US-China: Clashing Tech Titans

US-China: Clashing Tech Titans GIC Conference, February 2020 Leland R. Miller, CEO China Beige Book

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“Made in China 2025” Program Lit the Fuse • Passed by China’s State Council (2015) • Not the 1st Chinese state-led tech advancement program (863 plan in 1986) but 1st the world is taking seriously.

• Key Areas: AI, Robotics, Quantum Computing, 5G, Biotechnology • Core Objective: Eliminate heavy reliance on foreign inputs; raise domestic content of core materials to 70% by 2025  SUPPLY CHAIN SELF-SUFFICIENCY Sounds relatively tame. But it was more than that…

China’s Rise: Not So Subtle Anymore • Self-sufficiency in advanced manufacturing by 2025 • Global AI leadership by 2030 • Across-the-board “Standards Superpower” by 2035 • Achieve quantum (computing) supremacy • Win “4th industrial revolution” (5G)

China = All In • Not the what but the “how” that got them in trouble. Massive & integrated national & local govt effort to support MiC 2025 industries: • • • •

huge subsidies cheap credit development zones state-funded incubators

• Use overwhelming state support to dominate hi-tech manufacturing the way China has already done for low-tech

Made in China 2025: from AI to 5G What is “5G”?

• 5G = “5th Generation” telecommunications = a paradigm change • 100x faster than 4G, but far more than just faster internet • Key = low latency (no “gaps”) that will allow advent of smart cities, autonomous cars, even remote brain surgeries!

• China largely absent from 3G & 4G tech race, wants to lead 5G • Will contribute Trillions of $$ to world economy over coming decades

Why should anyone care about Huawei?

• Probably single most important Chinese company • Huawei 5G has 2 massive advantages: (1) “$75B in state support” (WSJ) allows Huawei to undercut everyone on price (2) Belt & Road partly funding (& requiring) this rollout globally • Core concerns – once the Chinese are inside your system: 1) May contain hidden “back doors” enabling spying 2) Communist Party can order Chinese companies to do…anything • World dividing between China & non-China 5G?

Meanwhile in the United States…

Pre-2016 – CRICKETS from US policymakers • Obama Admin - major WH report on AI; no public interest, not a political issue • Trump Admin - originally proposed cutting funding for AI; focus was entirely on trade issues with no interest in tech competition But Trump eventually grasped on to MiC 2025 as potent political issue & launched “Section 301” investigation into suspect Chinese practices: “Section 301” accused China of stealing IP, using cyberespionage, keeping foreign companies out of Chinese markets, & forcing tech transfer as price of entry into the Chinese marketplace.

US: Huge leverage but unfocused policies • MiC 2025 carved out of US-China trade talks from very beginning bc of Trump’s overarching obsession with cutting bilateral trade deficit • U.S. immigration policy disjointed; we train experts here then visa policy sends foreign talent back home (esp to China!)

• Containment of Huawei domestically premised on Entity List inclusion, but easy to get around  offshoring production, ‘de minimis’ loophole, etc.

• Despite pressuring allies against working with Huawei, UK recently announced it’s letting Huawei build parts of its system. “Dam broke”; others will now follow • U.S. has no homegrown 5G of its own!

Why MiC 2025 Is Such A Threat To US Tech Dominance Yes, • China’s economy is slowing • U.S. ‘innovation’ model has advantage over China’s ‘statist’ model 95x out of 100 But… • China’s system excels at marshaling public-private resources towards specific, state-led goals • Recall in 15 years China went from ZERO high speed rail to more high-speed rail than every other country in the world combined • Can U.S. compete w/o a similar Manhattan Project-like solution?

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