China and US in trillion-dollar tech war

Huawei conflict and the windfall from 5G will set the scene in Sino-American relations

GORDON WATTS

https://www.asiatimes.com/2019/10/article/china-and-us-in-trillion-dollar-tech-war/

There is no point in Huawei googling it as the answer is the problem.

For China’s high-tech juggernaut, finding a long-term fix to a nearly US$1-trillion conundrum will be crucial to its operational model.

In the first five months of 2019, the poster child of the “Made in China 2025” program sold 100 million smartphones. Last year, it shifted 206 million handsets and raked in $52.5 billion in revenue with nearly half shipped to overseas markets.

But that was before it was placed on a blacklist in the United States after being branded a “national security threat,” stripping the group of Google software and services.

“We can continue to use the Android platform since it is open-source,” Joy Tan, the head of media relations at Huawei, told the Financial Times last week. “But we cannot use the services that help apps run on it.”

Google has the app market sewn up tighter than its global search business. Without it, the Shenzhen-based company has nothing more than a high-priced telephone for foreign customers.

Since May, Huawei has been trying to seal the cracks after being blocked from access to its American suppliers. While it has filled the semiconductor, or chip, shortfall with domestic shipments, there is literally nothing the privately-owned firm can do in the short-term about the Google dilemma.

“The company is facing a live-or-die moment,” Ren Zhengfei, the founder of the business and a former People’s Liberation Army officer, said in a memo, during the summer.

“If you cannot do the job, then make way for our tank to roll … And if you want to come on the battlefield, you can tie a rope around the ‘tank’ to pull it along, everyone needs this sort of determination,” he added, underscoring the military metaphors.

Within this toxic environment, the US and China are locked in a technological battle, which will eclipse the trade conflict and possibly set the scene for a new economic Cold War.

Beijing is committed to winning the race by investing billions of state-backed dollars into technology and science research. Private funding is also immense.

For the first nine months of 2019, spending jumped 10.6% compared to the same period 12 months ago, the National Bureau of Statistics reported on Thursday.

Last year, China’s overall funding for research and development surged by 11.8% year-on-year to 1.97 trillion yuan ($275 billion). Significantly, that was the third consecutive double-digit annual rise and at the forefront was technology.

In March, a government study revealed that Beijing would increase science and technology spending by 13% to 354.3 billion yuan ($52.88 billion) in 2019, despite the economy showing signs of stress.

Nothing, it appears, will derail the “MiC 2025” project and the plan for at least 70% of related high-tech materials and products, such as semiconductors, to be made domestically by 2030.

“‘Made in China 2025,’ seeks to make China dominant in global high-tech manufacturing. The program aims to use government subsidies, mobilize state-owned enterprises, and pursue intellectual property acquisition to catch up with – and then surpass – Western technological prowess in advanced industries,” James McBride and Andrew Chatzky, of the New York-based think tank, the Council on Foreign Relations, said in a report earlier this year.

Worldwide leader

Enter Huawei again, and its role as the worldwide leader in 5G infrastructure.

More than 20 times quicker than existing 4G, these ultra-fast networks will power ‘smart’ manufacturing and the AI-linked factories of the future, as well as the Internet of Things.

So far, Huawei has sold 200,000 5G base stations and signed deals across the globe despite perceived links with President Xi Jinping’s government and China’s military establishment.

“The leader of 5G stands to gain hundreds of billions of dollars in revenue over the next decade, with widespread job creation across the wireless technology sector,” the Defense Innovation Board, a group of American business leaders and academics, stated in a 2019 study for the US Department of Defense.

“The country that owns 5G will own many of these innovations and set the standards for the rest of the world. That country is not likely to be the United States [as] China has taken the lead in 5G development through a series of aggressive investment[s],” the report, co-authored by Milo Medin, the vice-president of wireless services at Google, added.

Now, you can google that.