One-Two Punch for Innovation
Mar 16-2021
When it comes to mid-to low-end chips, China is likely to achieve a self-sufficiency rate of 70% in the span of the 14th Five-Year Plan, said Prof. Yao, Dean of the NSD, in a recent media interview.
The same rate is targeted in the Plan for all chips. In the prior Five-Year Plan, the goal was set at 30% but ended up short. This time round, China has a higher possibility of pulling it off, not least due to the need to cope with the hostile ‘throat strangling measures of the US. But to make breakthroughs in the whole spectrum of chips remains a daunting task. He argued that China should cast eyes on those chips larger than 10 nanometers, also because they represent 80% of global chip consumption.
But who to pay for such innovative endeavors? Prof. Yao advised a binary solution: some by the government and some (more) by the market. Chip-making is a typical arena for the government to take the lead in investment: it’s a future-oriented foundational industry with a clear-cut technological path that requires colossal investments beyond the reach of private investors. In most other industries, though, innovative outcomes are elusive and private firms are made just for that. Such a mechanism has the best of two players but more trials are needed to strike a balance.
Overall, Prof. Yao credited market-based reforms as the paramount condition for China’s superb economic growth over the last four decades. By opening up and working with the rest of the world, China has grown to be the only country in the world to house all the industries catalogued by the UN. In other words, the market forms the basis for innovation. This is not to deny that the government ought to stay proactive and effective. Much as the dividing line between the market and the government is hard to define, Prof. Yao suggested that it be done case by case. For example, as far as chip-making is concerned, a pragmatic solution would be to figure out what steps should be handled by the government, and what else by the market.
Regulatory oversight should be reinforced with the protection of innovation in mind. One example is internet finance, where loan-facilitating services by some high-tech firms are of true value to banks that are weak in identifying clients and weighing risk. Therefore, a new regulatory equilibrium needs to be forged.
