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This working paper is a collaborative study with Shimelse Mekonnen, a seasoned economist and the founder of Novel Insights LLC, a D.C.-based economic research and data analytics company. Executive Summary This working paper systematically analyzes the dynamic commercial relationship between China and Africa. Utilizing Natural Language Processing and content analysis of meticulously collected policy documents, this study finds that the Belt and Road Initiative (BRI) and other proposals by President Xi have shaped the policy direction of China-Africa collaborations, highlighting areas like industrial evolution, infrastructure synergies, agricultural modernization, and sustainable development. By exploring historical economic data, this study also finds that the BRI has significantly influenced Chinese financial commitments to Africa, with investment benefiting 30 distinct African countries, spanning sectors beyond natural resources, and involving both state-owned and private entities. Trade data suggests emerging signs of diversification and reveals China's consistent trade surpluses with Africa, influenced by significant Chinese capital outflows. While Africa's emerging signs of diversification are encouraging, it needs to further diversify into manufacturing and services to avoid mirroring past trade patterns with the West. Our machine learning analysis anticipates China-Africa trade to surpass $300 billion by 2025-6. In light of evolving policies and economic trajectories, this study identifies burgeoning opportunities in sectors like e-commerce, fintech, and agritech, underlying the immense potential of China-Africa commercial ties. However, it is important to acknowledge that China-Africa commercial cooperation is not without challenges. Disparities in trade balances, concerns about debt sustainability, and local economic impacts have sometimes strained relations. We will discuss this more in our next collaborative report. Keywords Machine Learning, Economic Policy, Belt and Road Initiative, Investment, Trade, Commercial Opportunities The intricate nexus between China and Africa has piqued international attention, epitomizing a sophisticated alliance that has expanded both in nuance and scope over the past decade. Most recently, the BRICS has announced that it will add six more countries, including Egypt and Ethiopia.[1] Clearly, Africa will become an even more important place for China. Ever since Chinese President Xi Jinping heralded the inception of the Belt and Road Initiative (BRI) in 2013, the Chinese central government has rolled out quintessential policies to galvanize mercantile synergies with the African continent. However, no published work systematically examines China's economic policies toward Africa. This working paper adopts the robust methodology Zhang (2023) developed and harnesses document analysis to derive empirical insights from our meticulously collected Chinese policy documents. In addition, we examine BRI investments in Africa and the trade trajectory between China and Africa based on historical datasets and our internal machine-learning algorithms. Finally, we analyze the implications for Chinese and African businesses. I. China's Economic Policies Pertaining to Africa Our acquisition of official policy documents unfolded in a tripartite manner. Initially, we searched China's African policy documents on the websites of various Chinese central government agencies. Subsequently, we deployed keywords like "中国对非政策" in Baidu – the predominant search conduit in China – to ensure no pivotal policy manuscript eluded our scrutiny. In the final phase, we triangulated our findings with reports from authoritative Chinese state-affiliated media outlets, such as articles emanating from the Xinhua News Agency. Our analysis finds that an array of pivotal Chinese policies concerning Africa were publicized under President Xi's aegis, underscoring Africa's strategic gravitas for China. Notably, commercial collaborations, spanning trade and investments, emerge as a salient motif in China's African directives (Table 1). Table 1. China's major policies toward Africa (2015-August 2023) Source: Authors' analysis based on publicly available policy documents By leveraging natural language processing, a machine learning technique, we discern words such as "construction", "cooperation", "development", "investment", "agriculture", "trade", "infrastructure", and "capacity" hold sway in the examined policy documents (Figure 1). Figure 1. Most Commonly Used Words in China's Key Policy Documents Related to China-Africa Commercial Cooperation Source: Authors' analysis based on published Chinese policy documents An in-depth content analysis of the policy documents unveils major avenues the Chinese government aims for commercial collaboration. Industrialization as a Catalyst for Growth China's commitment to Africa's industrialization is evident. Perceiving it as a pivotal avenue for collaboration, China accentuates sectoral alignment and proficiency cooperation. The objective extends beyond mere promotion of industrialization; it seeks to establish a robust foundation for Africa's fiscal autonomy and long-term progression. By tackling impediments such as infrastructure constraints and skill deficits, China endeavors to augment Africa's manufacturing capacities, quality of life, and employment prospects. The inception of economic zones, technological hubs, and industrial precincts epitomizes this allegiance. Chinese enterprises are incentivized not merely to invest, but to assimilate their operations, forging a mutually advantageous nexus. Agricultural Modernization and Food Security Agriculture remains integral to numerous African economic structures. China's strategic direction accentuates the imperative of this sector's evolution. By disseminating agricultural innovations and best practices, China aims to enhance Africa's agricultural methodologies and value chains. The objective encompasses not just yield augmentation but also food security assurance and bolstering the global competitiveness of African niche commodities. Endeavors such as agritech demonstration initiatives and the delegation of agricultural specialists to Africa fortify this dedication. Infrastructure Development Infrastructure is a critical component of economic growth. China's policy encourages its enterprises and financial institutions to be at the forefront of Africa's infrastructure development. From railways and roads to communications and electricity, the scope is vast. The priority is to ensure these projects cater to contemporary requisites while bolstering Africa's industrial evolution. Initiatives such as Kenya's modern railway, emblematic of the profound synergy between China and Africa, highlight the magnitude and resonance of these ventures. Financial Cooperation Financial collaboration underpins numerous Sino-African ventures. Mechanisms like concessional finance, the China-Africa Development Fund, and the BRICS New Development Bank have been harnessed to cultivate Sino-African fiscal convergence. The aspiration is to meticulously channel financial resources to ventures yielding collective expansion. Trade Facilitation Trade remains an integral facet of Sino-African rapport. China's pledge to escalate imports from Africa, especially in the non-resource segments, signifies diversification endeavors. Pursuits aimed at refining market protocols, bolstering customs synergies, and digital commerce promotion encapsulate China's comprehensive strategy towards trade enhancement. Green Development China's green development initiatives in Africa underscore the importance of sustainable growth. From addressing climate change to promoting wildlife conservation, the initiatives are comprehensive. The establishment of the China-Africa Environmental Cooperation Center is a significant step in fostering collaboration in environmental management and sustainable practices. Capacity Building China's capacity-building initiatives are orchestrated to sculpt Africa's imminent leaders. From scholarship endowments to vocational education hubs, the emphasis is on furnishing Africa's youth with the requisite competencies to spearhead their continent's ascendancy. China's diplomatic strategies with Africa transcend mere economic metrics; they encapsulate a comprehensive strategic alliance. Through an amalgamation of industry-led growth, agriculture modernization, infrastructural innovation, fiscal synergy, trade expansion, eco-conscious initiatives, and proficiency enhancement, China envisions an alliance poised to sculpt the "common destiny" of both regions. II. China's BRI Investments in Africa With strong government support, China's investment in Africa through BRI has been massive. In this section, we delve into the BRI investment dataset created by the China Global Investment Tracker[2] and elucidate the contours of Chinese commitments in the region. Variability in Annual Investment The annual capital infusion by the BRI in Africa has displayed marked oscillations over time. 2014 marked a zenith with investments touching $6.8 billion, an accolade again achieved in 2021 at $9.2 billion. Yet, the trajectory has not been consistently ascendant. Noteworthy troughs were evident in 2017 and 2020, with capital allocations contracting to $2.3 billion and $1.8 billion, respectively (Figure 2). These variations in investment paradigms epitomize the fluidity of BRI investments, mirroring global economic cycles, policy recalibrations, and shifting strategic imperatives. Figure 2. BRI Investments in Africa (2013-2022) Source: Authors' analysis based on data from China Global Investment Tracker For instance, the 2014 surge in Chinese financial commitments to Africa can be primarily attributed to the official inauguration of the BRI in 2013. Contrastingly, 2021's resurgence of Chinese investment in Africa is owing to three main reasons. First, the COVID-19 pandemic deeply affected the global economy in 2020 (Baldwin and Freeman 2022, Vogel and Fligstein 2020). By 2021, as economies began to recover, China saw an opportunity to resume heavy investments abroad, aiding Africa's recovery while also securing China's economic interests. Second, amid the U.S.-China trade war and global high-tech competition (Zhang and Chang 2021, Eichengreen 2023), China looked to strengthen its geo-political ties with Africa. Third, on the policy front, at the Beijing Summit of the 2018 China-Africa Cooperation Forum, President Xi proposed the "Eight Major Actions" for the ensuing years, accentuating domains like industrial evolution, infrastructural synergies, trade facilitation, eco-conscious development, and capacity building (Xinhua News, 2018). The contractions observed in 2017 and 2020 were predominantly instigated by exogenous shocks. In 2017, China's BRI investment in Africa dropped significantly due to a slew of unfruitful projects. Some analyses indicate that China "suffered great investment losses in politically unstable countries" (Yang 2018). Some attribute the decline to debt issues, as many of these projects are funded through loans, and Chin's investments in Africa raised concerns about Africa's rising debt levels.[3] In 2020, the global outbreak of the COVID-19 pandemic disrupted international commerce, including foreign direct investments. This event likely significantly reduced Chinese investments in Africa as the world grappled with the pandemic's negative impact. Pan-African Geographical Spread Investments stemming from the BRI demonstrate an expansive geographical distribution across Africa rather than a myopic focus on select nations. A total of 30 distinct African nations have derived economic gains from the BRI. Notably, the Democratic Republic of the Congo boasts the zenith of investment receipt, aggregating to $10 billion. Nevertheless, nations including Guinea, Zimbabwe, Namibia, South Africa, Tanzania, Nigeria, Zambia, Ethiopia, and Kenya prominently feature among the chief beneficiaries. A regional analysis of these investments portrays East Africa as the predominant beneficiary. However, West Africa trails just marginally, with both Southern and North Africa also procuring notable investments. This broad geographical spread underscores the BRI's commitment to a holistic African engagement, emphasizing regional connectivity and collaboration rather than a narrow, concentrated approach. Prioritization of Key Sectors The sectoral distribution of BRI investments in Africa is revealing. Predominantly, sectors like Metals, Energy, and Real Estate have been at the forefront, with Metals alone securing a staggering $21.5 billion. Energy and Real Estate sectors have garnered $6.6 billion and $5.7 billion, respectively. While other sectors, such as Transport, Chemicals, and Technology, have also seen investments, they lag in comparison (Figure 3). This sectoral preference aligns with China's broader strategic objectives in Africa, encompassing raw material procurement, energy security enhancement, and infrastructural development. Figure 3. BRI Investments in Africa Source: Authors' analysis based on data from China Global Investment Tracker Types of investors Both state-owned enterprises (SOEs) and private companies are involved in the BRI (Table 2). A meticulous examination of the BRI's investment dataset for Africa reveals the critical role of Chinese state-owned enterprises. Specifically, state-owned investors have spearheaded 62 investments, juxtaposed against the 36 investments embarked upon by private investors. Intriguingly, the mean investment quantum for both state-affiliated and private investors exhibits negligible divergence, standing at $390 million and $380 million, respectively, suggesting the pivotal role state-owned enterprises play within the BRI's blueprint while simultaneously spotlighting the substantial leverage wielded by private-sector investors. Table 2. SOEs and Private Companies Involved in the BRI Source: Authors' analysis based on data from China Global Investment Tracker III. Trade From the early 2000s to 2021, Africa's export trajectory to China witnessed exponential growth, amplifying over twenty-fold. Notably, China's commerce outflows to Africa burgeoned, reaching a commendable $165 billion from an erstwhile modest annual export of $1.3 billion in 1993. Simultaneously, its commerce inflows from the continent surged from $0.35 billion to $117 billion. A pivotal observation is China's trade surpluses with a persistent trade imbalance (Figure 4).[4] As Pettis noted, "To the extent that BRI financing causes an increase in net capital exports from China, it must also cause an increase in the Chinese trade and current account surpluses."[5] Indeed, the capital account can drive the trade account.[6] Figure 4. China's Trade with Africa Source: Authors' analysis based on data from China Africa Research Initiative and UN Comtrade China-Africa trade has seen consistent growth since 2013. Weak commodity prices since 2014 have impacted African exports to China. However, Chinese exports to Africa remained relatively stable. There was a drop in China-Africa trade value to $176 billion in 2020, down from $192 billion in 2019. However, it rebounded to $251 billion in 2021. In 2021, leading exporters to China from Africa were South Africa, Angola, and the Democratic Republic of Congo. Conversely, Nigeria, South Africa, and Egypt were the top buyers of Chinese goods.[7] In April 2023, the trade value between Africa and China was recorded at $25.5 million. China exported goods valued at $17.1 million to Africa and imported goods worth $8.3 million.[8] While resources indubitably command the commercial spectrum, burgeoning evidence suggests emerging signs of diversification in trade compositions. Recent policy recalibrations in China have catalyzed an augmentation in non-resource exports from Africa. Through the institution of zero-tariff inducements for a vast array of taxable commodities originating from the least-developed African nations, China telegraphs its expansive import aspirations. Commencing in 2018, China's strategic policy to dismantle import impediments for select African commodities—encompassing sesame, chili, avocados, cashew nuts, and apples—precipitated a marked escalation in agricultural exports from Africa. The impetus underpinning such initiatives is unambiguous: to expedite the ingress of a more diverse assortment of African commodities, especially within agricultural and manufacturing sectors, into the expansive Chinese marketplace. This diversification trajectory is palpable in the subsequent growth of these agricultural exports from erstwhile negligible benchmarks. However, one must appraise these transitions with discerning scrutiny. Although laudable, the ascendancy in non-resource exports has its genesis in a humble foundation. An intricate, comprehensive exploration is requisite to discern if this trajectory emblemizes a genuine transition from predominant resource exports. The evolving policies implemented by the Chinese government, amalgamated with specific data trends, allude to an uptrend in agricultural exports, but the longitudinal trend remains under observation. The stratospheric ascendancy in Sino-African commerce is emblematic of China's economic renaissance and intricate, multi-dimensional rapport with Africa. Harnessing historical datasets and past commerce trajectories, our in-house predictive analytics, underpinned by machine learning, posit that the commerce quantum shared between China and Africa is poised to surpass the $300 billion benchmark imminently. IV. Implications for Chinese and African Businesses With the existing business activities between China and Africa and the evolving Chinese government policies promoting China-Africa commercial cooperation, it is expected to witness massive potential business opportunities for companies and investors on both sides. Infrastructure Development Construction & Engineering: With China's emphasis on building roads, railways, ports, and other infrastructural projects, there is a significant opportunity for construction firms, architects, and civil engineering companies to collaborate on large-scale projects. Technology & Equipment Suppliers: Infrastructure projects require machinery, technology, and equipment. Firms manufacturing or supplying these can find a vast market in Africa, especially if they can offer after-sales services and training. Project Management & Consultancy: As these projects are vast and complex, there is a need for expert project management and consultancy services to ensure they are completed efficiently and effectively. Agricultural Modernization Agri-tech: With the push for modernizing Africa's agriculture, companies specializing in agricultural technology, from drone farming to precision agriculture, can find a significant market. Supply Chain & Logistics: As agricultural output increases, there will be a need for efficient storage, processing, and transportation solutions. This opens doors for firms specializing in cold storage, warehousing, and logistics. Seed & Fertilizer Companies: Introducing high-yield and disease-resistant crop varieties can be a game-changer. Companies that produce such seeds or organic fertilizers can tap into this potential. E-commerce & Digital Expansion Online Marketplaces: The burgeoning e-commerce scene in Africa offers opportunities for firms to either set up new online marketplaces or collaborate with existing ones. Digital Payment Solutions: With e-commerce comes the need for secure and efficient digital payment solutions. Companies that offer these services, especially those tailored to the African market, can thrive. Logistics & Delivery: Efficient delivery systems are crucial for e-commerce. Firms that offer logistics solutions, including last-mile delivery services, can find a growing demand. Green & Sustainable Development Renewable Energy: Companies specializing in solar, wind, and hydro energy solutions can collaborate on projects to increase Africa's renewable energy capacity. Environmental Consultancy: With a push for sustainable practices, environmental consultancy firms can offer their expertise in ensuring eco-friendly projects. Waste Management: With urbanization and development comes the challenge of waste. Companies that offer innovative waste management and recycling solutions can play a crucial role. Financial Services & Fintech Microfinance & Lending Platforms: Given the entrepreneurial spirit in Africa, there is a demand for microfinance solutions. Fintech firms that offer accessible lending platforms can fill this gap. Insurance: As businesses grow, there is a need for varied insurance products, from crop insurance for farmers to business insurance for SMEs. Digital Banking: With a significant portion of Africa's unbanked population, digital banking solutions catering to this demographic can be revolutionary. Education & Skill Development Online Education Platforms: Companies offering online courses, especially vocational training, can cater to Africa's growing young population. Skill Development Centers: Setting up centers that offer training in skills that are in demand, like digital marketing, coding, or machinery operation, can be lucrative. References Baldwin, Richard and Rebecca Freeman (2022) Risks and Global Supply Chains: What We Know and What We Need to Know. Annual Review of Economics, 14: 153-180. https://www.annualreviews.org/doi/abs/10.1146/annurev-economics-051420-113737 China Africa Research Initiative (2023) Data: China-Africa Trade. Accessed on 27 August 2023. http://www.sais-cari.org/data-china-africa-trade China Global Investment Tracker (2023) Worldwide Chinese Investments & Construction. American Enterprise Institute. Accessed on 9 August 2023. https://www.aei.org/china-global-investment-tracker/ Mekonnen, Shimelse and Nida Jafrani (2012) China's Growing Role in Africa: Myths and Facts. Carnegie Endowment for International Peace. Mekonnen, Shimelse and Uri Dadush (2011) Whither Africa? Carnegie Endowment for International Peace, Policy Outlook. Eichengreen, Barry (2023) International Finance and Geopolitics. Asian Economy Policy Review. https://doi.org/10.1111/aepr.12436 International Trade Centre (2022) Enhancing Africa's Agricultural Exports to China. ITC, Geneva. https://intracen.org/file/africa-agri-exports-chinafinalweb2pdf O'Neill, Jim (2023) Does an Expanded BRICS Mean Anything? Project Syndicate. 25 August. https://www.project-syndicate.org/commentary/brics-expansion-potential-and-limitations-by-jim-o-neill-2023-08 Pettis, Michael (2018) Beijing's Three Options: Unemployment, Debt, or Wealth Transfers. The Carnegie Endowment for International Peace. https://carnegieendowment.org/chinafinancialmarkets/77178 Statista (2023) China's African Trade Takeover. Accessed on 27 August 2023. https://www.statista.com/chart/26668/main-import-countries-sources-africa/ Vogel, Steven and Neil Fligstein (2020) Political Economy After Neoliberalism. The Boston Review. 6 October. https://www.bostonreview.net/articles/political-economy-after-neoliberalism/ Xinhua News (2018) 习近平：未来对非重点实施 "八大行动" (Xi Jinping: Implementing the "Eight Major Actions" for Africa in the Future). 3 September. http://www.xinhuanet.com/world/2018-09/03/c_129946121.htm Yahoo News (2023) China's Africa ties: Why food is the new focus. 19 March. https://www.yahoo.com/lifestyle/chinas-africa-ties-why-food-093000913.html?guccounter=1 Yang, Zi (2018) Securing China's Belt and Road Initiative. The United States Institute of Peace. 26 November. https://www.usip.org/publications/2018/11/securing-chinas-belt-and-road-initiative Zhang, Yuhan (2018) The US–China Trade War: A Political and Economic Analysis. Indian Journal of Asian Affairs, 31(1/2): 53-74. https://www.jstor.org/stable/26608823 Zhang, Yuhan and Cheng Chang (2021) Modeling the US-China Trade Conflict: A Utility Theory Approach. Journal of Applied Mathematics and Computation, 5(2): 84-88. http://dx.doi.org/10.26855/jamc.2021.06.003 Zhang, Yuhan (2023) China's 5G and supercomputing industrial policies: A critical (comparative) analysis. Global Policy. https://doi.org/10.1111/1758-5899.13239

The genesis of contemporary currency swap mechanisms can be traced back to the mid-20th century. Under the Bretton Woods system, the burgeoning international payment deficit of the U.S. necessitated strategic countermeasures. In an endeavor to stave off speculatory attacks on the dollar and mitigate gold drainage, the Federal Reserve, in the nascent years of the 1960s, forged an inaugural swap nexus with select European nations, Canada, and the Bank for International Settlements. Following the dissolution of the Bretton Woods system, the purpose of the Federal Reserve's currency swaps changed, using them as crisis-response monetary policies. For instance, following the 2008 global financial crisis, in order to maintain the stability of the international financial market and address the dollar liquidity issue, the Federal Reserve ratified bilateral currency swap accords with a plethora of global monetary institutions. By channeling dollars to multinational banks via these central banking conduits, a liquidity exigency was assuaged. During the recent global COVID-19 pandemic, bilateral currency swaps once again played a significant role. In contrast, China's bilateral currency swaps primarily aim to stimulate international trade and foreign investments, propel the internationalization of the RMB, and gradually de-dollarize amidst the backdrop of international geo-economic competition. Furthermore, the duration of RMB swap arrangements is typically prolonged, with some analyses indicating an average span of approximately three years. Geographically, China's currency swaps encompass a more expansive array of countries. The figure below shows the global coverage of currency swaps with China and the United States. Countries and regions colored in red have consummated currency swap agreements with China's central bank (PBOC); those in blue have engaged in such accords with the U.S. Federal Reserve; and those illuminated in yellow have ratified swap agreements with both China and the United States. Source: China Merchants Securities, accessed on 6 August 2023 For China, there are several salient advantages associated with RMB swap lines: Trade Enhancement and Diversification: The facilitation of direct currency exchange acts as a countermeasure against the overreliance on dominant international currencies, notably the U.S. Dollar. Such a mechanism not only streamlines trade transactions between China and involved countries, especially in the Belt and Road Initiative (BRI), but also fosters economic interdependence and diversification of currency reserves. Bolstering Financial Resilience: In times characterized by liquidity constrictions or pronounced financial volatility, the accessibility of RMB becomes an invaluable buffer. This accessibility is pivotal in fortifying the resilience of the local economy, ensuring the continuity of financial activities, and anchoring the stability of indigenous financial markets. Strategically Advancing RMB's Global Stature: The establishment of these swap lines aligns with China's aim to gently enhance the global recognition of its currency. As more countries consider incorporating RMB into their trade and investment practices, it naturally augments the currency's role in the international financial landscape. However, this evolution should not be construed as an unequivocal indication that the RMB will ascend to preeminent international currency status in the imminent horizon. Although the dominance of the dollar will “inevitably decline”, the currency configuration for cross-border transactions remains dominated by the dollar and the euro. In addition, as Barry Eichengreen argues, currencies of smaller economies may play an increasingly important role as a result of emergent technologies, hinting at a paradigm shift in the international monetary order from a history punctuated by the predominant influence of major powers.

China’s supercomputing industry adeptly adapted to US embargoes in 2015 by pivoting to domestically produced components, but its 5G industry failed to do so when faced with similar US sanctions in May 2019. This column argues that while China’s supercomputing industrial policies were well designed, with the central government accentuating the acceleration of upgrading the entire industrial chain, its 5G industrial policies, particularly from 2015 to May 2019, misdirected companies and investors, hampered optimal resource distribution, and skewed industrial progression. Immense national economic resources and state intervention may not necessarily translate into industrial advancement and technological superiority. Industrial policies, once scoffed at by mainstream economists, have surged in prominence over the last 15 years, a trend magnified following the 2008 global financial crisis (Rodrik 2010, Vogel 2021). Within the recent five-year context marked by the ongoing US-China trade war and great power high-tech rivalry (Zhang 2018, Zhang and Chang 2021, Eichengreen 2023), an increasing number of countries have augmented their reliance on industrial policies in a bid to bolster international competitiveness. Significantly, the Chinese central government has ardently promoted two strategic high-tech industries – 5G and supercomputing – with robust industrial policies. Intriguingly, while the supercomputing industry adeptly adapted to US embargoes in 2015 by pivoting to domestically produced components as alternatives to US imports, China's 5G industry failed to do so when faced with similar US sanctions in May 2019. Why could the 5G industry not produce key upstream components, whereas the supercomputing industry could? Centralised governance in China exerts an influential grip over its economic, business, and social activities (Lardy 2019, Lee and O’Brien 2021). Previous scholarship has shown the causal effects of industrial policies on China’s domestic industrial development (Lin 2017, Wang et al. 2022). Building upon the existing literature, in my recent paper (Zhang 2023), I address this puzzle with a focus on China’s central government-level 5G and supercomputing industrial policies. I also endeavour to provide insights into the driving factors steering these policies. It is imperative to clarify that I do not solely attribute the divergent outcomes to industrial policies; however, devoid of a critical examination of the 5G and supercomputing industrial policies, one remains bereft of a comprehensive understanding of the disparate development trajectories of the aforementioned industries. Further, an in-depth analysis of the Chinese 5G and supercomputing industrial policies can contribute to academic and policy debates on the efficacy of industrial policies, especially how they should be practiced (Rodrik 2010, Kalouptsidi et al 2019). Prior to presenting the discoveries, it is worth noting that both the 5G and supercomputing industries encompass upstream, midstream, and downstream segments. In the Chinese context, upstream refers to the research and development (R&D) and the production of core components such as 5G and supercomputing chips and software. Midstream signifies infrastructure construction like 5G networks, base stations, and supercomputing centres. Downstream points to applications and related services. Notably, the upstream segment is crucial for enabling 5G infrastructure construction and the operation of supercomputers. Divergent 5G and supercomputing industrial policies Using natural language processing, a machine-learning technique, and qualitative content analysis based on meticulously collected official documents and secondary sources, I identify salient policy differences. The principal findings are as follows. First, China commenced the promulgation of 5G industrial policies in 2015. Before May 2019, these policies were significantly unbalanced. Within the corpus of twelve official documents from 2015 to May 2019 concerning 5G, words epitomising midstream and downstream activities – such as commercial application, network, and industrialisation – overshadowed their upstream counterparts, indicating that the central government put much less weight on the upstream than the midstream and downstream. While these documents sporadically mentioned phrases associated with 5G chips and components, signalling a modicum of attention to the upstream segment, a careful review reveals that merely four documents (33.3%) mentioned developing the upstream, whereas seven (58.3%) and a staggering twelve (100%) championed midstream and downstream advancements, respectively. Alarmingly, the scant references to 5G chip development were bereft of specificity, leaving a void in strategic prioritisation. Consequently, Chinese upstream companies lacked incentives and sufficient resources, thereby either focusing on labour-intensive production or relying on purchasing foreign core components. Second, in stark contrast, supercomputing industrial policies were well designed, with the central government accentuating the acceleration of upgrading the entire industrial chain. The most commonly used words in the policy documents were intellectual property rights, research, technology, independence, infrastructure, and industrialisation. These documents also highlighted the development of essential parts, software innovation, and integrated circuits. The 863 Program – a national-level industrial policy spanning from 1986 to 2016 – played an indispensable role in achieving technological independence in the supercomputing industry. This programme birthed an expert responsibility system, ensuring the supercomputing industrial policy advice and design by the experts resonated with the overarching vision of the central government. It also made government-funded public entities instead of private companies the dominant player in the research, development, and deployment of supercomputers. Such an arrangement prevented the problem we have witnessed in the case of 5G development. Public entities’ objective was not to reap short-term economic profits; rather, they served Chinese national interests and focused on long-term technological advancement. Third, from 2021 onward, a marked inflection was discernible in the 5G industrial policies, specifying the types of 5G chips China aspired to indigenously produce. Certain policy documents have explicitly demanded comprehensive R&D encompassing not just the chips but also other upstream components. This policy shift had immediate effects, driving more Chinese companies to flock to the upstream and develop their own components with venture capital funding. However, an analytical overview intimates that the overall policy attention devoted to the upstream segment remains much lower (28.6%), in contrast to the midstream (64.3%) and downstream (92.9%). Motivations for the policy divergence Drawing from political economics frameworks, I point out that domestically, the allure of swift GDP augmentation stemming from 5G infrastructure investments and downstream applications juxtaposed against the resource-intensive and high-risk nature of upstream research largely influenced policy choices. Internationally, a propitious environment made it easy for China to import key 5G upstream components. Consequently, China’s 5G policies between 2015 and May 2019 exhibited an inadvertent sidelining of upstream endeavours. Although policies have started to rebalance since 2021, significant challenges in internal economic transitions (Zhang 2011, Pettis 2021) coupled with exogenous supply shocks (Freeman and Baldwin 2022) rendered infrastructure investment and commercial applications the sole viable conduits for economic growth. In contrast, a confluence of international antagonism, domestic impetus, and Deng Xiaoping’s imprimatur shaped the Chinese supercomputing policy landscape and trajectory in its own unique way. On the international front, the lingering animosities of the Cold War era in the 1980s galvanised an unwavering commitment among the Chinese top leaders and strategic scientists to indigenously develop high technologies including supercomputers. At the heart of this domestic confluence was Deng Xiaoping, China’s paramount leader of the era, who decisively spearheaded the 863 Program that spanned three decades and cast a long shadow over China’s supercomputing-related industrial policies. Lessons learned Many scholars accept the claim that industrial policy can successfully promote the development of targeted industries. My analysis, however, shows that China’s 5G industrial policies, particularly from 2015 to May 2019, misdirected companies and investors, hampered optimal resource distribution, and skewed industrial progression. This observation further implies that immense national economic resources and state intervention may not necessarily translate into industrial advancement and technological superiority. A salient takeaway centres on the imperative of formulating astute industrial policies. For strategic high-tech industries critical for economic growth and national security, industrial policies should not overlook the development of any segment of the industrial chain. Core components and technologies need to be self-built. Furthermore, the nature of these strategic sectors mandates profound governmental stewardship rather than a sheer dependence on market dynamics. The strategic amalgamation of national resources, leveraging national labs and publicly funded academic institutions for pioneering R&D endeavours, instituting stringent oversight and accountability frameworks, and fostering symbiotic alliances with technically adept enterprises can collectively engender well-balanced industrial evolution. This point finds strong resonance in the trajectory of China’s supercomputing industry. Lastly, as countries increasingly recalibrate their industrial policies, the foundational tenets of the liberal international economic order (Roland 2021) are under threat. Industrial policies such as local content requirements and high-tech export restrictions thwart foreign countries’ access to domestic markets, impede the unfettered dissemination of knowledge and technology, and engender geoeconomic rivalry. This column was originally published by VoxEU.org on August 25, 2023. It can be accessed at https://cepr.org/voxeu/columns/industrial-policy-strategic-industry-case-chinas-5g-and-supercomputing-industries References Eichengreen, B (2023), “International Finance and Geopolitics”, Asian Economic Policy Review 9999: 1-17. Freeman, R and R Baldwin (2022), “Global supply chain risk and resilience”, VoxEU.org, 6 April. Kalouptsidi, M, N Zahur, and P J Barwick (2019), “Industrial policy: Lessons from China”, VoxEU.org, 11 September. Lardy, N (2019), The State Strikes Back: The End of Economic Reform in China, The Peterson Institute for International Economics. Lee, S and Kevin O’Brien (2021), “Adapting in difficult circumstances: protestant pastors and the Xi Jinping effect”, Journal of Contemporary China 30: 902-914. Lin, J Y (2017), “Industrial policy and China’s economic development: from the perspective of new structural economics”, Fudan Journal of the Humanities and Social Sciences 10: 419-429. Pettis, M (2021), “China’s private sector is a victim of the CCP’s growth model”, Carnegie Endowment for International Peace, 24 November. Rodrik, D (2010), “The return of industrial policy”, Project Syndicate, 12 April. Roland, G (2021), “China’s rise and its implications for International Relations and Northeast Asia”, Asia and the Global Economy 1(2): 100016. Vogel, S (2021), “Level Up America: The Case for Industrial Policy and How to Do it Right”, Niskanen Center, 28 April. Wang, X, K Sun and Z Xiao (2022), “Industrial policy and the rise of China’s strategic emerging industries”, American Economic Association. Zhang, Y (2011), “China’s economic growth ‘miracle’ and its outlook by 2020”, VoxEU.org, 13 November. Zhang, Y (2018), “The US–China Trade War: A Political and Economic Analysis”, Indian Journal of Asian Affairs 31(1/2): 53-74. Zhang, Y and Cheng Chang (2021), “Modeling the US-China Trade Conflict: A Utility Theory Approach”, Journal of Applied Mathematics and Computation 5(2): 84-88. Zhang, Y (2023), “China’s 5G and supercomputing industrial policies: A critical (comparative) analysis”, Global Policy 00: 1-14.

The Chinese central government has greatly supported two strategic high- tech industries: 5G and supercomputing. However, when both encountered similar U.S. sanctions, the 5G industry failed to make crucial upstream components while the supercomputing industry could. This article argues that the central government- level industrial policies contributed to these divergent outcomes. Using natural language processing and qualitative content analysis of meticulously collected official documents and secondary sources, key policy differences were identi-fied. Before the U.S. sanctions in May 2019, China's 5G industrial policies were significantly unbalanced, with inadequate attention given to research and devel-opment of vital upstream components, contributing to a lack of upstream invest-ment. Although recent attempts to rebalance 5G industrial development since 2021, the policy focus remains largely on the mid and downstream segments. In contrast, before the U.S. sanctions in 2015, the supercomputing industrial poli-cies emphasised the development of the entire industrial chain, including crucial upstream components, resulting in China's possession of entirely homegrown supercomputers. Leveraging a tri- level analysis framework rooted in political eco-nomics, this study also offers possible explanations for the policy divergence and discusses implications. It contributes to the existing literature and ongoing debate on China and industrial policy amidst great power high- tech competition. This article was published by the SSCI-indexed Global Policy in July 2023, which can be accessed at https://doi.org/10.1111/1758-5899.13239 .

On 11 November 2022, the People's Bank of China and the former Banking and Insurance Regulatory Commission jointly issued the "Notice on Doing a Good Job in Current Financial Support for the Stable and Healthy Development of the Real Estate Market" (《关于做好当前金融支持房地产市场平稳健康发展工作的通知》), outlining 16 supporting policies, aimed at "maintaining orderly and stable real estate financing, improving financial services for building handover, handling risks of distressed real estate companies, and increasing financial support for housing rental". Since then, China's overall real estate policy has relaxed. On 10 July 2023, the People's Bank of China and the National Financial Supervision and Administration Bureau issued an additional notice to extend the policy period, reaffirming Beijing's commitment to supporting the "healthy development" of the real estate industry. The policy extension involves two key points: 1. Financial institutions were encouraged to actively support existing real estate development loans and trust loans, using methods such as loan extensions and adjusted repayment arrangements. Loans due before December 31, 2024, could be extended for an additional year without changing their classification. 2. For commercial banks adhering to Notice (2022) requirements, loans issued to support the delivery of unfinished projects before 31 December 2024 will not be downgraded in risk classification during the loan term. For newly issued loans that become non-performing, the related institutions and personnel who have fulfilled their duties can be exempted from liability. Despite the perceived moral hazard and the hurdle it presents to China's desired consumption-driven economic development model, Beijing's persistent policy support for the real estate industry raises the question: why does the Chinese government staunchly back this industry? Three political-economic explanations shed light on this conundrum. Firstly, sustaining economic growth is the primary national interest in China. As per the Proposal from the Fifth Plenary Session of the 19th Central Committee of the Chinese Communist Party, China aims to become "a medium-level advanced nation" by 2035. China is now in the process of rapid urbanization and industrialization. Even though the country's GDP growth rates are expected to be lower in the foreseeable future than in the last three decades, the government still aims to maintain modest growth rates of around 4-5% per annum. These targets reflect the Chinese top leadership's strong will to sustain the Kuznetsian modern economic development and the political legitimacy of the Chinese Communist Party. Over the past decade, the real estate industry has significantly contributed to China's "economic miracle", accounting for an average of 13.4% of GDP since 2013 (Figure 1). Figure 1. Real Estate Industry's Investment as % of GDP in China Source: Author's analysis from China's National Bureau of Statistics Assuming a total consumption coefficient of approximately 0.6, the real estate industry's total contribution to China's GDP in 2022 was estimated at 17-18%. Given the unstable external environment and the challenges of domestic economic transition, high-level fixed asset investment and support for the real estate industry appear to be the Chinese government's most viable options for the near and medium term. Secondly, Chinese local governments rely heavily on revenues generated from selling land to real estate developers. This land sales revenue forms a substantial part of the Chinese local governments' income (Figure 2). When adding taxes, the real estate industry contributes nearly 40% of the government's fiscal income. The fiscal income from the real estate developers is utilized for local economic development, including infrastructure projects. These infrastructure developments, in turn, attract further investments, stimulate local economies, and create jobs, forming a cycle of economic growth. As a rational player, the Chinese government, especially at the local level, has strong incentives to support and stabilize the real estate industry. Figure 2. Land Sale Revenue as % of Government Fiscal Income in China Source: Author's analysis from China's Ministry of Finance; note that with taxes, China's real estate industry accounts for nearly 40% of the Chinese government's fiscal income. It is certainly true that the land-sales-focused fiscal system could potentially lead to a myopic view in governmental decision-making, with an over-reliance on the real estate sector that has already led to an imbalance in the broader economy and raised concerns about long-term sustainability. Still, as a significant source of government fiscal revenue, the real estate sector is favored even at the expense of other vital sectors. Thirdly, the real estate industry employs a significant portion of the workforce. According to the Fourth National Economic Census, as of 2018, the industry directly employed 12.64 million people, a 44% increase compared to the end of 2013. Considering the housing construction industry, which employed 35.91 million workers, the total number of people in real estate-related jobs in 2018 was close to 49 million. During times of economic hardship, the role of the real estate industry as a significant employment support becomes exceptionally crucial. Over the last five years, due to the U.S.-China trade war, the pandemic, and domestic deflationary pressure, China's surveyed unemployment rates in 31 large cities have increased more than 12% to 5.5%. More notably, surveyed unemployment rates of workers between 16 and 24 years old have spiked 86% to 20.8% (Figure 3). If widespread unemployment were to occur within the real estate industry, the consequences could be far-reaching, causing more extensive economic damage and social problems. Therefore, the resilience of the real estate industry is of paramount importance for the Chinese government to stabilize the Chinese economy and society for the foreseeable future. Figure 3. Surveyed Unemployment Rates in China Source: Author's analysis from China's National Bureau of Statistics In summary, despite the Chinese government's insistence that "houses are for living, not for speculation" to curb speculative bubbles in the real estate industry, it has consistently supported this sector due to its crucial role in underpinning China's GDP, generating governmental fiscal revenue, and preserving employment. The government is likely to continue propping up the real estate industry to prevent systemic issues in the foreseeable future. Twelve years ago, I argued in a VoxEU article that the path of China's economic transition would be bumpy. My current analysis suggests that the journey remains challenging and prolonged. The real estate sector, while it has been instrumental in China's rapid economic growth, presents complex challenges in the context of this transition. Balancing economic stability, employment preservation, and the prevention of speculative bubbles has been and will continue to be a delicate task.

The ongoing trade war cannot achieve the outcomes that President Donald Trump desires and it could be avoided by resolving the structural trade imbalances and undertaking enduring and effective strategic communications. First, the trade war cannot significantly reduce or eliminate the current account deficit1 of the US. The capital account can drive the current account, and the US capital account surpluses persist due to the country’s sublime capital markets and inflows of foreign excess savings. Second, it is almost impossible to impede China’s technological advancement. Technology development can increase China’s gross output, especially the wages of skilled laborers, which is essential for China’s much-needed consumption-driven economy. This, in turn, is crucial for reducing China’s excess savings. The Chinese government possesses an unyielding determination and capacity to advance technologies. It is worth noting that stifling China’s technological advancement will likely be detrimental to the aim of trade rebalancing. Pursuing the goals simultaneously – fixing the trade imbalances and halting China’s technological advancement – will be challenging as they are counteractive. Surely, the trade war strikes the vulnerable Chinese economy. In order to fix the trade imbalances as well as to end and avoid the war, China must step up economic reforms. In the immediate run, it needs to prevent the further devaluation of China’s renminbi (RMB) and raise its interest rate. The US might need to reduce the capital account surpluses by allowing and encouraging foreign central banks to accumulate a synthetic currency instead of the US dollar. It is also imperative that both countries return to the negotiating table. Both countries need to accurately communicate their “bottom lines” and correctly interpret each other’s signals. This research article went through a rigorous peer-review process and was published by the Indian Journal of Asian Affairs in 2018.

Since 2018, the United States has been responding to China’s meteoric economic rise and its own relative decline with a slew of protectionist policies, such as subsidies, at-the-border and behind-the-border trade barriers, and foreign investment restrictions. These policies have naturally elicited retaliations[i] from the Chinese government. As a result, over the last few years, great power competition between the United States and China has intensified. However, despite this intensification in competition and increase in trade protectionism, bilateral trade and investment have not diminished. What explains this contradictory phenomenon? Despite the ongoing U.S.-China trade war, U.S. exports to China in 2021 witnessed a 21.4% increase to $151 billion. U.S. imports from China also increased by 16.5% to $506 billion. More notably, U.S. trade with China in 2021 rose above the prior five-year average.[ii] Last year, bilateral trade continued to grow. China remained the top source of U.S. goods imports, which reached $537 billion in 2022. In the same year, U.S. goods exports to China exceeded $153 billion.[iii] The top commodity sectors in U.S.-China bilateral trade are Machinery and Mechanical Appliances, Chemicals, Plastics, Rubber, and Leather Goods.[iv] It is undeniable that both the Trump and Biden administrations have strengthened export controls to China. Still, the U.S. Bureau of Industry and Security approves the majority of Chinese export and re-export license applications. Between 2017 and 2021, approved licenses for tangible items, software, and technology to China increased impressively from approximately 3,000 to nearly 4,000, although the average processing time doubled over the five years[v], suggesting that U.S. scrutiny has indeed become stricter. On the investment front, despite tougher regulations such as the U.S. Foreign Investment Risk Review Modernization Act and Chinese Measures on National Security Review of Foreign Investment,[vi] foreign direct investment in the United States from China increased from $35.4 billion at the end of 2018 to $38.5 billion in 2021.[vii] Moreover, Chinese venture capital investments in the United States increased to $3.2 billion in 2020 from $2.3 billion in 2019. More than half of these investments were in the Health, Pharmaceuticals, and Biotechnology sector.[viii] In the meantime, U.S. investments in China also have not diminished. U.S. foreign direct investment in China was $123.9 billion in 2020, a 9.4% increase from 2019[ix]. In the artificial intelligence sector alone, from 2015 to 2021, U.S. investors accounted for 17% of global investment transactions into Chinese companies. In addition, 37% ($40.2 billion) of the total capital raised for Chinese artificial intelligence companies involved U.S. investors.[x] U.S. multinationals such as McDonald’s, Starbucks and Ralph Lauren are expanding – rather than pulling back – their investments into China.[xi] One explanation for the continuing trade and investment ties between the two countries is that both countries are deeply embedded in the global supply chains, making “decoupling” nearly impossible in the near and medium term. Another reason for continuous two-way investments is that both the U.S. and Chinese markets are enormous. Profit-driven companies in both countries are incentivized to continue doing business with one another. The third reason is that there is a bidirectional causal relationship between foreign investment and trade.[xii] Finally, multinational firms (including U.S. firms) remain bullish on the long-term growth prospects of China’s huge consumer market – the second largest in the world. In the future, from a neoliberal economic perspective, and if both countries want to maximize economic gains for themselves, both the United States and China need to strengthen trade and investment through bilateral and multilateral channels. At the bilateral level, not only should high-echelon officials communicate with each other, but—perhaps more importantly—influential multinational corporations also need to engage with local communities. Wanxiang America is a good example of how a company can maintain responsible stewardship and successfully navigate great power rivalry. As a subsidiary of China-based company Wanxiang Group, it has invested massively in the U.S. market, including the automobile and clean energy sectors; created numerous American jobs; and donated roof-top solar panels to more than fifty American schools.[xiii] With more community-based companies emerging, mutual understanding and economic interconnectedness will be entrenched and reinforce each other, moving both countries toward a cooperative equilibrium. At the multilateral level, many platforms, such as the World Trade Organization, Indo-Pacific Economic Framework, and the Regional Comprehensive Economic Partnership, are either ineffective or exclusive. Yet the World Economic Forum and G20 Summit can play an important role in establishing a direct line of communication by providing a venue for policymakers to meet, reduce misperceptions, and correct misinterpretations of each other’s strategic intentions and policies. For instance, Chinese Vice Premier Liu He recently delivered China’s investment pitch in Davos, making it clear that “foreign investments are welcome and the door to China will only open up further,”[xiv] which will likely boost investors’ confidence and promote bilateral economic cooperation. Likewise, when the U.S.-China relationship seemed to be in freefall on the heels of Nancy Pelosi’s visit to Taiwan, the meeting between Xi Jinping and Joe Biden during the G20 Summit in November 2022 may have helped to get it back on track. While many are concerned about great power competition and pessimistic about U.S.-China relations, the silver lining is that two-way trade and investments remain. Now it is high time for both sides to use bilateral and multilateral avenues to further such cooperation, which will benefit not only the great powers themselves but also the international community at large. This article was originally published by the Asian Peace Program of the National University of Singapore in March 2023. References: [i] Yuhan Zhang and Cheng Chang, “Modeling the US-China Trade Conflict: A Utility Theory Approach,” Journal of Applied Mathematics and Computation 5, no. 2 (2021): 84–88, https://doi.org/10.26855/jamc.2021.06.003. [ii] Bureau of Industry and Security, “U.S. Trade with China” (Washington D.C.: U.S. Department of Commerce, 2021), https://www.bis.doc.gov/index.php/country-papers/2971-2021-statistical-analysis-of-u-s-trade-with-china/file. [iii] Mary Kate Carter, “The Year in Trade: Diving Into the 2022 Numbers,” February 16, 2023, https://www.uschamber.com/international/the-year-in-trade-diving-into-the-2022-numbers. [iv] Bureau of Industry and Security, “U.S. Trade with China.” [v] Bureau of Industry and Security. [vi] Yuhan Zhang, “The Death of US–China Climate Cooperation,” Global Policy Journal, January 17, 2023, https://www.globalpolicyjournal.com/blog/17/01/2023/death-us-china-climate-cooperation. [vii] U.S. Bureau of Economic Analysis, “Foreign Direct Investment in the U.S.: Balance of Payments and Direct Investment Position Data | U.S. Bureau of Economic Analysis (BEA),” July 21, 2022, https://www.bea.gov/international/di1fdibal. [viii] Thilo Hanemann et al., “Two-Way Street – US-China Investment Trends – 2021 Update” (New York: Rhodium Group, May 19, 2021), https://rhg.com/research/twowaystreet-2021/. [ix] Office of the United States Trade Representative, “The People’s Republic of China,” accessed February 22, 2023, https://ustr.gov/countries-regions/china-mongolia-taiwan/peoples-republic-china [x] Emily Weinstein and Ngor Luong, “U.S. Outbound Investment into Chinese AI Companies” (Washington D.C.: Georgetown University, February 2023), https://cset.georgetown.edu/publication/u-s-outbound-investment-into-chinese-ai-companies/. [xi] CGTN, “US Companies Plan China Expansions, Eyeing Big Growth in China: WSJ”, February 27, 2023, https://news.cgtn.com/news/2023-02-27/U-S-companies-plan-China-expansions-eyeing-big-growth-in-China-WSJ-1hLveGpVY6k/index.html. [xii] Yuhan Zhang, “The US–China Trade War: A Political and Economic Analysis,” Indian Journal of Asian Affairs 31, no. 1/2 (2018): 53–74, https://www.jstor.org/stable/26608823. [xiii] Wanxiang America, “Wanxiang America, Inc.: Automotive Parts Manufacturer | Bearings, Drivelines | China-US Trade Facilitator | Solar Panel Manufacturer | LED Lamp Manufacturer,” accessed February 19, 2023, https://www.wanxiang.com/. [xiv] World Economic Forum, “中华人民共和国国务院副总理刘鹤在世界经济论坛2023年年会上的特别致辞 (Special Address by PRC’s Vice Premier Liu He at the World Economic Forum 2023 Annual Meeting),” 世界经济论坛, January 17, 2023, https://cn.weforum.org/agenda/2023/01/am23-special-address-china/.