The Economist - USA (2022-02-26)

60 Business The EconomistFebruary 26th 2022

has been linked to one man, Ying Bo. For

several years Mr Ying worked on mrnaat

Moderna, before returning to China from

Boston at the start of the pandemic. His

homecoming was hailed by state media as

a patriot answering the call of the mother­

land. His company, Abogen Biosciences,

has worked with the People’s Liberation

Army to develop the country’s most ad­

vanced mrnashot, and was part of a pro­

gramme that has invested at least $2.3bn in

developing local vaccines.

Results from phase­one clinical trials

of Abogen’s jab, known asarcoVax, were

recently released, according to state me­

dia. In some ways, that looks impressive,

coming just a year and a half after the West­

ern versions. However, the company has

not made any statements about wide de­

ployment. Annual production capacity of

200m doses looks modest next to the 4bn

doses expected this year for the Pfizer­

BioNTech vaccine. BioNTech offered to

provide its shot to China in a partnership

with Fosun, a local conglomerate, a year

ago. By championingarcoVax while deny­

ing approval to Western mrna jabs

(though not Western covid pills, one of

which was approved this month), Mr Xi ap­

pears to have placed a higher value on self­

reliance than on public well­being, says

Huang Yanzhong of the of the Council on

Foreign Relations (cfr), a think­tank.

Similar considerations appear to have

slowed progress in agrochemical technol­

ogy. Foreign genetic­modification and

seed­editing methods have been banned

from domestic use out of a long­held fear

that this would hand foreign firms control

of China’s grain supply. Chinese compa­

nies have been developing home­grown al­

ternatives; Dabeinong Biotechnology, a big

feed producer, is investing heavily in re­

search. They have also been procuring

them through acquisitions. The most nota­

ble of these was the $44bn purchase in

2016 by ChemChina, a state­controlled

chemicals conglomerate, of Syngenta, a

Swiss seed­and­agrochemicals giant with

a granary’s worth of intellectual property.

But a continued lack of domestic produc­

tion capacity means that China is still de­

pendent on the import of crops. In 2021

China spent at least 400bn yuan on im­

ports of soya, corn and cotton—much of it

genetically modified (see chart 2).

Imported aeroplanes and parts cost

China considerably less than that—$19bn

last year. But here, too, the party wants the

industry to fly free of foreign dependen­

cies. If state media are to be believed, it al­

ready is. This yearcomac, a state­owned

aerospace group, plans to start delivering

its narrow­bodyc919, a rival to the Boeing

737 and Airbusa320 in development since

2008. Chinese airlines have ordered hun­
      dreds of them.
      On closer inspection, though, thec 919
      does not look all that Chinese. The pro­
      gramme has eaten up $72bn or more, ac­
      cording to an analysis by the Centre for
      Strategic and International Studies, an­
      other think­tank. Yet the aircraft remains a
      jumble of foreign parts. Because the turbo­
      fan engines being developed for it have
      been mired in technical troubles, for ex­
      ample, the aeroplanes will for now be fit­
      ted with engines from a joint venture be­
      tween France’s Safran and America’s ge
      Aviation. With hundreds of other compo­
      nents also produced abroad, the final pro­
      duct is a facsimile of a Western plane—and
      not exactly state­of­the­art. One Western
      airline­industry bigwig points out that the
      c919 is a generation behind Airbus’s fuel­
      efficienta320neo, and therefore much less
      competitive in the global market.
      China faces the same problem in trying
      to extricate itself from the global semicon­
      ductor supply chain, which like that for
      aircraft is complex and dominated by
      America and its allies. China’s vulnerabili­
      ty to tech sanctions became clear in 2018,
      when Donald Trump’s administration halt­
      ed the sales of sensitive hardware that used
      American technology to two Chinese tele­
      coms­equipment makers,zteand Huawei.
      To avert anything like this happening
      again, the latest five­year plan stipulates
      that China should produce 70% of the

chips it consumes by 2025, up from less

than 20% last year. As in the other areas,

the country is making some progress to­

wards that goal.smicis planning to com­

plete the construction of three new fac­

tories this year. The state has poured hun­

dreds of billions of yuan into the sector.

The money has helped Chinese chipmak­

ers go on a recruiting binge. A lab in Shang­

hai run by Micron, an American chipmak­

er, has become a poaching ground for local

firms. On January 26th Micron said it

would close the lab altogether. The result

has been to enable some big Chinese chip­

makers to operate production lines

cleansed of American technology, notes

Adam Segal of thecfr.

A chip on their shoulder

But as with airliners, the Chinese chips lag

well behind the cutting edge.smicand oth­

ers are trying to fully domesticate the sup­

ply chain for chips with structures mea­

sured in tens of nanometres (billionths of

a metre), an order of magnitude bigger the

most advanced current chips. That puts

them a few generations behind tsmcof

Taiwan and Samsung of South Korea, the

two industry leaders. China is probably

years away from replicating the lithogra­

phy machines built byasml, a Dutch firm

which has cornered the market for equip­

ment to etch the tiniest integrated circuits

onto silicon wafers. Shanghai Micro Elec­

tronics Equipment Group, the state com­

pany tasked with catching up withasml, is

running behind on delivering the devices,

according to Tilly Zhang of GaveKal Drago­

nomics, a research firm. Some large invest­

ments in Chinese semiconductor capacity

have gone to firms that folded or turned

out to be frauds.

In the last two critical technologies Chi­

na’s problem has less to do with mastering

a technology or recreating supply chains

and more with overcoming users’ lack of

trust in its alternatives. The operating sys­

tems that power personal computers and

smartphones are a prime example. When

the Trump administration banned Ameri­

Brain-power struggle

China, research-and-development spending*

Source: National Bureau of Statistics *Public and private

1

3.0

2.5

2.0

1.5

1.0

0.5

0

3.0

2.5

2.0

1.5

1.0

0.5

0

2017 21201918

As % of GDP Yuan trn

Planes, grains and mobiles

China, selected technology sectors

Sources: Press reports;The Economist *mRNA and other platforms

2

Investment Selected items Import cost

Sector $bn Period in sector $bn Period

Civilian-aircraft

programme

2008- Soyabeans,

present corn and cotton

Semiconductor-

related

Operating Jan 201-

systems Sep 2021

Mar 2020- No foreign

present vaccines

72 2008-20 19 2021

Agrochemicals 47 62 2021

Semiconductors 33 2020 2021

3.9 Licensing fees 2.6 2018

Vaccines* 2.3 nil n/a

Aircraft

and parts