Xi’s geopolitically focused political economy is on full display in the way innovation is being pursued in China, as well as how the country’s innovation dividend is materializing. Considering the remarkable progress that China has made in advancing itself as a technological great power, there would normally be an expectation that total factor productivity would have climbed as the returns on innovation gains kick in. Instead, total factor productivity has trended downward, begging the question of where the dividend has gone.23 Rather than going towards productivity, much of it has gone towards Xi’s tech self-reliance goals. This is because in most technologies, China is playing catch up in terms of tech effectiveness, but it has enjoyed extensive access to foreign technology – in previous years, Chinese firms could simply acquire the foreign technology to maximize their return, which could bring productivity growth. Instead, Xi has set the country on a path where, in many key areas, it is more important that companies expensively develop that tech themselves. Had China instead focused on its own comparative advantages and accepted interdependencies on others in areas where it lagged, the innovation dividend would likely have moved the needle up on productivity, but instead, it has only gone to closing tech gaps.
The tech self-reliance priority has now been cemented in place. Now facing a showdown with the US and its allies, Xi has called for a “New type of whole-of-nation approach” (新型举国体制) in the 2020 Central Economic Work Conference to close technology gaps and rid China of its dependency on the foreign actors he believes intend to contain his country.
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