It has been some time since the conclusion of the "Two Sessions" - the annual meetings of China's top legislative and political advisory bodies. Following the "Two Sessions", GRR has received feedback from some readers who are interested in learning more about the recent reforms undertaken by the State Council.
Today's newsletter is dedicated to addressing these interests and shares insights from Professor Wei Jie 魏杰, who is the director of Tsinghua University Institute for Cultural Economy.
During a recent speech titled "An Analysis of the Macroeconomic Trends in 2023" for the Wudaokou alumni (a popular nickname of Tsinghua PBCSF) in Shenzhen, Professor Wei shared his thoughts on many issues, including the restructuring of China's Ministry of Science and Technology, which were extracted and translated by GRR in today’s piece.
GRR believes that Professor Wei’s insights can help you gain a better understanding of the urgent reasons behind China's push for reform in the technology sector, as well as the country's commitment to promoting technological innovation and development in the manufacturing industry.
Professor Wei has an impressive academic background, having served as the former Director of the Research Institute of State-owned Assets Administration Bureau, Director of the Department of Corporate Strategy and Policy of the School of Economics and Management and Director of National Center for Economic Research at Tsinghua University. He has won a slew of academic honors, including the Sun Yefang Economic Science Award and the National Excellent First Prize.
In the speech, Professor Wei discussed the main goals of restructuring of China's Ministry of Science and Technology, emphasizing the importance of manufacturing and technological innovation while citing lessons from the mistakes made by the UK and the US. He also listed some of China's shortcomings in the high-tech industry that could become fatal under US sanctions.
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As with the finance sector in China, defects in the system of science and technology were becoming increasingly apparent. Reorganization of the Ministry of Science and Technology transfers responsibilities of routine approval to National Health Commission, Ministry of Industry and Information Technology, Ministry of Agriculture, Ministry of Ecology and Environment, etc. The ministry itself moves on from research funds evaluation to supervision.
The restructured ministry will play a bigger role in improving a new system for mobilizing the nation to make technological breakthroughs, optimizing sci-tech innovation, facilitating application of sci-tech advances, and coordinating science and technology with economic and social development.
Its macro management functions in science and technology-related strategic planning, institutional reforms, allocation of resources, comprehensive coordination, formulating policies and regulations, and supervision and inspection will also be strengthened, according to the plan.
Official note: Explaining the reform plan to national lawmakers, State Councilor Xiao Jie said that facing international sci-tech competition and external containment and suppression, China needs to further smooth its leadership and management system for science and technology-related work. It will help China better allocate resources to overcome challenges in key and core technologies, and move faster toward greater self-reliance in science and technology.
To that end, a central science and technology commission will be established as part of the latest reform of the Communist Party of China and state institutions, to beef up the Party Central Committee's centralized and unified leadership over science and technology-related work. The restructured ministry will assume responsibilities as the working body of the new commission, Xiao said.
The reorganization also transfers to enterprises the task of tech industrialization. The Ministry of Science and Technology will instead focus on key technologies and core projects. The ministry will have four main tasks in terms of policy design:
1. Financing the science and technology industry. The Ministry has to meet the goal of the growth rate of annual expenditure on science and technology, say at 7 percent. To that end, it will probably draw private investments into science and technology innovation via the Sci-Tech Innovation Board, and leverage tax rebates and income tax reductions for more funds. These all fall under the ministry's administration.
2. Establishing the material basis of science and technology innovation. Science and technology innovation needs to be built on something solid like large research equipment and modern laboratories. China has recently disclosed its dark matter laboratory, located more than 2,000 meters underground and dedicated to 85 percent of the universe that remains invisible to human beings. The lab is run mainly by Tsinghua University and Shanghai Jiao Tong University, but the construction phase is undertaken by the Ministry of Science and Technology. [Note: the dark matter lab refers to the Jinping Underground Laboratory in southwest China's Sichuan province. The lab opened in 2010 and was expanded multiple times since then.]
3. Motivating science and technology innovation. Science and technology innovation is impossible without material gains for whoever is working on it. We used to give spiritual rewards like academician titles, but it doesn't work anymore. Now we need to develop new policies, such as the concept of the “技术实际控制人” "actual controller of technology", which refers to someone who contributes to the creation of intellectual property rights and who is entitled to relevant economic benefits. This is key to motivating science and technology innovation.
4. Promoting basic research. The innovative thoughts of science and technology derive from basic research; the sheer size of the information industry today owes much to basic research - think about Moore's Law. It is impossible to rely on other countries in this regard. The government and the Ministry of Science and Technology have to fully take over the management of basic research.
Overall, the Ministry of Science and Technology, serving as the beacon of future policies, should target the key links and core projects and work on these four aspects of policy adjustment - the material basis, financing, motivation, and basic research.
This adjustment is rather drastic. The Ministry of Science and Technology will play a big role in many things in the future.
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Corporate investments are mainly directed at industries. It is one of the priorities in this reform. I want to discuss a bit more on the subject because many of the issues we face require an in-depth understanding of corporate investment. My findings suggest that there are several principles that corporate investment adheres to: Human society is still in the era of industrial civilization. Although the first wave of the fourth industrial revolution seems to have ushered in the digital era, we are in fact still in an industrial civilization. The core of industrial civilization is manufacturing, and the basis of manufacturing is technological innovation. This is a LAW. This law must be observed, and whoever does not observe it will decline.
Manufacturing is the backbone of an industrial civilization. The UK did not comply with the law of manufacturing, and that is why "the empire on which the sun never sets" had ceased to exist. The empire rose to prominence thanks to its reliance on industries and manufacturing. The problem is that it got tired of the trade and turned to finance for quick cash.
It's the same case with the United States, which started with manufacturing but made the same mistake of shifting to technology and finance. Manufacturing has left the United States. As a result, the United States has three problems that can not be solved:
1) More than 300 million people in the United States do not produce what they use every day and have to import it, hence the trade deficit every year;
2) The middle class engaged in manufacturing used to account for the majority of people, about 70 percent, in the United States of America. They have been faced with unemployment and income reduction ever since the departure of manufacturing companies. The United States is a developed country, which means that to guarantee the quality of life of the majority of people, the government has to borrow year after year, hence the fiscal deficit.
3) The class divide is considerably wide. Finance is the trade of the elite, whose income keeps growing. But a large number of manufacturing workers are earning less and complaining more, leading to extreme class division.
The conclusion is, "no manufacturing, no growth". That is why China cannot repeat the mistake. Manufacturing is at the core of industrial civilization. It cannot be abandoned.
China has repeatedly emphasized the core position of the manufacturing industry in this reform. Manufacturing could be generally divided into three categories:
1. Traditional manufacturing. It consists of six components:
1) agricultural product processing and food industry
2) textile and clothing industry
3) furniture industry
4) household industry
5) consumer goods industry; 6) information industry
We must strengthen and never give up on the traditional manufacturing industry because it is impossible to rely on imports alone to meet the needs of consumption of such a large population in China. Therefore, it is necessary to reinforce the status of traditional manufacturing and not abandon it.
2. Strategic emerging industries, which fall within the category of manufacturing, include eight key points:
1) new energy
2) new materials
3) life bioengineering
4) information and new generation technology
5) energy conservation and environmental protection
6) new energy vehicles
7) artificial intelligence
8) high-end equipment manufacturing.
These all belong to the manufacturing industry, and they can not be abandoned. Once abandoned, it will be difficult to realize the goal of building a strong country in the future.
3. Modern manufacturing, including six key areas：
1) spacecraft and aviation technology
2) high-speed rail
3) CNC (computer numerical control) machine tools
4) nuclear power equipment manufacturing
5) UHV (ultra-high voltage) power transmission and transformation manufacturing
6) modern marine equipment.
China will not give up these three types of manufacturing, and will continue to promote them, because we have found that whoever gives up manufacturing will encounter huge difficulties. The lessons of the United Kingdom and the United States are worth learning. The core of industrial civilization is manufacturing, and human society is still in the era of industrial civilization. Therefore, manufacturing always lays the foundation. Without manufacturing, it is difficult to guarantee further development.
So manufacturing remains the focus now, which cannot be undermined, and corporate investment will be manufacturing-oriented. Even financial services must focus more on serving the manufacturing industry. The last key to the manufacturing industry is scientific and technological innovation. Without it, the manufacturing industry could not achieve further development. So science and technology should become a significant issue worth thinking about.
In that case, why does China restructure the Ministryof Science and Technology? Because there remain quite a few shortcomings that will become fatal under the U.S. sanction. The five major weak links are as follows:
1. Not good at developing high-end engines such as aircraft engines, aircraft carrier diesel engines, and gasoline engines. The reason why we are now dedicated to the electric vehicle industry is that we hope for "making an overtake in a corner" despite our failure in making fuel car engines in the traditional auto industry.
2. Not good at developing specialized materials. For example, we cannot make aircraft tires. Big producer of high-speed rail equipment as we are, we fail to produce bearings due to the lack of bearing steel. And though we are the largest producer of mobile phones, we can't make it without materials provided by the United States. Moreover, we can't make the sensors of the electric kettle for boiling water in hotels, which can be automatically cut off when heated to 100 degrees. About 50 percent of our necessary technology is in the hands of foreign countries.
3. Not good at making computer numerical controlled machine tools. Now we import machine tools from Germany, Japan and Spain. We got the original code of the German machine tools, but we had no for Japanese ones, which has brought us difficulties when we want to make some adjustment for use.
4. Not good at making information hardware such as integrated circuits, semiconductors and chips, which is the core of manufacturing. Manufacturing will develop in the direction of intelligence and digitalization, but at present we still lag behind in making semiconductors and integrated circuit chips.
Recently, the United States has set many limits on us, especially on high-end chips such as 5nm chips for mobile phones. Those 28nm chips used in automobiles and aircraft carriers are traditional chips, which can't be counted as high-end ones. Traditional chips are applied in most cases while the 3nm and 5nm high-end chips are rarely used. It remains a complicated task for us to cope with our weakness in developing high-end chips.
5. Not good at producing biomedicine and medical equipment. We still have many shortcomings in this aspect. For example, we can't produce many essential medicines such as the antihypertensive I take now. My doctor wants to replace imported drugs with domestic ones, but I declined that out of concern for the efficacy of domestic antihypertensive, which has not completed the innovation.
My friend and colleague Miao Xiaojuan went to several cities in China that are different from first-tier cities, including Hefei, which Your Ginger River believes is one of the most underestimated cities in China. She conducted some rare interviews with the local mayors, documenting some of their work and life moments (mostly work-related). Check it out:
