The made in China challenge to US structural power: industrial policy, intellectual property and multinational corporations

Abstract

This paper addresses the question of United States’ power in the global economy, suggesting that China’s structural power potential vis-à-vis its American counterpart has been underestimated in recent international political economy (IPE) literature. It examines the US-China trade and technological conflict and maps China’s autonomy and influence in the global economy, offering a new interpretation of structural power, assessed on the basis of the growing importance of intangible assets in global value chains. The paper focuses on the notion of productive power, expanding on Susan Strange’s definition of productive power by breaking down this category of power into four subcategories: 1) centrality in global value chains, 2) market power, 3) ownership of assets, and 4) technological standard-setting. The paper begins by framing the US-China tech and trade confrontation in terms of a relative power contest between the two superpowers. Examining data and literature on China’s ascent in the realm of intellectual property protection and commercialization, global value chain ascension, as well as standard setting and competition policy, it points to China’s growing strengths in each of these categories, respectively. It concludes that China possesses latent productive power, and that the Made in China 2025 and related industrial policy plans aim to actualize China’s structural power potential.

Keywords:

• China
• multinational corporations
• United States
• structural power
• industrial policy
• intellectual property
• global value chains

Acknowledgements

The author would like to acknowledge the advice of Herman M. Schwartz in conceptualizing the theoretical expositions in this paper, as well as Dieter Ernst for discussions on standard-essential patents and industrial policy in China. He would also like to thank Erik Baark, Qian Jiwei, Bert Hoffman, Carsten Holz, Doug Fuller, Larry Qiu, Gao Xudong, Godfrey Yeung, Dan Prud’homme, Xing Yuqing, Larry Qiu, Fu Xiaolan, Song Lei, and other participants in the July 2019 International Conference on Innovation and China's Global Emergence, organized by the East Asia Institute of the National University of Singapore, for thought-provoking discussion and insights on patents, standardization, and global value chains. Special gratitude is owed to Peter Yu and anonymous reviewers for their excellent comments and observations on this article.

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This article has been republished with minor changes. These changes do not impact the academic content of the article.

Notes

1 With respect to the US elite consensus on containing China see Glaser (2015); Layne (2017); for a broader study of the ideational uniformity of the US foreign policy elite and their connection to the US corporate elite, see De Graaff and Van Apeldoorn (2018).

2 Beijing has recently walked back its propaganda efforts promoting the plan (Hornby, 2018). However, despite the changing message surrounding the policy, the core policies that underpin the plan, and notably the tools chosen to achieve its targets, remain very much in play (see, for example, Arcesati, 2019).

3 The journal, published by the Central Committee of the CCP, publicizes policy and theoretical debates that are internal to the leadership and intellectual core of the CCP. Qiushi is an abbreviation of the Chinese saying ‘shishi qiushi, (实事求是)’or, ‘seek truth from facts,’ popularized in CCP discourse by Deng Xiaoping.

4 The role of the “shareholding state” in China’s economy has been explored in detail in Wang (2015). While the role of the Chinese state as an institutional investor is an important component of MIC 2025, the phenomenon concerns a different aspect of structural power under Strange’s framework: the power to determine the structure of finance and credit. As such, this aspect of MIC 2025 is beyond the scope of the subject explored here.

5 In March 2019, China has further liberalized its FDI regime, legislating a negative list-based investment regime that requires no registration or regulatory approval for investments outside of negative categories, which comprise strategic sectors like semiconductors, utilities, telecommunications provision (but not equipment) and commercial banking (Zhou, 2019).

6 While there is still substantial debate about China’s domestic savings rate, the role of consumption versus investment in the Chinese economy, the medium-term trend, following 2008, and especially since 2012 (the beginning of the end of China’s 2009 fiscal stimulus), suggests that China is moving toward external current account balance and a more consumption-driven economy (Zhang, 2016).

7 The simple rationale of shareholder responsibility and revenue seeking cannot explain foreign firms’ commitment to China’s market amid pressure to transfer their technology, thereby creating domestic competitors to their own business. China’s market offers something that comparable emerging markets, such as India cannot—most notably, supply chain sophistication (see, for example, Grimes & Sun, 2016).

8 The entity list comprises a database of companies that are deemed to be engaging in activities that the US government deems to be contrary to its national security interests. Huawei was added to the list formally on 21 May 2019 (Department of Commerce, 2019). Any US firm that seeks to continue conducting business with Huawei needs to apply for a special license.

9 For a detailed review of the evolution of China’s IPR regime, see Yu (2018).

10 The definition of patent quality is subject to considerable debate in legal and economic literature (see, for example Guerrini, 2013) and remains highly context specific.

11 The data measure the payments balance between IP-related receipts and payments, including licensing fees from patents and trademarks, copywritten software, and payouts to firms engaged in litigation.

12 For a detailed discussion of the politics and technical details of global technological standard-setting, see Murphree (2014).

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Anton Malkin

Anton Malkin is an Assistant Professor in the Department of Global Studies at the Chinese University of Hong Kong, Shenzhen. His research focuses on the relationship between China's industrial policies and multinational corporations, examining how this relationship impacts global finance and intellectual property.