China can’t afford another crackdown on its tech companies

This report is from this week’s CNBC’s The China Connection newsletter, which brings you insights and analysis on what’s driving the world’s second-largest economy. You can subscribe here.

I’ve heard him speak in person several times over the years, including his first and only press conference as premier in 2023, and he’s as motivational as Chinese politicians can be. But his candid portrayal of challenges and tech goals on Thursday was far more measured in tone.

That signals one thing: Whatever the geopolitical situation or state of the economy, China sees technology as the key to its future.

To get there requires a departure from China’s state-dominated economic preferences. Businesses and investors also need encouragement, as it wasn’t too long ago that Beijing was tightening oversight of tech companies.

But changes are happening. One senior official told reporters over the weekend that businesses need to take a greater lead in helping policymakers figure out which tech challenges are worth solving and in evaluating research outcomes.

It’s quite a shift from Beijing’s top-down industrial policy — a model that’s started to gain admirers. The approach has stirred anxiety in Washington, which has tried to pursue its own version with the CHIPS and Science Act.

But excessive state participation hasn’t been good for China’s aircraft ambitions, according to a report published last week by Scott Kennedy of the U.S.-based think tank Center for Strategic and International Studies.

Instead, he said, where China’s private sector has taken the lead, such as in electric vehicles, rapid advances have bolstered Beijing’s status globally as a tech power.

State-organized infrastructure still matters. Government-built charging stations helped electric cars go mass market.

Now, China is rolling out computing power for its homegrown AI companies as part of its 15th five-year development plan that kicked off in January.

But innovation is already happening in the private sector. Last week, just before Li’s speech, I stopped by the offices of Beijing-based startup Linkerbot. The company has been making mechanical hands for humanoid robots that have gained global attention over the past year.

The company pushed back on the idea that it would benefit from specific policy support. Instead, the startup said overall industrial development has enabled its tech to move quickly from research labs to actual business use.

Linkerbot said its robotic hands are sold not just in China but also to customers in Europe, Japan and South Korea. And in a refrain I’m hearing more often, Linkerbot claims production times at least one-sixth those of foreign rivals, at one-tenth the price.