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China tightens grip on tech sector, signals increased economic influence

China’s ruling Communist Party will play a bigger role in steering its vast technology industry, the latest sign that Beijing intends to exert more influence over swathes of the world’s No. 2 economy.

The Party will refine a mechanism through which top decision makers on the Central Committee steer technological work, according to a CCTV report on a central government meeting led by President Xi Jinping. While it didn’t go into details, the pronouncement suggests Beijing will accelerate its role in funneling resources toward priority sectors such as semiconductors and artificial intelligence in a technological race with the US.

Shares in chipmakers from industry leader Semiconductor Manufacturing International Corp. to Advanced Micro-Fabrication Equipment Inc. slid more than 2% as investors pondered the ramifications of greater state control, which has yielded mixed results so far.

Under Xi, the Party and the state-backed sector have played an increasingly important role in industries from finance to markets and technology, especially as a blistering crackdown on firms such as Alibaba Group Holding Ltd. and Ant Group Co. curtailed the power of private enterprise. That effort has only expanded during the post-Covid downturn and subsequent property crisis, as Beijing struggled to control the narrative, contain the fallout in real estate and devise stimuli to resuscitate the economy.

But many still consider the golden era of Chinese tech to be the decade before 2020, when companies including Alibaba and Tencent Holdings Ltd. delivered innovations from payments to live-streaming and short videos. “Innovation cannot be directed by the state,” said Vey-Sern Ling, managing director at Union Bancaire Privee.

Technology was just one of a plethora of issues discussed during the meeting Xi chaired, according to a readout of the event from the official Xinhua News Agency. The discussions also zeroed in on the need for consistency in policy direction — a major concern of industry players and critics who’ve complained of seeming capriciousness in regulations and a lack of coordination between different agencies.

In technology, the central government has accelerated a broad effort to elevate the state sector and drive research into scientific advancements since the US began waging a trade campaign to curb China. Xi earlier tapped his top deputy, former Vice Premier Liu He, to oversee development of China’s own chip technologies.

That’s had inconsistent results. An effort to drive semiconductor production capacity stalled under alleged graft and inefficiencies, but last year Huawei Technologies Co. stunned observers by designing an advanced smartphone chip few thought possible for China.

“To develop China’s own high-tech/semiconductor industries, China needs to pour in all the resources it has, plus more,” said Hao Hong, chief economist at Grow Investment Group. “But there is no guarantee that the state could pick the winners. There is currently excess capacity in EVs, new energy industries, among many other industries. These are the results of state-led investment. Also, the state fund investment in semis since 2017 has been largely fruitless.”

Xi and his lieutenants have consistently called for China to accelerate scientific research and replace foreign technologies with homegrown alternatives. That’s considered an increasingly vital priority as Washington escalates restrictions on China’s access to the most advanced technology and chips, especially those made by Nvidia Corp. to accelerate AI training. Bloomberg

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