Winston Ma - The Digital War

Compared to mobile apps popular among teens, the advanced tech industry is the big boy version of that. Huawei and ZTE, China's two major telecommunications systems makers, have been banned from buying US microchips for their 5G network push. More recent additions to the trade blacklist are eight Chinese artificial intelligence companies, including AI national champions SenseTime, Megvii, and iFlyTek. (As its New Year's message, Megvii said in the first post on the company's official WeChat account in 2020 that being added to the US “Entity List”—which bars it from buying US-origin technology—had actually turned into a “coming of age gift” that had taught the company how to face a complex and changing international environment.)

As a result, these US actions have firmed up China's resolve to cut reliance on US tech smarts and to grow its own core technologies. Relating to microchips, for example, in October 2019, China set up a new national semiconductor fund (its second in less than five years) with 204 billion yuan (US$28.9 billion) – its predecessor was capitalized with US$20 billion in 2014. The new fund has an ambitious goal to cultivate China's complete semiconductor supply chain, from chip design to manufacturing and from processors to storage chips.

What's next for the United States? It's setting up its own sovereign funds to develop 5G network technology, a field in which Chinese company Huawei is the global leader. The battle for digital tech supremacy is on, and this process of the United States and China “designing out” each other's technologies will continue. (See more details in Chapter 9. Also, refer to the author's recent book The Hunt for Unicorns: How Sovereign Funds Are Reshaping Investment in the Digital Economy .)

Emblematic of this “decoupling”, nothing so far has been as literal and dramatic as a severed data cable that potentially links the two sides of the Pacific. The Pacific Light Cable Network (PLCN), a high-capacity fiber-optic cable project started before 2018, was a joint venture among Google, Facebook, and a Chinese telecommunications company called Dr. Peng Telecom & Media Group, which is the fourth-largest telecom company in China (see Figure 1.12). The cable would run about 8000 miles (13 000 kilometers) and was intended to be a high-speed trans-Pacific data route between the United States and Hong Kong/China. In 2020, the US government formally denied the Hong Kong link, and Google and Facebook (with Dr. Peng out of the picture) accepted the reality of having to operate just the two fiber pairs owned by the American companies: Google's link to Taiwan and Facebook's to the Philippines.

Figure 1.12 The Pacific Light Cable Network

This is a vivid example of the “splinternet,” or separation of Eastern and Western technology worlds, that is coming, and quickly. In the past decade, companies like Google and Facebook have made significant investments into similar cables to handle ever-growing network traffic between the United States and Asia. Now, the national security considerations are changing the way that Internet connectivity across the Pacific is structured. Because subsea cables form the backbone of the internet, by carrying 99% of the world's data traffic, the rules of internet connectivity between the United States, China, and the whole world is being dangerously rewritten.

All in all, a US–China tech decoupling is real and accelerating. Hence, the digital economy is in a vital conflict and crisis: the global tech world, together with at least part of the world economy, is now fractured into two—and potentially more, considering Europe, Japan, and other regions—spheres of influence, whereas tech entrepreneurs are driving the prospect of a technological singularity, hyper-connected society, and internet of everything. The tech companies are only now waking up to the fact that their platforms in the future are going to be a lot less globalized.

Therefore, it is critical for the United States and China, the two tech superpowers, to reach a new equilibrium to collectively lead the future 5G iABCD innovation with the rest of the world. Otherwise, the cross-border flow of capital, talents, and data, which the global economy has taken for granted, is at risk. That is why the Digital Silk Road—at least its concept of global connectivity—is such an important concept to start a global digital economy dialogue. As the G20 leadership together declared at the G20 2016 Summit in Hangzhou, China: collectively, the digital economy revolution will build an innovative, invigorated, interconnected, and inclusive world economy.

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