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31. Localization and China’s Tech Success in Indonesia

Author:
Gatra Priyandita, Dirk Van Der Kley, and Benjamin Herscovitch
Publication Date:
07-2022
Content Type:
Working Paper
Institution:
Carnegie Endowment for International Peace
Abstract:
On average, Indonesians distrust China and many Chinese firms. Yet Huawei and to a lesser extent ZTE have successfully positioned themselves as trusted cybersecurity providers to the Indonesian government and the Indonesian nation. This has been no easy feat given long-held Indonesian animosity toward China. Many Chinese companies have faced protests over concerns they were taking local jobs. Huawei and ZTE have suffered no such fate. Nor has there been a broad coalition of Indonesian voices against using Chinese technology in critical telecommunications infrastructure. In short, Indonesians care a lot more about Chinese cement plants than they do about Huawei involvement in 5G networks. Gatra Priyandita Gatra Priyandita is an analyst at the International Cyber Policy Centre at the Australian Strategic Policy Institute, where he leads a project researching cyber-enabled intellectual property theft. He is a political scientist by training and specializes in the study of foreign policy and security in Southeast Asia. He holds a PhD in political science from the Australian National University. This is a vastly different conversation to those happening in rich liberal democracies. Huawei and ZTE have been able to achieve success in Indonesia, despite a sense of ambivalence among the Indonesian political and defense establishment about Chinese intentions and growing Western scrutiny over the use of Chinese technology in broadband networks. As other papers in this series have demonstrated, Huawei and ZTE needed to localize their strategies. Like elsewhere in the world, available evidence suggests that part of Huawei’s and ZTE’s value proposition is cheaper prices (compared to those of competitors) for high-quality technology. But that is only part of the story. Huawei has positioned itself as Indonesia’s cybersecurity provider of choice by offering enormous cybersecurity and other related training programs across the country for groups ranging from senior government officials to students in rural Indonesia. Much of this training is technically focused on practical vocational skills with a hope that students one day will become customers. In addition, the company offers an attractive maintenance and upkeep package. Since the mid-2000s, Chinese information and communications technology (ICT) firms have created training centers in partnership with local Indonesian telecoms companies and universities to train the next generation of Indonesian engineers and tech specialists. Government agencies are also increasingly targets of training and capacity-building programs, with Huawei claiming that 7,000 government officials have participated in its training programs. The Indonesian government, corporations, and ordinary citizens alike have welcomed Huawei and ZTE as essential partners in their efforts to build both the infrastructure and human capital necessary to prosper in the twenty-first century’s digital economy. What Huawei and ZTE offer is knowledge transfer, not technology transfer. The technology is still being built in China by Chinese firms. Huawei’s role in training relates instead to capacity building. Indonesians will install, maintain, and use the networks. China will build the hardware. There is also evidence that China has had some rhetorical success in pushing its version of cyberspace governance. Beijing’s preferred cyberspace governance language was inserted into a memorandum of understanding between Indonesia’s National Cyber and Crypto Agency and the Cybersecurity Administration of China. However, it is difficult to see how the memorandum has influenced Indonesia’s cybersecurity governance in practice. One of the concerns often leveled by rich liberal democracies is that reliance on Chinese tech will end up aligning the political interests of countries like Indonesia with those of China. Other key worries are China’s pervasive espionage and the enduring (though as yet unrealized) risk that Chinese companies with a dominant role in an ICT ecosystem could be used by Beijing to apply coercive political pressure. Despite Indonesia’s embrace of Huawei and ZTE, political leaders in Jakarta have not simply disregarded the hard security questions posed by upgrading ICT equipment, especially when foreign suppliers are involved. Indonesian officials simply rate the need for development and cybersecurity-related capacity building higher than the risk of using Chinese ICT hardware in their critical infrastructure systems. If rich liberal democracies are concerned about this trend, then they need to offer workable alternatives that place Indonesia’s enormous digital development needs at the heart of any value proposition. It is unlikely that Indonesia will stop using Chinese hardware in its infrastructure, but alternatives could prevent overreliance.
Topic:
Foreign Policy, Science and Technology, Cybersecurity, Telecommunications, and Localization
Political Geography:
China, Indonesia, and Asia

32. The Rise of Sino-Russian Biotech Cooperation

Author:
Svitlana Lebedenko
Publication Date:
05-2022
Content Type:
Special Report
Institution:
Foreign Policy Research Institute
Abstract:
The People’s Republic of China’s rise as a global innovation power is rooted in the development of a sovereign innovation infrastructure, one that allows China to compete in high-technology races with the United States. This process is complemented by an intensifying science and technology partnership with the Russian Federation. By decoupling from China and Russia, the United States and its allies are pushing China and Russia closer to each other. The paper discusses recent examples of Sino-Russian biotechnology cooperation projects, offering an early account of the emerging integration of two distinct but complementary innovation infrastructures.
Topic:
Development, Science and Technology, Infrastructure, Innovation, and Biotechnology
Political Geography:
Russia, China, Eurasia, and Asia

33. Immaterial Competition: Rethinking the Roles of Economics and Technology in the US-China Rivalry

Author:
Arthur Tellis
Publication Date:
05-2022
Content Type:
Special Report
Institution:
Hudson Institute
Abstract:
The US-China rivalry is likely to be the fulcrum around which international affairs are structured in the twenty-first century, akin to the Cold War from 1947 to 1991. This rivalry, like its predecessor, emerges from divergent geopolitical interests and imperatives. While the Chinese Communist Party’s aims are many, various, and subject to change, they include its continued control of the Chinese State; economic and technological modernization and leadership; internal order; complete union with Taiwan on Beijing’s terms; certain territorial concessions from its neighbors; and the disestablishment of security arrangements across the Indo-Pacific that it views as threatening and trammeling. The latter three are in direct conflict with US interests and imperatives in the Indo-Pacific: prohibiting China’s unilateral modification of the status quo vis-à-vis Taiwan; preserving the sovereignty and territorial integrity of its allies and partners; and maintaining its military partnerships and presence in the region. These antithetical interests animate a larger struggle for hegemony in the Indo-Pacific and serve as the terms on which this contest will be decided. Explanations of the rivalry as an ideological contest or a competition born from competing economic interests are less compelling by comparison. The United States and China are motivated to an extent by ideological imperatives, but these do not appear to propel or serve as the central stakes for the rivalry as much as they affect each’s disposition toward the other. Long-standing trade, investment, and commercial disputes and competition, meanwhile, are not so substantial that they motivate the rivalry. While these issues are impactful to niche communities and conspicuous to national policymakers, they are not particularly consequential for national prosperity. The logic of competition, trade, and globalization, in fact, suggests that the US-China commercial relationship is mutually beneficial, notwithstanding each’s concerns with the other’s economic statecraft and market-leading firms. In their geopolitical rivalry, there are a few key forces or contests of interest: path dependence, regime continuity, prudent strategy, third-party alignments, and the balance of military forces in the Indo-Pacific. Each affects the United States’ and China’s ability to achieve their ends and shapes their rivalry. Economic and technological statecraft, by contrast, is largely peripheral to these ends as it does not effectively advance political objectives relevant to territory, borders, security architectures, and national defense. That is not to suggest that economic and technological factors are irrelevant, however; they shape, constrain, and advantage the United States and China across their rivalry’s key forces and contests of interests. Particularly noteworthy are economic and technological factors’ impact on the military balance. Tradition and intuition hold that nations with bigger and more advanced economies are better postured to resource, procure, and manufacture military equipment and can therefore generate greater military power. In the case of the US-China military competition, however, total military power is less relevant than the specific military balance in the Indo-Pacific, in which the distribution and strength of forces in the theater, the capability and reliability of key materiel inputs of outsized importance, and the operational concepts and tactics with which each’s military fights are more important. Total military power—and in particular greater military equipment—matters on the margin, of course, if only because the party with the greater mass and quality of materiel will be able to retain more forces in the Indo-Pacific, maintain more of these key materiel inputs, and develop novel operational concepts and tactics tailored to their superior materiel. Neither the United States’ nor China’s total economic production, public balance sheet, high-technology commercial firms, and scientific production are likely to provide a decisive or lasting advantage on this count. Each country’s economy can support substantially greater military spending, limiting the extent to which one can derive an advantage from the other’s more binding constraints. The capacity and maturity of each country’s defense industrial base is of greater relevance, but these are flexible quotients that investment can improve. This elasticity of defense production suggests that microeconomic endowments may be binding in the short run but variable in the longer run, meaning that policy choices—rather than existing economic endowments—constrain military production. Technological endowments, informing each country’s capacity for broad innovation, are of similarly bounded importance because military technology is somewhat narrow and other factors, such as military procurement processes and inflexibility in concepts of operation, limit the extent to which superior technology translates into military advantage. The fundamental result of this argument is that the concerns that propel the emerging US-China economic and technological competition are ultimately not all that relevant to the matters at the core to their rivalry and to the instruments of national power most relevant to these issues. The US should therefore be wary of policies ostensibly demanded by economic and technological competition and may find its interests better served by limiting its rivalry with China to military competition driven by its core geopolitical interests.
Topic:
Economics, Science and Technology, Strategic Competition, and Rivalry
Political Geography:
China, Asia, North America, and United States of America

34. Rewire: Semiconductors and U.S. Industrial Policy

Author:
Chris Miller
Publication Date:
09-2022
Content Type:
Special Report
Institution:
Center for a New American Security (CNAS)
Abstract:
As the United States considers industrial policy for the first time in decades, it should learn lessons from prior government efforts to shape the semiconductor industry, in the United States and abroad. The U.S. government has played a major role in the semiconductor industry since the invention of the first integrated circuit, via funding scientific research and via military procurement, which has driven the commercialization of new technology. However, though government—and specifically, the Defense Department—has had deep connections with the chip industry, it has played only a supportive role in building America’s semiconductor industry, with the key innovations and firms emerging from private-sector expertise. Other countries have experimented with industrial policy toward semiconductors too. Success stories in industrial policy generally have involved investing in skilled workforces and ensuring competitiveness by pushing domestic firms to sell to international markets. Simply pouring capital into a country’s chip industry rarely has been a winning strategy. Today, the U.S. government should focus policy toward the semiconductor industry around four main objectives: promoting technological advances, guaranteeing security of semiconductor supply, retaining control of choke points, and slowing China’s technological advances.
Topic:
Science and Technology, Strategic Competition, Industry, Semiconductors, and Policymaking
Political Geography:
China, North America, and United States of America

35. Aligning U.S.-Israeli Cooperation on Technology Issues and China

Author:
Jonathan Schanzer, Shira Efron, Martijn Rasser, and Alice Hickson
Publication Date:
03-2022
Content Type:
Special Report
Institution:
Center for a New American Security (CNAS)
Abstract:
The United States and Israel have a long history of working together as close allies. Theirs is a relationship based on common values and security interests. In recent years, the alliance’s highlights have included close cooperation on counterterrorism and intelligence, as well as deepening economic ties, technological cooperation, and mutual knowledge transfer. The United States continues to provide Israel with significant security assistance based on a memorandum of understanding signed by both countries in 2016, which commits the United States to provide Israel with at least $3.8 billion per year in aid. The relationship is further strengthened by deep personal connections at the government and business levels as well as through collaboration between the two countries’ technology sectors. In recent years, however, the United States and Israel have differed regarding their threat perceptions and approaches to China. Whereas Israel sees China primarily as an economic partner and is increasing its ties with the country, the consensus view in Washington increasingly sees China as a global strategic rival—militarily, economically, and technologically—even while the Joe Biden administration preserves space for cooperation with Beijing in areas of common interest. In recent years, U.S. and Israeli officials have had public and private disagreements over several Chinese investments in Israeli infrastructure and technology. Although Chinese investments in Israel have declined since their peak in 2018, and even though these disagreements have yet to be aired publicly by the Biden administration and the Naftali Bennett–Yair Lapid government, this issue is likely to remain high on the agenda. The most critical challenges in the bilateral relationship are technology protection and collaborative innovation. Chinese investment in Israeli technology companies, including those that develop dual-use technologies, remains largely unregulated. Although Israel does not export defense technology to China and has placed stringent regulation on the export of dual-use technologies, the line between civilian and dual use is increasingly blurred, and Israel has yet to fully adapt to this reality. Washington, for its part, has not been entirely clear about how it expects American companies and allies to limit their roles. The United States has been slow to offer alternatives to allies such as Israel for forgoing cooperation with China and has yet to develop a collaborative technological innovation framework that builds on the cumulative strengths of the United States and its allies, benefits all, and helps to tip the balance in the technological competition with Beijing. To address the multidimensional challenge presented by China, the United States must enhance collaboration with its allies, including Israel, its closest partner in the Middle East. Fortunately, when the United States and Israel have had differing perspectives in the past, they have successfully engaged in deep bilateral consultations to work through these differences. These efforts have not always resulted in complete alignment, but they have significantly reduced disagreements and allowed for greater cooperation. This paper represents the most comprehensive public analysis to date of the challenges facing U.S.-Israeli cooperation on issues related to technology and China. It proposes an approach for the United States and Israel to align their policies and bridge differences by focusing on three central areas.
Topic:
International Cooperation, Science and Technology, Bilateral Relations, and Alliance
Political Geography:
China, Middle East, Israel, North America, and United States of America

36. When the Chips Are Down: Gaming the Global Semiconductor Competition

Author:
Becca Wasser, Martijn Rasser, and Hannah Kelley
Publication Date:
01-2022
Content Type:
Special Report
Institution:
Center for a New American Security (CNAS)
Abstract:
The United States is in a strategic competition with a well-resourced and capable opponent. China seeks a global role that is broadly at odds with the strategic interests and values of America and fellow democracies. Technology, a key enabler of political, economic, and military power, is at the center of this competition. Within this competition, semiconductors loom large. Chips are a driving force for breakthroughs in a range of critical technology areas, from AI to synthetic biology to quantum computing. Semiconductors are essential to the military systems used by the United States and its allies and partners to defend themselves and their interests. At a fundamental level, the day-to-day functioning of modern society hinges on dependable access to chips; critical infrastructure, transportation networks, and digital communication cannot function without them. Semiconductor supply chains form an intricate global web, with several countries and companies serving as important nodes. Some of these nodes have such outsized importance that any disruption would have significant and detrimental cascading effects for U.S. national and economic security. Taiwan is the central node in the semiconductor supply chain. Home to the Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest contract chip foundry, more than half of the world’s outsourced semiconductor manufacturing and nearly all leading-edge manufacturing capacity is in Taiwan. Secure access to the output of Taiwan’s semiconductor industry is therefore a strategic necessity. Yet, while policymakers understand the critical importance of Taiwan’s semiconductor industry, the myriad of factors and nuances essential to developing policies and plans that protect its integrity, mitigate risk, and reduce second-order consequences are insufficiently studied.
Topic:
Science and Technology, Strategic Competition, Industry, and Semiconductors
Political Geography:
China, Taiwan, Asia, North America, and United States of America

37. The Two Technospheres Western-Chinese Technology Decoupling: Implications for Cybersecurity

Author:
Center for Strategic and International Studies
Publication Date:
03-2022
Content Type:
Special Report
Institution:
Center for Strategic and International Studies
Abstract:
Decoupling of digital innovation, systems, and data flows between Western nations and China is a growing global issue with high potential to destabilize the digital world. Through a series of workshops and an analysis of existing efforts, the Multilateral Cyber Action Committee (MCAC) has provided an assessment on the current status of technology decoupling and the growing divergence of the Western and Chinese technospheres. The report provides a set of recommendations for action to mitigate the growing cybersecurity risks posed by technology decoupling.
Topic:
Security, Science and Technology, Cybersecurity, and Rivalry
Political Geography:
China, Europe, Asia, and North America

38. Convince and Coerce: U.S. Interference in Technology Exchanges Between its Allies and China

Author:
Mathilde Velliet
Publication Date:
02-2022
Content Type:
Special Report
Institution:
Institut français des relations internationales (IFRI)
Abstract:
The tough-on-China policy adopted by the Trump and Biden administrations has – and will increasingly have – important consequences for Washington’s allies, both on their infrastructure choices (5G, submarine cables...) and on their technological exchanges with China. Indeed, the U.S. objective of slowing down China’s technological development has been translated into multiple policies, primarily targeting China but also – directly or indirectly – U.S. partners. On the one hand, Washington deploys a range of coercive and incentive tools to prevent its allies from adopting certain technologies, supplied by Chinese companies and « untrusted » by American authorities (in terms of cyber, data or infrastructure security). Case studies of U.S. efforts against the deployment of Huawei’s 5G or Hengtong Group’s undersea cables reveal a similar strategy, combining direct diplomatic pressure, a threat awareness campaign, and financial incentives. On the other hand, in line with the United States’ historical use of the extraterritoriality of its law and its position as an economic superpower to influence its allies’ decisions, Washington seeks to restrict transfers of critical technologies from allies to China. As the main manufacturers (along with the United States) of these technologies, American allies are increasingly constrained by these legal and diplomatic restrictions, which target one of their main trading partners and tend to extend beyond strictly military or cutting-edge technologies. For example, in order to limit sales of semiconductor manufacturing equipment, U.S. authorities are combining changes to the American export control regime with diplomatic efforts (bilaterally and multilaterally) to persuade allies to align their own export policies with those of the United States. While the Biden administration appears to be placing greater emphasis on cooperative and incentive approaches, it seems likely that the multidimensional U.S. strategy serving these two objectives will continue, and even be strengthened. Among allies (and especially in Europe), this trend has raised awareness of the security challenges posed by certain Chinese suppliers, but also of the risks associated with the growing coercive practices of the great powers.
Topic:
Science and Technology, Internet, 5G, Semiconductors, and Submarine Cable
Political Geography:
Japan, China, Europe, Asia, North America, and United States of America

39. When the State Becomes the Only Buyer: Monopsony in China’s Public Procurement of Medical Technology

Author:
Fredrik Erixon, Oscar Guinea, and Anna Guildea
Publication Date:
03-2022
Content Type:
Policy Brief
Institution:
European Centre for International Political Economy (ECIPE)
Abstract:
China’s centralised state procurement policies are moving the Chinese market of medical technologies in a monopsonistic direction. A monopsony means that a single buyer exerts strong power to move the market to its favour by gradually cutting prices and setting terms for producers that are extortionary. It is equivalent to a monopoly – with the only difference being that in a monopsony, it is the single buyer that acts in a market-predatory manner. Ultimately, a monopsonistic market empowers the buyer to capture most of the financial rewards from a contract. Competition gets undermined because a vibrant market also requires competition between buyers and, over time, fewer firms will be able to supply the procured goods at terms that are set by the single buyer. This shift towards monopsony does not happen overnight, it is a process that builds on a number of steps that tilts the balance of power in favour of the buyer. First, there is a concentration of buyers, sometimes down to a single buyer – such as the state. This concentration of buyers acts to extract value from sellers by creating pressure to reduce and converge prices. Buyers in monopsonistic conditions may also add other objectives to their agenda, using their monopsonistic position to abuse the market. For example, political objectives may be in place, which can include discrimination against foreign companies or corruption. Finally, there is a consolidation of the market, with fewer suppliers overall, and a focus on price rather than innovation. Several characteristics of a market could be indicative of a monopsony. One of these indicators is the price. In the case of the Chinese market for medical technology, price reductions have been sustained across medical devices, with price cuts exceeding 90 percent in some medical products. When the buyer’s primary focus is to reduce prices, the risk is that low-quality products will drive out high-quality products. Another indicator is price convergence: the idea that one price should apply to the whole market. Price convergence can be observed as the distance between the average and maximum price reduction offered by companies. The small differences seen in the Chinese procurement of medical technologies for these two indicators indicates that prices are converging downwards. Forcing a convergence of prices breaks with natural market behaviour and overall leads to a market with fewer participants. In a monopsony, the buyer tends to capture the dominant part of the market value of the product, which squeezes the margins of sellers. Over time, this leads to fewer competitors as only a few companies can survive under such conditions. These dynamics have real consequences: the number of winning companies in the procurement of medical technology per one million people in China is substantially lower than in the EU. In addition to a reduced reliance on multiple suppliers, the Chinese centralised state procurement reinforces China’s industrial policy to support Chinese firms growing their domestic market shares to the detriment of non-Chinese companies. These are the consequences of a market that is increasingly taking a monopsonistic form. Public procurement does not have to follow the Chinese recipe of centralised state procurement. There is a substantial body of evidence, research, and studies that recommend specific procurement policies that tackle the monopsonistic tendencies embedded in public procurement markets. These recommendations emphasize the importance of competition without lowering the number of firms in the market, underlining the need for a long-term view on how the market delivers continuous innovation. The danger for China is that monopsony will collapse the future market by making it less attractive for companies to innovate and compete. Chinese centralised state procurement and the move towards monopsony will not go unnoticed. These policies clearly breach basic principles and norms of international exchange, and how governments should behave to avoid a distortion of competition. First, Chinese centralised state procurement favours the Chinese medical technology industry to the detriment of non-Chinese companies. Second, given the low prices achieved in Chinese centralised state procurements, there is a risk that firm’s margins are severely cut, putting a lid on global spending on R&D. The EU and the US should coordinate their policies to counter the monopsonistic tendencies of the Chinese market of medical technologies. Their markets for medical technologies are significantly larger than the Chinese market and Chinese companies rely on the US and the European market to maintain their growth. The EU-US Trade and Technology Council (TTC) offers a setting to take these discussions forward and agree on policies to counter Chinese market distortions.
Topic:
Science and Technology, Health Care Policy, Public Procurement, and Monopsony
Political Geography:
China and Asia

40. The Real U.S.-China 5G Contest is Just Getting Started

Author:
Philip Hsu
Publication Date:
07-2022
Content Type:
Journal Article
Journal:
China Brief
Institution:
The Jamestown Foundation
Abstract:
On June 6, China declared the three-year anniversary of its business deployment of 5G, with the country having invested nearly 185 billion yuan in related infrastructure in 2021 alone (Xinhua Baoye, June 5). However, China’s 5G ambitions, which continue to form a substantial component of its national and international development policies, began years ago with Huawei. After Apple revolutionized the smartphone, demand for sophisticated computer “chips” and other components skyrocketed. Companies like Taiwan Semiconductor Manufacturing Corporation (TSMC) and Foxconn capitalized on this shift to become the main pillars of Taiwan’s economy. In addition to supplying Samsung, Apple and HTC, a lesser-known, nominally private Chinese company, Huawei was also starting to make smartphones around this time using Taiwanese hardware (Nikkei Asia, 2016). Although in recent years up to 60 percent of 5G-capable Huawei phone components have been manufactured in China, which is due in large part to U.S. sanctions against it and other Chinese technology companies, a new technological Cold War is unlikely to materialize over 5G. The economic stakes over advanced computing and a new generation of telecommunications infrastructure are too high for the international community to afford any one nation or corporation primacy across the deep and diverse set of software, hardware and human capital requirements this technology will demand.
Topic:
Development, Science and Technology, Infrastructure, Strategic Competition, and 5G
Political Geography:
China, Asia, North America, and United States of America