#x Beyond Citations | China, from the ‘other’ side
Can China escape the middle technology trap set by the US?
In July 2024, Huawei finished constructing its massive research and development centre in Shanghai. Named ‘Lianqiu Lake R&D Center’, the facility is about 225 football fields in size, has 104 buildings and its own railway system for intra-centre connectivity. This is where Huawei is planning to do cutti
ng-edge research in many high-tech areas such as semiconductor chips, telecom and AI.
However, it is not unusual for Chinese companies to develop massive and imposing projects. The skyline of China’s major cities, from Shanghai to Beijing, are filled with such examples.
But what made the USD 1.4 billion Lianqiu R&D centre significant is that it was developed by a Chinese company heavily sanctioned by the West since 2019. Huawei, for close to a decade, has been the poster-child of both global supply chain warfare and supply chain security concerns.
But if the Lianqiu centre was built almost a year back, what makes it suddenly relevant? It is a provocative opinion piece by Thomas L. Friedman for the New York Times published on 2 April 2025. Friedman is so impressed after visiting the Lianqiu centre that he offers an against-the-tide prescription for the US policy community:
To my mind, the only win-win deal is one that I’d call: Made in America, by American Workers, in Partnership With Chinese Capital, Technology and Experts. That is, we just reverse the strategy China used to get wealthy in the 1990s, which was: Made in China, by Chinese Workers, With American, European, Korean and Japanese Capital, Technology and Partners.
Reading through Friedman’s piece one realises that China is probably no more the country that US senators think it is.
So when the Trump administration unveiled broad-based tariffs on friends and foes alike on 2 April 2025 (styled as ‘Liberation Day’ by Trump), the response by most recipient countries was muted — some were hoping to cut a deal with Trump in coming weeks. But China didn’t play along. Beijing imposed 34 per cent additional tariffs on US goods. But it did not stop there. Well cognisant of its dominance in the rare earths market, China announced export controls on samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium. In reversal of historical roles, China also added 16 US entities to its export control list and 11 US entities to the unreliable entity list.
Like it or not, Trump tariffs are a reality, as Jaishankar, India’s foreign minister, reminded the participants of the Raisina Dialogue in March 2025. But so is the reality of China’s rise and its capacity to advance on the cutting-edge of high-tech and respond to the West in the language the latter understands — sanctions, export controls and tariffs.
For reasons that have to do with history (colonisation, end of Cold War, vibrant press culture, English language, globalisation), the Global South has become used to Western epistemological dominance. More often than not, it is the US media outlets such as the New York Times, the Washington Post, CNN or even US books and movies that set the global narrative. Even scholarly journal articles, that this newsletter primarily deals with, are overwhelmingly ‘Western’. To tackle this, Beyond Citations will occasionally examine the world of tech politics through academic outputs published from the ‘other’ side.
One such — highly relevant — is the following paper by scholars based in the Guangzhou city of China:
Pan, X., Aiwen, L. & Zhenzhen, C. Contesting coercion: U.S.-China strategic competition, the middle technology trap, and Chinese government-guided funds. Asian Review of Public Economy 3, 13 (2024). https://doi.org/10.1007/s44216-024-00034-4 (open access)
Unlike Friedman, whose piece creates the impression that China is already a high-tech power, Pan et al. are more sobering in underscoring the challenge of middle technology trap (MTT) that China faces. The MTT is similar to the middle income trap that is often discussed in popular writings.
The authors discuss how the US aims to keep China in the MTT by restricting the latter’s access to global innovation networks (GIN) and global financial networks (GFN) amid the ongoing US-China strategic competition in the technological domain. One way Washington has been doing this is by making it difficult for the US private equity and venture capital investors (PEVC) to invest in the Chinese market.
But can China escape the MTT using Chinese government-guided funds (GGFs)?
To find out, Pan et al. rely on‘[i]n-depth interviews conducted by our research team with a wide range of individuals, including financial officials, experts, scholars, entrepreneurs, and investors from the Guangdong, Hong Kong, and Macao Greater Bay Area.’ They further boost this with insights from the ‘meetings or seminars involving financial regulators and local government departments’.
What do they find? Well, many things. Let me list the most important ones:
First, tech firms founded by serial entrepreneurs or overseas returnees have been relatively less impacted due to US-China tech decoupling because of their prior exposure to GIN/GFN. The same is not the case with new entrepreneurs.
Second, China-based funds, whether private or GGF, need to go beyond the short-term financial return logic to become strategic investors. The venture capital cycle for US funds can be 10 years or more while the Chinese funds are looking at 5 years or less — not sufficient for high-tech industries. Local investment requirements of GGF (that is, supporting local industries in a province, for instance) also do not necessarily help innovation.
Third, the US PEVCs bring a distinct advantage in addition to the quantum of money they invest — the brokerage role played by US PEVC by helping companies tap into GIN/GFN.
The arguments made by Pan et al. make one thing clear: inward looking, autarkic or techno-nationalistic approaches are not going to work.
In conclusion, a well-orchestrated combination of enhanced international cooperation, strategic offshore expansion, and the infusion of global talent will empower China GGFs to circumvent current geopolitical constraints and propel the nation toward a future where it remains a paramount player in the arena of global technological innovation.
The points made by Pan et al. are significant because they are based on interviews with a wide range of stakeholders in the tech vibrant Guangdong, Hong Kong, and Macao Greater Bay Area. If this view is shared across China, it means that the country needs the world — contrary to the fears of China’s hegemonic march forward in the West and India alike.