Marianne Schneider-Petsinger
Hello and welcome to this webinar on US-China Tech Decoupling and the Global Implications. My name is Marianne Schneider-Petsinger. I’m a Senior Research Fellow here at Chatham House and delighted to be chairing this session, which will explore the drivers behind US-China tech decoupling, the actions taken, the likely outlook and, also, the implications for the rest of the world.
I’m joined by an excellent line of panellists, including Fred Hu, who’s been the Founder and Chairman of Primavera Capital Group since 2010. Prior to this, Fred was the Chairman of Greater China and a Partner at Goldman Sachs. He’s also been an Independent Non-Executive Director for Ant Group since 2020. I’m also joined by James Kynge, who’s the Financial Times Global China Editor and, also, the Editor of #techAsia, a really brilliant newsletter on all things Asia tech. And then, last at least, I’m joined by Yu Jie, my brilliant colleague here at Chatham House. She’s a Senior Research Fellow in the Asia-Pacific Programme and really, our in-house expert on all things China.
This session will be on the record. It will also be recorded, and you will all have the brilliant opportunity to weigh in, join in the discussion by submitting your questions via the ‘Q&A’ function that you’ll find at the bottom of your screens, and I’d also encourage you to unmute yourself, when it is your time to speak, and you could really pose your questions directly to the panellists. If you prefer not to do that and would like me to read out your questions, you could also do that and just note that when you submit your questions.
Now, the issue of critical technologies really is, I think, at the centre of the US-China relationship and more broadly, it’s really become a geopolitical issue that plays out now and, in the years to come, and I think this is why it’s such an important issue, linked to national security concerns, linked to the issue of economic competitiveness, linked to human rights concern, also governance issue around setting the standards for tech issues in the future.
Now, the Biden administration has continued many of the efforts to restrict the export and the sale of US technologies to China. The Biden administration has also very much increased efforts to strengthen supply chain resilience of critical technologies and broader areas, such as semiconductors, for example, and at the same time, we’ve seen the Chinese Government really trying to gain technology independence. And again, against this background, we are seeing this notion that technology really is at the centre of this era of great power competition between the US and China. And so, I want to start this session by turning to Fred and getting his perspective on where we are and to what extent, again, this notion holds true, or to what extent those fears that China is going to overtake the US as a tech superpower are, or are not, exaggerated? So, Fred, over to you, please.
Fred Hu
Thank you, Marianne. First of all, I’m very delighted to join this webinar with the two distinguished China watchers and the commentators. This is a, obviously, very, very hard topic. Just to your question, Marianne, I think the idea China has already dethroned the US as the global tech hegemon, always China’s close to dethrone US long-term dominance in technology, I think is a sheer exaggeration. Yes, it is true, China has made a reactive progress in technology, broadly, and in the innovation. You know, for a long, long time, China was, and China has been known as a technology liger, a copycat, albeit the way a clever one, okay? But China never featured in many major global technology rivalry. You know, tech competition, there’s almost exclusively a Game of Thrones for the West. Maybe after World War Two, with Japan’s ascendence, that has some changes, you know, Japan, Taiwan, Korea, has also joined the competition, but China has been more notable for its absence.
So, last two decades, however, China has made tremendous progress, whether it’s in terms of number of Scientists, Engineers, and in terms of number of publication in proper international journals, in terms of patent defiance and importantly, in terms of number of startups and tech union costs, too. So, China has been catching up very fast and the gap with the West, particularly with the US, used to be enormous, now has been narrowing year-by-year, or even week-by-week. But China has not yet fully overtaken the West or US. So, this – so could, you know, you – be considerable tech rivalry, I think is just really exaggeration.
The fact China has risen technologically, actually is a good thing for China itself, of course, but also for the world. You know, so, China has made a lot of progress, in terms of poverty reduction, by lifting hundreds of millions of people out of abject poverty, join the middleclass, but to sustain it, China need to move up the economic ladder, because manufacturing enabled cost is rising very high. Even China had – when China had its environmental regulation, other costs are also rising, so the only way forward is to become an innovator, to raise productivity. So, if China does that successfully, that’ll be really good for China itself and for the world. So, China will become, also, a supplier of cutting-edge technology products and services, you know, whether it’s the cool new gadgets or applications. So, give global consumers far more choices and people – Western technology leaders, honest, you know, in terms of pricing, you know, for consumers.
And as a believer in Adam Smith, competition is good, always good, and so, yeah, and it’s important to know, you know, many tech leaders in the US I speak to, they don’t endorse the whole notion of tech decoupling. They think this is crazy, it’s lunatic, right? Yes, there’s competition, there’s some concern, so there may not be the government, you know, in trade discussions, you know, to put some pressure on China in terms of a level playing field, in terms of IP production. All those are very legitimate, but no-one has gone as far. Even Trump supporters in the Silicon Valley, which are very few, have gone as far to support decoupling and the idea is just really a crazy idea. It’s very harmful to both China and the US, actually for the world.
So, you know, unfortunately, you know, this has been just below other proportion and the people who talk – you know, make most noises about the tech economy are not Technologists themselves, not Engineers and not funders, but just a bunch of Politicians and some bureaucrats, who are either tech Luddites or tech idiots, who have no sense about technology. So – but introduce all these stupid rules, which make the rules much worse off.
Marianne Schneider-Petsinger
Thanks, Fred. So, concerns overblown and no decoupling really happening. But to what extent do you think that there is, you know, decoupling in certain very strategic sectors, linked to national security, for example? And you also mentioned that there are some valid concerns. So, ultimately, I mean, do you see that there is still very concrete areas where decoupling is likely, but again, in the broader sense of things, full, 100% decoupling not in the cards?
Fred Hu
Yeah, so, you know, this decoupling notion, really come out in Washington. So, there’s been a number of initiatives, some new, some old. Otherwise, tech expert control, that’s been in place since last Cold War, when Soviet Union was still around, but you know, US has never opted that regime, so that regime has been wholesale adapted, applied to exports into China, okay? That has been always the case.
The second is service, that’s in – is the investment, recording capital flow. You know, service – you know, US is always a country we all recognise a rule by law, okay, and the US often brag about it. But their service is not the shining example of rule of law, because it’s very opaque, it’s very unpredictable, it’s very haphazard and it’s very broad. So, for example, it applies where there’s M&A or just minority investments. It applies to estab – you know, mature companies, but also, even improving highly risk technology startups. So, that’s just a very West opinion. It’s not like a typical, you know – it just leads to international security concern, which is, by definition, should have very small yard, but a high fence. But the service is very broad. Everything, you know, in theory, they can catch, okay, and it is not just us, it’s for Chinese, but UN – European investment into US can be also scrutinised and also made highly, highly uncertain.
And you know, the last thing, of course, in the last few years, what the Trump administration is doing is all outright ban, whether it’s TikTok or – which had OEDP, right? So, basically, kick you out of the country or just threaten to kick you out of the country, right? That’s how, again, I would say, you know, as an admirer of America for a long time, I think those are very un-American, because you know, change the character of America it was about, from a very open, free society, into a very, very restrictive, controlled and closed society.
Marianne Schneider-Petsinger
James, let me bring you into the discussion. How do you see this tech rivalry unfolding? What do you see as the main drivers? And again, Fred, to some extent, brought in the mechanisms, what do you, again, see as the tool that the US and China are using to drive forward decoupling, again probably in very specific sectors?
James Kynge
Thank you. Thanks very much and, yeah, I’d like to say I’m delighted to be on the panel. It’s great to be here with Fred and Yu Jie, as well. My feeling is, first of all, I think that like Fred, I wouldn’t use the word ‘decoupling’, because I think it sounds too definite, but I would use the word ‘bifurcation’, in other words, a split, particularly in supply chains, between the US-led West and China. And I think that the reasons for this, and I would – rather like Fred, I would say that this process has only just started to be seen and to be witnessed. It’s at early stages, but unless the politics between China and the West can improve, I feel that the bifurcation will continue, and I feel that there are a lot of different factors on both sides.
So, the first factor is that China is emerging to the forefront of technology in several important areas. One of them is renewables. I would say they’re, undoubtedly, the global leader in renewables. Electric vehicles, they’re at the forefront. Tesla is there, too, but Chinese companies are very close, in terms of technology. In fintech, digital payments, digital money, ultra-high voltage transmissions, self-driving vehicles, aspects of artificial intelligence, such as facial recognition, in SpaceTech, in 5G telecoms, soon to be 6G telecoms, and some aspects of super computing and the list can go on, in all of those areas, China is near or at the cutting edge of global technology. So, the first reason for the bifurcation is that the US is scared, simple as that. The US sees its more than 100-year hold on the commanding heights of global technology as being eroded and eroded fast, so that’s the first key point.
Second key point is that there are – there is some basis for the US sense that its intellectual property has been stolen by Chinese companies, over the last couple of decades, at least. There was a report in 2017 by the US Trade Rep – Office of the US Trade Representative, saying that the total value of this – of these – you know, the losses to US companies, through intellectual property theft, was between 225 billion and $600 billion US annually. You can see there’s such a huge range there. Clearly, nobody really knows what the true number is, but it is clearly an issue.
And then, you can look at the amount of money flowing into Chinese tech. I mean, just have a look at the IPO figures here in Hong Kong. You know, we cover this on a regular basis in the #techAsia newsletter. Asia is the centre, at the moment, for capital raising for exciting technology companies. So, I feel that on the US side, basically, this is being driven by a sense that US superiority, the US leadership in tech, is being eroded and it may be that the US’s biggest geopolitical rival, China, will take the lead.
The other side of it is that China, itself, has had a bifurcation policy, programme, over the last several years and people have – a lot of people have pointed to Made in China 2025, that’s a document that came out, first of all internally, in 2015, which listed each key sector and how the Chinese Government would like to see Chinese industries increase their self-reliance and reduce the market share of foreign companies in each of a long list of sectors. That document is well-known. Everybody can see it.
But I would like to give, just before I end, one other brief example of how this programme of self-reliance in technology that China’s been pursuing has been intensified recently. If you look at an article in Nikkei Asia, we had this week, you’ll see the case study of YMTC, Yangtze Memory. It’s one of China’s leading chip companies and according to this article, there are meetings at a high level in Beijing every month as to how this Chinese chip company is stripping out foreign suppliers from its supply chain. There are 800 people in this company dedicated, full-time, to stripping out even the tiniest screws and nuts and bolts used in various chip making machinery and you know, and other pieces of equipment that make the chips. And then, it’s gone down to the level of suppliers of suppliers, right? So, basically, the Chinese Government wants to be absolutely certain that it can rely on its chip companies at some point in the future. At the moment I should say that it can’t, and chip making is China’s biggest vulnerability, but you can see from what’s happening in YMTC, the level of determination by the Chinese authorities to reduce what they regard as vulnerability to, particularly to semiconductors.
So, I think this bifurcation is happening on both sides, it isn’t just the West. In fact, I would say it started earlier in China than it did in the West. Thank you.
Marianne Schneider-Petsinger
Fantastic. Again, very important point that bifurcation is happening on both sides, that’s one of the issues. The other issue is also, kind of, standard setting and both sides trying to promote their own technologies globally. So, Yu Jie, let me bring you into a discussion on that, but also, you know, any reactions you have to the comments made by both Fred and James. Over to you.
Dr Yu Jie
Sure, okay, thank you, Marianne. I’m also delighted to have Fred and James on the same panel today, and also, thanks to my colleague at Chatham House to putting up this whole thing together.
Now, apart from standards, I think another thing, which I’d like to bring audience’s mind today, that China seems to appear to be rather triumphant, regarding the pandemic control and also manage to pulling off a very solid economic recovery. I mean, that’s really, on the surface, that seems to be being widely covered by the Western media, that assume that the East is rise and the West is in decline. But I think many of the things which Western media have not really reported is the second line of that sentence that China is experiencing a rather precarious international environment and that has been clearly listed in the 14th five years’ plan. And I think that second half of the sentence really bring the scenario where we are today, because the party leaders clearly know that China still stands a sizeable distance from the world number one economy, as United States.
Now, this has been a new concept of national security has been introduced within so-called 14th five years’ plan. It’s not just a traditional sense of security of water, food and medical supply, but also in terms of financial resilience. I mean, many of you in here are familiar with China’s term of deleveraging, as well as that sense of technology self-reliance. I mean, just going through the 14th five years’ plan, that the whole word of ‘innovation’ has had 47 mentions and that 47 mentions that seems the party leader really admit, this seems to be the so-called net talking point for China, such as chip making, as what James just mentioned. Which is to say that host – there’s a – there’s going to be continuous international hostility and the supply chains will be disrupted and therefore, the worst scenario planning that party can have, it is to make sure this entire supply chain on technology would be self-determined and self-controlled. And there’s really – China’s also donating the highest value-added elements of Chinese tech are still very much rely on overseas supplies.
So, Beijing doesn’t really expecting these tech supplies or supply chain issue is going to improve at any time soon, during Biden’s administration. And interestingly, I mean, throughout this 14th five years’ plan, if you look up on chapter seven, this entire document did not mention a single word of United States. But this entire document, it is very much about China’s economic and the technological survival guide of how we’re going to combatting against the pressure from the United States. So, that sense of national security has really brought up, you know, in terms of self-reliance on technology, has really brought up, at the highest level in the Politburo, as what James was covered earlier on this.
Now, the second thing, interesting element in here is if we are talking about techs, and that’s obviously involving talents and that really involving how country – how the government is going to reward those talents. Again, interestingly, I’ve read from the 14th five years’ plan, there seems to be a personal reward scheme set up that the state will richly reward for those who can bring the cutting-edge technologies back to China and also make sure their intellectual property rights are well protected, and that seems to – for me, that is almost like an open court invite and those working in the Silicon Valley and other techs hubs all over the world and return to China. Very much un-socialist as it sounds, but perhaps that reward scheme will really attract more Chinese talents, which has working overseas, now return to China.
So, again, and also, I agree with what Fred said, this is very much in line with what China’s 2035 goal, that China is no longer satisfied just to be the manufacture hub of the world, but that what China’s really intend to do is, by 35 – by 2035, build itself as being a modern socialist society. Really stop being a labour-intensive global assembly line, but instead, and these whole ideas of so-called inventing China, as well as Made in China, could be well combined. So – and James is absolutely right, 25% actually, the IPOs, happen within Shanghai Science and Technology Stock Exchange, China’s answers to Nasdaq, actually are semiconductor companies and this is a very staggering figure. And that exactly tell you where the state capital and, also, private capital, that’s where exactly has been channelled.
Now, lastly, this is – and Marianne, you speak about that earlier, regarding the party and the standards, the international standard setting, and Fred again was absolutely right by saying the standard setting in the past has only been retained within hands exclusively among the leading G7 members. And now, what China’s – exactly what China’s trying to do, it is trying to – encouraging more China centres would be widely discussed and used across the international organisations. So, I mean, one of the very obvious example is International Telecom Union, now, is heading by Chinese national and actually, already begin to launch the Working Group, by making some suggestions on possible 6G network discussion over there. So, that is already an emerging trend that within the international organisation that China is very much interested in projecting the so-called discursive power.
This discursive power, which I’m mentioning here, is China will be able to shape the debate and the standard of international agenda from the very beginning. I mean, that’s one way that Jinping, when he came to power, stressed so importantly that “China should be able to project discursive power and setting the rules and setting the agenda across all different aspects of international affairs,” and technology, it is not an exception in here, as well. And by setting those standards, it’s not exactly that China will have to force multinational companies in China to use certain standard and China’s approach is very much this is a market access approach, you know, market access, but having a large enough number of the companies using those standards and therefore, those standards become the de facto international standard, and as what Microsoft has been doing in the past.
So, these are the approaches on international effort has been made in China, the three elements added together, and what we can conclude is that it’s not exactly a decoupling, but rather, it’s China’s response to perhaps the worst to come under the Sino-US great power competition. So, I ending here and much look forward to hear your questions and comments.
Marianne Schneider-Petsinger
Thank you so much. Perhaps, you know, quick follow-on questions and of the hurdles that China faces, because I think in the short run, again, China is, again, too – you know, cut its reliance on US technology, but at the same time, to advance its own technologies, for the moment it still is reliant on those US imports. So, what do you see those hurdles and again, Fred, if you wanted to come in on the hurdles that the Chinese face and James, again, for you then, what is some of the hurdles that the US faces and perhaps also unintended consequences of using export controls, perhaps? But Yu Jie, first over to you and then Fred.
Dr Yu Jie
And me, oh, okay, sure. I mean, those hurdles, I mean, firstly, building something, a holistic supply chain, such as a semiconductor, that would really take times. It doesn’t happen overnight. It doesn’t mean to say that, you know, MIIT, the Chinese Ministry of Industry and Technology, introduced Made in China 2025, that a supply chain would be – is well established overnight. So, I think the problem for China is now it has to really bidding its time and quickly finishing off that catching up stage on certain technology sectors and in order to compete with United States, and rather than – because – and, also, United States were progressing by itself, as well.
So, I think it’s really that catching up stage and plus, the potential export ban from US administration and that will really disrupt China. So – and so far, we’re not quite sure, you know, what is Biden’s tech and trade policy? It has been rather ambivalent so far, but what we can see is that seems to be there’s going to be a continuation and carry on what Trump has been doing towards China on tech competition, because both country agree with each other, really, new frontier for great power competition is now lies on high-tech, not on, you know, on physical wars.
Marianne Schneider-Petsinger
Fred.
Fred Hu
Well, you know, China does have tremendous potential, in terms of, you know, continue innovation and really become significant global tech power. You know, the human capital, the number of STEM graduates, you know, 2.3 million every year, right, so definitely is huge core of human capital, and, also, China is, as well, have, you know, commented for many, many years, is a high serving country, right? So, there’s a lot of human capital available to backup, you know, innovative ventures and, you know, for, even for [inaudible – 30:07] in principal business like semiconductors. While not available country can do the, like, semiconducting issue, but China actually, you know, has the potential.
The only, you know, slight different perspective I have with James is that, you know, who started first? You know, I think in this whole, you know, decouple, you know, very early stage, I do think these political pressures primarily come from Washington, so China was forced the hands. So, it’s now, you know, insecurity, you know, the – any time – you know, not just in sense of military technology, but the US civil eng technology that more and more companies, you know, almost everything, you know, with the tech, you know, being put on the Department of Commerce under the list, you know, they can be cut off, you know, any second at our only critical supply, particularly semiconductors. So, China has been the largest consumer of semiconductors, the largest input of semiconductors. How could possibly, you know, live with this kind of tremendous uncertainty? Just like any oil consumer nation, you know, depending on, you know, Middle East, end of day, right, and the oil supply can be cut off, okay. So, that’s tremendously significant. So, China, I would say, it’s more like play offence – defensive, you know, how to make sure that we do have some homegrown supplies that – so we won’t be, you know, strangled overnight, you know, by Washington, at some point.
So, obviously, you know, I do agree that it will take a long time, but eventually, I think you know, China may have a chance to succeed. It’s really good for the world. I do think there’s tremendous duplication of resources, human resources and the financial resources, right? But now we’re in a more – you know, before Trump and before pandemic, you know, you’re in more normal world, right? Globalisation, you know, China is very good in hardware efficient manufacture, but the high-end, you know, semiconductors, mostly US and software is mostly US, it’s been a very good, you know, symbiotic, you know, global tech system. So, now, with brute political force, force decouple, so then, you know, each country have to do its own in the name of national security, is really country will be better off? So, this, kind of, you know, mistrust been fuelled by pandem – paranoid Politicians and some sensationalist, you know, media reports, really make the world safer and more peaceful? I think it’s a big question mark. But you know, but I think I do recognise, you know, geopolitical realities that the, you know, maybe bifurcation or, you know, kind of, duplication of lot of resources, you know, might be necessary for the short-term comfort of ‘security’.
Marianne Schneider-Petsinger
And James, again, from your perspective what do you see as, perhaps, hurdles or conundrums? You know, for example, that Fred mentioned from his perspective, there seems to be very much politically driven. So, to what extent, you know, is the pushback from companies that still want to have access to the Chinese lucrative market, or the unintended consequences, again, if the US pushes forward, very much, on export controls and is speeding up China’s own desire to move forward and become a leader in those areas? What do you see as the, perhaps, unintended consequences of this?
James Kynge
I’m not sure that the consequences are unintended. I think the consequences are intended and that’s the big difference. I think, you know, we can all cast our minds back to a period as recently as five years ago, when there was very little suspicion between the US and China. I mean, there was broad co-operation in so many different areas. There was a huge amount of American companies that invested in China, not to mention European companies and most of them were doing pretty well. I think the big difference is that the arrival of Xi Jinping as China’s leader and several of the statements that he’s made, has given the West a clear sense that he regards the West as a rival and, potentially, as an enemy, and this has changed the Western discourse on China very fundamentally. And I don’t think people in China yet realise the extent to which it has changed. And so, this has filtered down.
The lack of trust, now, between the US and China is fundamental and that’s, basically, driving the whole thing. Of course, the pandemic has been a disaster in that regard. The pandemic has worsened the situation that was already very bad, as was the Trump Presidency, with very – his very chaotic approach to policymaking. I mean, this is a multifaceted problem that will take a great deal of very skilful diplomacy to even ameliorate, to even alleviate. But where we are right now is that Joe Biden has just signed an Executive Order calling for a review of critical product supply chains, not only for semiconductors, but also batteries, pharmaceutical ingredients, rare-earth minerals. I think the Biden Presidency is going to be much less chaotic than the Trump Presidency, but just as determined to try to divorce strategic dependencies on the Chinese tech sector. And as I said earlier, the Chinese already begun this process way back in 2015, so, you know, to me, that’s where we are right now, lamentable as it may be.
The real pressure, though, is telling in other places. Let me just give you one more example, so just to make this point. Taiwan is, very unfortunately, collateral damage in this huge superpower tussle and just last month, we saw an example of this. So, the US, or Washington, blacklisted a Chinese chip company called Phytium Technologies. This is a very important chip company in China. It’s not well-known, but it’s very high-tech, it’s very much leading edge and, immediately, the share price of a Taiwanese company that works to supply Phytium Technology was hit very hard indeed. So, the share price of Alchip Technologies, which is the name of the Taiwanese company, has gone down from $920 Taiwan, to I think – I noted it down somewhere, about four hun – about – sorry, about 360, I could – yeah, 363. So, it’s absolutely cratered, and I think this shows the type of tension out there. This is very real. This is not sabre rattling anymore. This is hitting companies, hitting investors very hard indeed.
Marianne Schneider-Petsinger
Great, and we’ll – and this is a perfect segue, I think, to some of the questions that have come in via the ‘Q&A’ function and again, I encourage you to all, you know, weigh in. But James, you mentioned Taiwan having become collateral damage and I guess that really leads to the broader question of “What are the implications of decoupling or bifurcation for the rest of the world and how are other areas of the world behaving or reacting, or falling into one side or another?” This is the question posed by Fernando Herrero. “And how do you see this going forward in the next decade?” So, perhaps, James, very briefly from you and then, also, Fred and Yu Jie.
James Kynge
Okay, thanks very much. Yeah, the first thing I’d say is not quite an answer to the question, but I will get to that, and that is, you know, I report on Asia tech, so that’s the whole region, right, and it’s amazing to me how flatfooted Europe is when it comes to Asia tech. We have a boom going on in, not only in China, but also Southeast Asia and India, and European investors are so slow to understand this. It’s absolutely amazing to me. I cannot really quite understand what’s happening to European investors and their lack of engagement with Asia tech, but that’s just to get that off my chest, right?
Now, to answer your question. Blinken, the US Secretary of State, just said that he “won’t enforce a blanket loyalty by Western allies to US policy on decoupling with China. So, that was an interesting statement. But actually, what’s happened so far is that in areas where the US sees a priority, the US has enforced decoupling by European allies, well, also Canada and whatever. So, I mean, just take the example of Huawei and 5G, the reason that the UK is now stripping Huawei’s equipment out of its 5G network is largely because of US pressure. And I think that this will be difficult to judge, it’ll be difficult to predict, but in areas where the US sees clear strategic importance, it will enforce its will on its allies, on them to also decouple from Chinese suppliers.
Marianne Schneider-Petsinger
Fred, your thoughts and again, a related question to that, with microchips on the – now the new oil, will this potentially drive the US and China to conflict, especially with respect to Taiwan? So, again, the implications of that for the rest of the world, Fred.
Fred Hu
We have to, you know, join the fight. I think all trading partners, including Europe, you know, would be in a difficult position, you know, in the face of tremendous uncertainty and unpredictability on the horizon, so, it’s really hard to plan for business if we miss this. So, I just don’t see anything good out of this. But I will say even greater clarity with them would be developing countries. You know, they have need to really eliminate the poverty in a stable economic society, you know, and historically, technology transfer has been important means to lift, you know, developing countries. In fact, since World War Two, you know, whether it’s United Nations, World Bank, IMF, have made, you know, tech transfer, you know, as important, you know, means for economic development, along with the investment and the trade. So, now with this, you know, titanic battle between US and China over so-called technology, you know, Africa, Latin American and in South Asia, many countries, you know, would be, you know, put in a very, very difficult position, in terms of, you know, adapting the latest technology, you know, particularly digital technology, which will, you know, create the jobs and, you know, raise the income and improve lives of people. So, I do think, you know, again, this so-called tech, the copying or tech war, there’s no winner. You know, might be take some temporary comfort out of ‘security’, I think the world is ambiguously worse off.
Marianne Schneider-Petsinger
Great. Again, just staying on this topic of the global implications and we have a question by Trisha de Borchgrave. Trisha are you with us? Would you like to raise your question directly and then, again, I’ll turn first to Yu Jie to answer that, but also, again, the broader implications. Trisha.
Trisha de Borchgrave
Oh, hi, can you hear me? I wasn’t expecting to come on.
Marianne Schneider-Petsinger
Perfect.
Trisha de Borchgrave
Oh, okay. No, it’s about – I mean, although we’re talking about tech, this is also just an example of where China’s at today. Its Belt and Road Initiative, as we know, we talk a lot about it, maybe a lot of us don’t really understand it as much as we should, but it seems to have run into problems and many countries now, in Africa particularly, and elsewhere, are now asking for debt relief and it looks like China’s going to take some significant losses there. So, I just wanted to see – ask you what does this say about China’s state capacity? Thanks.
Dr Yu Jie
Marianne, do you want me to…?
Marianne Schneider-Petsinger
Yes, please.
Dr Yu Jie
Yeah, sure, okay. Regarding state capacity, Trisha, great question. What I’ve noticed so far is from 2019, the April onwards, that the way how BRI has been operating in China, as well as across the, you know, the country which sign up the BRI, has really changed, and I’ve not seen a single fresh China state capital has been erased since April 2019. So, it is a very clear sea change that already happening Beijing, considering, you know, in the past, the way how BRI has been operated is no longer really sustainable. So, we’re expecting changes over there and I think to go forward, in the next few years, we would expecting that Chinese Government spent more money in the countries that neighbouring hood with China. So, much of the money will be spending on East Asia, Southeast Asia and South Asia, to focusing on BRI and less so on Africa and Latin America.
Now, just a segue towards tech, what I’ve also noticed that this notion of so-called Digital Silk Road has been introduced on the Belt and Road Initiative and China’s very much encouraging many of the African countries adopt that Chinese technology, adopt, you know, the facilities and infrastructure, the digital infrastructure that provided in – provided by China. And also, what I’ve noticed that many of the private companies, not just the state-owned enterprises, but private companies and private tech companies actually do invest it in Africa, I mean, for example, Alibaba. I’m sure Fred would know much better than I do on this. So, those companies are sign up the BRI and these are the private companies and working on tech and digital sector. So, there’s changes in here. It’s no longer really a state-led questions anymore.
And again, come back to the earlier question on this bifurcation, on this splintered internet, I mean, the whole idea of black and white seems really no longer exist in the current world of international affairs. It seems to me that everyone just want havings its own cake and eat it and China does it, United States does it and UK does it a well – as well. So, we can’t really say and argue, you know, who’s black and who’s white in this game. It’s just about, really, who’s setting the rules and on which aspects those rules has been written by which countries and which country will be follow. So, I think it’s a really less clearer picture now than compared with what we had and the world, you know, during 1980s and 1990s.
Marianne Schneider-Petsinger
On this issue of this splinternet and again, the bifurcation of the World Wide Web, we also have a question from Douglas Andrews. Douglas, if you want to ask your question directly, this is your moment.
Douglas Andrews
Thank you. Yes, actually responding to what Yu Jie just said. I don’t think it’s a matter of black and white. What has surprised me a little bit in this discussion is none of the speakers has addressed the question of the splinternet directly as a bifurcation of the World Wide Web, which China initiated by wrecking its great firewall. My question is, is it possible that this wall will grow in the future and create insuperable obstacles to global communications and supply chains?
Marianne Schneider-Petsinger
Thank you. Fred, let’s turn to you for this one first.
Fred Hu
Yeah, I’m an Economist, I think, you know, splint, you know, internet is inefficient, right? That’s also, kind of, opposite from the pioneers of the internet, the World Wide Web. It’s a good idea to link them altogether, information flow and the freedom transparency. So, you know, so, that’s not very helpful, you know, that, you know – so, you know, in the early year, more romantically, you – our globalisation, not on just trade, capital flow, but you know, people putting in data. So, clearly, you know, looks like data goes out of the, you know, window, okay, no longer even on the agenda, right? Just every country, sovereign country, have used data as a national security. So much so, if you want to buy a dating app in the US, you know, you – that may – you might be in a potential threat to national security. So, that’s how, you know, the mindset right now. So, again, I’m just very pessimistic about, you know, the prospect of, you know, a world that, you know, we’re all going to have, you know, it will be splintered by the internet.
Marianne Schneider-Petsinger
James, did you have any thoughts on that, as well?
James Kynge
Yes, I very much agree with Fred. I think we’re facing a very perilous situation with regard to the, not just the splinternet, but digital division all over the world. And I would say that the biggest sources of blame for this has to be Big Tech companies, not nec – not just Chinese Big Tech, in fact, not even primarily Chinese Big Tech, but Facebook, Amazon, you know, all of the big American tech companies, because we have – as a consumer, we have no idea what they are doing with our data. And this problem is becoming more and more obvious everywhere. If you look at – you know, just taking Japan-China, because this is the topic of the conversation, but in Japan, the government is scaling back its use of a popular messaging app called Line after its operator acknowledged that employees of an affiliate in China were able to view Japanese people’s personal information. And then, just listen to the information that they could access, it included names, phone numbers, identification numbers and even some messages that were sent by Japanese people to each other in Japan. This is absolutely standard. I believe this is happening all over the world. Every tech company that deals with consumer data is abusing it in this way. I’m not making a point about China. It’s just absolutely – all you need to do is to look at the notifications that you get from these companies to know how closely they’re monitoring you.
And then look at Elon Musk, you know, he denied that his company’s – his cars could be used to spy, following reports that the Chinese Military has banned Teslas from its facilities. So, Teslas were banned by the Chinese Military, Elon Musk stands up and says, “You know what? It’s not true, our cars cannot spy.” But the problem is, how can anyone ever prove it, right? We simply cannot prove what the Big Tech companies know about us, whether they’re spying on us, or what, and therefore, I think this whole internet, this digital splintering, is only going to intensify. I think it’s a major, major problem that we’re just seeing the beginning of right now.
Marianne Schneider-Petsinger
I think you mentioned two big issues there, the role of tech and the role of trust. We can have an entire separate discussion on that and we’ll, hopefully, have you back for that at some point. But one issue we haven’t discussed is intellectual property laws, yes, and Martin O’Neill, if you’re there and would like to come in, please do so now.
Martin O’Neill
Sure. Yeah, and my question was just we’ve had a very good dialogue and discussion, but we actually haven’t really touch – we haven’t really addressed the whole question of intellectual property, which I presume for – and that’s not just in – for hardware companies, it’s for services companies, software companies, etc., and it’s, I think from a Western perspective, it’s pretty central to the whole business model and technology. And I mean, to what extent are differentials in either laws, or even just attitudes towards intellectual property, behind some of the, whether we want to call it splintering or bifurcation and, you know, are there really – you know, are we ever going to really have effective international standards that bridge that, or should we just assume, given the size of the Chinese market and a completely different legal system on this issue, you know, there just will be a bit of splintering?
Marianne Schneider-Petsinger
Fred, I see you have unmuted yourself, so I assume you want to jump in on that question.
Fred Hu
No, I was just saying how much that’s a great question and that we were amiss to have not brought this up upfront, yeah. So, in terms of China-US tension, so, actually IP was the original trigger, right, the irritant, longstanding irritant. You know, clearly, historically, China has had a very poor track record on IP protection, you know, largely because of the underdeveloped legal system and the World War, in general, but also because China, until recent, they could also – you know, was not innovate. So, there was no skill in the game. The incentives were aligned, you know, to not take in – to expect intellectual property rights they deserve. So, having said that, you know, insofar they’re still here, they’re – you know, China need to continue to tackle the problems and they’re making progress. Of course, this is a – you know, a lot still to be done, but in general, China has also made tremendous progress, in terms of improving our IP protection. Because you know, actually it’s not because US hectoring or threats, it’s really because the necessity. China is no longer low-cost manufacturer. You know, China needed to move up value-added chain, economic ladder. China increasing become an innovate in its own right. So, if China doesn’t continue to push up, then there’ll be no more Jacamo of the future. So, you know, as of now, in this case, China’s national self-interest and the concerns of US, Europe, Japan, you know, trading partners, you know, all pretty now convergent and aligned. So, actually, I’m much more [inaudible – 53:30] that, you know, maybe, I don’t know, five years from now, you know, IP is no longer an issue at the table, because you know, China, I wouldn’t say has a pristine record, but increasingly, you know, has been mentioned, you know, efforts, you know, whether it’s from law making, from the enforcement, but also, you know, grassroots activism.
Now, you know, we see companies taking actions if they see their trademarks, patents, commercial circles being violated. They’re going to, you know, take on their offenders, the violators. You know, every Chinese company themselves, present Chinese company and what they know, China definitely, it’s become a normal, just like the way much of Europe and most America. So, in this regard, I’m highly confident, you know. Yes, you know, there’s still continue challenges, but, you know, it incrementally become less of a challenge.
Marianne Schneider-Petsinger
Yu Jie?
Dr Yu Jie
Yeah, yeah, I mean, I agree with what Fred said. You know, it’s really a necessity for the next step of the Chinese – China’s economic development. I mean, just to give a number, actually, if you look into the World Intellectual Property Organization, WIPO, the filing for China is actually just a second position, right after the United States. So, clearly shows that the country give a strong emphasis towards intellectual property. But I think as things happen with China, you know, given – considering the country is almost like a super tank, to make the super tank turn around, it does take some time. And, also, there’s really a division between, on one hand, yes, you have the central government giving this very strong emphasis towards intellectual property protection, but then, on the other hand, you have the 34 different provinces come up with different rules and regulations and unspoken rules or even the invisible barriers that prevent intellectual property. So, if we actually look into the coastal provinces, the southern part of China, perhaps would be keen on IPR protection far more than, say, for example, in the middle and the western provinces. So, I think there’s regional divisions for that. Over direction, yes, China it’s began to keen about IPR protection, but when they come to implementation, I think we need to take really cases by cases in here.
Marianne Schneider-Petsinger
Great. We have time for one more question from the audience and Derek McDowell wants to follow-up on that question of international standards. Derek, would you like to come in?
Derek McDowell
Sorry. Hi, there. Yes, I was just wondering about you mentioned the International Telecommunications Union and how China’s becoming more engaged in these multilateral intergovernmental forums. I’m wondering if you have anything to say just about, in general, on their engagement in, you know, the multistakeholder non-governmental forums that have been where a lot of internet governance has traditionally taken place? And thank you, as well, this has been a fascinating panel.
Marianne Schneider-Petsinger
Yu Jie, why don’t we start with you, since you raised that issue of, kind of, international standard setting in the first place?
Dr Yu Jie
Right. I think, Marianne, we should make an advertisement for our report, back to two years ago, we co-Authored in here. Feel free to refer to that, the “US-China Tech Competition Report” that Marianne and I co-Authored on tech standards and various other things. On this, I think China has really engaged with the international organisations already, back to 1982, as far as I remember, you know, International Standard Organization and ITU, so on and so forth. I think, really, the hard lessons has been learned from the Chinese enterprises, you know, irrespective private or state-owned. At the end of the day, it’s about who is the ultimate penholder with an international organisation? And therefore, for those whoever become the penholder, then they would give the preferences of those standards being adapted by the particular country.
I think China is really aware of that, so that’s why you see a wider range of participation for China in the various international organisations, I mean not just ITU. I mean, if you look at what happened with – Marianne, you would know this, on WTO reform and China’s very much keen to expanding the chapter on digital economy, as well. I mean, on recent trade deals that China signed with several other countries, RCEP for example, again, China’s very much keen to expanding on those chapters, which has not been fully compre – expanded, on digital economy, on eCommerce, on various others.
So, this standard setting thing, it is not new. I think it’s because of this Sino-US competition really brought us to the tension that suddenly, China become the so-called agenda setter and standard setting for the international telecommunication and that will really make us aware this problem seems to become more acute. But such a thing has really well exist before this competition between the two great powers.
Marianne Schneider-Petsinger
Fred and James, let me also give you a chance, at the end, to respond to any of the previous questions where you didn’t have a chance to come in. But perhaps, also, looking into the future, what do you see the competitive dynamics, the national security landscape, in ten years’ time, that will obviously have huge implications, also, for the tech ecosystem and what role do you think the US and China will play in that? Do you see, again, not just bifurcation, but also, perhaps, a move towards areas of co-operation and if so, in what areas? Fred and then James, please.
Fred Hu
Yeah, so, it all gets very murky everchanging geopolitical landscape. I think what, you know, my firm and, you know, we are first ones, really, to continue to look for opportunities to really, you know, bring the world to get together, to try to whirlwind, you know. So, like it a lot, again, we are in a very intricate, sophisticated, you know, interdependent world. You know, we had the supply chain, have the – you know, one of the huge – the important factor of any innovations human capital, is people, right? So, we’ve already looked at Indians or Chinese and other, you know, nationals, if it’s working in Silicon Valley, so in that the hope this human connectivity will bring, like, you know, us together and, you know, right now, we are confronting climate change, which is really – you know, again, absolutely to be divide and conquered, you know, the very symbolic, right? We have to bring our ingenuity resources together to tackle the existence, true existential challenges for the world.
Marianne Schneider-Petsinger
James.
James Kynge
Thank you. Yeah, it’s a great question. It’s hard to look into a crystal ball, of course, but I guess I’m afraid I’m not optimistic. You know, I’ve been reporting on China for about 35 years and the overwhelming majority of that time, I’d say really until the last couple of years, I’ve been reporting on engagement between China and the West. I’ve very much lived that period of history. But now, I’m afraid, I am not optimistic. I think that bifurcation between the US-led West and China and China’s allies will increase. The tensions over tech, which are, you know, deeply embedded, will also increase, and ten years from now, I don’t think there will be decoupling, but I think there will be considerable bifurcation in the most sensitive areas. And I think this is being driven, not really by tech, but by politics and by, particularly, geostrategic tensions that we don’t have time to go into.
But the other really important point, I think, is that this bifurcation is being driven by the fundamental nature of technology itself, by which I mean that technology, particularly the consumer technology that we all have to live with these days, is so opaque. Nobody knows where our data’s going. Nobody knows how we’re being monitored. It’s almost like we’re controlled by our smartphone, you know. Just yesterday I had a smartphone software update that wiped a couple of my key apps off my smartphone. It’s like I’m a little – you know, a poodle on a chain, you know. I don’t think people will put up with this and I really think that the Big Tech companies have a lot to answer for in the bifurcation of global tech that is coming upon us.
Marianne Schneider-Petsinger
Thanks, James, and Yu Jie wanted to come in with a one line for total…
Dr Yu Jie
Just a tiny line and what we haven’t discussed in here is that 25% of the total production for American semiconductors and those products and going to China. So, China’s actually a major consumer for the United States on this regard. If we are talking about decoupling, perhaps United States have – also have to calculate its own economic cost as well, in here. So, decoupling doesn’t really do good for anyone.
Marianne Schneider-Petsinger
I think that’s a very important point to end on and again, I think it’s also quite clear that yes, the rivalry over technology will continue and that tech bifurcation is likely, at least in some areas, but at the same time, there’s clearly, mutual dependency between the United States and Chinese technology industries and again, that will continue. At the same time, there will also be other forms of engagement between China and the US and the broader world, for example, again, those financial flows that you pointed out. So, again, it’s been a very, very fascinating discussion, on a complex issue and one that will be with us 40 years to come.
Thank you so much Fred, James and Yu Jie, for this contribution. It’s my pleasure, and thanks, also, to the participants for joining us today.
James Kynge
Thank you, Marianne.
Marianne Schneider-Petsinger
Thank you.
