, Watson Institute for International and Public Affairs, Brown University
By video link from Washington, D.C.
Originally scheduled for August 23 -24.  Postponed twice due to outbreaks of COVID-19.  Not delivered

I am honored to address this gathering of Chinese intellectual property officers.  As I will explain, I do so with mixed concern and hope.

As the second decade of the 21st century ended; the United States abandoned mutually productive technology collaboration with China in favor of zero-sum competition with it.  The contest is mostly civilian in nature, but it also has a military track.  The U.S. government appears to be betting that it can induce a technological coma in China by depriving it of access to existing American and other Western technology.  It’s hard to imagine an approach better calculated to galvanize a Chinese drive for technological self-sufficiency based on indigenous innovation.

How is this contest likely to turn out?

There is every reason to expect that it will be decided not by where each society stood when the race began, still less by how well each can hobble its competitor, but by how each performs as an innovator.  The relative performance of each side will be determined by the policy environment it creates, the extent to which its politicians and bureaucrats let scientists and entrepreneurs do their thing, and the speed with which investors can bring innovations to market.  The outcome will not be determined by the fog of ideologically self-righteous rhetoric each side’s politicians can be counted upon to crank out, however gratifying its own population may find such boastful self-congratulation.

The two countries are almost equal in geographic size, but China has more than four times the population, only three-fourths the arable land, and nine-tenths the replenishable water as the United States.  Long before Europeans rose from backwardness and settled the Americas, China led the world in scientific and technological achievements.  But China has experienced levels of civilizational collapse, humiliation at foreign hands, devastation by invasion, material deprivation, internal turmoil, and international ostracism that are foreign to the American experience.  Chinese have never had the wide margin for error or tolerance for antisocial behavior that Americans have enjoyed.  The paths the two nations have taken and the kinds of government they have developed reflect these and other realities.

It has now been four decades since Deng Xiaoping surprised the world by launching China’s reform, opening, and eclectic adoption of foreign best practices, many of them drawn from the United States.  Since then, China has doubled its GDP every four years, raised two-thirds of its people out of poverty, and become the world’s largest manufacturer, merchandise trader, and holder of foreign exchange reserves.  China did this with reform and opening that sustained rapid productivity growth.  The increased efficiency of the Chinese economy has been driven by fierce rivalries among entrepreneurs, localities, and state-owned enterprises; by judicious reinvestment of high levels of household savings; and through the opening of domestic markets to competition from foreign companies and their technologies.

It helped that China had a large, sophisticated diaspora with which it could reconnect.  But, along the way, China sent millions of students overseas and radically improved its educational system.  There are now about 700,000 Chinese students enrolled in degree programs abroad, versus. about 60,000 Americans.  Recent international assessments[1] show that students from China’s most advanced provinces rank first in the world in reading, math, and science.  By contrast, American students overall rank 13th in reading, 37th in math, and 18th in science.

At 80 percent of GDP.  the American services sector dwarfs China’s.  The U.S. financial services sector alone accounts for almost 20 percent of American economic activity.  But China’s industrial economy is now at least half-again larger than America’s – perhaps twice as large.  Its scientific and technological workforce is younger, larger, and growing faster.  China’s workforce in science, technology, engineering, and mathematics (STEM) outnumbers America’s by 8 to 1.  If nothing changes, by 2030, this ratio will be 15 to 1.  Some of China’s universities, shuttered during the “Cultural Revolution,” are in sight of ranking as the best in the world in STEM.  Chinese researchers make up over one-fourth of the global total and are, by a widening margin, the world’s most prolific authors of articles in scientific and technical journals.

In short, China has built a formidable base from which to compete with the United States and other established producers of intellectual property.  The question is whether Beijing will continue to develop policies that maximize the prospects for continued advance.  Here the experience of the United States is relevant.

Until 1898, when the United States ceased to be a net importer and became an increasingly important exporter of intellectual property, America was a flagrant violator of more advanced economies’ intellectual property rights (IPR).  But once American inventers had their own IPR to protect, they became ardent advocates of IPR protection.  As China becomes more innovative, IPR is becoming equally important to Chinese inventors.  This promises to remove a serious irritant in Sino-American relations and to facilitate a measure of reengagement.

Three of my great grandfathers[2] were Americans who became world leaders in engineering, science, and technology at the end of the 19th century.  They studied in Germany, which was then the center of scientific and engineering excellence.  Science and technology are transnational.  They develop through intersocietal collaboration, not in intellectual prisons imposed by national security fetishists.

To promote innovation, scientific knowledge must be disseminated, technology allowed to find applications in markets wherever they are, and research collaboration facilitated rather than controlled.  But the value of the creative work of the individuals and institutions who discover ways to do previously impossible things needs to be recognized, rewarded, and protected.  This is essential to incentivize innovators to bring their intellectual offspring to market.  Soviet excellence in the laboratory remained untranslated into practical applications because it ignored this reality.

America became the world leader in science and technology by welcoming foreigners and their ideas, giving them and their innovations equal protection under the law, maintaining uniquely open universities, research facilities, and competitive markets, and evolving a financial sector devoted to supporting the commercialization of innovation.  American excellence has been inseparable from immigration.  Over 30 percent of U.S. STEM workers are foreign-born, with the percentage rising to over 50 percent in fields like engineering and computer science.  34 percent of U.S. doctorates in STEM go to foreigners.  So far this century, immigrants have made up 42 percent of U.S. Nobel Prize winners in physics, 36 percent in chemistry, and 35 percent in medicine.  Every one of them enriched the scientific and technological achievements of others, including the native-born.

America’s attractiveness to talented immigrants gives it a major advantage over other societies, especially those where foreigners find access limited and discourse constrained by obsessive concerns about how domestic tranquility might be affected by overseas connections.  This advantage persists even as rising xenophobia risks closing both America’s borders and the American mind.  Sadly, however, reduced access to the United States by the most promising foreign scientists and technologists promises to retard innovation in the United States more than anywhere else.

If Chinese researchers and graduate students are increasingly excluded from American institutions, some will find relevant educations and work elsewhere abroad, but China’s advance will still be set back.  China will be forced to find a way to offset its lessened interaction with the United States and other Western countries concerned about its domestic and external behavior.  This will not be easy.

To the outside world, China now seems to be in retreat from the reform, opening, and dynamic private sector entrepreneurship that birthed its resumed success as a technological innovator.  Even if this impression is mistaken, China will find it hard to replicate the traditional openness of American universities and labs to collaborators from abroad.  The impediments to doing so are many – an elegant but complex writing system that demands unique feats of memory, a guarded political system that is particularly suspicious of foreigners, official bureaucratism and impatience with the rule of law, and an exceptional propensity to take offense when none is intended.  China’s size and weight make it hard for it to follow Singapore in overcoming these obstacles to easy intercourse and collaboration with foreigners.

In this regard, we must watch the examples of institutions like Huawei and China Ocean University [中国海洋大学], which have been trying to create campuses congenial to multinational communities of scientists and engineers.  Perhaps China can offset the barriers its police state erects to foreign participation in its STEM innovation by inventing a science and technology equivalent of its Special Economic Zones in which exemptions from the strictures in force elsewhere enable foreign and Chinese innovators to collaborate as effectively as foreign and Chinese entrepreneurs do here in Shenzhen.

If, as I believe, both China and the United States are making a mistake by “decoupling” to the extent they are, which of the two will be the first to recognize its error and correct it?  How easy will it be for either country to do so?

With a national savings rate that is nearly 2.5 times that of the United States, little debt to foreign creditors, and a modest defense burden in relation to GDP, China is not financially constrained.  Its far larger population, bigger economy in purchasing power terms, and higher per capita savings rate give China almost three times the investment capacity of the United States.  Beijing has shown that it can mobilize the Chinese economy to maximize progress in target sectors.  China has already put in place the world’s most efficient physical infrastructure, a uniquely demanding educational system, and a financial system geared to support national aspirations for technological advance.  The only question is whether the Chinese government has chosen the right sectors and projects to focus on.

The relevant authorities in the United States seem to think so.  The American list of key future technologies hardly differs from China’s.  To pursue these technologies, the United States, like China, needs a mathematically and scientifically literate, healthy work force, an attractive taxation environment, and efficient infrastructure to pursue research and build more secure supply chains.  But, unlike China, the United States at present is starting from behind.

The American educational system falls far short of producing the STEM workforce the U.S. economy requires.  Hence the importance of immigration by the highly educated of other countries.  But, at present, American immigration policy is in many ways counterproductive and becoming an impediment to international collaboration.

We Americans now depend for the most part on infrastructure built by our great-grandparents, grandparents, and parents, much of it in need of long-delayed repair and reconstruction.  We are irresponsibly shoving today’s costs of government onto our children, grandchildren, and great-grandchildren.  Washington is bogged down in petty partisan brawling.  The U.S. Congress has finally passed an infrastructure bill.  But, impressive as its size in dollars may seem, it provides barely enough money – only about $110 billion in new funding annually – to begin to remediate the decay in existing roads, bridges, railroads, and ports.  It will not finance anything comparable to what China has put in place over the past couple of decades, let alone surpass it.  The Congress shrinks from raising enough tax revenue to operate the existing U.S. government and its immense war machine without massive new debt, let alone raising enough to support new scientific and engineering initiatives.

But the takeaway from Deng Xiaoping’s bold redirection of Chinese development strategy is that disarray created by mistaken policies can be corrected by better policies.  To regain and sustain a competitive edge over China, America must fix many problems that China has already addressed as well as some that are without Chinese analogues.  This will be hard, but it is far from impossible.  Even if America is just getting started, no one should underrate its capacity to “build back better.”  The United States has options no other great power has, and its underlying strengths are uniquely formidable.

The geographic advantages and natural endowments of the United States are the envy of the world.  Two broad oceans to the East and West and friendly neighbors to the North and South make possible a wide range of defense postures.  American ingenuity has given the United States a high degree of energy independence, a strong industrial base, and a remarkable standard of living.  English is both the language in America and that of global trade, science, and technology.  This makes connections to other countries and cultures unusually easy for Americans.

The outcome of Sino-American competition will not be determined by the military contingencies over which defense planners and armchair generals now obsess.  This is a contest of innovative capabilities more than national wills and weaponry.  Its upshot will be a vector of each country’s ability to stimulate and support social, economic, and technological dynamism and to foster national prosperity in cooperation with other countries.  China should expect a vigorous challenge by the United States in all these domains.

With the right policies, America’s continuing allure for immigrants and its human diversity could once again become unexampled sources of scientific and technological advance.  A return to a vigorous antitrust policy could unlock the constraints of oligopoly on domestic economic competitiveness.  Tax reform could rebalance inequality, fund the recapitalization of human and physical infrastructure, and make careers in engineering – the practical application of science to the accomplishment of work – once again more rewarding than those in financial engineering.  A focus on protecting the American homeland rather than on defending foreign countries from each other could release a substantial portion of the current defense budget for investment in American competitive capacity.

Some of these things are already beginning to happen.  Others seem to be in the offing.

Our two countries are in a rivalry that can and must be won without fighting.  Access to each other’s markets will be critical to the development and prosperity of both Chinese and Americans.  The intellectual property generated by China, the United States, and other innovative societies is the currency in which our future wealth is denominated.  It invites us to exchange what we have for what we don’t and to do so on a basis of equality and mutual benefit.  In this regard, you and your fellow intellectual property professionals in the United States and elsewhere have a central role to play in assuring that competition between our two countries increases productivity and prosperity not just in China and the United States but in the world at large.


[2] John Ripley Freeman, Robert Ezra Park, and Charles (Chas) Henry Wellman.