Tech stand-off may trigger digital divide

Published in the Australian, 17 December 2018

The stage is being set for the emergence of two rival technological empires, China’s and America’s, each aimed at supremacy over the other, with the world as the prize. Clive Hamilton says Australia will have to choose.

The arrest in Canada of Huawei executive Meng Wanzhou could be a turning point in the struggle over who will attain technological dominance in the 21st century. For both China and the United States, the contest is existential because whoever dominates cutting-edge technologies will also prevail economically and militarily.

The Chinese Communist Party shot itself in the foot when in 2015 and again in 2017 it passed laws obliging Chinese companies like Huawei to act on any request to undertake intelligence work. Private as well as state-owned enterprises are now extensions of the Party.

The laws were vital evidence for those wanting to ban Huawei from Australia’s 5G network, a ban now being copied by other western nations. The 5G ‘fibre to the phone’ network will be the control system for pretty much everything—at the heart of big data, autonomous vehicles, smart cities, the internet of things and much more, including weapons systems.

The aggressive use of cyber-espionage and cyber-enabled technology theft by China under Xi Jinping has naturally—some might say “finally”—attracted a backlash. Given its rapid global expansion and its ties to China’s military intelligence, it’s not surprising Huawei has been at the epicentre of it.

But Huawei is only one case. The most astonishing story of recent times has been Bloomberg’s investigation revealing that motherboards put together in China for US company Super Micro Computer have had malicious chips hidden on them. (Super Micro Computer rejects the claim.) China’s intelligence service is believed to have ordered the hacking of the motherboards, installed in servers used by the likes of Amazon and Apple.

The hacking of the Marriott hotel chain’s networks, which stole personal data on 500 million customers, was carried out by a Chinese state agency. Similar hacks have stolen data from US health insurers and security vetting agencies. The Australian government is becoming less reserved about revealing massive cyber-attacks on companies and universities in this country.

But it’s Beijing’s use of state intelligence services to facilitate the theft of American technology and commercial secrets that has attracted special ire. Tired of having its IP stolen or transferred under pressure, corporate America has come around to the view that the gloves need to come off, although big tech firms in Silicon Valley still want it both ways.

US retaliates

On the surface, Donald Trump’s tariff war is being fought over market access and by extension the location of the industries of the 20th century. But the real battle is over who will control the industries of the 21st century. Trump’s advisers know this, so an armistice in the tariff war, or even a capitulation by Xi Jinping, will have no effect on the deeper struggle.

Even if Xi makes concessions on tariffs and other import barriers, he cannot give up on China’s aggressive drive to achieve technological supremacy. The Party’s survival now depends on it because it undergirds a growing economy and military power. But the CCP leadership has realized it was a mistake to trumpet its grand plan to do so, “Made in China 2025”, which is now seen in Washington as “the real existential threat to U.S. technological leadership.”

In reaction to international criticism, Communist Party media outlets have been instructed to go quiet on “Made in China 2025”, but that does not signal any let up in the enormous state investment in research on the next generation of hi-tech, nor its program of acquiring the most advanced knowledge through theft, research collaborations, acquisitions of cutting-edge tech firms and poaching the best talent to work in China through initiatives like the Thousand Talents Program and generous funding of new labs.

It’s clear that both sides in Congress have had enough and are taking measures to protect the United States’ advantage. Government agencies and think tanks—not to mention military planners seriously worried that China will gain superiority in advanced weapons systems—have been ringing the alarm bells. Democrats are, if anything, more determined than Republicans.

Take-overs of US hi-tech companies by Chinese firms are being blocked. New laws are in train to impose tighter restrictions on the export of cutting-edge technologies, including artificial-intelligence components, robotics, and highly sophisticated tools for making semiconductors. Visas for Chinese scientists wanting to work in American labs are being scrutinized more closely, with some rejected.

Technological empires

For its part, China has always tightly controlled foreign access to its markets and its intellectual property. It’s notorious for pressuring multinationals to hand over their IP. The Great Firewall proves that the communist state can exercise extreme forms of control internally, and now President Xi has said China wants to rewrite the global rules governing the internet, restricting free expression and allowing China to control it, at home and abroad.

But now Beijing is finding that the one-way street to western technology is being closed off.

The view emerging in Washington is that, in the face of a competitor that refuses to play by the rules, the United States has to put up its own walls to protect its advantage and keep China out. The more effective its walls are, the more the two technological worlds will evolve in incompatible ways. It will be like PCs and an Apple computers in the early days—they didn’t talk.

So, we may see the emergence of two independently operating but fiercely competing global technological empires, reversing the decades-old process of global technological integration and creating two systems confronting each other not in a stand-off with arrays of nuclear-tipped missiles but in a permanent guerrilla warfare of keyboards.

China can see what is coming and is already turning to Japan and Europe to fill the technology gaps. America’s allies will have some hard decisions to make because commercial decisions will also be alliance decisions, as we’ve seen in 5-Eyes nations like Australia whose national security is jeopardised by Huawei’s state links.

Every nation may have to choose which of the two technological empires it joins, because integrating with both will be more and more untenable because of the security risk.

On current evidence, China’s technological empire will prevail across most of Africa, much of central and eastern Europe, Pakistan, and neighbouring countries like Vietnam and Cambodia. Others will be up for grabs. Southeast Asia, the Pacific, parts of South America. Even countries in western Europe.

Australia’s decision to ban Chinese companies from the 5G network on national security grounds was a much more far-reaching decision than it first appeared because it foreshadowed the emergence of two techno-empires and our clear preference for one. It could prove to be the Turnbull government’s most fateful decision.


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