Joe Biden underestimated China’s ability to innovate before. He shouldn’t repeat that mistake

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Few American political leaders have dismissed China’s capacity for technological innovation as publicly and as emphatically as President-elect Joe Biden.

In a 2014 speech to the graduating class of the U.S. Air Force Academy in Colorado Springs, then-vice-president Biden famously scoffed at the prospect of China graduating “six to eight times as many” scientists and engineers as the U.S. At the end of the day it didn’t matter, he asserted, because China’s authoritarian political system stymied the development of breakthrough products.

I challenge you,” Biden dared cadets, to “name me one innovative project, one innovative change, one innovative product that has come out of China.”

Challenge accepted. Here are three, plucked just from headlines this month:

  • Early Thursday morning Beijing time, a capsule from China’s unmanned Chang’e-5 spacecraft re-entered Earth’s atmosphere and landed in Inner Mongolia bearing 2 kilograms of moon rocks that are expected to make a major contribution to scientific understanding of lunar geography. Chang’e-5’s four-week voyage establishes China as only the third nation to bring pieces of the moon back to Earth, and the only country to put robotic spacecraft on the surface of the moon this century.
  • In a report published Dec. 3 in Science magazine, a team of Chinese researchers at the University of Science and Technology in Hefei claimed to have built a quantum computer that is able to perform certain computations nearly 100 trillion times faster than the world’s most advanced supercomputers.
  • On Dec. 8, the United Arab Emirates said a COVID-19 vaccine developed by Chinese state-owned pharmaceutical group Sinopharm had proven 86% effective in treating the virus in phase 3 trials, potentially clearing the way for distribution of Chinese vaccines throughout the developing world.

Yes, one can conjure caveats for all these achievements: China’s lunar expedition succeeded in boldly going where American Neil Armstrong already went back in 1969. The Chinese quantum supercomputer was built to perform a single, specific task and cannot be programmed to do anything else. And despite the apparent success of Sinopharm’s UAE trial, none of China’s vaccine candidates have published any late-stage information about clinical trials.

I’ve argued often in this space that in many crucial sectors, most notably the manufacture of high-speed semiconductors, China lags far behind the U.S., and other trade partners such as South Korea, Taiwan, or Japan—and that no amount of government subsidy will be enough to close the gap. China’s push to become self-sufficient in semiconductors suffered a further setback Wednesday as its biggest chipmaker, Shanghai-based Semiconductor Manufacturing International Corporation, struggled to explain the apparent resignation of its co-CEO Liang Mong-son. Media reports of Liang’s departure sent the company’s stock price tumbling nearly 10% Wednesday on exchanges in Hong Kong and Shanghai.

And yes, Chinese President Xi Jinping’s recent clampdown on private companies, especially tech giants like Alibaba Group and Tencent Holdings, will likely slow the pace of future Chinese innovation.

Still, the big picture is clear: Over the past two decades, China has emerged as a technology superpower, and a formidable one at that. (The Financial Times‘ Tom Mitchell made a similar argument last week.) In many technologies, such as artificial intelligence, e-commerce, digital payments and the rollout of high-speed telecommunications networks, China is poised to lead—or already leads—the world. As president, Biden must recognize that his former disdain for China’s inability to innovate is badly out-of-date.

Eastworld will take a break for the next two weeks and return again in the New Year.

Clay Chandler
clay.chandler@fortune.com

This edition of Eastworld was curated and produced by Naomi Xu Elegant and Grady McGregor. Reach Naomi at naomi.elegant@fortune.com and Grady at grady.mcgregor@fortune.com

Eastworld news

Alibaba's cloud

Chinese e-commerce giant Alibaba's cloud computing service offered its clients facial recognition software that can detect Uighur and other ethnic minority people's faces. It's not clear whether Alibaba customers used the software, or how they would use it; the company removed references to the ethnicity-detecting software on its website after a New York Times inquiry this week. Uighur people in China's western Xinjiang province are an ongoing target of Chinese government surveillance and alleged human rights abuses. The revelation raises questions of whether Alibaba will become a target of sanctions or other action by the U.S. government, which has scrutinized Chinese tech firms over U.S. national security concerns and has penalized Chinese officials over their alleged involvement in government suppression of Uighur people in Xinjiang. New York Times

A tightening belt

When Chinese President Xi Jinping announced the Belt and Road Initiative in 2017, he called the $1 trillion plan "a project of the century." Three years later, the BRI—an ambitious program to finance and construct infrastructure in developing countries—risks becoming China's first overseas debt crisis. China was reportedly in talks with at least 12 countries over debt renegotiations this year. Beijing's shift to focus on domestic investments over outbound ones is reflected in the overseas lending figures of two Chinese banks, the China Development Bank and the Import-Export Bank of China. Between 2008 and 2019, the two banks lent nearly as much to overseas borrowers as the World Bank did in the same period; the Chinese banks' overseas lending levels plummeted in 2019 to $4 billion, compared to $75 billion at their peak in 2016. Financial Times

Australian barley

Australia is taking its trade dispute with China to the World Trade Organization, escalating the year-long spat between the two nations. Canberra filed a formal request to the WTO on Wednesday to appeal the 80% tariff on Australian barley that China imposed in May. China is Australia's biggest trading partner, but relations between Beijing and Canberra soured this year, with the nations clashing over human rights, the origins of the coronavirus, and claims of Chinese political interference in Australia. China has also slapped tariffs and restrictions on Australian beef, wine, and coal. The Australian

North Korea, Hezbollah, and Hong Kong

Wan Chai, a neighborhood in Hong Kong, is likely home to the world’s highest concentration of U.S.-sanctioned companies, according to a new CNN investigation. Hong Kong has long touted its low taxes and relatively open business environment as a reason why it's become a global financial hub. But Hong Kong’s relative lack of financial regulations also makes it an attractive location for shadier businesses—including Hezbollah financiers, an arm of a powerful Southeast Asia militia, and a company with a North Korean bank account—to set up shell companies as a means of evading U.S. government sanctions. CNN

Pandemic nationalism

For many Chinese nationalists, the pandemic has proved that China's governing system is superior to that of the U.S.'s. Such a viewpoint is increasingly on display in new art exhibits in Beijing, in the more combative behavior of Chinese diplomats, and in online commentary that compares the current state of the U.S. to the fall of the British empire. Some voices in China, however, are wary that China's new hubris may underestimate the U.S.'s strength and work to entrench anti-China attitudes abroad. New York Times

Coronavirus by country

India

In March, when Indian Prime Minister Narendra Modi announced a nationwide coronavirus lockdown, tens of millions of migrant workers found themselves stranded without jobs or food, in cities far away from their hometowns. India's government organized 4,621 special trains to take over 6 million people home, but the emergency transport became a vector for COVID-19. India currently has the second-highest number of recorded COVID-19 cases in the world, and the emergency trains played a big role in accelerating the spread of the virus. Most people weren't tested before boarding the trains, and passengers rode for days in cramped compartments before alighting in rural areas that had no recorded COVID-19 cases until the workers started returning. New York Times 

Markets and movers

Luckin Coffee — Chinese coffee chain Luckin Coffee will pay a $180 million penalty to settle U.S. Securities and Exchange Commission claims that it committed sales fraud. Nasdaq delisted Luckin from its exchange in July after an internal Luckin investigation revealed that some employees had fabricated sales figures. Wall Street Journal

Grab and Gojek — Southeast Asia's two most valuable ride-share startups haven't confirmed reports that they are considering a merger, but drivers in Indonesia want a say in the potential deal. A union representing over 100,000 Grab and Gojek drivers threatened nationwide protests if they aren't brought to the table for the merger talks. The drivers fear they could lose their jobs if the merger happens without their input. Channel News Asia

Baidu — Chinese search engine giant Baidu is reportedly looking into producing its own electric vehicles. Baidu currently makes autonomous driving software for car companies, but the new venture would involve the tech firm launching a majority-owned venture with carmakers or contract manufacturing electric vehicles, a growing auto market segment in China. Reuters 

Alibaba and Tencent — Chinese regulators on Monday fined three companiese-commerce giant Alibaba, the online bookstore China Literature, and the logistics company Shenzhen Hive Boxunder an anti-monopoly law. The regulator, China's State Administration of Market Regulation, said it's also probing a merger between two Tencent-backed game live-streaming firms over anti-trust claims. Reuters

SMIC — Shares in China's biggest chipmaker, Semiconductor Manufacturing International Corp, fell on Wednesday after the firm's co-CEO resigned without warning. The executive, Liang Mong Song, quit after the firm appointed a new board member without consulting him, according to a resignation letter that circulated on local media. Bloomberg 

Fosun — Chinese pharma firm Fosun Pharmaceutical will buy at least 100 million doses of the coronavirus vaccine developed by Germany's BioNTech SE and U.S. pharma giant Pfizer if the vaccine gets regulatory approval in China. Reuters

Final figure

7% 

China's industrial output rose 7% year-on-year in November, continuing the sector's hot streak and the country's broad economic rebound from a COVID-induced slowdown. The growth exceeded economists' predictions as overseas demand for pandemic-related goods like personal protective equipment, laptops, and other work-from-home electronics surged. China's fixed-asset investment also rose in November, and the urban jobless rate dropped. China is expected to be the only major economy to register an expansion in gross domestic product for 2020.

Wall Street Journal

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