The next digital superpower

By Hong Kong Economic Times

In January, the United States Federal Communications Commission voted to revoke the authorisation for the US Unit of Chinese telecom giant China Unicom to continue operations due to concerns over national security. The move made the company the latest target among a number of technology and telecom companies that have been targeted in recent years amid a continuously intensified tech war between the two great superpowers. Other than the trade war initiated by former US President Donald Trump in July 2018, the US-China tech war is the latest battlefield in the competition for technological dominance in the digital era.

Technology such as artificial intelligence has become the new battlefield between the United States and China.

The rise of China

In the December 2021 report by the Belfer Center for Science and International Affairs of Harvard Kenney School, researchers called China “the elephant in the room”, as their prediction made in 1999 had incorrectly foreseen the US’s  unique technological strength and powerful system to be the single largest determinant for the 21st century. Similarly, in many conventional predictions, China was seldom considered as a major player in the global technology system.¹ Over the past two decades, China’s economy has grown in leaps and bounds, with its GDP per capita rising from about US$1,000 in 2001, which at that time was over 30 times smaller than that of the US, to US$10,434 in 2020.² Since joining the World Trade Organization in 2001, the country has transformed itself from the low-cost “world’s factory” to a global leader in advanced technology, which has led to the change in global supply chains and international relations.³

"Today, China has displaced the US as the world’s top high-tech manufacturer, producing 250 million computers, 25 million automobiles and 1.5 billion smartphones in 2020. It also stands at the frontier of a number of technologies such as artificial intelligence, 5G, quantum information science, semiconductors and so on."

According to the Belfer Center of Harvard, China has already ranked number one in many of those areas while being on track to overtake the US in other areas within the next ten years.¹

China has displaced the US as the world’s top high-tech manufacturer, producing 250 million computers, 25 million automobiles and 1.5 billion smartphones in 2020

Many pundits have explicitly argued that the rise of China may have signalled the beginning of the end of a US-dominated global system. For example, in the book When China Rules the World, British author Martin Jacques wrote that the rise of China, which has not followed the Western model of modernisation, will challenge the dominance of the West.⁴

China’s growing impact in global governance and economic development can also be felt with major moves such as joining international and multilateralism organisations, as well as its massive projects such as Made in China 2025 and the Belt and Road Initiative. It is also now a member of the Regional Comprehensive Economic Partnership agreement (RCEP), the world’s largest free trade pact to date that accounts for about 30% of the global population, GDP and trade. Without the participation of China, the RCEP would not  be as influential nor as large as it is today. Robert Ward, theJapan chair of the International Institute for Strategic Studies, wrote in an article in 2020 that the pact is “a significant geopolitical win for China” as it brings the Asian region closer into China’s economic orbit.⁵ All these have indicated a potential major global shift.

Though the impact of China on the global system cannot be ignored, one has to acknowledge that it still lags behind the US in many ways. While China is projected to surpass the US to become the world’s biggest economy in GDP terms by 2030,⁶ the US will remain wealthier than China for at least another 50 years if measured by GDP per capita. In 2021, China’s GDP was still about six times smaller than that of the US.⁷ China ranked second in the 2020 Global Go To Think Tank Report with 1,413 think tanks, far behind the US at number one with 2,203 think tanks.⁸ When it comes to annual spending in research and development, China again ranked second in 2019 with US$526 billion after the US with US$657 billion.⁹

The seeds of tech conflicts

China’s rise to become the world’s second largest economy has led to increased tensions with the US, the world’s biggest economy. In October 2021, William Burns, Director of the US Central Intelligence Agency, announced a major reorganisation to create two mission centres, focusing on China and technological threats, respectively. This sharpened focus reflects the American mindset that China is the most important geopolitical threat facing the US in the 21st century and that technology is at the centre stage of their competition.¹⁰

Meanwhile, Chinese President Xi Jinping has repeatedly said that the scientific and technological development must target the global science frontiers and serve the main economic battlefield.¹¹

Why has the trade battle extended to the technological sphere?

The concerns raised by the US since the escalation of the economic and political tension with China focus on three aspects where technology predominates, including intellectual property protection, US corporate access to the fast-growing Chinese market and a level playing field versus domestic Chinese entities.¹² The tech industry is a major contributor to the US trade deficit with China. Smartphones, personal computers and other consumer electronics accounted for around US$180 billion of the trade gap in 2018 in goods worth US$419 billion. Technology products will inevitably be under the spotlight if the US puts trade deficit reduction as the primary goal in negotiations.¹³

The true reason, however, behind the conflict is that the technological rise of China has threatened US dominance.¹⁴ When looking at the number of patent applications, a key factor that defines technology leadership, China filed 68,720 applications in 2020. This made it the world’s biggest source of applications for international patents for the second consecutive year and extended its lead over the  second place US, which filed 59,230 applications, accordingto the World Intellectual Property Organization (WIPO), which oversees a system for countries to share recognition of patents.¹⁵ In addition, Chinese tech giant Huawei Technologies Co. Ltd. was the biggest single filer under the system in 2020 for the fourth consecutive year as reported by WIPO.

With an intensifying US-China trade war, it is not surprising to see that the essence of the trade war is a tech war as technological competition is at the centre of the game between superpowers. The strength of technology and innovation is an important contributor to social and economic development and a key factor that determines who will have more advantage in the trade war.

Major tech battlefields – 5G

5G refers to fifth-generation mobile communications that drastically improves transmission speed and network connection. With a promised transmission speed up to 100 times faster than 4G, the latest mobile networking technology can be applied to a wide range of fields, from peopleto-people connection to even smart connection among objects, acting as an enabler to spur innovation across various industries. It is also forming a new ecosystem with a much more mobilised and connected society.¹⁶ Accounting and consulting firm PwC said in a report last year that the adoption of 5G is estimated to add US$1.3 trillion to global GDP by 2030, including US$220 billion in China.¹⁷

China is in a leading position in the race for 5G development. The country has built more than 1.15 million 5G base stations as at November 2021, accounting for more than 70% of the global total. It also plans to build 3.64 million 5G base stations by the end of 2025. The country is already home to some 450 million 5G subscribers, making up over 80% of the world’s total subscribers.¹⁸

China has built more than 1.15 million 5G base stations as at November 2021, accounting for more than 70% of the global total

The US Department of Defense warned in 2019 that the US risks being left behind in the battle to deploy 5G as “China is on track to repeat in 5G what happened with the US in 4G”. Even with the US ban on China’s 5G technology, the latter’s mobile and internet applications and services are still likely to dominate as the technology is deployed in similar bands of spectrum around the world.¹⁹

Artificial intelligence (AI)

The McKinsey Global Institute forecasts AI to deliver additional global economic activity of around US$13 trillion by 2030, or about 16% higher cumulative GDP compared with today.²⁰ In another report by PwC, China and North America are projected to witness the greatest economic gains from AI, accounting for almost of 70% of the global economic impact by 2030.²¹

While China lagged behind the US in AI research twenty years ago, it has now become a world leader in AI publications and patents and is poised to become a leader in AI-enabled businesses, such as speech and image recognition.²²

With President Xi setting specific targets for China to lead in  the field of AI and related applications by 2030, investments in Chinese AI startups have exceeded that of their US peers. By 2018, China filed 2.5 times more patents in AI technologies than the US. In the same year, three times as many computer scientists graduated in China than in the US.²³

Since the trade war began in 2018, Chinese scientists working in sensitive fields such as AI have had to deal with a lot of barriers, including shortened study visas. The US institutes have also restricted collaboration with Chinese companies like Huawei.²⁴

The US also wants to secure its leading position in AI amid the global technology revolution. In June 2021, a new National Artificial Intelligence Research Task Force was formed to develop a roadmap for expanding access to critical resources and educational tools that will spur AI innovation and economic prosperity nationwide. Eric Lander, science advisor to the President and Director of the White House Office of Science and Technology Policy, said US economic prosperity depends upon the foundational investments in its technological leadership.²⁵

To counter rising Chinese dominance in the sector, the US has to deal with many challenges. While the US boasts a world-leading technology infrastructure in terms of developing AI, strong actions are required to work on the people side to ensure that it is not left behind. In a study published on The Brookings Institute’s website, the US scored only 45th percentile in people readiness for AI, which falls far behind a number of other countries including India (92nd percentile), Singapore (88th percentile), Germany (85th percentile) and China (72nd percentile).²⁶

"In the next ten years, AI might be the technology that will have the biggest impact on the global economy and security as the machine-based system is transforming every aspect of human society, from governance, business to people’s daily lives."

Semiconductor

Semiconductors, also known as “chips”, are widely used in the manufacturing of electronic devices, from transistors to integrated circuits, serving as an indispensable component for various fields. The impact of semiconductors has penetrated all aspects of world development. With the robust demand for chips in an era of AI and 5G, semiconductors are expected to play an even bigger role.

The importance of chips, which is calculated by the ratio of semiconductor sales to GDP, has doubled in the past 30 years, up from 0.25% to over 0.5% in 2020 and 2021.²⁷ In 2022, the global semiconductor industry is expected to reach US$601 billion.²⁸ In the foreseeable future, the importance of the semiconductor industry will continuously grow.

During the COVID-19 pandemic, the global shortage in chips has intensified the competition between the world’s two biggest economies for gaining technological dominance.

For decades, the US has been a global leader in the semiconductor industry, accounting for nearly half of the market share in terms of revenue. The country is sparing no effort to keep its dominant position.

In January this year, US President Biden and Intel CEO Pat Gelsinger jointly announced a plan to invest up to US$100 billion to build what could be the world’s largest chip-making complex in Ohio. The move is part of the strategy of Intel, a US multinational corporation that is the world's largest semiconductor chip manufacturer, to restore Intel’s prowess in chip making and reduce the country’s reliance on Asian manufacturing hubs which firmly control the market.²⁹

In 2022, the global semiconductor industry is expected to reach US$601 billion

The below rendering shows early plans for two new leading-edge Intel processor factories in Licking County, Ohio. Announced on 21 January 2022, the US$20 billion project spans nearly 1,000 acres and is the largest single private-sector investment in Ohio history. Construction is expected to begin in late 2022, with production coming online at the end of 2025. (Credit: Intel Corporation)

Together with South Korea, Japan and Taiwan, Mainland China is one of the “big four” semiconductor regions and thus is also spearheading the development of the industry. US sanctions on Huawei which prevent manufacturers from selling semiconductors to the company have exposed China’s reliance on external sources. Notably, in 2019, China was the world’s largest semiconductor market, spending more than US$300 billion on chip imports, which is more than the amount spent on crude oil.³⁰

To narrow the gap between the domestic semiconductor industry and the global standard, China has been pouring investment into the sector. In July 2020, it rolled out a string of policies to support the development of the integrated-circuit and software industries. Cash flow into China’s semiconductor firms reached around US$35.2 billion in the same year, a sharp increase of more than 400% from the previous year, according to TechNode’s research.³¹

Space tech

The importance of space technology goes beyond the scientific level in that it plays a key role in national security and even people’s everyday lives, such as digital communication and environmental protection. Thus, outer space has become a new battlefield in the US-China tech competition. In 2021, China conducted 55 space launches, outnumbering the 51 by the US. In 2018, China launched 38 space launches, becoming the country with the highest number of space launches, even though it had not achieved more than 10 launches a year before 2007.³²

China sent its first astronaut into space in 2003 after launching its first satellite in 1970, making it the third country after Russia and the US to launch a crewed spacecraft. Despite the late start, the progress China has made in space science is staggering. In 2019, China became the first nation to land on the far side of the moon. In 2020, its probe brought back the country’s first sample collected from the moon as well as the world’s freshest lunar samples in over 40 years.

In a whitepaper published in January, China also declared its  plan for a human lunar landing in the coming five years, witha new-generation manned spacecraft to be developed to support the exploration of the cislunar space.³³

The US is aware of China’s rising rivalry against it in outer space and why it matters. In the same way that the US competed with the former Soviet Union in space technology during the Cold War as part of symbolism and ideology, the US today is also worried that it will lose its dominant position. In 2011, in fear of potential technology transfer, the US Congress passed the Wolf Amendment, a law that prohibits the US National Aeronautics and Space Administration from bilaterally working with China, including the hosting of official Chinese visitors.

On its website, the US Defense Department said it is “taking innovative and bold actions to ensure space superiority and secure the nation’s vital interests in space now and in the future”, reflecting how much emphasis the US places on space policy. As an example, the US also outlined its plans for Mars, with the exploration of the moon providing an opportunity to “test new tools, instruments and equipment that could be used on Mars, including human habitats”.³⁴

The implication of the tech war to the engineering industry

With the intensifying rivalry between the US and China and with how deeply technology has affected the world, the tech war between the two superpowers is by no means limited to just the areas mentioned above. Other fields such as quantum information science, biotech and clean energy are also among their focus.

As investing in research and development becomes increasingly crucial in the US-China tech war, engineers need to seize the opportunity to improve their skills. Engineers need to know their roles and responsibilities in terms of promoting technological innovation, as well as how the industry can affect the socio-economic development and even national security. The engineering industry should actively embrace innovation and focus more on research and development to promote the adoption of new technologies.

The tech rivalry between the US and China has also created barriers for cooperation between the world’s leading players in technology, hindering the shared advancement for humanity. Though national security is an issue that cannot be neglected, technological cooperation for win-win benefits should always be encouraged to jointly tackle some of the most pressing tasks on the international agenda. Engineers can play a role in bridging the gap and innovate for broader impact.

Nurturing innovative talent will also be essential for technological advancement. Throughout history, talent in the engineering industry has played a central role in industrialisation as innovation and technology are an important impetus for developing a diversified economy and enhancing competitiveness.

With a wealth of talent from all over the world, Hong Kong’s engineering industry has been at the forefront among its global peers, thanks to the city’s open economy and internationalised education system. The participation and technology from Hong Kong’s engineering industry can also be seen in different parts of the world. As China ramps up efforts to expand its science and technology talent pool, Hong Kong’s engineering industry can also contribute by sharing its experience and supporting cooperation.

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