U.S.-China: The great challenge

U.S.-China: The great challenge

Alessandra Spalletta
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Tensions mount between the two biggest global economies as they vie for dominance of technology There is already talk of a new high tech cold war that risks creating two opposing semi-global worlds

First the Trump administration blocked supplies and services from Huawei (and 700 other companies); then Google decided to revoke the license for the Android operating system on the Chinese company's smartphones; finally the US president granted a 90-day extension to the imposition of restrictions. A truce which, in addition to providing relief to Huawei's customers, reopens a diplomatic window following the failure of trade negotiations between the US and China. Yes, the two issues are intertwined. Behind the war on tariffs lies a deeper conflict relating to global technological domination. Analysts have long argued that the head of the White House intends to carry out the so-called decoupling: separating the US economy from the Chinese one. There is a potential for the supply chain to be divided into two opposing semi-global worlds. From the technological dispute to the Chinese claims in the South China Sea and the Taiwan issue, divisions between the two major economies of the world could lead, according to analysts, to a “technological cold war”. Washington has decided to hit Huawei hard. The company is the world's second-largest smartphone vendor and one of the largest network infrastructure operators. The Shenzhen-based giant is also the company vying to dominate the most important market of the future: 5G, the mammoth super-fast internet infrastructure.

 

 

Trump moved quickly: last Thursday a decision was taken to include Huawei, already accused of espionage, on the blacklist of companies that threaten national security. The US suspects that the company, officially private, is actually controlled by the Communist Party (the founder, Ren Zhengfei, is a former army man), and therefore represents a threat to national cybersecurity. Beijing has always rejected the accusations, judging them to be groundless. Donald Trump has tried - to no avail - to convince European countries to exclude Huawei from 5G networks (in Italy, for example, the Chinese company has started building the network in several cities with Vodafone, Tim and Fastweb),  eventually coming to the decision, later postponed, to ban US companies from supplying it. The first to comply with this measure was Google. The other big microchip companies: Qualcomm, Broadcom, Intel, followed suit.

While the share prices of microprocessor producers plummeted, Chinese president Xi Jinping visited China's largest plant for rare earths, the vital minerals needed by the military, aerospace and electronics industries, which are dominated by China. The message to the US president is clear: China is ready to respond to the supplies blockade by implementing a commensurate cut in supplies to US companies. Beijing is accustomed to responding promptly to what it calls “unilateralism and trade protectionism”: in the face of new US sanctions, it has responded with a raft of tariffs on US goods, not before having stated its intention to continue trade talks. Clarifications were also issued on the case of Huawei: the company says it is ready to look for Google’s services elsewhere, while the Beijing government promises maximum protection for its national champions. Last March, Ren Zhengfen announced the imminent production of Huawei’s own, autonomous operating system: today, 11 of the 70 billion dollars of expenditure go on buying material from the United States. This may no longer be the case soon.  During his trip to Jiangxi province, Xi Jinping recalled the “Long March”, indicating the need for a new venture.

 

 

Beijing’s plans and the race for artificial intelligence

Not just 5G. In the near future, smartphones will also be fundamental in the context of the so-called “Internet of Things” (IoT): the set of technologies that allow any type of device to be connected to the Internet, making it possible, for example, to control energy in the home and potentially to use driverless cars. The foundation for everything is the race for Big Data.

China aims to bridge the technological gap with the United States by 2020 and become a leader in the artificial intelligence (AI) sector by 2030, reversing the current situation in which the United States is leading. AI is the basis of the “Made in China 2025” project, the plan with which China wants to become a technological power, able to export high-innovation technological products. It is a process that influences manufacturing production, the world of work and social control. Since the central government made AI a priority, several local authorities and cities in China have invested money and drawn up development plans. Innovation is the current battleground with the United States, which fears losing its dominance. According to data from the China Internet Network Information Center, as of June last year, more than a quarter of the world's two thousand AI companies and one-third of unicorns (private start-ups valued at over 1 billion dollars) were located in China.

A few examples. The Chinese government’s thirteenth five-year plan (2016-2020) provides for the production of 100,000 industrial robots a year.  China has already taken a dominant position in the global video surveillance market: there are already 176 million security cameras, with an annual growth rate of 13% between 2012 and 2017. The 3 percent global growth pales in comparison. Police forces are using face recognition on an experimental basis to track every movement of the population.

“The global leadership of the Chinese telecommunications giants in 5G is just one example of how China is about to become the global center of digital innovation,” writes Merics in a recent report. AI, nanotechnology, quantum computing, Big Data, Cloud Computing, and smart cities: for Xi Jinping, turning China into a leader in emerging technologies is a priority objective.  “China has spent at least ten times more on research and quantum development than the United States; estimates start at 50 billion dollars. In the AI sector, China filed 30,000 patents in 2018 alone, 2.5 times more than the United States.” China has already overtaken Japan as the second world power in terms of international patents. Furthermore, Beijing has announced investments of 411 billion dollars between 2020 and 2030 to strengthen the 5G networks.”

 

 

The new hi-tech era

The undisputed industry leader is Sense Time, the start-up specialized in facial recognition (also financed by Alibaba) which is worth over 4.5 billion dollars. The Hong Kong company has access to the data of all citizens thanks to its collaboration with its largest customer: the Chinese government. The authorities are developing a database that can connect the face of each citizen with their identification photo in a matter of seconds. Tencent, the world's largest online smartphone gaming company (owner of the Wechat messaging platform) actively participates in the lives of Chinese citizens: when they chat, eat, pay, play and listen to music. The repercussions on the privacy of citizens is an issue that has already raised several controversies.

In the race to store user data, the social credit system: the rating program that assigns a score to the online activities performed by citizens and businesses for a virtuous society in Xi's new era, currently being tested in the city of Suining, and which should be formalized by 2020, is fundamental.

The millions of data generated by phones, credit cards, online payments, TVs, which contain an impressive amount of personal information, can become a valuable tool for anyone who is able to manage and interpret them. Especially in China, where, ever since Deng Xiaoping's era, maintaining social stability has been the mantra of the Chinese government. future technologies can affect GDP growth but do not always have positive repercussions on thousands of jobs: automation has caused the loss of 40% of jobs in the last three years. Alibaba, Tencent and Baidu – the BAT triumvirate of Chinese hi-tech challenging the big Silicon Valley companies - have for a long time being transferring the electronic footprints of their users to the police. The cybersecurity law, approved in 2016, introduced the duty for IT infrastructure operators to store “personal information and vital data collected and produced in China.” Face recognition is revolutionizing the most diverse sectors: from retail banking to online payments.