Tech Policy in China’s Third Plenum

With the conclusion of China’s Third Plenum in mid-July, Chinese authorities released a communique outlining the economic and political directions they intend to follow for making downstream policies over the next five years. The plenary session was considered uneventful by many, revealing a lack of decisive strategic action to address China’s current development difficulties amid geopolitical tensions.

The document was brief and made no notable departures from existing paths. Nonetheless it signaled some preferences for the pursuit of technological development that the state plans to undertake. The document outlined a multifaceted strategy that seeks to sustain growth, foster innovation, and enhance China’s global economic position through the technology sector.

First, the document encouraged the private sector’s role in co-leading technological breakthroughs and scientific research.

There are tensions in the development of technology, especially in the advent of artificial intelligence (AI). Beijing usually prefers a top-down and heavy-handed approach, but too many regulations would hamper the speed of innovation, particularly during technological competition with the United States. Thus China’s existing policies on AI tend to set up guardrail guidelines and encourage private entities to develop as quickly as possible – an approach regarded as perilous by many Western experts due to AI safety concerns.

Based on existing patterns, China will continue to strike a balance between regulating tech safety and letting the private sector innovate and compete. It might continue to push for a state-led approach for developing strategic and security-oriented areas such as quantum computing while allowing the private sector to lead in areas that require commercial deployment and research such as large language models (LLMs), a subset of AI technology.

The document also emphasizes empowering scientific researchers with more autonomy while fostering academic integrity, as Chinese academia recently suffered from rampant high-profile cases of plagiarism.

Second, there is an emphasis on promoting the development of China’s digital economy, including the innovative development of the platform economy, data infrastructure, data rights, security and regulations, and cross-border data flow mechanisms. This aligns with China’s acute awareness that its large population gives it advantages in data and scaling. Due to these strengths, China already has global leadership in certain areas, such as facial recognition technology, algorithm-empowered digital platforms, and mobile gaming.

Third, a section of the communique focuses particularly on industrial and supply chains. China plans to upgrade supply chains with AI and build national hinterlands into strategic areas. This is consistent with China’s need to upskill its labor-intensive and manufacturing-heavy economy.

Fourth, there is a comprehensive guideline for boosting the scientific innovation talent supply through education reforms. China wants to continue to promote its higher education institutions’ positions in the world's rankings, enhance teacher training, strengthen vocational schools, and improve mechanisms for innovation. Domestically, China has 39 public universities considered first-tier, known as the “985 universities,” and there have been efforts to attract international talent, particularly from the Global South, to boost China’s reputation and educational exchanges.

Due to the recent double-digit youth unemployment rate, the goal to boost vocational training could be interpreted as China’s solution to address the skill-mismatch between the high number of university-degree holders and jobs that do not require such skills. However, social stigma against people who pursue vocational training over a bachelor’s degree at a university can hinder the effectiveness of this policy.

Most importantly, China’s existing system rewards a strong foundation in STEM and good performances in the standardized university entrance exam, placing significantly less emphasis on entrepreneurship and innovation. The reform guidelines in this document work within the existing educational framework and social norms rather than drastically changing them.

Fifth, China intends to rely on opening up and improving two-way foreign investment. The document indicates that China will both ease the difficulty for foreign enterprises operating in China and reduce the negative list for foreign investment access. The document mentioned the words “opening up” 12 times and “domestic consumption” only once. With more U.S. partners around the world putting Chinese investments abroad under investigation or outright bans, China will continue to seek alternative destinations for investment opportunities.

China’s Third Plenum revealed a strategic blueprint that balances continuity with selective innovation, particularly in using new technology to lead economic development. The focus on the technology sector to salvage China’s economic slowdown seems to be the most intuitive and natural approach. However, having an innovative system that occupies the upper part of the technological value chain conventionally requires an open and collaborative environment that fosters the evolution from idea to finished product, which might not be easily created in any “five-year” or “ten-year” plans.

While there is also an emphasis on leveraging China’s domestic market and collaborating with parts of the world that are still open to working with China, the question of access to key Western-based technological hardware, skills, and markets will continue to be the biggest roadblock to China’s technology ambitions. Although competition is known for driving innovation, it will be difficult to entirely go it alone.