en
en

The hi-tech war between China and the United States

The new directive of the Central Office of the Communist Party of China (CPC), issued on December 8, 2019, ordered all State offices to quickly remove all foreign computer equipment and software within the next three years.

The CPC directive, which was highlighted only by the Financial Times, has not been made public.

It is therefore expected that many US companies, especially the likes of Dell, Microsoft, HP and some other smaller companies, will quickly be damaged by this choice of the Party and hence of the Chinese State.

The Chinese press has nicknamed this policy line as “3-5-2” because the substitutions will take place at a pace of 30% in 2020, 50% in 2021 and finally 20% in 2022.

Chinese sources estimate that 20 to 30 million pieces of hardware, mainframes, software and local networks will need to be swapped out throughout China with a large-scale replacement operation.

According to the Financial Times, the source of this news is China Securities, which is one of the companies entrusted by the CPC with the quick switch to domestic information technology.

Obviously this CPC choice is related to the current commercial tension between China and the United States.

Moreover, the IT substitution will allow to isolate government decisions from parallel US technological networks and from the cycle of negotiations and commercial tension between China and the United States.

We can also obviously think that this is a response to the fact that last May the United States entered Huawei into the “black list” of Chinese companies with which all U.S. IT companies and the North American subsidiaries of foreign ones are banned from doing business and carrying out joint operations.

This means that U.S. companies cannot buy or sell technology to and from Huawei without a specific license issued by the U.S. government’s Bureau of Industry and Security, which is impossible to obtain.

The Chinese company Huawei immediately responded to the U.S. government, noting that “moving away our company from the American market will not make the United States stronger or safer. Quite the reverse. This choice will force the United States to choose lower quality and more expensive technologies, thus even damaging the interests of U.S. consumers and companies”.

However, the story of relations between Huawei and the United States is long-standing.

In January 2019, the Department of Justice had announced legal action against two divisions of the Chinese company, on charges of having stolen trade secrets owned by T-Mobile USA, and later stopped the sale or purchase of U.S. government technology by Huawei and by the other Chinese mobile phone company, namely ZTE.

In December 2018, the Canadian authorities had also arrested Huawei’s CEO, Meng Wanzhou, to comply with an extradition request issued by the United States, based on the fact that the Chinese computer and telephone company had not disclosed payments to and from Iran to some U.S. banks.

Moreover, the United States included in the “black list” of Chinese companies other undesired ones, such as Hikvison, which sells AI technology for mass surveillance, and the already mentioned ZTE.

It should be recalled that surveillance through Artificial Intelligence technologies is currently used by at least 75 countries, with 56 countries using this technology for road safety and smart cities, and as many as 64 countries using AI technologies for mass facial recognition, of which China alone is accused. Other 52 other countries manage AI systems for smart policing, an activity developed within the American police which brings together advanced databases and the measurement of inspection performance and of computerized mass predictive systems.

Certainly, thanks to Huawei, Hikvision, Dahua and ZTE, the Chinese technology in the sector takes the lion’s share in this specific global market and sells mass recognition technologies in 63 countries, all members of the China’s Belt & Road Initiative.

Huawei alone sells this AI technology to 55 countries.

Outside the Chinese market and the Chinese social reconnaissance producers, the world’s largest company in this AI sector is the Japanese NEC.

However, the U.S. companies operating mass control technologies with Artificial Intelligence are still present in 32 countries.

These American companies include IBM, which works for AI facial recognition networks in eleven countries, as well as Palantir, which operates in nine countries and finally CISCO, operating in six countries.

The other countries selling similar AI systems globally are Israel, France, Germany and Japan.

51% of the universally defined “advanced liberal democracies” use AI mass control technologies, while these control systems are used in only 37% of what the international press calls “closed autocratic States” and in 41% of the States abstractly defined as “illiberal democracies”.

Hence theoften hypocritical alarm for the AI recognition procedures in Xinjiang, sounded by the Chinese government, should remind us of the old Latin Horatian saying De tefabulanarratur.

All the States we currently call “liberal democracies” use systems of citizens’/users’ facial recognition at various levels.

There is evidence of partial and uncontrollable use of advanced AI technologies also in countries such as Tunisia, Angola, Azerbaijan, Hungary, Peru, Sri Lanka and Turkmenistan.

However, the recent Chinese stance on the switching to domestic IT technology regards much of the software currently used in Chinese offices. Nevertheless, there are problems that should not be overlooked.

Lenovo, the world’s largest laptop manufacturer, has been Chinese since 1984, when the Chinese company Legend was entered into the Hong Kong Business Register.

In 2005 Chinese Lenovo bought IBM’s entire personal computer division and IBM’s server-producing division in 2014.

Again in 2014, Lenovo bought the Motorola Mobility Division from the previous owner, namely Google.

The problem lies in the fact that Lenovo still uses chips produced by the American Inteland the replacement of the old semiconductors seems to be complex.

China may have discovered an effective replacement for Microsoft OS, the operating system of most “Western” computers but, for the time being, this is not known in the West.

Furthermore, the semiconductor industry in China has been greatly stimulated by Huawei’s adventures in the United States and the EU.

The Chinese “nationalisation” of the semiconductor and computer chip industry, however, is already envisaged in the China 2025 Plan and the Chinese government wants at least 40% of chips to be produced in China and be ready for export by that date.

In vain China tried to negotiate purchases of chips with the American company Xcerra, but the operation was stopped last February for the well-known political reasons mentioned above.

Also the Chinese acquisition of the US company Lattice Semiconductor – a 1.3 million US dollar “deal” – was stopped by the US government.

Despite the fact that an up-to-date semiconductor industry is hard to set up in a short lapse of time, China’s “National Integrated Circuit Industry Investment Fund” will significantly fund all these operations.

In its second round of fund-raising, the Chinese Semiconductor Fund raised as many as 200 billion renmimbi (equal to 29 billion US dollars), after a first round of fund-raising which amounted to 138 billion rmb in 2014.

The Chinese government deems this replacement operation to be absolutely necessary to reduce the dependence of Chinese information technology on U.S. manufacturers.

It should be recalled that in 2017 – the last year of for which data is available – China imported semiconductors to the tune of 300 billion US dollars.

Now China must run twice as fast, otherwise it will lag a technological generation behind, as far as the very fast chip evolution is concerned.

Moreover the Chinese Cyber Security Law, enacted in 2017, requires the user’s real name for registering in any Internet network, as well as very strict rules for the protection of critical infrastructure, and a much greater protection than in the USA and the EU for what China calls “private critical infrastructure”, as well as a few additional control requests for some groups of network operators.

In 2018 China also enacted new regulations for Personal Information Security Specification, i.e. a set of more stringent web privacy rules than the Western ones.

In the current year, the Chinese government has also established new rules for checking information technology, for the transfer of personal data abroad, as well as for encryption and cloud security.

In the EU legislation on network security, the so-called GDPR, the whole set of rules is focused on protecting the user privacy. In addition to legally protecting individuals’ privacy, however, China also protects a specific class of data, which the provisions define as “relevant to national security, the national economy and people’s lives”.

We are far beyond privacy as it is considered and understood in the West.

By mainly using information technology, China wants to stimulate innovation in four areas: a) the manufacturing industry in general; b) digital commercial platforms and their specific markets, especially as regards online payments; c) the development of telematic apps for “social use”, such as those for rented cars or bicycles; d) the enhancement of basic research and development for biotechnology and big computing.

China currently has around 800 million Internet users, all of whom also having smartphones.

It should be recalled that the Cyber Security Law enacted in China in 2017 entails the obligation for all web companies to store data on Chinese territory and restricts some data transfers also within China’s national territory.

In addition to the above mentioned 2025 Plan and the State Fund for Technologies, there is also – in China – the New Generation of Artificial Intelligence Development Plan.

As early as 2017 China has already overtaken the USA as far as investment in Networks and AI is concerned. Currently Research and Development is more funded in China than in the United States, also as to the IT collateral and “hybrid” sectors, such as AI social and medical applications.

It should also be noted that China is already world leader in the registration of new patents. It currently accounts for 40% of the world total, twice as much as the United States and four times as much as Japan.

In 2025, China is expected to far exceed the number of papers on Artificial Intelligence – with international citations -developed by the United States.

Furthermore, the fact that China’s domestic IT market is subject to what someone has defined “hi-tech Leninism” makes it obvious -also considering the size of China’s domestic market – that a carefully protected growth of cutting-edge technologies in China slows down the U.S. and Japanese sectoral development also in the short term.

If Chinese technologies become world market leaders, it will be hard for the USA, the EU and Japan to define and establish reliable and effective data protection criteria.

Certainly there are geoeconomic risks for the United States.

In the medium term, we will record a Chinese monopoly on international standards, as well as a Chinese leadership on dual-use technologies, considering that the Chinese National Intelligence Law lays down that private or public companies shall provide access and support to the Armed Forces and to the intelligence Services for the collection of sensitive data and for their processing.

Furthermore, the United States, the EU and Japan could be negatively affected by the marketing of Chinese cutting-edge technologies, which would create their own markets and quickly replace “obsolete” or not well-interconnected products and systems.

There is also the possibility that, in the global market of AI surveillance, China may develop data collection models valid also for other countries, thus leading to a structural advantage for its own foreign intelligence.

We should also avoid underestimating the geopolitical effects resulting from China’s non-aggressive foreign policy, starting from Mao Zedong’s Three Worlds Theory (the First World was the USA and the Soviet Union; the Second World was the developed countries, satellites of both powers; the Third World was the “global peripheries” to be led by China) or the saving of often huge economic resources.

In the last Middle East wars, the United States has spent a total of 7 trillion US dollars, which is more or less the same amount China has invested in Research & Development since 1994.

There is a fact, however, which is in contrast with the above.

Over the last five years both the U.S. and Chinese economies have grown significantly, but the wealth gap between the two countries has remained constant, even using the often misleading measure of GDP.

Moreover, the United States is still “richer” than China by about 7 trillion US dollars.

Hence, apart from the structural fallacy of these measures and putting aside statistical manipulations on both sides, China shall record a much faster development than its GDP to reach, at least, the United States.

China’s global technological victories are now well-known: its Micius satellites; some biotechnologies; hypersonic vehicles; energy technologies, including “green” ones; some AI networks and quantum computers, as well as quantum encryption and obviously the 5G.

In other sectors, there is still substantial parity between the two countries.

The current U.S. geopolitics, with the usual cyclical return of isolationism, could unintentionally lead to the global expansion of Chinese technologies and to their progressive hegemony, if not worldwide at least in the Belt & Road area, in Africa and in some Asian regions.

Giancarlo Elia Valori