Why China Will Never Lead on Tech

August reports from the Chinese government revealed a flurry of antigraft probes that investigated many of the industry’s top figures, including Ding Wenwu, general manager of the China Integrated Circuit Industry Investment Fund. This $45 billion fund, known as the “Big Fund” in the industry, is the Chinese government’s official vehicle for managing its colossal investments in the chip industry. The fund invested in a host of companies, including China’s largest chip-makers, Semiconductor Manufacturing International Corp.

and Yangtze Memory Technologies Co., both of which have been crippled by US sanctions.

According to Bloomberg, Chinese officials “are now asking local semiconductor material suppliers to cut prices to provide support to their domestic customers,” and “China may also choose to divert its limited state capital toward selective areas. . . that are relatively nascent, and where no one nation can claim dominance.”

With this retreat, China is quietly admitting the failure of its whole-of-government approach to developing advanced technologies that can compete internationally. America’s ban on exporting advanced chipmaking technologies to China has prevented key partners, including the Netherlands and Japan, from exporting such technology to China, smothering China’s emerging semiconductor industry.

But there is a bigger reason that China’s ambitious technological endeavors are failing: Its communist system stifles innovation. In China, all major funding is controlled and distributed by the Communist Party. Top scientists must be in the party system to advance their careers and get funding. The higher they rank within the party, the more funding they can receive. They can also make fortunes steering projects and government funds to companies owned by their associates and earning huge kickbacks. The recent corruption investigations have implicated key Big Fund officials and executives of companies that have received the most funding, raising speculation that the fund’s leaders may have taken kickbacks from these companies.

Before the investment pause, chip startups that were linked to the local government officials tasked with recommending and verifying candidates were capturing subsidies. According to an analysis by the South China Morning Post, 15,700 new Chinese semiconductor companies were registered from January to May 2021. A Chinese media outlet, Sing Tao Global, reported that many companies in industries ranging from construction and cement to garments and pharmaceuticals had switched , at least on paper, to chip manufacturing, resulting in unfinished projects and frequent shutdowns. But even without this poor resource allocation, China’s chip development would still be hindered by the country’s lack of long-term vision.

In 2019 I interviewed a data and AI scientist at Huawei, China’s largest and most powerful telecommunications company, which at the time was poised to take over the global rollout of 5G. He told me that despite Huawei’s achievements, a hunger for quick success pervaded the company. While Ren Zhengfei, the company’s founder and CEO, would publicly encourage new research, he was likely to cut off funding if there were no notable achievements within a project’s first two years. This pattern has led to the most consistent innovation at Huawei taking place only at the application level. The company rewards innovations that can make money immediately, but long-term research that might lead to world-changing innovation isn’t being done.

This is not unique to Huawei. It is the norm of Chinese society under communist control. Great innovation comes from free and curious minds. Such minds need nurturing, and, despite all its dazzling skyscrapers and smart cities, China today is incapable of doing so.

China’s test-oriented education discourages creativity and independent thinking. The Communist Party uses propaganda to instill a sense of loyalty and gratitude in the people, to the detriment of faith, which encourages broader inquiry. All this, combined with a sense of achievement derived from China’s recent economic successes, has caused the Chinese to become entirely focused on attainment. The goal is always to achieve the greatest benefit at the least cost. Dreams and passions are impractical and expensive, even silly. They must be discarded.

If China can’t cultivate free thinkers, it will always be a follower and never a leader as the West imagines and invents the future.

Mrs. Gao is a journalist and host of “Zooming In With Simone Gao,” an online current-affairs program.