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Huawei and the Great Decoupling

China's technological dominance

20 08 05.inkster

The advent of 5G networks won't just be another step in technology's steady advancement, but a huge leap forward in how we communicate with each other. The US dominance in advanced technologies is eroding fast, and China is now bent on an all-out effort to become the world leader in everything from AI to quantum computing, writes Nigel Inkster. 

If there ever was a “Golden Era” in Sino-UK relations, the UK government’s announcement on 14 July 2020 that it would exclude the Chinese telecommunication national champion Huawei from the UK’s 5G network brought it to an end. Huawei was not the only reason that Sino-UK relations have deteriorated.  China’s growing assertiveness over the past decade has forced many liberal democracies to reappraise their relations with a country that seems determined to challenge the US-led world order that has formed the bedrock of international relations for the past seventy years. And specific issues including China’s initial delays and cover-up in addressing the Covid-19 pandemic, its oppression of the Uighurs in Xinjiang and its imposition of a draconian national security law in Hong Kong have further exacerbated tensions. The Chinese government has reacted badly to the Huawei decision claiming that it undermines trust in the UK as a commercial partner and it has threatened unspecified consequences. So far these have not materialised but UK companies seeking to do business in and with China may well find the climate less welcoming.

In making the difficult decision to exclude Huawei the UK government has found itself at the centre of a geo-political contest between the USA and China in which advanced technologies play a key role. This contest has been long in the making. At the beginning of the 19th century China was one of the most prosperous and best-governed countries on the planet, accounting for  30% of global economic activity.   For most of recorded history it had been a science and technology leader accounting for 25% of all inventions including the four which Francis Bacon described as ushering in the modern era: paper, printing, the compass and gunpowder. But in the fifteenth century the country turned in on itself, lost sight of many of its earlier scientific and technical achievements and missed the Industrial Revolution. When western powers, led by the UK, forced China to open its doors to trade, the country was in no position to resist. Since then China has been on a long journey to achieve a modern identity and recover the cultural self-esteem it lost in its encounter with a west empowered by modern technologies.

Operating in a climate of state enablement that set overall strategic objectives but otherwise gave businesses their head, these entrepreneurs practised an extreme form of dog-eat-dog capitalism.

Fast forward to the end of the Cultural Revolution when China embarked on Deng Xiaoping’s programme of Four Modernisations designed to enable China to catch up with the West. At that point the Internet was still in its infancy but thanks to the writings of US futurologist Alvin Toffler, China’s leaders recognised the importance of modern Information and Communications Technologies (ICTs) for economic development. By 1994 China adopted the Internet, at that point being necessarily reliant of US technologies, and rapidly became a highly networked society thanks to the energy and ingenuity of Chinese engineers and entrepreneurs many of whom had studied in western universities and worked in Silicon Valley. Operating in a climate of state enablement that set overall strategic objectives but otherwise gave businesses their head, these entrepreneurs practised an extreme form of dog-eat-dog capitalism reminiscent of the USA in the late 19th century. One of these companies, which emerged as China’s principal national telecommunications champion, was Huawei.

Huawei’s beginnings were modest. It began by buying telephone switches from Hong Kong and installing them in rural areas before securing a contract to provide telephone switches to the People’s Liberation Army. By 1994 Huawei was consequential enough to merit a visit from the then President Jiang Zemin who was persuaded by Huawei’s founder Ren Pengfei to exclude foreign companies from China’s still embryonic telecommunications market. By the early 2000s Huawei was not only well established within China but was building a substantial presence overseas. It scored an early coup when in 2005 the UK telecommunications company BT opted to use Huawei components for a £10 billion upgrade of its mobile network. At that point China was generally seen in the West as a relatively benign status quo power, a state still playing catch-up with the west and not an obvious threat to western technology supremacy. Huawei had established a reputation for producing components that were both reliable and 30% cheaper than western suppliers. But Huawei’s competitors and the US government claim that this competitive edge was the product of state subsidies well in excess of internationally acceptable limits and pervasive intellectual property theft. This latter included the hollowing out of the Canadian telecommunications company Nortel which went from being the world’s largest and most advanced to bankruptcy in the space of a decade.

In its progress towards being a leading technology state China confronted significant challenges. While recognising the economic value of the internet China also saw it as a vector for the circulation of ideas that challenged the Chinese Communist Party’s narrative and hence posed a threat to the Party’s hold on power. At home it was able to exclude such messaging through a pervasive programme of surveillance and censorship. But it also needed to extend its reach overseas to protect its political and ideological security by suppressing critical or subversive commentary. And it needed to reduce its dependence on US technology through a process of indigenous innovation. China pursued its objectives through diplomacy, in particular promoting its concept of cyber sovereignty, the right of states to regulate content passing through their networks; regulation including international standard setting where China began to “swarm” the meetings of entities like the Internet Engineering Task Force and the International Telegraphic Union; and the use of its national champions, in particular Huawei, to build capacity around the world with a particular focus on developing countries. China began to promote plans for an alternative Internet based on a top-down government led model that would in effect be an Internet with border controls. A world in which Chinese technologies predominated would be a world more accepting of Chinese values.

By 2010 the UK government had begun to wake up to the security implications of dependence on Huawei in its mobile telecommunications networks and set up a Cyber Security Evaluation Centre at Banbury in Oxfordshire staffed by experts from the signals intelligence agency GCHQ to examine all Huawei components looking for security vulnerabilities and “back doors” – vulnerabilities deliberately engineered into components to afford covert access to networks. No back doors were ever found nor realistically was it likely that they ever would be since this would destroy Huawei’s international reputation. Many other western states were also reliant to varying degrees on Huawei technology including the USA where Huawei became the dominant provider in large rural states.

The Huawei question became more salient in the context of fifth-generation mobile technology. This was not simply another upgrade but represented a potentially game-changing evolution.

The Huawei question became more salient in the context of fifth-generation mobile technology. This was not simply another upgrade but represented a potentially game-changing evolution that would provide much greater transmission speeds and lower latency – the delay between sending and receiving a signal – that would enable the Internet of Things and an industrial Internet that would support automation and autonomous systems including potentially autonomous vehicles. It would also have important implications for the development of Artificial Intelligence (AI) by generating huge volumes of data that are the “feedstock” of AI systems. For the USA 5G was a “Sputnik moment” when its long-presumed global technology dominance came under challenge. No US company could match Huawei’s ability to produce end-to-end 5G networks at scale and the main western companies who could build 5G networks -Nokia and Eriksson - were reliant on China for many of their inputs.

The USA did however have leverage over Huawei. Although the latter had invested hugely in 5G technology it remained dependent on US advanced microchips and software. As US-China relations underwent a significant deterioration with US president Donald Trump’s initiation of a trade war with China and the fall-out from the Covid-19 coronavirus pandemic for which the US government blamed China, the USA sought to turn the screws on Huawei by denying it access to  products that either contained or were based on US intellectual property. At the same time the US government applied a full-court press to its main western allies to exclude Huawei from their 5G networks as it itself had done on the grounds that Huawei constituted a security threat that would render states reliant on Huawei equipment vulnerable to Chinese cyber espionage.

This claim needs to be considered both in the light of China’s current espionage activity and in the light of how 5G systems actually work. Over the past decade western countries have  continued to be subject to pervasive Chinese cyber espionage operations directed against both private sector and government targets. Their success has relied not on Huawei or other Chinese technologies but rather on the inherently insecure nature of cyberspace. Western dependence on Huawei networks would undoubtedly facilitate such activities to some degree. And despite Ren Pengfei’s claims that Huawei would not facilitate espionage on behalf of the Chinese state, the reality is that intelligence work is woven into the fabric of the Chinese state and society much as was the case with the Venetian Republic in its 16th and 17th century heyday and they would hence have no choice in the matter. Added to this is the fact that 5G networks present a much greater attack surface. And of course Huawei could in extremis close down the entire UK or any other western network by withholding the software updates and billing data that are critical to the functioning of the network.

The UK National Cyber Security Centre believed that the risks of incorporating Huawei into the UK’s 5G network could be managed by confining it to the less sensitive parts of the network. Their US colleagues at NSA privately agreed. But the real issue was geo-political and a post Brexit UK proved to be in a weak position to resist US pressure. The short-term consequences of this move will be that the UK 5G network will take longer to develop, will be more expensive and probably less good than it might otherwise have been. But given that the real benefits of 5G as described above are still some way off, and that minds are already turning to alternative systems such as Open Radio Access Networks which offers the prospect of a software driven system operating on a basic physical infrastructure, that may not matter so much. The bottom line is that 5G is not the be-all-and-end-all – or as Ren Pengfei put it, “5G is not the atomic bomb”.

China is now bent on an all-out effort to become the world leader in advanced technologies including AI, quantum computing, autonomous systems, space and bio-technology.

But the longer-term implications of the UK decision could prove much more consequential. China is now bent on an all-out effort to become the world leader in advanced technologies including AI, quantum computing, autonomous systems, space and bio-technology. It is investing huge amounts of money in R and D while still seeking to acquire the most advanced western knowledge either through espionage or commercial acquisitions. It may be on the cusp of a major surge of scientific and technical creativity.      The USA is fighting back by trying to slow China down and to force other states into making a binary choice between US or Chinese technologies. We are now witnessing a process of global technology bifurcation which in a forthcoming book by that title I have referred to as the Great Decoupling

The US still maintains an edge over China in most advanced technologies but that is fast eroding. The US domestic telecommunications sector is creaking at the seams due to the Covid-19-imposed increased demand for teleworking and could well fall over if this demand proves prolonged. Meanwhile the US habit of close collaboration between the public and private sectors that gave rise to the military-industrial complex, the space programme and even the Internet appears to have eroded. Relations between Congress and Silicon Valley are fractious. And most worryingly an anti-science outlook is increasingly prevalent in the public US discourse. The outcome of these trends is not a foregone conclusion. But if the US does not quickly recover its ability for self-renewal it, and a diminishing number of western allies, could find themselves on the wrong side of a technology divide while China dominates the technologies that will shape the 21st century.

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