China's Five-Year Plan Bets on AI and Tech Independence as US-China Rivalry Intensifies

China Five-Year Plan Shifts Focus to Technological Dominance

China has unveiled an ambitious strategy to reduce its technological independence from the US while accelerating technological progress across critical sectors. At the annual meeting of the National People's Congress, President Xi Jinping introduced the nation's 15th five-year plan, framing technological supremacy as essential to national security amid intensifying US-China tech rivalry 1

1

.

The plan calls for China to "seize the commanding heights of science and technological development" and pursue "decisive breakthroughs in key core technologies," according to reports 1

1

. This strategic pivot comes as the country faces 145% tariffs and mounting pressure to achieve self-reliance in semiconductors, artificial intelligence, and other advanced technologies.

The timing reflects Beijing's calculation that depending on American technology and markets has become increasingly risky. Premier Li Qiang acknowledged that "multilateralism and free trade are under severe threat," while announcing 7% increases in both defense and research and development budgets 3

3

. The plan aims to transform China from a low-cost manufacturing hub into a tech-driven economy, though this transition occurs against a backdrop of economic headwinds including a lower growth target of 4.5%-5% for 2026, down from last year's 5% 3

3

.

Artificial Intelligence Takes Center Stage in Development Strategy

Artificial intelligence emerges as the cornerstone of China's development vision, with the 141-page plan mentioning AI over 50 times 3

3

. The document includes an "AI+ action plan" that envisions deploying robotics to address labor shortages and establishing factories operating with minimal human oversight 1

1

3

3

. The plan also calls for rapid expansion of AI agents capable of performing autonomous tasks across industries. China's state-planning body has issued reports claiming the country already outpaces others in AI research and development, pointing to breakthroughs like the open-source DeepSeek model as evidence of rapid progress 1

1

.

The five-year plan sets a specific target to raise the value-added of "core digital economy industries" to 12.5% of GDP 3

3

. Investment in key technologies extends beyond AI to encompass quantum computing, quantum tech, biomedicine, brain-computer interfaces, nuclear fusion, and even commercializing AI-powered humanoid robots 2

2

3

3

. Fred Neumann, chief Asia economist at HSBC, observed that "China's government remains laser-focused on spurring technological breakthroughs and high-tech investment," motivated partly by competition with the United States for control over future technologies 3

3

.

Breaking Free from US Technology Dependence

Despite recent innovation breakthroughs, China continues to rely on American technology, particularly Nvidia GPUs for training AI models including DeepSeek 1

1

. The country has struggled to develop viable alternatives but is now making a concentrated effort to eliminate US-based tech from its supply chain. The plan pledges to "fight the battle for key core technologies," with specific goals in semiconductors, batteries, 6G mobile networks, and advanced manufacturing 2

2

. State-owned enterprises have been enrolled to create demand for made-in-China semiconductors and drones 3

3

.

The strategy also emphasizes maintaining supply chain dominance in critical areas where China already leads. The plan vows to preserve competitive advantages in rare earths, where China controls global supply of materials vital to AI chips and defense systems 1

1

3

3

. The US and allies remain years away from breaking their reliance on China for these critical elements. Last year's trade war with the Trump administration, which briefly escalated to embargo-like conditions with triple-digit tariffs, demonstrated the strategic importance of this supply chain leverage 3

3

.

Export controls imposed by the US have restricted Chinese companies' access to advanced semiconductors that drive AI, justified by national security concerns as the two countries remain military rivals 2

2

.

Balancing Ambition with Economic Reality

The plan reveals a delicate balancing act between long-term technological ambitions and immediate economic pressures. While the five-year plan prioritizes tech advancement, the annual government plan for 2026 lists "building a robust domestic market" as the top priority, followed by accelerating technological progress 2

2

. Premier Li acknowledged "acute" imbalances between strong supply and weak demand, along with risks from a worsening property sector crisis and high local government debt 3

3

. China invests 20 percentage points of GDP more than the global average while households spend roughly 20 points less, creating industrial overcapacity that fuels trade tensions abroad and deflationary pressures at home 3

3

.

Despite pledging a "notable" increase in household consumption without specifying figures, analysts remain skeptical about demand-side reforms materializing. Andy Ji, Asian FX & rates analyst at ITC Markets, characterized the approach as "a high-stakes rebalancing where the government is betting the house on AI and advanced manufacturing" 3

3

. The strategy reflects Xi Jinping's vision of developing "new productive forces" to escape the middle-income trap, counter demographic decline, and build self-sufficiency against US pressure 3

3

. With China's record trade surplus of nearly $1.2 trillion raising alarm globally about threats to factory jobs, and recent trade deals between China-Canada and EU-South America excluding the US, the geopolitical landscape appears to be shifting as dealing with China may seem more predictable than navigating Trump administration policies 1

1

2

2

.