China's sprint for tech dominance can't hide an economy full of holes

Self-sufficiency push has made China a tougher competitor to the U.S., but it comes with enormous waste

- Brian Spegele

State technology funds throw billions of dollars at money-losing startups even as the national debt surges.

(REUTERS)

In cities and small towns across China, two seemingly contradictory facts are simultaneously true: China is closing the gap with the U.S. for global technological dominance, and yet big parts of its economy are a mess.

Locally pioneered electric cars zip past deserted apartment blocks. Factory robots run by artificial intelligence churn out products that jobless college graduates cannot afford. State technology funds throw billions of dollars at money-losing startups even as the national debt surges to unprecedented levels.

The emergence of Al startup Deep-Seek earlier this year showed China can challenge the U.S. in some of the world’s most competitive technologies.

But Beijing’s gains are coming at a steep cost, with the state's heavy-handedness in directing investments wasting colossal amounts of money. The hundreds of billions of dollars China spends each year on domestic technology also eats away at the money for rural education, reinforcing the social safety net and other programs economists say are needed to put growth on a firmer footing.

State technology funds throw billions of dollars at money-losing startups even as the national debt surges.

“There is just massive misallocation that runs through the economy in multiple dimensions,” said Loren Brandt, an economist at the University of Toronto.

There are simply too many money-losing companies, with investments by local governments helping prevent weak ones from going under. Of the 129 brands selling electric cars and plug in hybrids in China as of last year, only 15 are expected to be financially viable by 2030, according to consulting firm AlixPartners.

China now has more than 150 humanoid robot companies, a Chinese official said last month, warning against a glut in that industry.