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December 16, 2019

Responding To: Final Insights from the U.S.-China Research Group on E-Commerce and Mobile Technology

Reshaping Technological Networks and Innovation

Zhiguo Xiao

My participation on this dialogue turns out to be very helpful and fruitful. First, the discussions and communications have been very candid. In an era when our countries have been engaged in a prolonged trade confrontation, we are very lucky to have a group of well-informed thinkers on both sides. The candid exchange of ideas and opinions enable us to think from different perspectives based on which constructive policy recommendations can be formed.

Second, personally I have benefited a lot from the presentations and discussions, especially from the very insightful suggestions on our research work. Our paper on industrial policy is originally measured from the efficiency (i.e., productivity) perspective. Several dialogue participants suggested that we also look at the distributional issues, which prompted us toward a very important direction that we plan to pursue in future research. Our dialogue colleagues also highlighted the rationale behind our main finding that industrial policy works better at new emerging industries. We have thought very hard about this fundamental question, and have been fortunate enough to come up with a new framework that combines technology catch-up, global value chain governance, power asymmetry and innovation incentives to explain the contingent factors of the effectiveness of industrial policy. Without the inspiring discussions of the dialogue, we wouldn’t have been so efficient to achieve such a solution.

Third, the dialogue also provides a platform for collaborative research team building. Through participating in the dialogue, we have not only strengthened the collaboration efforts with our own team, but also built up new research collaboration with other participants in the dialogue.

Here is a list of my key takeaways from this series of discussions:

First, technology innovation will be the focus of future competition of nations. Over the past several decades and especially after the WTO, China has made remarkable progress in technological upgrading by integrating into the global production network organized by lead firms in advanced economies such as the U.S., Germany and Japan, and also by adopting visionary industrial policy targeting strategic emerging industries. The rapid progress, with continuing forceful implementation of support for the key new industries soon turned the relationship between China and the advanced economies, the United States in particular, from mainly cooperation with competition into mainly competition with cooperation, at least viewed from the perspective of the once lead firms in the global value chains.

Second, the innovation competition will be a prolonged process as both parties try to bargain for favorable terms. The global production network has been formed with solid micro foundations, and its reconfiguration may take years if not decades to evolve. So in the near future we’ll see both cooperation and competition.

Third, candid face to face dialogues such as the current one, instead of harsh unilateral criticisms, serve to improve the conditions and pave the way for effective negotiations. We have seen the rise of protectionism in recent years. But any unilateral actions, such as protectionism won’t solve the problem.

As I said above, the future of U.S.-China technology relations will be more competition coupled with cooperation, and the weights between them will develop as time evolves. Today, most major technological breakthroughs are achieved by joint efforts. Over the past several decades, China has built solid market-based cooperation mechanisms with the United States. One can hardly expect that those mechanisms will disappear abruptly. China has also cultivated a tremendous reserve of technological talents who are an integral part of the world’s innovation system. If China continues on the right track of reforming its innovation system, it will gradually gain sway in the technological contest. We have witnessed that the current global production and innovation network are in the process of reshaping, triggered by changing micro ecosystem and protective policy interventions. But the interdependent nature of technological innovation may override political urge in the long run.

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