The next big frontier in Us-china rivalry
US-china relations have undergone a dramatic shift. While there has been a thaw at G -20 in Bali with both committing to managing “competition responsibly”, the road ahead is still full of twists and turns. Increasingly, relations between the two hinge on who takes the lead and leap frogs in technology because technology is the next big frontier.
Techno-geopolitics, techno-nationalism and techno-terrorism are some of the words gaining currency. While techno-geopolitics is technological competition intertwined with geopolitics, techno-nationalism is technological advancement linked to economic prosperity and national security, and techno-terrorism is using technology as the lever of statecraft. What these terms imply is simple: Technology is the new battleground.
Technology drives supercomputing capabilities, advanced chips and military equipment, such as weapons of mass destruction, and surveillance systems, such as facial recognition, biometric database, safe city projects and data centres. Digital infrastructure has a geopolitical component as both China and the US vie to be the pivot in Asia and the Indo-pacific. The other battlegrounds of the 21st century economy, as US National Security Adviser Jake Sullivan says, are cyberspace, trade and economics, and investment.
If geography was destiny, so is technology today. Recent literature, such as social scientist Pak Nung Wong’s Techno-geopolitics: Us-china Tech War and the Practice of Digital Statecraft (2022) and Chris Miller’s Chip War: The Fight For The World’s Most Critical Technology (2022) attests to the change in the tenor to “digital statecraft”. US strategists and policy makers describe the coming decade as the most “decisive decade”, an “inflection point” because the “terms of the competition with China will be set”.
From engagement to containment
For long, the US has prospered in China’s prosperity but now it is starting to matter. The US needs an enemy or smells a rival, a “consequential geopolitical challenge”. It was Japan several decades ago, and now, it is China’s turn. The shift is of China’s own making. China has not helped its case by “biding its time before its time” with “wolf-warrior” diplomacy and ambitions in the Senkaku /Diaoyu islands and South China Sea to the Himalayas.
The US shift is also tuned to its national security needs. In the late 1980s, Japan, not the US, was in the lead in chipmaking. But in the 1990s, the US undercut Japan, helping Taiwan and South Korea emerge as the chipmaking giants they are today. Taiwan Semiconductor Manufacturing Company (TSMC) produces some of the most advanced semiconductors.
Taiwan is also the thorn in Us-china ties, caught between China’s reunification plans and as the most important supplier of advanced chips. The Netherlands’ ASML dominates the market for lithography systems, which TSMC uses to make the most advanced chips.
TSMC is building a $12-billion chip plant in Arizona, US with production beginning in 2024. US House Speaker Nancy Pelosi’s visit to Taiwan in August 2022 was no accident. Ms Pelosi attended a lunch with the founder and Chairman of TSMC Morris Chang and Mark Liu.
Small yard, high fence
On October 7, the US announced the ban on sale of technological exports, such as advanced chips, supercomputing capabilities, chip-making equipment, and barred US citizens and green card holders from helping chip-makers in China. The US National Security Adviser calls this a “small-yard, high-fence” approach where foundational or critically important technologies are inside the yard and the fences are high. This means neither the US nor its allies breach this tacit agreement and work to prevent China from accessing critically important technologies. This will not only affect exports of several US companies but also European companies which supply to China.
China follows “civil-military” fusion where technologies used by the private sector can be accessed by the military. China is calling US’ actions “coercion diplomacy” and “technological terrorism”.
Is China catching up?
As the US seeks to reshape the rules of the road of the 21st century economy, how is China responding? China has set up the Integrated Circuit Industry Investment Fund (Big Fund) to support R&D in the semiconductor sector and the Medium and Long Term Plan for Science and Technology Development 2020-2035. China’s “Eastern Data, Western Computing” seeks to put in place an integrated system of national data centres that integrate cloud computing, data centres and big data.
Who is ahead? China has been subsidising semiconductor manufacturing with a state-run capital venture model, which mimics venture capital. But hurdles remain. China’s expenditure in R&D to gross domestic product (2.5 per cent in 2020) lags behind innovators Israel (5.44 per cent) and South Korea (4.81 per cent).
China’s semiconductor industry has seen bankruptcy and fraud, such as the ones at Wuhan Hongxin Semiconductor Manufacturing, Tacoma Semiconductor Technology and Dehuai Semiconductor Technology, all of which went bankrupt. A columnist in the Taipei Times called the Chinese state-led venture capital push a “waste, broken promises, corruption scandals and misuse of capital — while adding to a troublesome pile of corporate debt”.
The Chinese strategy has some pitfalls but is starting to see some success. China’s Semiconductor Manufacturing International Corporation has made a breakthrough making seven nanometre chips, a capability that was limited to Samsung, Intel and TSMC. However, Taiwan’s TSMC plant in Arizona will produce even more advanced five nanometre chips.
For now, the US is way ahead of the game, “better positioned” in the technology race — and will fight hard to maintain this status quo.