China's Tech Rivals the US? It May Soon if the US Government Doesn't Step Up


China is closing in on the U.S. in some areas of technology and could soon even overtake America in certain respects.

“China is closing the technological gap with the United States, and though it may not match U.S. capabilities across the board, it will soon be one of the leading powers in technologies such as artificial intelligence (AI), robotics, energy storage, fifth-generation cellular networks (5G), quantum information systems, and possibly biotechnology,” U.S.-based think tank the Council on Foreign Relations (CFR) reported.

Tomorrow China will celebrate the 70th anniversary of the founding of the People’s Republic of China. A huge public display of their military power in a parade in Beijing and President Xi Jinping will talk up the nation’s progress.

China’s digital economy, with behemoths like Alibaba and Tencent, accounts for over 34% of the country’s GDP. The number of internet users in China has exploded. In 2008, 298 million people, just over 22% of the population at that time, in June that number rose to 854 million, over 60% of the population. Over 99% of Chinese web-users access the internet on their mobile devices as compared to just over 92% in the US.

“We have a technology grip from the U.S. that is actually being torn apart by China at this point,” Eoin Murray, head of investment at Hermes Investment Management told CNBC’s “Squawk Box Europe” last week.

The rise of China’s tech industry has brought allegations of intellectual property theft. Whether its Chinese phones that look similar to Apple’s iPhone, or Chinese search or e-commerce companies being compared to Silicon Valley’s Google or Amazon, China has for a long time carried the image of a tech follower.

“For years, Silicon Valley looked down on China tech and believed it was only copying. But today, there is awareness that China is innovating and getting ahead in certain tech arenas,” Rebecca Fannin, author of “Tech Titans of China,” told CNBC.

Even before the U.S.-China trade war started, Beijing said in 2017 that it wanted to become a a world leader in AI by 2030. Some of China’s biggest companies including Alibaba, Huawei, Tencent and Baidu, are all investing heavily in AI.

Huawei has secured more commercial 5G contracts than its rivals Nokia and Ericsson. 5G promises super-fast data speeds and the ability to support new technologies like autonomous vehicles.Just last week, Alibaba followed Huawei’s footsteps and released its own AI chip.

Washington’s response to the rise of China’s tech industry:

“So far it has been primarily focused on slowing China down and preventing critical technologies from flowing to Beijing,” Adam Segal, one of the authors of CFR’s report, told CNBC. “While there is a growing recognition in Congress and in the White House that the U.S. needs to do more to accelerate innovation at home, the response so far has fallen short.”

Segal suggested the U.S. should take a page from China new playbook and restore federal funding for research and development to its historical average. Funding would go from 0.7% to 1.1% of GDP annually, or from $146 billion to about $230 billion.

“The US-China trade war is hurting both sides. China’s ambition is unstoppable to become a global leader in tech, trade war or not,” Fannin told CNBC.

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