The UK’s decision on banning mobile providers from buying new Huawei 5G equipment after December 2020 and removing all the company’s 5G kit from their networks by 2027 is a blow to Huawei and China, but that is one battle in a long war that the West is currently losing.
5G’s significance for the next generation of technology is indisputable and so is its key role in helping countries achieve digital transformation and economic success due to not only the faster and better connection speeds and greater capacity it offers, but also to its role in transforming the way we interact with the critical services and its ability to allow industry to automate and optimize processes that are not possible today.
Due to its importance, what in essence is a technological issue, has turned into a trade war, a race over technological leadership and has posed real threats between long-time allies. Yet, 5G is one key technology in a rather more sophisticated landscape that will underpin the future of our critical infrastructure, which includes areas such as quantum tech, biotech, artificial intelligence, the internet of things and big data.
As such, achieving technological leadership requires governments investing in a long-term strategic and agile vision able to capture the interdependency between these areas and leverage technological advancement for economic and political power. It also requires governments working with each other and with the private sector to support research and development and create companies with leading-edge technologies that are able to compete.
China understands this and has put in place a vision to enable it to establish itself as a technological superpower with concerted national and international efforts, although in the earlier part of the journey, it should be noted that commercial espionage and IP theft of Western R&D were at the heart of the Chinese way for competing in this sphere.
The Chinese leadership’s goal to achieve its long-desired economic re-balancing from a hub of labour-intensive manufacturing to a global innovation powerhouse remains the absolute priority of the ruling Communist Party. Beijing is cultivating national champions that can drive China’s technological innovation, with the goal of using domestic suppliers to reduce reliance on foreign technology as well as extending its international outreach.
These growing capabilities have stoked serious concerns across advanced economies in the West. It is too early to predict if Chinese government intervention will eventually achieve the technological self-sufficiency Beijing has long desired. Given the current US administration’s restless response to dismantle Chinese high-tech companies, it is clear that China’s industrial policies are having quite an impact.
China’s approach to macroeconomic management diverges significantly from that of the US and other market economies, particularly in its policy towards driving innovation. Due to the legacy of a state-planned economy, China is certain that simply relying on market forces is insufficient.
While Beijing financially supports government-controlled technological enterprises, Washington’s laissez-faire attitude ensures light-touch state intervention in the business sector. The US firmly believes that a politicized process of distributing public money is inherently susceptible to rent-seeking and corruption, and gets in the way of competitive innovation. In line with most liberal economists, many Western governments believe the government should refrain from market intervention whereas Beijing stresses a state-dominated economy as a necessary precondition both to the future growth of the Chinese economy and to the legitimization of one-party rule.
If the pro-market economists’ view is correct, one can argue that the US should have no long-term fear from Chinese industrial innovation policy. Let Beijing waste money and distort resource allocation, while Washington enshrines its private-sector led principles, confident that this approach will produce a more competitive economy in the long run.
One particular area illustrating the Chinese vision for global technological dominance is the area of technical standard setting. Technical standards determine how technologies work and enable their interoperability around the world, meaning their ability to function irrespective of where they are being used. China has long understood the relationship between technical standards and economic power. The Chinese leadership recognizes the role that standards can play in monetizing technological innovation and research and in shaping new technologies. It has therefore been playing an increasingly active role in international standards organizations to legitimize their technologies, whereas the US, which historically has been highly influential in this area, has not been participating as much or as effectively.
China has been using the Belt and Road Initiative (BRI) as an opportunity to widen and internationalize the distribution of its standards to countries signed up to the BRI. The so-called digital Silk Road, which has been described as China’s global governance initiative, acts as a vehicle to accelerate this process. Later this year, China is expected to launch its new ‘China Standards 2035’ plan with the aim of shaping how the next generation of technologies will work.
In the 5G area, Beijing has introduced domestically the so-called ‘New Infrastructure Investments Fund’ to earmark special loans in boosting 5G technology applications in medical devices, electrical vehicles and communication platforms. This contributes a major part of the stimulus package for China’s post-COVID economic recovery. Apart from 5G, China's recent launch of a second state-funded semiconductor development fund valued at $29 billion, following an earlier $20 billion fund for the same purpose—utilize the state financial resource to become technologically self-sufficient.
China’s pursued model and actions on several fronts has given Western leaders much to ruminate about. Standing up to its global influence and achieving the aspired technological edge will take much more than the 5G decision. It requires a long-term vision built on competition with solid investment in the next generation of technology and cooperation between Western governments themselves and between them and their private sector.
And whilst the current approach may slow down the Chinese trailblazing, on the long term, it will only hasten China's determination to become tech self-sufficient. Combined with its ambitions in the technology sphere, this will only increase the probability of splitting the internet, which will have negative repercussions for us all.
Dr Yu Jie, Senior Research Fellow on China, Asia-Pacific Programme and Joyce Hakmeh, Senior Research Fellow, International Security Programme; Co-Editor, Journal of Cyber Policy.