U.S.-China trade talks centre on rivalry over technology

Chinese and U.S. officials met face-to-face Thursday in an attempt to resolve a dispute over technology that has taken the world's two largest economies the closest they've ever come to a trade war.

A high-powered U.S. delegation arrived in Beijing for talks with Chinese officials aimed at defusing the tensions, though analysts say they appear unlikely to yield a breakthrough given the two sides' intensifying rivalry in strategic technologies, where China lags behind the U.S.

U.S. Treasury Secretary Steven Mnuchin is leading the group, which includes Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer. Liu He, President Xi Jinping's top economic adviser, headed the Chinese side in the talks, which are expected to end Friday.

The dispute has deepened as China has stepped up efforts to overtake western industry leaders in advanced technologies, especially for semiconductors, the silicon brains required to run smartphones, connected cars, cloud computing and artificial intelligence.

Under Xi, a program known as "Made in China 2025" aims to make China a tech superpower by advancing development of industries that in addition to semiconductors includes artificial intelligence, pharmaceuticals and electric vehicles. The plan mostly involves subsidizing Chinese firms. But it also requires foreign companies to provide key details about their technologies to Chinese partners.

U.S. President Donald Trump is seeking to cut the chronic U.S. trade deficit by $100 billion US and gain concessions over the policies that foreign companies say force them to share technology in order to gain market access.

His administration has threatened to impose new tariffs on roughly $150 billion US in Chinese goods. That prompted China to announce its own tariffs on U.S. goods, and Beijing also looks unlikely to cede any ground on its strategic blueprint for technology.

"The Made in China 2025 industrial policy concerns China's long-term development plan, so the overall direction won't change at all," said Yu Miaojie, professor at Peking University's National School of Development. Yu says China would rather cut the trade deficit by importing high-tech products from the U.S. that are currently tightly restricted.

The state-run Global Times newspaper said Thursday in a commentary that it's "our sovereign right to develop high-tech industry and it is connected to the quality of rejuvenation of the Chinese nation. It will not be abandoned due to external pressure."

Washington's recent decision to ban Chinese telecom gear maker ZTE from importing U.S. components in a sanctions-related case drove home to Beijing its costly vulnerability to foreign sources for advanced microchips.

The "Made in China 2025" plan calls for domestic producers to supply 70 per cent of the country's chip demand.

The Trump administration's efforts may actually spur China to ramp up efforts to develop its domestic industry as it strives to fulfil Xi's vision, said Jian-Hong Lin, an analyst at research firm TrendForce.

China now consumes nearly 60 per cent of the world's semiconductors but supplies only about 16 per cent, according to PWC. The country spends more than $200 billion a year on foreign-made semiconductors, which in 2015 surpassed crude oil as the country's biggest import.

Experts say Chinese chipmakers are five years behind their U.S. and Asian rivals and that increasingly high technological hurdles and a meagre talent pool are hindering the effort to catch up with dominant U.S., Japanese, South Korean and Taiwanese manufacturers.

As Chinese researchers and chipmakers strive to catch up, the technology is evolving, with new materials transforming the future landscape of the electronics industry. The latest advanced chips are highly complex to make because of increasingly tiny "nodes" that make them faster and more power-efficient.e," it added.