East Asian Policy

Policies promoting indigenous innovation were launched in 2006. The aim was to use public procurement, support for megaprojects in science and technology, and the development of technical standards for key industries to encourage Chinese firms to develop their own intellectual property. These policies have been criticised by international trading partners, and remain a major issue in the US–China trade war. Nevertheless, China will no doubt continue to support indigenous innovation.

Japan, South Korea and Taiwan are China’s leading sources of imports, a result of China’s efforts to attract foreign direct investment (FDI) to develop its high-technology industry in the 1990s and beyond. Foreign firms in China have relied on importing key components and capital equipment from their home countries. Despite its industrial upgrading in recent years, China continues to run an increasingly large trade deficit with the three economies due to its lack of key technology.

The United States’ fear of losing its technological edge to China is on the rise. The Trump administration has viewed China’s techno-industrial plans and policies as a national security threat. Recognising the reality that it cannot afford to have a Cold War or “cold peace” with the United States, China has shown willingness to make concessions, but only to a certain degree. The Trump administration’s growing hostility is unlikely to stop China from pursuing frontier technologies, which are a source of national competitiveness, security and pride for China as much as for the United States.

E-commerce is one of the main drivers of Chinese economic growth in not only metropolitan areas with convenient payment methods, but also rural areas with efficient logistics arrangements. Various third-party online payment methods and new festivals as well as information technology investments were introduced to stimulate e-commerce development. The Chinese government had raised the idea of encouraging various innovative ways of doing business and to incubate creative ideas online.

After the 2013 Third Plenum, China adopted a series of top-to-bottom policies that increased the importance of financial instruments, creating a hierarchy of funds that invest in state-owned and mixed ownership firms. These policies have been combined with increased government control and stress on high-technology industrial policies. The result has been an increasingly interventionist government, steering increasingly important state firms through financial instruments. It will take time before the Chinese government recognises the risks in creating a new wave of financial excesses.

Debt defaults of listed companies, the collapse of online financing platform and shadow banking problems have raised concerns about China’s financial risk since 2017. Meanwhile, financing costs are rising and the financing channels are shrinking. Fundamental problems such as ambiguous roles of the government and the market, financial market segmentation and the indistinct boundaries of responsibilities of different regulatory authorities still remain in China’s financial system.

China is pressing ahead with the negotiation on a code of conduct (COC) in the South China Sea with remarkable resolve. The new COC-centred diplomacy was motivated to suppress the impact of the Philippines versus China arbitral ruling, de-escalate regional tension and promote cooperation, especially the Belt and Road Initiative. It also serves as a broad strategic goal, i.e. preserving stability by banishing the ruling and creating a new diplomatic process with China exercising some control.

The Abe administration is adopting a foreign talent policy as Japan is also interested in white-collar, highly skilled workers and individuals with skills that the country badly needs. To bring in the desired number of high-skilled workers, the Japanese authorities have adopted the points system that Western countries employed for evaluating immigration eligibility, based on criteria such as qualifications, language abilities, professional experience and so on.

Major security challenges to China’s Belt and Road Initiative include geopolitical tensions as well as civil conflicts, terrorist attacks, piracy, abductions, robberies and murders. The methods China has adopted to cope with these challenges range from military deployment, expanding consular protection, relying on militaries of host governments for protection, employing Chinese police for overseas law enforcement, to hiring private security firms. These methods have also encountered many difficulties.

SOE mixed ownership reform has gained increasing prominence. In addition to government top-design policies, various pilot experiments have been carried out. Additionally, broader and more sophisticated methods are also employed, including stock market listing, capital and asset restructuring, and employee stock ownership plan. However, issues remain. The role of non-state parties that own part of the state firms is still poorly defined, thus their impact is uncertain. Government efforts to strengthen Party leadership have also dampened confidence of non-state investors.