Zhao Yanjing on High Tech Tit-for-Tat

Zhao Yanjing, “What We Should Do in Response to American’s Technological Decoupling”[1]
 
Introduction and Translation by David Ownby
 
Introduction
 
Zhao Yanjing is a professor of urban planning at Xiamen University in Fujian, and a frequent commentator on national and international affairs (see his Aisixiang profile here).  I don’t think he is particularly famous, but he writes interesting articles on timely topics in a very feisty style, adopting a “truth-telling tone” similar to that of Sun Liping in Sun’s blog posts (see here for an example of Sun in truth-telling mode).  I first noticed Zhao right after the beginning of the pandemic , because he wrote an interesting piece that I translated on how China should “get its narrative” right on the virus.
 
The text translated here has to do with China’s response to efforts of the American government to prevent technology transfer to China, especially in the high tech field.  Zhao essentially argues that if the U.S. is no longer going to play by the rules, then there is no point in China doing so either, and he proposes a series of measures having to do with patents, innovation, and attracting talent to China—citing examples of similar American behavior at various points in history.  What struck me in reading Zhao’s piece was that he does not waste time condemning American policy—even if it is clear that he does not approve of it.  Instead, his attitude is pragmatic, trying to find ways for China to remain competitive in a changing environment.   　　
　　
Translation
 
On August 25, President Biden signed an executive order to implement the CHIPS and Science Act of 2022, signaling that the battlefield of the century-long competition between China and the United States has spread from trade to high-tech. How to identify the strategic heights on this new battlefield and how to use the right method to invest national power in these strategic heights will determine ultimate victory or defeat in the high-tech race between China and the United States.
 
Patents: The high point of science and technology competition
 
In this science and technology war, the U.S. is the leader and China is playing catch up, and the relative position of the two means that they see the battlefield differently. Whoever can avoid playing on their opponent’s terms, and force their opponent to play according to their own terms, will be able to take the offensive.   For the leader, the biggest cost is to have to innovate through repeated trial and error, because once they succeed, the opponent playing catch up can simply copy the leader, obtaining the same technology more quickly and at lower cost.  
 
For the leader, the most important “moat” through which it can slow down the follower is the system of patent protections.  For the team playing catch up, patent protection is usually the easiest wall to breach.  Given that the optimum path for the development of technology is already occupied by the leader, if the follower must develop each new technology from scratch, this often means spending more money without necessarily catching up with the leader, which is continuing to innovate.  Given that the patent protection system is the often the easiest of the leader’s wall to breach, China, which is playing catch up, should choose patents as the main battleground in the U.S.-China technology war.
 
The Taiwan Semiconductor Manufacturing Company (TSMC) used the patent system to successfully thwart the catch up efforts of China’s Semiconductor Manufacturing International Corporation (SMIC). Had the Beijing High People's Court not dismissed Zhang Rujing's (张汝京 Richard Chang Ru-gin, b. 1948) lawsuit in 2009, SMIC today would likely be neck-and-neck with TSMC.[2]
 
A counter-example is when the U.S. textile industry broke through the British technology embargo in the late 18th century.  In 1793, Samuel Slater (1768-1835) reproduced from memory the Arkwright water frame, the export of which was strictly forbidden by British law, helping the U.S. textile industry to rise to the top.  The American Patent Law of 1793 clearly stipulated that patents can only be granted to Americans, encouraging those working in the field to bring their technology to America. These are successful practices that China should emulate.
 
Legislation: Abolish patent protection
 
In response to the American CHIPS and Science Act of 2022, we should:
 
1) Pass a law stipulating that any technology that is prohibited from export to China by a sovereign country, as well as any technology for which the export application is rejected by the government, will see its patent protection in China automatically revoked. Appropriate authorities in China should, in accordance with this legislation, circulate a list of patents that have been cancelled or suspended under the U.S. Sanctions Act as well as technology exports to China that have been rejected by the U.S. executive branch, and immediately accept the relicensing or use exemption for that patent in China.
 
2) Continue to protect legal patents. For technologies that are not prohibited from export by countries (e.g., the United States) or groups of countries (e.g., the Wassenaar Arrangement), their patents still enjoy legal protection. Once the prohibition to export a certain technology is lifted, its patent protection will be automatically restored. By focusing countermeasures on the government rather than the enterprise, enterprises can be encouraged to oppose the government's prohibition of the export of its technology or refuse to enforce the prohibition.
 
 3) Use the WTO framework to promote principles opposed to blocking the circulation of technology, in the sense that any patent that a sovereign government decides will not to circulate automatically loses its patent protection throughout the world. All technology restrictions imposed by sovereign nations will be viewed by the WTO as non-market behavior. While such rules may also be used to target technologies in which China has a leading position, as a general follower in terms of technology, such rules will be generally beneficial to China and other developing countries.
 
Human Talent:  The Focus of Contention 
 
Once the technologies the U.S. has prohibited from export are no longer protected, those who master these technologies become the key to technological breakthroughs. The cases of Zhang Rujing and Samuel Slater illustrate that the movement of human talent determines the flow of technology, and that competition for technology is really competition over the people who master the technology. For countries playing catch up, it is unrealistic to attract talent through high salaries. China can attract such talent only by taking advantage of her huge domestic market and rapidly creating opportunities for entrepreneurs by bypassing patent restrictions.
 
As early as 1788, the U.S. Secretary of the Treasury, Alexander Hamilton, was instructed to set up a network of scientific and technological spies, whose mission was to bring advanced technology, equipment, and talent to the United States through monetary inducements, threats, and intimidation.  Some of the practices put in place by the U.S. are still worthy of imitation today.  These include:
 
1) Shaping public opinion. At the time, the U.S. talked up comfortable American living standards to the British people, focusing especially on technicians and craftsmen, and spelled out for them the generous treatment and material rewards the U.S. offered to skilled immigrants. China should similarly promote China's safety, convenience, and freedom in high tech circles, and provide a social environment with high value (income), high quality (education, lifestyle) and security (pension, social security) for those with the necessary skills. 
 
2) Offering state protection. One of the features of the CHIPS Act is to punish individuals involved in China's technological upgrade and to cut off exchanges between Chinese and Americans involved in technology. China should do the exact opposite, providing a level of protection equal to the threats posed by the U.S. As a risk premium, people who bring embargoed technology to China should be allowed to succeed quickly and achieve financial independence. One Samuel Slater success story is worth a hundred CHIPS and Science Acts. 
 
3)  Disassembling the technologies restricted by the U.S. into smaller, independent pieces of a technological puzzle, and openly soliciting the world to find solutions. It is important to make it possible for talented people who have even a partial understanding of the restricted technologies to file patents in China and be rewarded handsomely. Samuel Slater, who was born in Derbyshire, England, was determined to move to the United States after hearing that the U.S. was offering rewards for encouraging technology in the textile industry. 
 
4) Providing a wider access to talent.  When it was just starting out, the U.S. did not merely focus on a few top talents to bring in technology. As long as you mastered an advanced production technology, or the manufacturing method of a particular machine or piece of equipment , or had blueprints for such equipment, or were a skilled worker in a certain field of industry, with a simple oath you could become a U.S. citizen, and then apply for a patent and receive federal protection. 
 
Unlike past instances of technological competition, the present U.S.-China technology war has erupted in the high-tech sector, where a large number of Chinese are concentrated. Huawei founder Ren Zhengfei 任正非 (b. 1944) has pointed that "the bottleneck in chip production is not actually Americans, but Chinese!" This serves as a major opportunity for the introduction of technology into China. Many of these people received their basic education in China and have social ties in China, providing China with a unique leg up in the competition to attract talent.
 
We can readily predict that as China's policy of attracting talent grows stronger and as those who return to China continue to succeed, American suspicions of the Chinese who remain in the U.S. will increase, meaning that the space for these Chinese to continue to advance in the U.S. will narrow, which will only encourage more Chinese to return to China.   Once the patents prohibited by the U.S. can be reapplied for in China, the Samuel Slaters and Zhang Rujings who master this technical know-how will flock to China.  This will reverse the talent flow, leaving the U.S. with a shortage of talent, and the outcome of the U.S.-China technology war will be clear.　

Notes　　

[1]赵燕菁, “应对美国技术脱钩的建议,” posted to Aisixiang on February 14, 2023.

[2]Translator’s note:  Zhang Rujing is the founder of SMIC.  Like Morris Chang, the founder of TSMC, Zhang was born in China, grew up in Taiwan, studied in America, and was a major player in the semiconductor industry.  Beginning in 1997, and with the encouragement of the Chinese government, Zhang sought to develop China’s semiconductor industry, largely copying the methods—and hiring away the talents—of TSMC.  This ultimately led to a series of lawsuits over patents and other issues, which Zhang and SMIC lost, leading to Zhang’s being banned from the industry for three years in 2009.