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+layout: post
+title : China’s Human Capital
+author: Briana Boland, et al.
+date : 2024-06-17 12:00:00 +0800
+image : https://i.imgur.com/PVaSq5e.jpeg
+#image_caption: ""
+description: "How China’s Human Capital Impacts Its National Competitiveness"
+excerpt_separator:
+---
+
+_How will the strengths and weaknesses of China’s human capital impact national competitiveness?_ _China’s efforts to maintain economic growth, strengthen supply chains, develop strategic science, technology, engineering, and mathematics (STEM) sectors, and secure a modern military edge hinges on the ability to cultivate and utilize human capital. As the United States and other countries increasingly engage in multidomain competition with China, it is critical to start from a clear-eyed understanding of China’s human capital and Beijing’s strategy for nurturing national talent. Investments in higher education, strategic STEM sectors, and military talent demonstrate key areas in which Beijing is focusing on cultivating human capital. However, China must overcome significant obstacles to innovate as it faces substantial demographic pressures, socio-economic inequalities, and challenges to attracting and retaining top talent both domestically and internationally._
+
+
+### Introduction
+
+According to the World Bank, human capital “consists of the knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realize their potential as productive members of society.” Investments in human capital are a major driver of growth for modern economies and the foundation of national capacity to support key technology industries and unlock new scientific discoveries. China’s ability to cultivate, attract, and retain human capital — or as Beijing more commonly puts it, national “talent” — will shape its competitiveness vis-à-vis the United States as a global power and impact the future of innovation and talent on the world stage. As Chinese leader Xi Jinping has stated, “talent is a strategic resource to achieve national revitalization and win the initiative in international competition.”
+
+China’s massive population provides a foundational advantage in the supply of talent. The country’s rapid economic growth in recent decades can be directly linked to its mobilization of human capital, as China’s shift from an agrarian base to more productive industry and services sectors was enabled by a growing share of the population attaining higher education levels and entering the workforce. However, the government’s strict population control policies, which until 2016 restricted the majority of Chinese families to only having one child, left China with a rapidly aging population and declining workforce. China’s population shrank for the first time in over half a century in 2022 and fell by over two million in 2023. Birth rates have declined precipitously in recent years, from 13.6 per 1,000 people in 2016 to just 6.4 in 2023. One recent study published in The Lancet predicts that China’s population could decline by nearly 50 percent by 2050.
+
+
+
+China’s human capital challenges are not merely numerical. Xi Jinping sees “original” and “disruptive” technological innovation and self-reliance as critical to China’s future development and security. Yet as Beijing seeks to move national industries up the value chain in manufacturing, technology, and services, demand for high-skilled labor is outpacing supply. China thus faces an acute skills shortage. For example, according to the “Manufacturing Talent Development Planning Guide” released by the Ministry of Human Resources and Social Services, China will face a talent demand gap of nearly 30 million workers by 2025 in 10 key focus areas for China’s manufacturing industry — such as robotics and semiconductors — or a 48 percent shortage of skilled workers to meet demand. Moreover, persistent inequalities in education and career opportunities for rural populations, including over two-thirds of China’s youth, limit the country’s future supply of talent.
+
+
+
+This brief aims to provide a clear-eyed overview of the Chinese government’s national strategy for cultivating talent and the challenges that China’s national planners confront in their efforts to do so. First, the brief discusses foundational constraints in China’s human capital and how the government is attempting to address them. Next, it examines efforts to create talent pipelines for strategic skill sets in higher education, science and technology industries, and the military. Finally, it explores China’s prospects for attracting and retaining talent across international borders.
+
+
+### Foundational Constraints in China’s Human Capital Environment
+
+The ability of an individual to one day enter a enter lab, research institute, or corporate boardroom is impacted by government investments and regulations, societal norms, and access to opportunities that can either promote or limit that individual’s potential. In China’s domestic context, urban-rural inequities in education and mobility, policies that restrict and repress ethnic minorities, and evolving social norms represent several key constraints on China’s ability to fully tap into national talent.
+
+#### Urban-Rural Inequality
+
+Inequality between urban and rural populations in China presents a critical challenge to the country’s economic productivity and opportunities to develop human capital. As wages rise and Beijing promotes higher-value industries that require high-skilled workers, China could face major issues of structural unemployment for low-skilled workers concentrated in rural areas. Other countries that have escaped the “middle-income trap,” such as Taiwan and South Korea, tended to have higher levels of secondary education that helped transition the workforce from manufacturing to higher-value-added work. In China, low high school graduation rates, pervasive early childhood development challenges, and urban-rural divides codified in regulations such as the hukou system could limit the country’s transition to a high-skilled workforce.
+
+
+
+#### Early Childhood Development
+
+While discussions of human capital may first conjure images of PhD graduates or high-skilled tech workers, a growing field of academic study recognizes that human capital cultivation begins in childhood. As 90 percent of a person’s brain development happens by the age of five, research shows that healthy early childhood development is linked to positive long-term outcomes in health, educational attainment, future earnings, and employment — all key aspects for a strong national human capital environment. Since the 18th Party Congress in 2012, the Chinese Communist Party (CCP) has considered children a strategic component of creating a national “talent foundation” and has accordingly undertaken national planning to address issues of early childhood development and primary education.
+
+However, early childhood development still presents challenges for China. In particular, urban-rural inequality in China negatively impacts early childhood development in rural areas, evident in studies of health issues and measures of cognitive development, such as the Bayley Test. In terms of children’s health, scholars estimate that 60 percent of elementary school children in rural China are affected by anemia, untreated vision problems, or intestinal worms, all of which negatively impact their ability to learn at a critical age. Studies of developmental delays among infants and toddlers in China show that around 50 percent of rural children exhibit cognitive delays, language delays, and socio-emotional delays in early childhood. For older children of elementary and junior-high age, rates of developmental delays continue to be around 40 percent. Because of the outsized importance of the first few years of life on the development of fundamental cognitive, socio-emotional, and other abilities, low levels of cognitive development at this stage have profound effects later in life and can include behavioral problems, lower academic achievement, and decreased lifetime income. To address the root of these inequalities, prominent scholars have suggested that interventions to support childhood nutrition and cognitive development in rural areas could prove highly effective. Given that over two-thirds of China’s children come from rural areas, early childhood development is a critical issue not only for ameliorating urban-rural inequality but also for the country’s overall economic future.
+
+#### Secondary Education
+
+In the last 70 years, China dramatically expanded the reach of its education system, increasing the national literacy rate from about 20 percent in 1949 to nearly 100 percent in 2021. However, the country’s education system still faces deep-seated challenges in cultivating a high-skilled workforce. Compared to other middle-income countries, China’s high school graduation rate is low. One OECD report estimates that in 2022, as little as 36.6 percent of China’s workforce aged 25–64 years old had finished high school, a graduation rate much lower than most middle-income countries, including Mexico (44 percent), South Africa (50 percent), Malaysia (50 percent), and the Indonesia (43 percent).
+
+
+
+___`“As China’s development shifts from factor-driven to innovation-driven, talents become the first resource for development. To fully stimulate and release the talent dividend, the development of Chinese talent undertakings must shift from prioritizing quantity and scale to prioritizing quality and level.” – Shang Qianming`___
+
+For students that do complete their secondary education, future career and skill development opportunities can be limited by China’s rigid national examination system. Higher education options for Chinese high schoolers are largely determined by their performance on the “gaokao,” the high-pressure national standardized college entrance exam that acts as the single primary factor in college admission. Gaokao scores are weighed much more strongly in determining whether a student is admitted to a university than U.S. college entrance exams such as the SAT, making it extremely difficult for aspiring university students to overcome a bad gaokao score through performance on other scales such as a high GPA or extracurriculars. Designed to offer equal opportunity for students across China, and with societal roots that trace back to the imperial examination system, the gaokao also puts intense social pressure on young students and greatly limits academic options for those who perform poorly. Students who score lower on the tests can only attend programs that likely lack the alumni networks or name recognition needed to give graduates a boost in China’s competitive job market. Indeed, according to a 2017 joint study by researchers from Tsinghua University and UC San Diego, students from China’s more prestigious universities earned 30 to 40 percent more on average compared with their peers who went to lower-tier institutions, a difference that can be ascribed to better career support, networks, and name recognition by potential employers. The prestige of the gaokao also limits the national development of vocational schools, which are separate from the exam system. This lowers the quality and amount of financial resources, infrastructure, and educational personnel these schools receive and thereby reduces pathways for young people to build successful careers beyond the route of doing well on a single test.
+
+#### The Hukou System and Domestic Mobility
+
+While the magnitude of urban-rural inequalities cannot be attributed to a single regulatory system, examining China’s household registration system demonstrates how urban-rural divisions are codified in regulations that limit mobility for rural workers, thus constraining China’s ability to move workers to where their skills could be most productively applied. Adopted in the 1950s, the “hukou” system broadly divides rural and urban citizens. In effect, the system limits access to public goods for rural migrants to China’s cities, causing a host of issues for China’s internal migrants, including limiting access to urban public education, limiting access to healthcare services in cities, and discriminating against rural hukou holders in the labor market. Overall, the hukou system controls the rate of rural-to-urban migration as part of a national effort to limit risk of social instability, which generates a drag on total national economic productivity and worsens rural-urban inequality. According to a 2015 survey by the Institute of Sociology, about 80 percent of China’s students attending vocational colleges came from rural backgrounds, whereas the majority of students at top “elite” universities came from urban backgrounds (65 percent). Meanwhile, rural students made up the majority of students in “ordinary” second- and third- tier universities (56 percent), relegating many rural youths to jobs with lower salaries, fewer benefits, and less stability. This inequality in access to educational resources only hardens rural-urban inequality as the disparity is passed from older generations to younger ones.
+
+The shortcomings of the hukou system are not lost on Chinese policymakers, and both the central government and local authorities are pushing forward reform. In 2014, Beijing launched the National New-type Urbanization Plan (2014–2020), which aimed to facilitate rural migrants’ transition to urban residents. In 2021, the National Development and Reform Commission (NDRC) announced plans to relax hukou restrictions in most cities, while Hainan, Shanghai, and Hangzhou also announced relaxations on living or house-buying restrictions. Though it is too early to assess the results of the hukou reforms, the success of past efforts has been mixed. One central goal of 2014’s National New-type Urbanization Plan was to lessen the gap between social benefits enjoyed by urban versus rural hukou holders in cities, but data show that the gap has instead widened. On the other hand, research on firms exposed to hukou reform shows higher levels of labor market flexibility in cities with hukou reform. In short, though the government is taking steps to improve the hukou system, piecemeal efforts will continue to inhibit productivity and human capital development in China until there is free labor mobility.
+
+___`“Starting from the equalization of access to basic public services to implement a redistributive policy with Chinese characteristics, we can also maintain social mobility and expand the sharing of economic development in order to continuously improve the well-being of residents. The special challenge facing China is that the more ample mobility and integration of labor are hampered by the delay in the reform of the household registration system.” – Cai Feng`___
+
+#### Ethnic Inequality and Minority Policy
+
+The emphasis on social stability at the root of the hukou system also extends to government policies toward ethnic minorities. More than 91 percent of China’s population is Han Chinese, while the remainder of China’s population identifies as an ethnic minority. Significant socioeconomic inequalities between minority groups and the Han majority limit both individual opportunity for social mobility and overall national economic productivity. Studies have found that minorities are paid lower wages on average and that gaps in educational attainment play into the income gap between Han and minority groups, particularly in rural areas. As China seeks to increase the skill level of its workforce, limits on the potential of the 125 million people who identify as ethnic minorities constrain the country’s overall ability to fully utilize its human capital.
+
+However, the Chinese leadership’s ethnic minority policy emphasizes assimilation, stability, and anti-terror work as top priorities. Mass human rights abuses in Xinjiang demonstrate Beijing’s willingness to promote an increasingly repressive regime in the name of fighting terrorism and separatism, regardless of the human cost. Chinese ethnic policy varies by ethnicity and region, but by Beijing’s logic, the common thread running through all 55 of China’s ethnic minorities is their proper place as willing members in a “Chinese national family,” as defined by Xi. While official rhetoric emphasizes the benefits assimilation can bring to ethnic minority populations, it often downplays or ignores problems of cultural loss or rights abuses, as well as the social and economic costs of interethnic divisions within China.
+
+#### Limits on the Innovation Environment
+
+Alongside the policy systems and social support nets that form the basis of a strong human capital environment, social factors such as norms and popular movements can play an important role in both promoting and limiting potential. From the unique entrepreneurship culture generated in innovation hubs such as Silicon Valley to the impact of racial and economic obstacles in inhibiting innovation, sociocultural factors can both incubate innovation and create barriers for talent around the world. In China, the impacts of gender discrimination in the workplace and a new movement advocating detachment from a competitive workplace culture illustrate how social forces and trends in popular culture can limit China’s ability to fully utilize its human capital resources. Meanwhile, both the unique makeup of China’s state-centric economy and political backlash against prominent entrepreneurs indicate that the country’s environment may be trending in the direction of restricting entrepreneurial potential.
+
+An example of the impact of social movements on human capital utilization can be found in the recent popularity of the “lying flat” movement, which calls for relinquishing the stresses and ambitions of modern life. In April 2021, an online post titled “Lying Flat Is Justice” went viral in China, prompting a flurry of online discussion on the virtues of resigning from one’s job or otherwise eschewing the competitive work culture common in many tech and other high-skilled careers. While it is difficult to measure the real impact of the “lying flat” movement in prompting Chinese workers to withdraw from the workplace, survey data shows that discontent with competitive work culture is widely felt among China’s white-collar workers. In a 2019 employment trends report produced by Zhaopin, a leading career development consultancy, 80 percent of surveyed respondents said that “respect for employees” is the most important factor in corporate culture, while over 50 percent reported feeling that they needed to be on-call 24/7. Zhaopin’s 2020 employment trends report highlighted a lack of trust between employees and employers, with only 10 percent of workers surveyed reporting that they trust their employer. With an already shrinking workforce, China’s growth model can ill-afford burnout and disillusionment limiting the economic contributions of existing workers.
+
+The concrete impact of social issues on economic growth is also evident in data on gender discrimination in China’s workforce. A combination of policy and societal factors has increased barriers for women in the workforce, resulting in a rising gender gap in labor force participation rates in China. For example, while many major economies have seen the workforce gender gaps close in recent decades, China’s grew from 9.4 percent in 1994 to 14.1 percent in 2020. Policy changes such as declining numbers of state-supported childcare facilities and social factors such as bias in hiring contribute to this growing gap, resulting in underutilization of China’s female workforce.
+
+China’s entrepreneurship environment is another area in which economic and social structures may limit innovation. In an economy that stresses the central role of the government, many accomplished young Chinese graduates consider working in the state sector as their ideal job. In a sample survey conducted between 2010 and 2015 of over 30,000 college graduates from 90 colleges in China, 62.5 percent marked the government or state sector as their preferred employer. Such jobs offer safety and security that often is attractive to urban college graduates. However, the dynamism and productivity of state-owned enterprises (SOEs) tends to be lower than that of private companies. As more top talent flows to the state sector, it likely will have a dampening effect on China’s economic dynamism. While measuring lost entrepreneurial potential is difficult, research on the employment choices of accomplished college graduates does suggest a trend of top students being diverted from private sector entrepreneurship to the state sector. Along with economic incentives to enter the state sector, social pressures may also discourage would-be entrepreneurs.
+
+Particularly since Alibaba founder Jack Ma’s fall from grace in 2020, many international commentators have lamented the end of an era of relative openness for bold entrepreneurs in China amid an increasingly restrictive atmosphere for the private sector.
+
+
+### Developing Strategic Talent Pipelines
+
+The above sections discussed ways in which regulatory, demographic, and normative constraints on China’s human capital environment limit the country’s aggregate ability to develop and utilize human capital. The broad impact of these constraints can be difficult to measure, particularly at the level of specific strategic industries. A more direct line between talent cultivation and national policy priorities can be seen in government-led efforts to create domestic talent pipelines for strategic skill sets in STEM, critical technology sectors, and military expertise. Outcomes in STEM PhD growth, cultivation of artificial intelligence (AI) curricula, advances in military education, and increasing research and development (R&D) spending demonstrate areas where government policies are shaping the national human capital to increase in-demand skills and knowledge.
+
+#### Talent Pipelines in Higher Education
+
+Growing investment in the higher education system has driven research productivity at top Chinese universities and boosted their global rankings. Between 2012 and 2021, China’s Ministry of Education increased spending on higher education from $24 billion to $47 billion. Along with helping to grow the international stature of top Chinese universities (between 2010 and 2020, the number of Chinese universities listed in the top 500 on at least one global ranking more than tripled), rising investment in higher education creates pathways to promote specific in-demand skill sets, particularly in STEM. China’s growing capacity to cultivate high-level STEM expertise is evident in the increasing number of STEM doctorates produced by Chinese universities each year. By 2025, Chinese universities are projected to produce more than 77,000 STEM PhD graduates per year, more than double the 2010 level of about 34,000 STEM PhD graduates. In comparison, the United States is projected to graduate only approximately 40,000 STEM PhD students in 2025, a figure that includes over 16,000 international students.
+
+Along with increasing investment in the country’s higher education system, policymakers are instituting targeted programs to create university talent pipelines for specific skill sets such as cybersecurity, semiconductor manufacturing, and AI expertise. For example, Beijing launched a program to certify World-Class Cybersecurity Schools in 2017, which sets standards across certified schools for education in cybersecurity and allows government bodies to direct what coursework and skill development is integrated into university coursework.
+
+However, growth in STEM PhDs and Chinese university rankings may not capture the full picture of the quality of China’s higher education. One study on critical thinking and STEM skills comparing Chinese students to peers from the United States, Russia, and India found that STEM undergraduates in China actually saw critical thinking and STEM skill levels decline over four years in college, a phenomenon that scholars posit may be linked to institutional weaknesses in curricula and university program design.
+
+#### Science and Technology
+
+China aims to become a scientific and technological powerhouse by 2049. In furtherance of this goal, Beijing has directed significant resources and support for initiatives designed to attract and ensure talent cultivation in the fields of science and technology. According to the National Bureau of Statistics, $430 billion, or 2.54 percent of China’s GDP, was invested in R&D by the government in 2022, an increase of 10.1 percent from the previous year. According to the Organization for Economic Cooperation and Development, the United States allocated $720 billion to R&D in 2020. This makes China the second-largest spender on R&D in the world. China’s R&D input in 2020 consisted of around 6 percent in basic research, 11 percent in applied research, and 83 percent in experimental research. In comparison, the United States spent 15 percent of its R&D input on basic research, 20 percent on applied research, and 65 percent on experimental research.
+
+
+
+
+
+These investments have yielded results. In the 2023 World Intellectual Property Organization’s Global Innovation Index, China ranked twelfth overall, moving up two places since 2020. The country also ranked fourth in knowledge and technology outputs, just behind the United States. China also sourced the most peer-reviewed papers. While U.S. articles traditionally comprised most of the top 1 percent of the world’s most highly cited articles, studies have found that Chinese research ranked as high as or higher than U.S. work in the top 1 percent of scientific studies in 2019.
+
+However, a top-down approach to innovation coupled with growing R&D investments is no guarantee of success. According to Fitch Ratings, 49 percent of China’s corporate 2020 R&D spending came from SOEs. But compared to private companies, SOEs have been shown to have lower rates of efficiency per dollar in terms of patent output. Government allocations have been found to have crowding-out effects on private investments in Chinese R&D. A study by Boeing has shown a reduction of around 6.5 percent in private R&D investments in Chinese large to medium enterprises (LMEs) with each standard deviation of government R&D subsidies invested in LMEs. Government-directed R&D also has produced inefficient allocation of resources, following a pattern that has been evident in countries with state-guided scientific development models, tracing back to the former Soviet Union and Japan. Notably, an uptick in R&D subsidies has also correlated with an increase in the misallocation of funds by some of the recipients, which diminishes the return on investment of China’s R&D inputs. Furthermore, while Chinese research-intensive universities and firms have gained in international reputation, they still might not be enticing enough to attract the top talents among China’s diaspora given that China’s higher education institutions are not as well-known as other global knowledge production peers.
+
+
+
+
+
+#### Military Talent Programs
+
+___`“Xi Jinping pointed out that we need to reach deep to address prominent issues and problems constraining China’s military talent work, and press ahead in a coordinated way with reform and innovation in identifying, pooling, cultivating and appointing talent.” – Political Bureau of the CCP Central Committee`___
+
+Since taking power in 2012, Chinese leader Xi Jinping has pushed sweeping reforms to modernize the country’s military, including through the enhancement of the military’s human capital expertise to ensure higher levels of competency and readiness. The Sixth Plenum Resolution of the 19th Party Congress (a plenum being the annual national meeting of the top officials in the CCP for each generation of the Party Congress) called for strengthening the People’s Liberation Army (PLA) with the recruitment and training of more knowledgeable recruits and proficient talent. This had the objective of establishing a “military education policy for the New Era” (as proclaimed by Xi Jinping regarding China’s goals of modernization and development at the CCP’s 19th National Congress in October 2017).
+
+
+
+In January 2022, the Central Military Commission issued an order to enhance and modernize the country’s military talent through improving the military’s capacity and combat readiness. This statement framed the recruitment of talent as critical to the composition of the PLA by ensuring that:
+
+“. . . the barrel of the gun is always in the hands of people who are loyal and reliable to the party, will strengthen the party’s overall leadership of talent work, implement the party’s organizational line in the new era, implement the responsibility system of the chairman of the military commission, adhere to the political training and inspection of talents, and unswervingly ensure a pure selection and employment of political ecology.”
+
+Apart from requiring political adherence to CCP ideology — which some military analysts regard as hampering military effectiveness by taking time away from training to focus on the study of Marxist-Leninism and party policy lines — the government has emphasized the implementation of strong technical capabilities in the training of military personnel with the goal to, as Xi emphasizes, “make fighting and winning wars the starting point and objective of talent work.”
+
+In order to supply this expertise, China’s military has promoted incentives to recruit more educated personnel and improve human capital in the ranks, including through financial bonuses and programs to attract university graduates to enroll as officers. Indeed, one of the major weaknesses in the PLA’s human capital has been a perceived inability to attract educated recruits as wages have risen in coastal urban areas and major cities, which has made the civilian economy more appealing for young Chinese than serving in the PLA. In order to retain talented staff, the PLA offered a pay increase starting in 2017 for qualified officers which would be drawn from defense budgets that continued to grow by more than 8 percent a year. The PLA also seeks to streamline its recruitment toward a more balanced force with less emphasis on army recruitment and more focus on recruiting talent into other military branches, including the People’s Liberation Army Navy and the People’s Liberation Army Air Force, as well as training and integrating joint force operation capabilities between these branches. These efforts are being followed by new forms of training and military education. The PLA also restructured its professional military education program to increase the quality and competence of PLA personnel by updating curricular changes focusing on emerging fields such as information technology, aerospace, and computer sciences. For Beijing, these reforms in human capital recruitment and training are critical for China’s ability to field a modernized, world-class military.
+
+
+### Attracting and Retaining Talent
+
+China’s ability to retain domestic talent and attract foreign experts is another key dimension to enhancing national competitiveness. After decades of experiencing “brain-drain” of top talent leaving China to work in the United States and elsewhere, China is trying to reverse the flow to achieve “brain gain” from the rest of the world. Government efforts to incentivize foreign-educated citizens to either return to China or remain in China are well documented in “talent programs.” Immigration may seem unnecessary for a country home to nearly 20 percent of the global population, a “national condition” that opponents within China have cited in arguments against immigration. However, the ability to attract international talent can be critical for flexibility in plugging skills shortages and creating a diverse environment for innovation.
+
+#### Talent Programs
+
+The cultivation of expertise and knowledge from China’s citizens has been vital to Xi Jinping’s vision of “sharpening China’s competitive edge in human resources.” Through over 200 talent-recruitment initiatives — including the controversial Thousand Talents program and the Young Thousand Talents Program — Beijing has sought to retain Chinese tertiary education students and skilled workers through economic incentives while also making the country an attractive source for academic collaboration and professional expertise from abroad. By 2018, the Thousand Talents program had attracted nearly 7,000 experts to work in Chinese academia and institutes.
+
+Programs designed to retain homegrown expertise and incentivize overseas Chinese students, researchers, and experts to return to the country have become a key focus of Western discourse on China’s talent strategy. Western analysis of these government-sponsored programs often focuses on their roles in industrial espionage and hollowing out of industries. News stories on China’s talent programs have often focused on indictments of talent program awardees accused of making false statements about their ties to China or stealing intellectual property from Western research facilities. But overemphasizing alleged criminal cases in discourse on talent programs can have a chilling effect on scientific and academic advancement in the United States and obscure the bigger picture of talent programs as part of China’s efforts to bolster its domestic talent base.
+
+Beyond the role of acquiring expertise abroad, the success of talent programs provides insight on the elements of China’s work environment that act as either incentives or deterrents for would-be returnees. Research on efforts by Chinese government institutions, universities, and scientific organizations to attract returnee scholars underlines that beyond monetary and status incentives, non-material aspects of a research environment play an important role in attracting back returnees, such as research climate and academic relationships.
+
+Another hurdle for many foreign and returnee talents coming to China is the country’s circumscribed digital environment. In the context of the global information economy, ready access to the internet is critical to a country’s competitiveness, as open internet access allows individuals to exchange new ideas and integrate breakthroughs elsewhere to accelerate their own research. However, these restrictions have adversely impacted the ability of China’s researchers and academics to access key online resources for information, such as Google Scholar and Springer Nature, not to mention key sources of daily news about global developments, such as the New York Times and the Wall Street Journal.
+
+#### Immigration
+
+Immigration impacts a country’s ability to draw top international experts and bridge the gap in skills shortages in domestic populations, representing a key component of overall human capital competitiveness. In Xi’s own words, “China’s development needs the participation of world talents.” But with a legal framework that offers few pathways to permanent residence and with international migrants constituting only 0.1 percent of China’s total population, the country’s restrictive immigration system is a limiting factor in its access to global talent. Immigration governance reform under the Xi administration has indicated room for change in both legal frameworks and domestic perspectives on immigration. However, immigration controls since the onset of the Covid-19 pandemic point to an increasingly closed system.
+
+The 2010s saw increased momentum for reform to China’s immigration system: the State Council described the permanent resident system as an important part of the country’s human capital strategy in 2016; Xi touted the strategic wisdom of “gathering talents from all over the world” to the 19th Party Congress; and Beijing established the nation’s first national migration agency in 2018. At the onset of the Covid-19 pandemic, however, momentum shifted away from economic-minded immigration reform. Instead, border authorities turned their focus to preventing coronavirus outbreaks, a move that fell in line with broader policy trends that prioritize security and centralization over economic growth in areas that involve international exchange. Though foreign travel to China has resumed since the end of the country’s zero-Covid policy, China’s foreign population today is severely diminished from 2019 levels, and many businesses are accelerating efforts to localize high-skill jobs rather than relying on international talent to fill key roles in China.
+
+
+### Conclusion
+
+The different aspects of China’s human capital outlined in this report all link back to China’s ambitions to become a leader across multiple categories of national competitiveness. Chinese policymakers have both sizable advantages and considerable challenges in realizing the country’s ambitions. Through the statements of senior leaders and the policies that accompany them, the Chinese government clearly recognizes that the advancement of the country’s human capital resources will be pivotal to securing China’s future economic and geopolitical potential. As with other national priorities, China’s leaders likely will act with speed to concentrate significant focus and resources on elevating the productivity and innovative capacity of its workforce.
+
+China’s growing ability to attract expertise and nurture its human capital ecosystem will have important implications for U.S. policymakers and the American public alike. The more success China achieves in improving the quality of its workforce, the faster the country will innovate and the more nationally competitive China will become on the world stage. With four times the population of the United States, China does not need to match America in per capita productivity to surpass the United States economically. It merely needs to close the gap. Since the United States cannot match China in terms of quantity, it will face an even greater premium to preserve its qualitative edge in workforce talent in the years ahead.
+
+---
+
+__Briana Boland__ is a former research associate with the Freeman Chair in China Studies at Center for Strategic and International Studies (CSIS) in Washington, D.C.
+
+__Kevin Dong__ is a senior research assistant with the John L. Thornton China Center at the Brookings Institution.
+
+__Jude Blanchette__ holds the Freeman Chair in China Studies at CSIS.
+
+__Ryan Hass__ is a senior fellow and director of the John L. Thornton China Center at the Brookings Institution.
+
+__Erica Ye__ is a former intern with the Freeman Chair in China Studies at CSIS.
diff --git a/_collections/_hkers/2024-06-18-investing-in-science-and-technology.md b/_collections/_hkers/2024-06-18-investing-in-science-and-technology.md
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+---
+layout: post
+title : Investing In S&T
+author: Sujai Shivakumar, et al.
+date : 2024-06-18 12:00:00 +0800
+image : https://i.imgur.com/LPsEt0V.jpeg
+#image_caption: ""
+description: "The United States Needs to Up Its Game"
+excerpt_separator:
+---
+
+_This report highlights the serious challenge posed by China’s rapid advancements in AI, QIS, and semiconductors, emphasizing the need for policymakers to act decisively to secure the United States’ future in the global technology race._
+
+
+
+### Introduction
+
+The United States is facing a challenge to its global leadership in science and technology that is more serious than any it has confronted since gaining that position after World War II.
+
+Within the relatively short span of two decades, China has emerged as a formidable rival, mounting a concerted drive to dominate key technology-intensive sectors and increasingly matching or exceeding the United States in resources committed. At the same time, the U.S. Congress is bogged down in protracted struggles over public spending and the role of government that have engulfed needed investments in science, research, development, and education — the foundation of U.S. economic strength.
+
+The U.S. private sector remains more innovative than its Chinese competitors, but its efforts are focused on developing consumer-oriented products. Meanwhile, the centralized Chinese system concentrates sustained, long-term government support in technology areas that have direct security-related implications — namely, artificial intelligence (AI), quantum information science, and semiconductors.
+
+The U.S.-China technology rivalry, with its inherent asymmetries, has manifest strategic implications that can ultimately determine the outcome of a potential military confrontation, should one come about. Moreover, as U.S. technology leadership declines, the risks of economic and military challenges will rise.
+
+The limited appreciation of the nature of this rivalry with China was recently underscored by the failure of the U.S. Congress to appropriate the funds previously authorized for the largest part of the CHIPS and Science Act of 2022, while simultaneously cutting the budgets of key federal science and technology agencies for fiscal year 2024. This is all the more disappointing, not to say alarming, given that the same week, China announced a 10 percent increase in its already significant levels of public spending on research and development (R&D).
+
+
+### Foundational Funding for CHIPS and Science on Hold
+
+In a major shift in U.S. policy, in August 2022 Congress passed the CHIPS and Science Act (“CHIPS Act”), which authorized and appropriated nearly $52 billion in federal investments to promote the creation and expansion of semiconductor manufacturing capacity and microelectronics R&D on U.S. soil. The act also authorized tax credits initially valued (pre-passage) by the Congressional Budget Office at $46 billion through 2031 for investments in domestic semiconductor manufacturing facilities.
+
+Welcoming this legislation, the White House said it “will boost American semiconductor research, development and production,” ensuring U.S. leadership in this foundational technology.
+
+In a concrete manifestation of the program, in March 2024 the Commerce Department announced $8.5 billion in federal grants for U.S. chipmaker Intel Corporation, to be augmented by $11 billion in concessional loans to support the company’s creation of new chipmaking capacity in the United States. That came one month after the administration announced a $1.5 billion grant for foundational chips to GlobalFoundries. Since March, the process has accelerated, with awards of $6.4 billion to Samsung, $6.6 billion to Taiwan Semiconductor Manufacturing Company (TSMC), and $6.14 billion to Micron Technology for advanced DRAM (memory chip) production in the United States. These grants have unquestionably contributed to a massive surge in U.S.-based investments in semiconductor production.
+
+In addition to the $39 billion to support chip manufacturing, the CHIPS Act authorized a far larger expenditure of $174 billion for investment in the science, engineering, R&D, education, and workforce development that will underpin future advances in chip design and manufacturing, with the goal of assuring future U.S. leadership in this critical enabling industry. The principal federal recipients of these funds are to be the National Science Foundation (NSF), the Department of Energy (DOE), the Department of Commerce’s National Institute of Standards and Technology (NIST), and the Economic Development Administration (EDA).
+
+In contrast to the funds allocated to chip manufacturing, however, these funds were authorized but not appropriated by Congress.
+
+The FY 2024 congressional appropriation did not deliver on the CHIPS Act authorizations for science. Under the CHIPS Act, the NSF was to receive $81 billion over five years, doubling its budget by FY 2027, starting with $15.6 billion in FY 2024. Instead, in the FY 2024 budget, the NSF will receive just $9 billion, 42 percent of the CHIPS Act target, compounded by an 8 percent cut in its current budget. Commenting on these reductions, an NSF spokesperson observed that “it is difficult to place this in the context of the rapid, large-scale science investments by our competitors such as China with the express purpose of outcompeting the United States.”
+
+The FY 2024 budget also features additional funding cuts funding to NIST and the National Aeronautics and Space Administration (NASA). And looking forward, President Joe Biden’s proposed budget for FY 2025 calls for programmatic increases for NSF and NIST, but not at the levels envisioned by the CHIPS Act, in a retreat from the goals set out in the act.
+
+There is very little in the CHIPS Act benefiting the U.S. semiconductor design industry, which has recently lost major markets in China as a result of tightened U.S. export controls on chip technology to that country. U.S. design firms are not eligible for direct federal funding or investment tax credits under the act, yet they are a major source of competitive strength for the United States.
+
+Sadly, the failure to follow through on the promises of the CHIPS Act is not new. Much of the America COMPETES Act of 2007, which also authorized funding for the NSF and other federal science agencies, was never implemented.
+
+Amid the current climate of geopolitical competition with China, a similar failure to fund the CHIPS Act provisions would represent a serious miscalculation. In the words of Matt Hourihan, a science specialist at the Federation of American Scientists, cuts “to agencies like NSF and NIST are frankly unconscionable in an era when we should be enhancing support for U.S. scientists and engineers.”
+
+
+### China’s Innovation Drive
+
+At a time when science and innovation underpin both competitiveness and national strength, the comparisons with Chinese efforts are disturbing.
+
+During the past two decades, wavering and erratic U.S. public support for science and technology stand in stark contrast with the massive and sustained Chinese effort to boost its innovation capabilities. In the 2010s, funding for R&D in the United States fell in real terms as federal spending was reduced across most categories. While these cuts satisfied short-term domestic political concerns, losses in R&D funding are not easily made up, and the effects endure. Emerging indicators suggest that China is closing the innovation gap with the United States, a development that should command the attention of U.S. policymakers and the public.
+
+In March 2024, the NSF released a report showing that while the United States still leads the world in R&D spending, with $806 billion in gross expenditures in 2021, China was close behind, at $668 billion. As recently as 2009, U.S. R&D outlays were more than double those of China (Figure 1).
+
+The NSF noted that with respect to indicators of global science, technology, and innovation (STI) capabilities, such as science and engineering (S&E) research publications, patents, and knowledge and technology intensive (KTI) industry output, “China has significantly increased its share of global STI capabilities.”
+
+China is now the top producer of S&E publications and international patents and has the largest value-added KTI manufacturing output, at $2.4 trillion in 2021, versus the United States’ $1.4 trillion.
+
+
+_▲ __Figure 1: Gross Domestic Expenditures on R&D by Selected Country or Economy, 2000–2021.__ Source: [Steven Deitz and Christina Freyman, The State of U.S. Science and Engineering 2024 (Alexandria, VA: National Science Foundation, March 13, 2024)](https://ncses.nsf.gov/pubs/nsb20243/discovery-u-s-and-global-r-d#global-r-d)._
+
+The United States has long led the world in doctorate degrees awarded each year in the S&E field (Figure 2). However, in 2020 China, with nearly 43,400 degrees, surpassed the United States, with around 41,700. While China’s larger population clearly impacts comparisons, China nonetheless far surpasses the United States in first university degrees — which are essentially equivalent U.S. bachelor’s degrees — in S&E fields, graduating two million in 2020, more than double the 900,000 in the United States. In the case of degrees, patents, and publications, qualitative differences may be significant, but the scale of China’s aggregated indicators are worth noting.
+
+The Australian Strategic Policy Institute (ASPI) national security think tank, in a 2023 analysis of research trends in 23 strategic knowledge-intensive sectors related to Australian national defense, found that China led advanced technological research in 80 percent of the sectors. ASPI found that state-led investment allowed China to surpass the United States, Europe, and Japan in areas including hypersonic, sonar, advanced underwater communications, post-quantum cryptography, and underwater drones.
+
+A January 2023 study by the Information Technology and Innovation Foundation (ITIF), a U.S.-based think tank, found that “based on key indicators of innovation and advanced-industry performance, China has surpassed the United States in total innovation output.” Among the study’s key findings were that China is threatening U.S. and allied market share in advanced, high-value-added, and national security-critical industries. China is evolving “from an imitator to an innovator,” it said, and has demonstrated the capacity for world leadership in several advanced technologies, including supercomputers and high-speed rail.
+
+
+_▲ __Figure 2: S&E Doctoral Degrees Awarded by Selected Country, 2011–2020.__ Source: Deitz and Freyman, The State of U.S. Science and Engineering 2024._
+
+A study on Chinese innovation published by Cambridge University Press in 2023 characterized China as an emerging “juggernaut in science, technology and innovation,” citing a number of factors. According to the study, by 2021 China was spending double its 2015 R&D expenditure and 56 times the amount it spent in 1995, the year the government proposed a development strategy of “rejuvenating the nation with science, technology and education” (Figure 3).
+
+
+_▲ __Figure 3: China Gross Domestic R&D, 1995–2021.__ Source: Deitz and Freyman, The State of U.S. Science and Engineering 2024._
+
+The study also found that China has the largest talent pool in the world: in 2020, the number of total undergraduate degrees awarded in China was 7.97 million, with graduate degrees totaling some 662,450 and doctorates 66,175.
+
+A 2022 study of China’s innovation policies published by Oxford University Press observed that “in absolute values, such as R&D expenditure and the number of researchers, patents, and publications, China is now ranked first or second in the world.” The study added, “Examples of its scientific and technological prowess include the development of the world’s fastest supercomputer, China’s first single-aisle jet aircraft, high speed rail networks, fifth-generation (5G) communications networks, and a demonstrated ability to land a spaceship on Mars, along with a plethora of world-leading innovations in the digital economy.”
+
+As mentioned previously, the United States continues to outspend China in gross domestic expenditure on R&D (GERD), although by a narrowing margin. The United States also outspends China in GERD as a percentage of GDP, spending 3.5 percent in 2021 compared to China’s 2.4 percent. However, these differences should not be grounds for complacency. It is notable that China’s R&D allocation differs from that of the United States, with a greater proportion of spending focused on applied research and development and more limited efforts on basic research which, through legitimate and illegitimate means, can be acquired from U.S. sources (Figure 4).
+
+
+_▲ __Figure 4: Gross Domestic Expenditure on R&D as a Percentage of GDP, United States and China, 2015–21.__ Source: [“Main Science and Technology Indicators,” OECD Data Explorer](https://data-viewer.oecd.org?chartId=80feaac0-9eac-4307-a324-921e8e1b9f70)._
+
+Importantly, U.S. R&D spending is spread out over a vast array of commercially oriented themes and industries, while Chinese investments are concentrated in several dozen strategically important high-tech sectors. Most of these sectors have defense-related implications and are focused not on the pursuit of breakthrough innovations but on the dominance of those sectors through more efficient manufacturing and commercialization of recent innovations, most commonly drawn from R&D initially conducted outside of China.
+
+
+### China
+
+_An Unprecedented Degree of Government Engagement_
+
+While government policy measures have played a key role in the development of high-tech industries in the United States, Europe, and East Asia, “the Chinese case offers a rare and unprecedented opportunity to examine state-led innovation as few other countries have intervened so systematically and invasively in their national innovation systems,” the Cambridge University Press study noted. In the United States, perennial internecine battles over the federal budget have led to continuing uncertainty over the scale and scope of the government’s innovation policies. In contrast, China’s government has pursued a consistent, long-range technology development effort for nearly two decades, albeit with adaptive adjustments for shocks such as the 2008 financial crisis, the Covid-19 pandemic, and the imposition of stringent technology export controls by the United States and its allies in and after 2022.
+
+#### The Medium and Long-Term Plan
+
+In June 2006, the Chinese government promulgated its “Medium and Long-Term Plan (MLP) for the Development of Science and Technology (2006–2020),” which the Office of the U.S. Trade Representative described in 2018 as “the seminal document articulating China’s long-term technology development strategy.” The MLP featured a panoply of government measures to promote the development of “key fields and priority subjects,” including fiscal and tax measures, preferential government procurement, and “absorption” of imported technologies.
+
+The MLP introduced the concept of “indigenous innovation,” defined as “enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies.” The concept of indigenous innovation has been carried forward in subsequent Chinese industrial developmental measures to the present day. However, indigenous is perhaps a misnomer. The 2018 study by the Office of the U.S. Trade Representative, which looked at China’s misappropriation of U.S. technology, offered extensive evidence of that assessment.
+
+Sixteen “mega projects” were created in 2006 pursuant to the MLP to “help China master the core technologies of various strategic industries, driving the indigenous innovation effort.” According to one source, the government planned to invest $100 billion in these projects between 2006 and 2020. The megaprojects were tasked with the “assimilation and absorption” of technologies imported from outside China.
+
+The MLP is a well-focused, well-funded, long-term effort supported by the Chinese government’s 11th, 12th, and 13th Five-Year Plans (2006–2020) for economic development. In addition, between 2006 and 2008, central government agencies published 79 innovation policies designed to implement the MLP, including sector-specific plans for key industries like semiconductors and renewable energy equipment.
+
+#### Made in China 2025
+
+Reflecting the continuity of these plans, in May 2015 the Chinese government announced its Made in China 2025 strategy, a 10-year, $300 billion plan for promoting manufacturing that “brought together all existing policies across related fields, some of the ‘strategic emerging industries,’ and targeted priorities in automation, IT, robotics, AI, and much more under one umbrella.” The Made in China 2025 strategy remains “consistent with the goal of ‘indigenous innovation.’”
+
+It is also a remarkably ambitious strategy. With a goal of achieving global dominance in key technologies, it sets market share targets for designated industries and seeks to localize supply chains for those industries. China has set a target of being able to provide 70 percent of the key materials and components from domestic sources by 2025.
+
+Funding for the strategy is equally ambitious. A prodigious volume of central and regional government funds flowed through many channels to participating firms in the form of equity investments, loans from government financial institutions, and huge public/private investment funds. Reflecting the government’s long-term commitment, China also established R&D centers across the country to develop priority technologies and support their commercialization.
+
+In addition, China has launched new large-scale “mega” or “high end” thematic R&D projects — described as “large scale infrastructures and expensive funding initiatives in strategic industries and frontier technologies” — continuing a policy tool introduced under the 2006 MLP.
+
+China has also set targets for achieving “green” and “smart” manufacturing in the key sectors, incorporating digital technologies in the effort, with the government designating “pilot demonstration projects” across the country to facilitate dissemination of newly developed technologies. These indigenous investments are complemented by government-supported investment funds that acquired foreign firms possessing technologies deemed to be supportive of China’s development effort.
+
+#### Significant Economic Impact
+
+China’s actions have proven effective and have even generated notable successes. As Professor Shirley Ze Yu, a political economist at Harvard’s Kennedy School, observed in March 2024, “Made in China 2025 is an exceptionally successful industrial strategy.” She went on to note, “In six years, China’s smartphone manufacturing surpassed 50 percent of the global market share. In eight years, China’s solar, wind and lithium battery production all rose to global dominance.” Although the Made in China 2025 strategy was initially “grossly underestimated,” it is now “considered in the West, especially in the United States, as a master plan for China to secure dominance in global technology, connected with the expansion of its global influence using the Belt and Road Initiative.”
+
+
+### China’s Innovation Vulnerabilities
+
+Despite this progress, the widespread view that China’s bid for global technological leadership is relentless and unstoppable has its share of skeptics, and in fact the recent record of innovation successes masks systemic weaknesses.
+
+#### Reliance on Foreign Research
+
+China’s total R&D spending, based on 2019 figures, allocates only around 6 percent of total outlays to basic research and 11 percent to applied research, compared with 16.6 percent and 19.2 percent, respectively, for the United States (Figure 5).
+
+The remainder is allocated to “experimental development” — that is, according to the NSF’s definition, “drawing on knowledge gained from research and practical experience and producing additional knowledge, which is directed to producing new products or processes or to improving existing products or processes.” Underfunding of basic and applied R&D presumes the continued ability to absorb foreign technology and manufacture products based on it. China’s R&D overspending on development at the expense of basic and applied research “may jeopardize the long-term prospect of the country’s scientific, economic, and social development,” scholars have found.
+
+To date, the indigenous innovation approach, drawing upon the fruits of foreign research, may have enabled China to escape the consequences of its underdeveloped basic and applied research efforts. As the Mercator Institute for China Studies (MERICS), a European think tank specializing in China, observed in March 2024, “Most of the [technology] successes China can point to have some degree of foreign inspiration. Digital giants in search, e-commerce, ride hailing and social networking started by translating U.S. models to Chinese contexts.” MERICS went on to point out, “In hardware sectors like solar panels, batteries, electric vehicles, smart phones, and commercial drones, Chinese overseas returnees and local entrepreneurs gained global market share by building on ideas and components pioneered elsewhere.”
+
+
+_▲ __Figure 5: R&D Expenditure by Type, United States and China, 2019.__ Source: Deitz and Freyman, The State of U.S. Science and Engineering 2024._
+
+But as recent events have underscored, China’s degree of access to foreign technology, especially at the cutting edge, will not necessarily continue. The Biden administration is reportedly considering blacklisting Chinese semiconductor firms linked to Huawei Technologies and imposing sanctions on Chinese memory chipmaker ChangXin Memory Technologies.
+
+In particular, “access to core components and technology is a prerequisite for China’s advancement in emerging industries,” MERICS scholars wrote in 2019. “Chinese tech firms have already gotten into serious trouble when cut off from access to chips or other high-tech components from abroad, as U.S. measures towards companies like ZTE and Huawei have proved.” The recent imposition of more stringent export controls on semiconductors, quantum computing, and AI technology by the United States and its allies has underscored this vulnerability.
+
+#### Encumbrances of Government Involvement
+
+While the Chinese government’s deep involvement in innovation is often cited as a source of strength, it is also problematic. The 2023 ITIF study, which warns of China’s growing prowess in this regard, acknowledges that “state involvement in the Chinese economy will almost certainly hinder productivity growth.” But it is important to keep in mind that China is not seeking to maximize efficiency; rather, it strives to dominate strategic sectors with national security implications, and it is willing to spend heavily to do so.
+
+Still, Chinese scientists sometimes complain that as they seek funding, they are “encumbered by arduous red tape,” while their peers are “becoming obsessed with recognition,” undermining the nation’s drive for innovation and technological self-sufficiency.
+
+For example, in August 2023, China’s Ministry of Industry and Information Technology decreed that all mobile app providers must submit their business details to the government or face punishment, a move that Chinese software developers said will “stifle local innovation and hinder access to advances created overseas.”
+
+#### Limited Freedom to Think and Associate
+
+While China is graduating more students in S&E fields, it remains uncertain whether sheer numbers will be sufficient to move China ahead in innovation. One recent analysis observed that
+
+> while innovation has been elevated to a very high status in China, and on the surface Chinese researchers are encouraged to think outside the box, equally important are the other ingredients of a true innovation culture, namely, autonomy, free access to the flow of information and especially dissent, both scientific and political, which at present are not adequately applauded or tolerated.
+
+#### Growing Friction with Trading Partners
+
+Huang Yiping, dean of Peking University’s National School of Development, warned recently that China’s massive investments in high-tech manufacturing sectors could lead to overcapacity and friction with China’s trading partners, noting that the United States and Europe were moving to decouple their supply chains from China and invest in increased domestic production. “If it really turns into a relatively common wave of trade protectionism against Chinese products, it may actually be detrimental to our next stage of development, especially in innovation,” he said.
+
+Yet while it is true that China’s innovation system has weaknesses and vulnerabilities, China can point to spectacular achievements during the past decade in numerous technology-intensive fields. In virtually every case, China got its foothold through acquisition and adaptation of foundational foreign technology. But it has gone on to develop and improve manufacturing capability, frequently surpassing its foreign counterparts in quality and efficiency and eventually achieving a dominant global market position. As a 2023 study pointed out, “While the development of novel products and processes is obviously an important aspect of innovation, effective commercialization is at least as important.” And successful commercialization is essential for the revenue to fund the R&D to drive the next wave of innovation.
+
+
+### A Growing Challenge in Strategic Sectors
+
+In 2023, CSIS published a major study of the new controls imposed by the United States and its allies on technology exports to China, whose coauthors included William A. Reinsch, formerly in charge of U.S. export controls at the Department of Commerce. Although the study’s focus was on export controls, it concluded by stating that “the important question is not how to hold China back [through controls], as the U.S. capability for doing that is limited, but rather how to stay ahead. A strategy for that lies in the various U.S. policy initiatives enacted in the past two years, most notably the CHIPS Act, but that alone will be insufficient to achieve long-term U.S. strategic objectives.”
+
+At present, the policies adopted amid much fanfare to address this existential competition are effectively stalled. The “science” portion of the CHIPS Act — the principal longer-term scientific promotion measure of the current administration — remains unfunded, a circumstance that may well continue for the foreseeable future. Congress, instead of dramatically expanding funding for federal science agencies, as in the Sputnik era, is reducing it. This is not an abstract problem. A survey of three critical cross-cutting foundational technologies that will enable many strategic technology sectors essential for U.S. national defense capabilities — AI, quantum technology, and semiconductors — indicates that while the United States may still lead in all three, China is rapidly closing the technology gap.
+
+#### Artificial Intelligence
+
+AI is the development of computer systems to perform tasks and exercise cognitive functions that usually require human intelligence, such as decisionmaking, pattern recognition, problem solving, “learning” from available data, and translation of languages. It is rapidly being deployed across a broad range of human endeavors, transforming economies and societies. A high-stakes AI race, reminiscent of the U.S.-Soviet race to the moon in the 1960s, is emerging between the United States and China. Unlike the race to the moon, however, the race for AI has no short-term finish line. On the contrary, it involves competition across national innovation ecosystems including universities, small and large companies, and government funding and policy support.
+
+China recognizes this is a long-term contest and is taking a long-term view, with investments commensurate with the stakes. For example, in 2017 China’s State Council released its New Generation Artificial Intelligence Plan, which set 2030 as a target date by which China will achieve global leadership in AI, turn AI into a $150 billion domestic industry, and be the world leader in developing ethical norms and standards for AI.
+
+_WHAT ARE THE STAKES IN THE AI RACE?_
+
+Policy experts increasingly recognize the importance of AI in the context of national defense. AI can make multiple decisions and enable actions with a speed and performance level that, in the future, is expected to exceed the capabilities of human operators. “As AI does not get fatigued, does not forget, and has no emotional fluctuation, AI is expected to be able to help commanders make decisions by processing large quantities of data quickly and accurately,” the Japanese National Institute of Defense Studies said in 2021.
+
+The U.S. National Security Commission for Artificial Intelligence (NSCAI) was formed in 2018 to assess AI, machine learning (ML), and related technologies as they may affect U.S. national security and defense, and to make recommendations to the president and Congress. The commission released its final report in March 2021, which concluded that the United States “is not prepared to defend or compete in the AI era. . . . This is the tough reality that we must face,” in the words of Chair Eric Schmidt, former chief executive of Google, and Vice Chair Bob Work, a former deputy secretary of defense.
+
+The NCSAI warned that “for the first time since World War II, America’s technological predominance — the backbone of its economic and military power — is under threat. China possesses the might, talent, and ambition to surpass the United States as the world’s leader in AI in the next decade if current trends do not change.” The commission said that “our armed forces’ competitive military-technical advantage could be lost within the next decade if they do not accelerate the adoption of AI across their missions.” It also emphasized the potential consequences, asserting that “defending against AI-capable adversaries operating at machine speeds without employing AI is an invitation to disaster.”
+
+The NCSAI noted that while the U.S. private sector was making dramatic strides in AI, “commercial agendas are dictating the future of AI, and concentrating heavily in one discipline: machine learning (ML).” It added, “Despite promising moves, government funding has lagged behind the performative potential of the field, limiting its ability to shape research toward the public good and support progress across a range of AI disciplines. As a result, the [U.S.] AI innovation environment rests on a narrowing foundation.”
+
+Although the NSCAI’s report was released three years ago, recent comments by industry and government experts indicate that the commission’s basic findings with respect to the national security dimensions of AI remain sound. This is reflected in both the scale of Chinese investments and their focus, which prioritize AI-related research in defense applications instead of consumer services such as the ChatGPT chatbot: Alexandr Wang, the founder of Scale AI, said in 2023 that while China’s People’s Liberation Army is spending between 1 and 2 percent of its annual budget on AI, the Pentagon is spending between 0.1 and 0.2 percent.
+
+In mid-2023, Work, the former deputy defense secretary, commented that in “marginal terms, we’re flat and the Chinese are outspending us. This is why China is so different. In the past we’ve always been able to outspend our competitors.”
+
+Deputy Assistant Secretary of Defense Michael Horowitz said in a January 2024 interview that “the [AI] adoption capacity of the Department is improving . . . but we have more work to do, frankly, as we’ve been very public in stating.”
+
+_PAYOFFS FOR CHINA_
+
+China is making great strides in developing defense-related applications of AI. The 2023 ASPI assessment of research trends in 23 critical technology areas concluded that in six key thematic areas relevant to AI and autonomy, China already leads in three (Table 1).
+
+
+_▲ __Table 1: Research Leaders in Defense-Related AI Applications.__ Source: [“AUKUS Relevant Technologies: Top 10 Country Snapshot,” Australian Strategic Policy Institute, Critical Technology Tracker, June 2023](https://www.aspi.org.au/report/critical-technology-tracker)._
+
+The Department of Defense (DOD) is beginning to respond to the AI challenge. In 2022, Brookings released a study of all federal AI-related contracts in the preceding five years, and the next year it released a follow-up study covering August 2022 to August 2023.
+
+Over a five-year period from 2017 to 2022, it found a total of 472 AI-related federal contracts. In just the one-year span from 2022 to 2023, there were 489. The potential value of federal awards for AI research grew 1,200 percent in the 2022–23 period, to $4.6 billion, from $355 million over the preceding five-year period, primarily driven by the DOD (Figure 6).
+
+
+_▲ __Figure 6: Comparing Potential Value and Contract Counts, Past vs. New Contracts.__ Source: [Jacob Larson et al., The Evolution of Artificial Intelligence (AI) Spending by the U.S. Government (Washington, DC: Brookings, March 26, 2024)](https://www.brookings.edu/articles/the-evolution-of-artificial-intelligence-ai-spending-by-the-u-s-government/)._
+
+However, as reported in Time, the Pentagon questioned the Brookings analysis, stating that DOD requested $874 million for AI research, development, testing, and evaluation (RDT&E) in FY 2022 and $1.8 billion in FY 2024.
+
+In either case, the U.S. defense establishment is clearly increasing its commitment to AI, although whether this will match China’s effort is unclear. In its November 2023 strategy to promote the adoption of AI by the armed forces, the Pentagon’s stated goal was to “help accelerate the speed of commanders’ decisions and improve the quality and accuracy of those decisions, which can be decisive in deterring a fight and in winning a fight.”
+
+Deputy Secretary of Defense Horowitz disclosed in his January 2024 interview that with a program dubbed the Replicator Initiative, the Pentagon expects to be able to “field in the multiple thousands attritable autonomous systems in the next 18 to 24 months. . . . We’re on track to achieve that goal.” This could mean the deployment of thousands or tens of thousands of low-cost autonomous units for use in swarms which, from a cost standpoint, the United States could “afford to lose.”
+
+Matt Turek, deputy director of the Information Innovation Directorate at the DOD’s Defense Advanced Research Projects Agency (DARPA), said at a March 2024 CSIS event that about 70 percent of all DARPA initiatives now have some form of AI, machine learning, and autonomy associated with them, with the broad goal of “preventing or creating strategic surprise.” He noted that technology firms like Microsoft, OpenAI, Anthropic, and Google were all participating in a DARPA program and were providing access to state-of-the-art models.
+
+Despite such developments, as former deputy secretary of defense Work said in mid-2023, while the Pentagon is increasing its R&D spending on AI, it is not doing so at a pace sufficient to close the gap with China.
+
+_CREATING AN INSTITUTIONAL ARCHITECTURE_
+
+The Biden administration is creating an institutional architecture for the application of AI throughout the federal system. In October 2023, the administration released an executive order on AI that emphasizes safety, governance, and the establishment of standards and consumer protections; sets up task forces and advisory committees; and requires specific actions by big tech companies and federal agencies, including the promulgation of guidelines. The administration is requesting $3 billion for federal agencies’ use of AI in its FY 2025 budget and $300 million to increase agency funds for AI to address risks and advance AI’s use for the public good.
+
+The budget allocates $32 million to a National AI Research Resource (NAIRR) pilot, which will provide AI researchers with the computational tools they need to conduct AI research. Federal agencies would get $70 million to establish chief AI officers (CAIO) to promote the use of AI and manage its risks. Meanwhile, an “AI talent surge,” aimed at boosting the federal talent pool with AI expertise, is allocated $32 million.
+
+While these measures will undoubtedly facilitate the application of AI in the federal agencies, they appear to be primarily focused on safety measures, consumer protection, and safeguards against abuses of AI. They are not focused on the strategic AI competition with China.
+
+_AI CHALLENGES FOR CHINA_
+
+Despite its gains in AI, China faces obstacles in its effort to capture world leadership in the field by 2030. While the government has been a critical actor in promoting the development of AI, its authoritarian character is, at times, counterproductive.
+
+In the summer of 2023, Chinese authorities proposed regulations for generative AI, requiring that all images and text must align with the “core values of socialism” and must not undermine state authority or national unity. At that time several Chinese companies had already launched chatbots but found it impossible to compete with U.S.-based OpenAI’s ChatGPT in part because of the many restrictions imposed by the state.
+
+A major U.S. advantage is that the private sector is investing heavily. According to the Stanford University Institute for Human-Centered AI’s 2024 annual report, the United States leads China in private sector investment in AI by an enormous margin, with $67.2 billion invested in 2023 compared with $7.8 billion by China. U.S.-based “big data” companies like Meta, Google, and Microsoft are pouring large sums of money into AI research. The United States is also spawning AI start-ups at over three times the rate of China. OpenAI, a U.S. nonprofit AI research organization, launched ChatGPT in 2022 powered by a large language model, and it became the fastest-growing consumer software application in history.
+
+Recently imposed Western export controls are limiting China’s access to the leading-edge chips that are essential to drive advanced AI systems. China is unlikely to be able to produce such chips in volume by itself for a number of years, although Huawei’s recent announcement of seven-nanometer technology in its latest smartphone is a troubling sign for U.S. policymakers. Still, Paul Scharre, director of studies at the Center for a New American Security (CNAS), noted that if the Western controls work as intended, “Chinese AI developers will remain boxed out of that supply chain, working with less powerful chips, and thus a year or two behind the cutting edge as AI continues its rapid advance.”
+
+These controls can be effective in delaying China’s progress in AI. According to numerous industry experts, “Even as the country [China] races to build generative A.I., Chinese companies are relying almost entirely on underlying systems from the United States,” and China lags behind the United States by a year and may be falling further behind in generative AI.
+
+China faces obstacles in developing large language models, such as the relatively lower quality of data from Mandarin-language internet sources versus English and strong competition from Google’s Gemini and ChatGPT, but is apparently finding workarounds. In March 2024, the Department of Justice indicted a Chinese national and former Google AI software developer for allegedly stealing 500 files of confidential code that the company uses for its supercomputing data centers to train large language models. The indictment alleged that the researcher concurrently went to work for Google rivals in China. Indeed, a hidden Chinese competitive advantage in AI and other high-tech sectors is its large-scale state-supported theft of Western intellectual property.
+
+#### Quantum Information Science
+
+Quantum information science (QIS) employs principles derived from quantum science to achieve new and potentially revolutionary capabilities in communications, computing, sensing, and encryption/decryption. Quantum information technology has rapidly moved from pioneering theoretical work by U.S. scientists to the emergence and pursuit of practical applications in the United States, China, and Europe. Many of these applications will have major impacts on national security.
+
+For instance, quantum computers may soon be able to decrypt information stored on encrypted systems, which, according to a 2022 Biden administration National Security Memorandum, could “jeopardize civilian and military communications systems, undermine supervisory and control systems for critical infrastructure, and defeat security protocols for most Internet-based financial transactions.”
+
+Among other uses, application of quantum concepts to sensors could enable the detection of concealed underground structures, submarines, and nuclear weapons.
+
+Quantum-based communications systems could ensure secure communications that could not be breached by adversaries. And quantum accelerometers could be used for navigation when GPS is not available, including underwater and underground situations and scenarios in which GPS has been knocked out by adversaries.
+
+_THE U.S. NATIONAL QUANTUM INITIATIVE ACT_
+
+In a major positive step to address this challenge, the National Quantum Initiative Act (NQIA) of 2018 established a coordinated federal program to promote quantum R&D to ensure U.S. economic and national security. The act authorized federal agencies to establish consortia and research centers to enable QIS R&D and required the coordination of QIS programs across the federal government and in conjunction with academia and industry. The NQIA was authorized for five years and is up for reauthorization in 2024.
+
+Reauthorization of the act is crucial. As a principal analyst at UK-based data analytics firm GlobalData observed, “If reauthorization fails, it will damage the U.S.’s position in the global quantum race.”
+
+Significant QIS developmental efforts are ongoing at over a dozen federal agencies including NIST, DOD, DOE, NASA, and within the intelligence community. DOD’s QIS developmental efforts have been under way for years and are implemented pursuant to the National Defense Authorization Act. Since 2023, DARPA has been pursuing Underexplored Systems for Utility-Scale Quantum Computing (US2QC) to determine whether revolutionary approaches to QIS can reach utility scale more rapidly than conventional wisdom predicts. There are multiple paths to pursue. These opportunities were recognized in the increased spending authorized in the science portion of the CHIPS Act for quantum research at NSF, NIST, and DOE, but as noted above, the necessary funds have not been appropriated.
+
+_A GROWING COMPETITIVE THREAT_
+
+Where the United States and China stand in comparative terms in QIS is subjective and difficult to assess, particularly given that the research efforts that are under way are frequently not transparent.
+
+A 2022 RAND Corporation study concluded that the United States led the world in most, but not all, quantum technologies. In 2022, GlobalData concluded that the United States led China in quantum technology by about five years, but two years later, in 2024, the same firm concluded that the two countries were “nearly equal.” Underscoring this assessment, in May 2024, research teams in China, the United States, and the Netherlands independently reported simultaneous breakthroughs that could eventually enable the creation of “nearly unhackable” quantum-based internet services. The 2023 Australian ASPI survey of critical technologies found that of four quantum-related research domains, China led in three: quantum sensors, quantum communications, and post-quantum technologies. The United States leads in one defense-related field, quantum computing. In the three fields led by China, that country is producing more S&E papers and has the foremost research organizations in the world, the Chinese Academy of Sciences and the University of Science and Technology of China.
+
+According to a 2023 study by the Wilson Center, “opacity reigns in China’s public and private financing for quantum technologies.” The same can be said, to a degree, about U.S. outlays.
+
+The Chinese government has committed to spend $15 billion in developing QIS between 2024 and 2028, but the extent to which it will actually do so has been questioned. In the United States, the government has reportedly committed $3 billion to various quantum projects, another $1.2 billion to the National Quantum Initiative, and possibly additional outlays in the DOD’s mostly classified “black budget.” Although U.S. public outlays are smaller than China’s, as a recent CSIS study observes, “The United States has begun to mitigate its investment gap with China by teaming up with key allies leading global QIS innovation on research and development efforts.”
+
+_MAJOR ACHIEVEMENTS, YET VULNERABILITIES REMAIN_
+
+Recent anecdotal reports out of China underscore both its achievements in quantum technology and some of its vulnerabilities. In October 2023, Chinese scientists announced that the country’s latest quantum computer, the JiuZhang 3, had solved a highly complex mathematical problem in a millionth of a second, more than 20 billion years faster than the world’s fastest supercomputer could solve the same problem. In January 2024, a Chinese quantum computer company, Origin Quantum — founded by scientists from the University of Science and Technology of China — unveiled a “China independent-developed state-of-the-art quantum computer” dubbed Origin Wukong (Monkey King) which was open for access by users around the world. Within 10 days, the computer had performed 33,871 quantum computing tasks for global users. “No other nation funds more R&D for [quantum] communications than China,” the Wilson Center study noted.
+
+Chinese research institutes are reportedly creating a quantum communications network using satellites in low and medium-to-high Earth orbits. The network would utilize quantum technology for encryption and secure transmission of data and communications.
+
+In March 2024, Guo Guoping — a quantum physicist, cofounder of Origin Quantum, and leading figure in China’s quantum promotional effort — warned that China was dependent on Western countries, mainly the United States, the Netherlands, and Finland, for dilution refrigerators, which are used to create the ultra-low temperatures required by quantum computing. Guo also noted that China lagged behind the West in industrial applications of quantum computing, citing high costs and inadequate market demand.
+
+#### Semiconductors
+
+All major U.S. defense platforms, domestic infrastructures, and technology-intensive products and industries are based on semiconductor chips, the basic building blocks of digital technology. AI systems, for example, “operate on a foundation of interconnected computer hardware driven by cutting-edge semiconductor devices.” The U.S. semiconductor design industry leads the world, representing a crucial U.S. asset in the strategic competition with China.
+
+The CHIPS Act of 2022 was intended to address twin U.S. vulnerabilities in the chip manufacturing sector that were revealed by the Covid-19 pandemic — most notably the shortfall of U.S. production capacity needed to supply the needs of domestic industry and the U.S. military, and the fact that U.S. chipmakers trail Taiwan and South Korea in their ability to make chips at the most advanced nodes. At present, the United States is dependent upon chipmaking facilities in Taiwan, which makes 90 percent of the most advanced chips, and South Korea for these devices. Taiwan, of course, faces significant levels of geopolitical risk but also seismological ones: the island suffered several earthquakes in April 2024 alone.
+
+After a necessary ramp up, CHIPS Act funds are now being awarded to firms to expand both leading-edge and foundational semiconductor manufacturing capacity in the United States. Moreover, the U.S. government, in conjunction with key allies, is enforcing new and more stringent controls on exports of chips and chip manufacturing technology to China, especially on tools and devices necessary to support advances in AI.
+
+China has responded by redoubling its commitment to developing its own semiconductor technology through domestic innovation. At the end of 2022, the Chinese government was reportedly planning to spend 1 trillion yuan ($143 billion) over the next five years to support its semiconductor industry, more than the United States and the European Union combined. In 2014, China established the China Integrated Circuit Industry Investment Fund (the “Big Fund”) to support investments in the domestic semiconductor industry, comprised of government, quasi-public, and private funds. By 2019, the Big Fund had raised 204 billion yuan (28 billion USD). In May 2024, China launched a new phase of this effort with a registered capital of $47.5 billion to support investments in China’s semiconductor value chain, including production capacity, equipment, materials, and advanced packaging.
+
+China is rapidly expanding its production capacity for higher node chips, sometimes called “foundational” semiconductors. These chips account for most current applications worldwide — and Chinese firms may come to dominate that market segment to the detriment of U.S.-based chipmakers, including those currently investing in new facilities with support from the CHIPS Act.
+
+For the moment, the U.S.-based semiconductor design industry leads all other countries, including China, by virtually any measure of international competitiveness. Advanced artificial intelligence chips designed by the U.S. fabless firm Nvidia account for over 80 percent of the market and “underpin all of the most advanced AI systems.” Nvidia reportedly holds a 92 percent global market share in data center graphics processing units (GPUs). But in June 2024, a Huawei executive stated that the company’s Ascend 910B AI chip can deliver 80 percent of the efficiency of an Nvidia A100 when training large language models, and, “in some other tests, the Ascend can beat the A100 by 20 percent.” The United States has a number of world-leading integrated device makers (IDMs) that design and manufacture their own chips, such as Intel Corporation and Texas Instruments. Intel is reportedly pursuing the astonishing goal of incorporating 1 trillion transistors on a single processor package by 2030, about 10 times the current number.
+
+In addition, U.S.-based firms dominate crucial upstream chip design sectors such as electronic design automation (EDA) tools and IP blocks, which enable faster and less expensive chip designs. Loss of access to these enabling technologies as a result of Western export controls is proving disruptive to China’s AI sector.
+
+Some experts regard China’s prospects for achieving technological leadership in semiconductors through its own efforts as impossible, while others see it as inevitable. If a loss of leadership in semiconductor design did occur, it would be a strategic calamity of monumental proportions for the United States, with a more far-reaching impact than the offshore movement of chipmaking that has been unfolding since the 1990s. Once lost, such leadership would be difficult to recapture. And as the 2021 NSCAI report warned, “If a potential adversary bests the United States in semiconductors over the long term or suddenly cuts off U.S. access to cutting-edge chips entirely, it could gain the upper hand in every domain of warfare.”
+
+For that reason, in addition to building out domestic chipmaking capacity, U.S. policymakers should be sensitive to the health and competitive standing relative to China of the domestic chip design industry, with an eye to preserving and even increasing U.S. leadership. The United States cannot be complacent about its current leadership. In that regard, in 2022 the Semiconductor Industry Association and the Boston Consulting Group warned that the U.S. chip design industry’s global market share has been eroding as design firms face challenges such as rising costs, labor shortages, and exclusion from important foreign markets.
+
+
+### Conclusion
+
+It is crucially important to understand that AI, QIS, and semiconductors are increasingly interrelated and mutually supporting fields. Over time, the advances in these domains may transform both national economic capabilities and the strategic balance. The interdependencies are powerful.
+
+AI systems run on advanced chips, and AI software is increasingly being deployed to design those chips. Researchers are identifying composite materials that could integrate quantum devices into semiconductor technology, making chips “significantly more powerful.” Semiconductor technology is in turn being used to fabricate qubits, the basic building blocks of quantum computers. AI systems based on quantum processing could “be millions of times faster than the fastest microchip computers today,” experts say.
+
+Chips, AI, and QIS will therefore not only advance all twenty-first-century technology-intensive industries but also drive, enhance, and possibly disrupt each other. Chinese authorities understand this competition and are dedicating massive amounts of funding toward capturing the benefits of these transformative technologies.
+
+Given the stakes of this competition, it is jarring that in the space of just a few days in March 2024, the United States both failed to fund the science portion of the CHIPS Act and implemented budget cuts for key federal science agencies. Meanwhile, the Chinese government increased planned R&D spending by 10 percent. China has pledged to “harness the entire nation’s resources to speed homegrown breakthroughs, reaffirming what it sees as a central priority to become self-reliant in spheres from AI to chipmaking and ultimately wrest technological supremacy from the West,” experts say.
+
+Sudip Parikh, chief executive of the nonprofit American Association for the Advancement of Science, warned that the race for leadership in key technologies like AI, quantum, and fusion would have long-term strategic implications: “Once you lose the lead in that kind of a race, the benefits accrue to whoever’s in the lead, and they’ve been accruing to us for the last 75 years. They will begin to accrue somewhere else.” U.S. policymakers need to recognize that danger and make the investments needed to secure the nation’s future.
+
+---
+
+__Sujai Shivakumar__ directs the Renewing American Innovation (RAI) Project at the Center for Strategic and International Studies (CSIS), where he also serves as a senior fellow. He brings over two decades of experience in policy studies related to U.S. competitiveness and innovation.
+
+__Charles Wessner__ is currently a research professor at Georgetown University, where he teaches global innovation policy. He is active as a speaker, researcher, and writer with a global lens on innovation policy and frequently advises technology agencies, universities, and governments on effective innovation policies.
+
+__Thomas Howell__ is an international trade attorney (currently in solo practice) serving as a consultant to the CSIS Renewing American Innovation project. During the course of his 40-plus-year legal career, he has represented U.S.-based semiconductor companies and organizations in matters such as the U.S.-Japan trade disputes and litigation of the 1980s; the formation of Sematech in 1986–87; trade disputes with China (including the first WTO dispute settlement challenge to that country in 2003); and numerous other public policy initiatives.
diff --git a/_collections/_hkers/2024-06-18-the-wests-azerbaijan-question.md b/_collections/_hkers/2024-06-18-the-wests-azerbaijan-question.md
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+---
+layout: post
+title : The West’s Azerbaijan Question
+author: Callum Fraser
+date : 2024-06-18 12:00:00 +0800
+image : https://i.imgur.com/BMJPVk8.jpeg
+#image_caption: ""
+description: "Pragmatism over Values?"
+excerpt_separator:
+---
+
+_As Azerbaijan’s leader revels in his victory in the recent Karabakh conflict, the West faces the all-too-familiar choice of whether to engage with an unsavoury regime for geopolitical gain, or to stay true to its values in the global struggle between democracy and authoritarianism._
+
+
+
+Azerbaijan’s success in Karabakh has sealed President Ilham Aliyev’s legacy, finally drawing him out of his father’s shadow. Yet, amid the celebration of reunification, the population is beginning to refocus on domestic issues, namely the repression of political opposition and media freedoms by the state. Azerbaijan’s rapid rise in geopolitical influence places it in a dominant negotiating position over Armenia. However, months after they began, peace talks are still meandering in the preliminary stages. Ultimately, peace does not suit Aliyev, and the West should be cautious about repeating the same mistakes that it made with Ukraine.
+
+After three decades, Azerbaijan finds itself without a foreign military presence within its borders, symbolising its emergence as an independent global actor pursuing its own interests. Now a rising power within the region, Azerbaijan is poised to leverage its position as a bridge between the West and Central Asia, bolstered by increased European imports of Azerbaijani fossil fuels. Through an emerging multi-vector foreign policy, Azerbaijan is cautiously balancing relations between the West and Russia. However, Aliyev’s increasing military spending and irredentist state rhetoric underscore potential territorial ambitions, which should send a clear warning signal to the West.
+
+
+### Does Azerbaijan Need Peace?
+
+The peace process between Armenia and Azerbaijan has been a stagnant one. Border skirmishes, domestic unrest, and a long-held mutual distrust have impeded prospects of peace. Yet, the recent transfer of four villages from Armenia’s Northeastern Tavush province to Azerbaijan is a decisive move in delineating the Armenian-Azerbaijani border, as well as a crucial positive step towards a sustainable peace agreement after three decades of war. Despite this progress, there is a clear imbalance in the momentum emanating from Yerevan and Baku, with the latter clearly much more languid in its efforts. Despite Armenian concessions, Azerbaijan still occupies internationally recognised Armenian territory and, after the flight of 120,000 Armenians from Nagorno-Karabakh, has set about bulldozing Armenian settlements within the region, including the destruction of churches and monuments. Baku is well aware of its military dominance within this dyadic relationship, and this confidence has led to prolonged peace negotiations which are frequently stalled by Azerbaijan’s strategic manoeuvring. For example, the issue of the Zangezur corridor – a proposed transit route for Azerbaijan to its exclave of Nakhichevan – has transformed from a suggestion to an outright demand before a peace deal can be agreed upon.
+
+Given the significant historical grievances between them, difficult concessions will need to be made by both sides. However, further increasing the concessions forced upon Armenia could exacerbate domestic protests, which are already destabilising this young democracy. This situation heightens the threat of Armenian populist movements, as evidenced by Arch-Bishop Bagrat Galstanyan’s “Tavush for the homeland” campaign.
+
+___`Aliyev’s increasing military spending and irredentist state rhetoric underscore potential territorial ambitions, which should send a clear warning signal to the West`___
+
+Currently, the status quo suits Azerbaijan’s interests, enabling it to continue to extract concessions from Armenia without an urgent need for a definitive peace settlement, as long as its unchallenged regional dominance continues. Following Aliyev’s landslide election victory, he finds himself at the pinnacle of his political career. With the successful operation in Karabakh under his leadership, he has effectively emerged from his father’s shadow, securing his legacy as an Azerbaijani national hero.
+
+However, while Aliyev basks in his geopolitical triumph, domestic challenges remain prevalent. Press freedoms are increasingly restricted, with complete state control of domestic media, harassment and detainment of independent journalists, and a foreign agent law seemingly inspired by Russia’s oppressive media strategy. Political dissidents and oppositional civil society are blackmailed, arrested and tortured, with any challenge to Aliyev’s rule quickly stifled. It is important not to forget that Aliyev’s 92.12% win in the February elections was achieved through total media control and boycotts by the political opposition. While Azerbaijan’s economy has soared over the last decade, it remains dependent on fossil fuel exports, with increasing regional wealth disparity between Baku and other provinces, impacting educational standards among the rich and poor. Azerbaijan’s Dutch disease has previously led to rapid inflation, with little having been done to rectify the situation, save for a number of renewable energy projects aimed at increasing gas exports. Meanwhile, Aliyev continues to put an emphasis on greater militarisation, increasing defence and national security spending to 17.4% of the state’s budget. Now that Karabakh is unequivocally Azerbaijani and Armenia is looking to ameliorate relations, Azerbaijani society can finally refocus its attention on domestic concerns, and with this, even Aliyev’s manufactured support may struggle in the face of public discontent.
+
+While both states suffer from irredentist elements within their constitutions, Azerbaijan’s military strength and authoritarian governance represents a much more pressing concern for regional stability. The concept of “Western Azerbaijan” – the idea that further Armenian territory historically belongs to Azerbaijan – has been utilised within the Azerbaijani parliament, with Aliyev also known to include this rhetoric in his speeches. Exploiting nationalist tendencies is a tried and tested method used by authoritarian states to divert the population’s attention away from the failings of the state.
+
+In a similar manner to the Argentine military junta and the Falklands, or Vladimir Putin and the annexation of Crimea, one can expect to see Aliyev using this conflict to shore up his domestic political support when it ultimately begins to slide, as well as a clear trend towards exploiting ingrained anti-Armenian sentiments within Azerbaijani society. By fostering animosity towards Armenia, Aliyev will effectively consolidate power with minimal internal dissent. Aliyev’s political stronghold benefits from the current situation; Armenia is a convenient scapegoat, and the prospects of a sustainable peace agreement remain rocky.
+
+The West appears to only be paying nominal attention. Yet not only is this issue playing out in Europe’s backyard, but it represents a microcosm of the rising global struggle between democracy and authoritarianism.
+
+
+### Treading on the Same Rake?
+
+Russia’s full-scale invasion of Ukraine is a stark reminder of the threat posed by authoritarian regimes to Western security. While Azerbaijan’s policies may not directly threaten the West, its equidistant approach between Russia and Western powers raises significant concerns. As the West deepens its economic ties with yet another authoritarian state, the mirroring of errors made over the last decade is obvious, with the West indirectly financing another authoritarian state’s military ambitions.
+
+Should the West escalate its dependence on Azerbaijani fossil fuels, it risks a recurrence of the Ukraine scenario, with Armenia paying the price for Western negligence. The ongoing tension between democracy and authoritarianism may require morals to take a backseat, but the West’s inconsistent adherence to its proclaimed values is exacerbating its global image problem. The consolidation of authoritarian power in the South Caucasus further erodes the foundational principles of the West, posing a direct challenge to its core values.
+
+___`As the West deepens its economic ties with yet another authoritarian state, the mirroring of errors made over the last decade is obvious`___
+
+By overlooking the risks associated with increasing economic support for another militarising authoritarian state, the West is demonstrating a failure to learn from repeated examples of authoritarian aggression. Despite Azerbaijan’s displays of concern over the threat of sanctions, the West has yet to fully leverage its economic weight to incentivise stability in the region.
+
+This raises a pertinent question over the future of Western rules-based ideals: do current geopolitical tensions require a pragmatic adaptation, or is supporting democracy in an increasingly authoritarian world a cornerstone of the liberal international order? Regardless of the decision that it comes to, if the West is to survive multipolarity, its stance must be clear and consistent. Peace is beneficial for the South Caucasus, but it may not suit its most powerful politician. The chances of conflict remain high in the region as long as the West fails to learn from its mistakes.
+
+---
+
+__Callum Fraser__ is a Research Fellow in the International Security Studies department at RUSI, specialising in the confluence between Russian foreign policy and its periphery states. Callum is particularly interested in the evolution of geopolitics within Eurasia since the collapse of the Soviet Union. He also specialises in researching the underlying motivations, justifications, and dynamics of conflict within the Eurasian space along ethnic, identity, cultural, and political dimensions.