Last week, China kicked off its Two Sessions, the country’s biggest annual political event. About five thousand delegates—among them, representatives of the Chinese tech giants—descended on Beijing for an exciting week of networking and listening to reports.

As always, tech was on the agenda. Amidst double jeopardy from the US-China tech war and the Covid-19 pandemic, China continues to emphasize its quest for innovation. Few specifics come as a surprise, but that’s not the point—this is making it official.

Bottom line: Worried about the economy and especially about high-tech manufacturing, China is funneling massive amounts of cash toward “new infrastructure” development. At the same time, formal privacy legislation at the Two Sessions and new ways of organizing tech institutions signal that China’s approach to tech is maturing beyond the philosophy of “more RMB, more innovation.”

The room where it happens: Some might say there’s no news that comes out of the Two Sessions. But that’s not totally true. The political theater of the Two Sessions can sometimes overwhelm, but it spells out China’s priorities in the language of its highest authorities:

  • Reports: China outlines its official priorities in several reports. Particularly relevant for tech is a report on “national economic and social development” by the National Development and Reform Commission (NDRC), a powerful planning agency, which reviews 2019 and summarizes plans for 2020.
  • Laws: As China’s legislature, the National People’s Congress (NPC) approves new laws, and circulates draft laws that give previews of upcoming legislation.
  • Proposals: Meanwhile, delegates do some old-fashioned lobbying with side meetings, proposals, and media interviews. This might be the best way to think about some lesser NPC motions and proposals from the purely advisory Chinese People’s Political Consultative Conference (CPPCC).

New infrastructure

RMB 10 trillion (US$1.4 trillion). That’s how much China is planning to pump into “new infrastructure” over the next five years, as it strives to get the economy back on track in the midst of a global pandemic and trade war.

Much of this money will be used to accelerate high-tech infrastructure—especially 5G infrastructure and EVs, two of the few technologies Premier Li Keqiang name-checked in his work report (in Chinese). 

Base stations on track: China has kept pace with 5G base station deployments through the pandemic. For example, by April 2020 China Unicom had built 80,000 out of its targeted 250,000 for the year.

  • “In the aftermath of the crisis, the Chinese government plans to accelerate its deployment of 5G and concentrate on new applications that can create new sources of demand,” Elsa Kania, an adjunct senior fellow at the DC-based Center for a New American Security, told TechNode.
  • Now, it’s trying to figure out use cases for all that new gear, such as temperature screening devices to fend off Covid-19.
  • But with new US export controls cramping Huawei’s chip access, it’s not clear how future deployments will fare.

You must construct additional charging piles: EVs also got the red-carpet treatment at the Two Sessions, with Premier Li calling to build more charging piles and expand the use of new energy vehicles.

  • In 2015, China set a target of 4.8 million charging points nationally. As of 2019, it had over 1.2 million—impressive, but still short. The building will continue.
  • Meanwhile, the Ministry of Finance (MOF) has confirmed in its draft budget that it’ll extend new-energy vehicle subsidies for buyers until end-2022, and accelerate EV use in public transportation.
  • China’s economic planners hope this high-tech investment will jumpstart the stalled-out economy: in NDRC report lingo, both these technologies can “unleash the potential of consumption.”

All aboard the bandwagon: Chinese tech leaders, smelling opportunity, have started slapping the “new infrastructure” brand onto a grab bag of other proposals (in Chinese).

  • On May 26, Tencent announced plans to invest RMB 500 billion into new infrastructure, particularly cloud computing.
  • Qihoo 360 CEO and CPPCC delegate Zhou Hongyi called for better cybersecurity for 5G networks and the industrial internet.
  • Xiaomi’s Lei Jun (NPC) wants more commercial satellites. 
  • Baidu’s Li Yanhong (CPPCC) wants intelligent transportation. 
  • Haier’s Zhou Yunjie (NPC) wants standards for smart homes. The list goes on.

Privacy

66 years. That’s how long it’s taken China to develop its first civil code, which, after years of debate, finally passed the NPC on May 28.

  • At least 10 of the code’s 1,260 articles, including a full chapter, deal directly with privacy and control of personal data, providing a legal foundation for safeguarding users’ rights.
  • The official text of the civil code establishes that a natural person has the right to privacy. Among other things, it defines what personal information is and how it is to be treated, placing an obligation on data collectors to protect it.  
  • Future privacy laws will have to build off it—contradictions not accepted. “The code is the code. It’s like Moses’ tablet,” Carly Ramsey, director at Control Risks, told TechNode. 

This push for privacy isn’t new. Regulators have been ramping up enforcement for some time. During a high-profile crackdown in November 2019, police accused seven firms of illegally storing 100 million data entries and arrested over 20 employees, including top executives.

A much-anticipated Personal Information Protection Law is also in the works, and was the focus of Two Sessions proposals.

AI kryptonite? Considering that enormous training datasets are supposed to be China’s “AI superpower,” this changing privacy landscape should get China’s AI advocates asking questions.

  • For example: How much would greater enforcement affect AI companies dependent on big personal datasets? “Very affects them. Extremely affects them,” Ramsey said. 
  • Ramsey warns that many AI insiders are ignoring regulatory changes on data privacy, and could be blindsided. “So when the AI guys are saying, data data data, that’s the unique advantage, I’m like, dude, do you guys even know what’s going on out there?”
  • But companies will benefit from clarity, she said. Fast-changing regulations and sometimes contradictory rules create confusion that the Personal Information Protection Law should fix. 

Core technologies

RMB 352 billion. That’s how much China’s central government spent on science and technology in 2019, up 12.5% from 2018. In 2020, that number is projected to drop to RMB 320 billion, down 9.1%. Much of this money goes to mastering “core technologies,” a term that’s been around for years, but gained importance in 2018, when Xi Jinping reframed them as “instruments of national power,” according to analysts at the DC-based think tank New America.

Uny Cao, a vice president at Zhejiang Intellectual Property Exchange Center, told TechNode:

Decoupling between China and the US—after the virus, it’s getting even more acute. It’s coming. So here’s the question: how can China keep doing a good job when it comes to manufacturing?

  • That’s a good question. The NDRC report to the Two Sessions warns that despite progress made, “our country still has to depend on others for core technologies in key fields.” Integrated circuits, the archetypal core technology, get a mention.
  • Premier Li’s work report also promises to “promote the industrial internet and boost smart manufacturing” and suggests increasing medium- and long-term loans to manufacturers.

A new organic core: “Bio-security” is the most specific topic to get a direct mention under the NDRC’s discussion of how to achieve “breakthroughs in core technologies,” suggesting that more money might pour in to life sciences.

Innovation ecosystem

5,100. That’s how many startups China funded in 2019 through the National Venture Capital Guide Fund for Emerging Industries, a government-established venture capital fund first set up in 2015. But China’s current innovation ecosystem is fragmented and struggles to bring basic and applied research together. Efforts to fix this have picked up steam in the last year, which the NDRC at the Two Sessions highlighted while warning of “major institutional barriers” to reform.

“State capitalism in action”: Some reforms will shape China’s innovation ecosystem to mirror the US. But others have a Chinese twist: the NDRC, for example, is coordinating private capital through state-sponsored institutions like its “National Industrial Innovation Centers” (NIICs).

  • To form an NIIC, a consortium of companies working in a high-priority industry can join forces to bring resources together into an incredibly concentrated hub. Cao suggests that you could see 10-20% of a national industry—meaning talent, equipment, you name it—packed into a campus a few square kilometers in size.
  • Cao hedges on how they’ll turn out, but, he says, it’s easy to imagine “state capitalism in action” on a scale—hundreds of billions of RMB—that few other countries can emulate.

Slow and steady

China’s policy process is known for several things. Agility is not one of them. 

Many of these changes seen at the Two Sessions are parts of years- and decades-long processes that might continue equally far into the future. They point in a direction Beijing is increasingly committing itself to: an all-in, big-spender approach to state capitalism, tempered by increasingly mature management of privacy and innovation.

It’s worth keeping an eye on. But with all that said, the policy process is slow and often messy, so don’t hold your breath.

Shaun Ee is a Yenching Scholar at Peking University and nonresident fellow with the Atlantic Council, working at the intersection of geopolitics, tech, and national security. Before moving back to Asia,...