The Global Tech War That China Is Not Winning

Tech supremacy dictates global pecking order. And both America and China are acutely aware of this. In the last decade, China has climbed up the innovation ladder and its tech and mobile companies have become household names in America.

This trend has made US policymakers both wary and suspicious of Beijing’s means to acquire technological secrets and their possible end uses.

It was in 2012 that American policymakers first publicly raised the security threat that Chinese equipment providers like Huawei and ZTE pose. These companies provided network solutions to mobile companies.

US House intelligence agency feared Huawei, founded by a former PLA army technician, was snooping on behalf of China. As espionage concerns rose, America slapped bans on Huawei and ZTE citing national security.

A bitter trade war and two presidents later, America is now upping the ante in its tech battle with China. The Biden administration is using every tool in its arsenal to stop Xi Jinping from his stated goal of achieving tech parity with America by 2035.

For this, a slew of executive orders and legislations have been announced in the last two months to ring fence America’s technology sector. From greater scrutiny of investment proposals from Chinese companies into priority sectors; to detailed audits of Chinese companies keen to raise funds on US stock exchanges, Biden administration’s directives are going where the money is. 

But perhaps the most important are the sweeping sanctions aimed to hit China’s semiconductor industry significantly. And these seem to hurt Beijing much more than what the world's second largest economy may admit.

Hoping to get access to chip-making technology after being shut out by America, this week China reached out to South Korea. Seoul, which has been caught between its security provider (America) and largest trading partner (China) is the last few options that Beijing has after being blocked from access and even sources of funding for its chip-manufacturing ambitions.

Semiconductors have many civil and military applications. Everything from cars to refrigerators needs semiconductor chips, and most artificial intelligence and advanced military programs require semiconductor chips. Dominance in the semiconductor industry translates into manufacturing prowess and military capabilities. With the export controls launched in mid-October, the Biden administration has halted China’s ambitious chip making plans and its fast tech march.

The export controls were launched in mid-October and the strict license restrictions have limited access to integrated circuits for semiconductor facilities in China. As per the new controls, tough license norms have hit exports of high-performance chips used in artificial intelligence and supercomputers.

The restrictions are aimed to limit, or even eliminate, the ability of American companies to export machinery that is used in manufacturing of chips to China. Unlicensed fab facilities in China are also finding it hard to hire American tech talent, further crippling their development.

To stem the tide of tech transfer from American companies to their Chinese counterparts, new investment norms for Chinese companies will further restrict access to cutting-edge technology. Chinese investments into America’s technology sector now need greater scrutiny from the Committee on Foreign Investments.

If American investments into Chinese companies are scrutinised further, it will be a big blow to China's ability to get access to American technology.

China mandates foreign companies to form joint ventures with local companies, a policy that has allowed easy tech transfers during its economic boom phase. Approvals for future American investments into Chinese companies are likely to come by only if American companies provide adequate guarantees that their technological secrets will not land in Chinese hands. A guarantee that very few American corporations are likely to give, ending an easy route to climb the tech ladder.

But this is not all. Safeguarding cutting edge technology will run concurrent to stringent data privacy rules to protect individual data. The Tiktok saga is proof that large volumes of personal data on mobile networks can be easily misused by Chinese government agencies or corporations.

In a bipartisan move, the US Senate unanimously passed legislation banning the Chinese company from all Government-owned phones and devices. The legislation, which needs to be passed by the US House, could set the tone for a more stringent position taken by America, India and other countries against Chinese companies.

What started as a one-off case of alleged theft of industrial secrets has now snowballed into a full-blown tech war between the world’s top two economies. It is no more about a T-mobile robot arm being stolen by Huawei or surveillance for the Chinese state. But it is now about the future of economy and military preparedness.

And it is not just about the US versus China. It is now China versus the rest. Global political headwinds indicate that the tech competition is headed in only one direction and Seoul may not be able to do much for Beijing.