US-China trade talks centre on tech rivalry

Chinese and US officials met face to face Thursday in an attempt to resolve a dispute over technology that has taken the world's two largest economies the closest they've ever come to a trade war.

A high-powered US delegation arrived in Beijing for talks with Chinese officials aimed at defusing the tensions, though analysts say they appear unlikely to yield a breakthrough, given the two sides' intensifying rivalry in strategic technologies, where China lags behind the US.

US Treasury Secretary Steven Mnuchin is leading the group, which includes Commerce Secretary Wilbur Ross and US Trade Representative Robert Lighthizer. Liu He, President Xi Jinping's top economic adviser, headed the Chinese side in the talks, which are expected to end today, Friday.

The dispute has deepened as China has stepped up efforts to overtake western industry leaders in advanced technologies, especially for semiconductors, the silicon brains required to run smartphones, connected cars, cloud computing and artificial intelligence.

Under Xi, a programme known as 'Made in China 2025' aims to make China a tech superpower by advancing development of industries that, in addition to semiconductors, includes artificial intelligence, pharmaceuticals and electric vehicles. The plan mostly involves subsidising Chinese firms. But it also requires foreign companies to provide key details about their technologies to Chinese partners.

"The Made in China 2025 industrial policy concerns China's long-term development plan, so the overall direction won't change at all," said Yu Miaojie, professor at Peking University's National School of Development. Yu says China would rather cut the trade deficit by importing high-tech products from the US that are currently tightly restricted.

The state-run Global Times newspaper said on Thursday in a commentary that it's "our sovereign right to develop a high-tech industry and it is connected to the quality of rejuvenation of the Chinese nation. It will not be abandoned due to external pressure".

Washington's recent decision to ban Chinese telecoms gear maker ZTE from importing US components in a sanctions-related case, drove home to Beijing its costly vulnerability to foreign sources for advanced microchips.

The 'Made in China 2025' plan calls for domestic producers to supply 70 per cent of the country's chip demand.

The Trump administration's efforts may actually spur China to ramp up efforts to develop its domestic industry as it strives to fulfil Xi's vision, said Jian-Hong Lin, an analyst at research firm TrendForce.

China now consumes nearly 60 per cent of the world's semiconductors but supplies only about 16 per cent, according to PwC. The country spends more than US$200 billion a year on foreign-made semiconductors, which in 2015 surpassed crude oil as the country's biggest import.

Experts say Chinese chip-makers are five years behind their US and Asian rivals and that increasingly high technological hurdles and a meagre talent pool are hindering the effort to catch up with dominant US, Japanese, South Korean and Taiwanese manufacturers.

- AP