China’s Mercantilist Policies Have Measurably Slowed Global Innovation in Advanced Industries Ranging From Telecom Equipment to High-Speed Rail, ITIF Finds in Multi-Sector Analysis

May 10, 2021

WASHINGTON—China’s rampant practice of “innovation mercantilism” in advanced-technology industries has measurably harmed the pace of global innovation by giving unfair advantage to its domestic champions and taking market share and revenues from more-innovative foreign competitors, thereby diminishing the resources they can invest in research and development (R&D), according to a new report culminating a yearlong multi-sector analysis by the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.

In the semiconductor sector alone, ITIF estimates that, if not for China’s mercantilist practices—which include massive subsidies, market-access barriers, and a panoply of tools to obtain foreign technology—there would be 5,100 more U.S. patents annually. In a series of other sectoral analyses, ITIF found similar patterns in telecommunications equipment, biopharmaceuticals, solar photovoltaics, and high-speed rail.

“China is not engaged in anything even remotely approaching ‘free trade,’ especially with regard to its advanced-technology sectors,” said ITIF President Robert D. Atkinson, who led the project. “China’s single-minded goal of dominating the global market in strategically important industries by any means necessary undermines the global trading system and comes at the expense of future waves of innovation. The United States and its allies need to pressure China to end its mercantilist practices and encourage the WTO to focus more on the innovation effects of trade distortions.” 

ITIF’s yearlong series included in-depth examinations of five advanced industry sectors: 

  • Telecommunications equipment, where ITIF estimated last June that China’s market-distorting support for Huawei and ZTE has diminished the position of more innovative rivals such as Ericsson and Nokia, resulting in 20 percent less global R&D and 75 percent fewer standards-essential 5G patents. 
  • Biopharmaceuticals, where ITIF’s analysis in September found that, while China’s global market share and competitiveness is still quite low, it is taking steps to become a major player, including limiting foreign access to its market while subsidizing its own drug companies.
  • Solar photovoltaics, where ITIF concluded in October that subsidy-powered competition from China decimated the industry in the rest of the world, as prices dropped and R&D-intensity, patenting, and the number of new start-ups cratered.
  • Semiconductors, where ITIF concluded in a report this February that Moore’s Law itself is under attack because of China’s massive subsidization, IP theft, state-financed foreign firm acquisitions, and other mercantilist practices. Giving inferior Chinese innovators a leg up costs 5,100 U.S. patents annually.
  • High-speed rail, where ITIF found in April that U.S. patents could have doubled if China’s state-backed champion CRRC had not benefited from subsidies and preferences that allowed it to seize a commanding share of China’s domestic market as a stepping stone to global expansion.

These are not isolated examples. In the summary report released today, ITIF points to similar trends in industries as diverse as shipbuilding, motion pictures, and aerospace. The report urges nations that are committed to accelerating the pace of global innovation to pressure China into curbing its harmful policies by limiting its access to foreign markets for innovation-based goods and services, cooperating on technology policy, and establishing stronger trade agreements to allow for the free flow of innovation-based goods. 

“China’s innovation mercantilism doesn’t just threaten the U.S. economy and national security—it affects the entire world as it undermines innovation across a wide array of sectors,” Atkinson conludes. “If we want a robust rate of technological innovation, then the entire world has a stake in pressuring China to roll back its innovation mercantilism and replace it with effective and non-distorting innovation policy.”

Read the new report:

Read the series: