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China Seizing Hi-Tech Share From US in ‘Win-Lose’ Battle

US output in key advanced industries is weak and declining, and its losses are China’s gains, says the Information Technology & Innovation Foundation.


US output in key advanced industries is weak and declining, and its losses are China's gains, says the Information Technology & Innovation Foundation.
China hi-tech workers in suits. US output in key advanced industries is weak and declining, according to a new report. Reuters file photo.

 

China is seizing market share from the US in advanced technology industries in a “fierce win-lose’’ battle that is crucial to each nation’s economic and national security.

So says a new report by the Information Technology & Innovation Foundation, which estimates China’s “phenomenal’’ advances have seen its share surge to 21.5% of the global market in 2018 from just 4% in 1995. The US’s share has fallen to 22.5% from 24% during the same period, it says.

US output in key advanced industries is weak and declining compared to major competitors, the report adds, prompting its author to recommend a ‘moon shot’ initiative to increase the concentration of the industries in the US economy by at least 20 percentage points relative to the global average within a decade.

“If other nations win, especially China, it will mean that the United States is likely to lose,’’ the report says. “Winning enables economic and national security — especially for allied nations, where China’s gain comes at their loss.’’

 

READ MORE: China’s AI Development Catching Up to US – TechCrunch

 

 

Advanced Industries

The zero-sum competition between the two adversaries is demonstrated by a strong correlation (-0.78) between the change in the respective shares of global output that China and the United States held in advanced industries from 1995 to 2018, the report says.

“The more ground China gained in these industries, the more the United States lost,’’ it said.

The report assesses market share of key hi-tech industries including IT and information services, computers, electronic and optical products, motor vehicle and other transport equipment, and pharmaceutical products.

The share of advanced industries in China’s economy is 34% higher than the global average, while Japan’s is 43%, Germany’s 74%, and South Korea and Taiwan both more than double, the report says.  The US’s share of advanced industries has fallen since 1995 to 6% under the size-adjusted global average, it says.

If US policymakers want advanced industries to be the same share of the US economy as they are in the rest of the world, advanced-industry output will have to expand by about $100 billion annually, the report estimates. To match China, output would have to expand by nearly $680 billion, or 42%, it adds.

“The United States has a long history of pioneering innovations only to see their production captured by other nations, including China,’’ it says. That “reduces growth, weakens the terms of trade (creating a higher trade balance and/or a weaker dollar), and degrades the national security industrial base.’’

China’s strongest growth was in electrical equipment, where it controls over one-third of global production, the report said. Its weakest sector is other transportation equipment, but the government is working to rectify that with mercantilist policies to support its national aerospace champion, COMAC, it said.

 

  • By Kevin Hamlin

 

 

 

 

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Kevin Hamlin

Kevin Hamlin is a financial journalist with more than 40 years of experience covering Asia. Before joining Asia Financial, Kevin worked for Bloomberg News, spending 12 years as Senior China Economy Reporter in Beijing. Prior to that, he was Asia Bureau Chief of Institutional Investor for ten years.

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