How China Bungled Techno-Development

When it comes to leveraging technology to foster shared prosperity, China in recent years has offered preliminary lessons about what to avoid. An increasingly rigid political environment is offsetting the gains from innovation by introducing unnecessary inefficiencies and legal uncertainty, as well as stoking social inequality.

CAMBRIDGE – Since the mid-2000s, China has been moving away from a manufacturing-heavy, export-led growth model toward a technology-driven economy. But China’s significant technological advances have been overshadowed by its political landscape, leading to inefficiencies, legal unpredictability, and rising social inequality.

To understand the situation today, it helps to start in the mid-2000s. China’s coastal local governments were confronting the economic challenges that come with a labor-intensive, export-oriented manufacturing model. That model required significant amounts of land – a limited resource, particularly in areas with a burgeoning real-estate market. Allocating extensive land for manufacturing caused local governments to miss out on substantial revenue. Despite the availability of relatively inexpensive labor, coastal provinces like Jiangsu, Zhejiang, and Guangdong, and cities like Shanghai, lacked the resources (land, water, and electricity) needed to sustain further economic growth.

The 2008 global financial crisis compounded these issues, striking a blow to China’s main export markets. To mitigate the effects on its principal export sectors, the authorities stepped up their efforts to reduce China’s reliance on labor-intensive manufacturing. China’s focus would be on modernizing traditional sectors and cultivating new industries, especially the digital sector. By 2021, China’s digital economy had reportedly expanded to $6.72 trillion, accounting for 39.8% of its GDP.

China’s pursuit of techno-development, however, coincided with the rise of a surveillance state that leverages technology and law in the name of ensuring efficiency, control, and social stability. Ironically, China’s increasingly rigid political environment has begun to hinder the very progress it seeks to bolster. Regulatory and political crackdowns on the tech industry and specific tech leaders have had a chilling effect on investors, in addition to wiping out hundreds of billions of dollars of equity.

As part of its broader strategy, the Chinese government has long aimed for more efficient resource allocation to accelerate techno-development. Among other things, that has meant establishing ever-expanding incentive and evaluation systems to channel critical resources – land, subsidies, bank credit, energy, and public services – to key sectors, businesses, and segments of the labor force. But these systems are often gamed by public officials and businesspeople, who use their personal networks to manipulate evaluations in their favor.

As a result, figures on everything from the number of industrial robots in use to patents and new-tech enterprises sometimes deviate from reality, and Chinese entrepreneurs criticize public spending in strategically important sectors for fostering fraudulent practices. Local governments frequently ignore promising suggestions for improvement because what is being proposed does not match the established metrics of the official evaluation systems. Owing to this excessive focus on (manipulatable) metrics, broader and more substantive techno-development challenges end up being overlooked.

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There is now an obvious gap between the government’s strategy to promote techno-development and the desires of entrepreneurs, many of whom are calling for the rule of law to be strengthened. Although the government constantly emphasizes the importance of law, inconsistent enforcement, together with the volatile regulatory environment, has created and sustained a climate of uncertainty.

In practice, the government alternates between regulatory leniency for certain businesses – as a form of incentive – and excessively stringent measures that inevitably appear arbitrary and unpredictable. Even in a supportive policy environment, regulations are seldom enforced, with few proactive measures in place to prevent potential problems or mitigate risks. Whenever problems arise, the government shifts to stricter regulation and campaign-style governance, significantly limiting businesses’ ability to anticipate risks and costs over time. Making matters worse, businesses are often left without effective legal or administrative recourse. The intense regulatory focus on the tech sector in recent years exemplifies this approach.

Despite China’s socialist principles and glaring social inequality, workers and their children tend to be excluded from the benefits of techno-development. Local governments, eager to advance the central government’s strategy, usually favor “high-end” talent. Those whom local authorities perceive as “low-end” – who often lack local citizenship and access to public services – are further marginalized. The result is a vicious cycle in which migrant workers’ children struggle to access education in wealthier cities where better job and educational opportunities exist, owing wholly to the low socioeconomic status their parents are assigned by local assessments.

Meanwhile, China’s regulatory environment has enabled the leading digital platform companies to exert extensive control over their workforces. Since China’s pivot to techno-development, there has been a significant rise in labor-intensive service jobs characterized by informal employment and insufficient social protections. Many factory workers who make the shift to the platform economy suffer disillusionment in the face of harsh working conditions. While platform companies everywhere use algorithms for workforce management, those in China incorporate them into much stricter, overbearing technological and legal regimes. Delivery workers who operate under stringent around-the-clock supervision liken themselves to autonomous vehicles.

Government-sanctioned discrimination and the growing power of tech firms have sparked localized resistance. My own research documents protests by migrant workers pleading for access to public education for their children, as well as collective action by gig workers to improve working conditions. But owing to the systematic suppression of civil society, the absence of independent trade unions, and growing political repression, it has become ever more difficult to mount a serious defense of civil or labor rights.

The quest to leverage technology for shared prosperity is a global challenge that has been amplified by rapid advances in artificial intelligence and automation, as well as escalating geopolitical tensions. Against this backdrop, China offers preliminary lessons for what to avoid. Its experience this century highlights how political dynamics can obstruct technological progress that otherwise would have facilitated social and economic development. We are witnessing a historic opportunity in the process of being missed.

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Ya-Wen Lei