balkanization of technology

China-US tech competition: J.D.Vance

Author J.D. Vance – yes, of Hillbilly Elegy fame – made a comment in an interview that neatly laid out the issue with China and technology, one that has ramifications for Australia.

J.D. Vance (CC City Club of Cleveland)

“One of the really worrying things that I think about from a macro perspective is, if you invest in a real technology enterprise, one of the things you have to be worried about is that, when that company hopefully goes global and scales, it may have the very thing that makes it a good investment just stolen by the Chinese.”

“And in that world where we’re worried about investing in real technology companies because we’re terrified that the Chinese are just going to steal it, we’re not going to have as much technology innovation.”

“That means we’re not going to have as much productivity growth.”

“And ultimately, that means we’re not going to have as many people with good American jobs who are building and creating those new technologies. So I think that China is the threat.”

Vance, who works in venture capital, hits on a point that really illuminates the nature of long term techno-competition with China. As it stands China’s technology policy can dissuade companies and investors from expanding into new areas or moving up the food-chain of innovation. Why do it, if it’s just going to be stolen by China?

One feature of the Cold War was the considerable ignorance of the rival bloc’s technology. Today, the arc of China’s modern rise is to use the internet to hack and download things that aren’t available through the open market or through forced-technology transfers. So the technology a Western company makes is likely to be stolen and sold right back to Western countries – partially or in full.

Of course, this effect alone doesn’t account for the lull in innovation the US and West has experienced. There has also been a laziness and lack of adventure, not to mention the effects of the seductive lure of free trade ideology in recent decades. But one of those effects in a globalized, free-trade market, is what Vance describes so well.

The US is just waking up from this. Joe Biden, while recently espousing industrial policy, observed that “we’ll see more technological change in the next 10 years than we saw in the last 50.”

The comment from Vance points to the long-term landscape of competition between free democracies and China. How do you plan and invest if at any time, you’re precious IP is swiped and copied? Western inventions, governments and investors must prepare for innovation in a world, where this thievery is the new normal. How can they be successful?

For Australia, the more it diversifies its economy away from commodities and education and into technology, the more this problem will emerge. In fact, the higher the food chain of tech development Australia’s goes, the more it will come into conflict with China’s privateering industrial policy.

‘Technological Cold War’ gets a passing mention

I am not a big believer in gotcha journalism for its own sake, so I feel a little funny pointing out a crafty edit by a news organization. But the change that occurred in this article seems worth noting.

Paul Mozur writes about the new rules for technology being considered in China and notes the perception that the regulations are being crafted to exclude foreign companies.

Between the time I first read the article: New Rules in China Upset Western Tech Companies and returned to it less than hour later, the sentence which originally included a reference to a Cold War had changed.

Here is the original sentence:

“The letter is the latest salvo in an intensifying tit-for-tat between China and the United States, which have clashed over online security during the last two years in what has begun to resemble a technological Cold War. 

Online now, it reads:

The letter is the latest salvo in an intensifying tit-for-tat between China and the United States over online security and technology policy.

Whatever the reason for the edit, the description of “a technological Cold War,” sparked in part by Edward Snowden, disclosures is telling. Both the US and Chinese economy must grow strategically in a way that supports their countries’ overall ambition.

There is also a good line explaining the Chinese view of technology:

Zuo Xiaodong, vice president of the China Information Security Research Institute, said the new policies and the broader push for indigenous innovation were not intended to eliminate foreign companies from the market.

“We’re under the yoke of others. If the others stop services, what do we do?” he said, noting that many Chinese companies and local governments had to scramble when Microsoft discontinued its support of Windows XP. “From a security perspective, that simply wasn’t acceptable. We’re breaking away from these types of circumstances.”

So the question for China is how fast can they get up to producing their own indigenous technology free of these concerns. (Watching Xiaomi, Huawei are pretty good bellwethers.) For the US and Western countries: can they keep the lead in technology they have enjoyed for the past 200 or so years?

True, US-China competition is not so much about naval fleets and military divisions. Instead, it occurs at the margins of the bilateral relationship – which itself sits at the center of globalized trade. True competition between the two countries is around technology, trade secrets and cutting-edge industries. That’s why the phrase is interesting.

And that’s why while the US and China can agree over matters like terrorism and climate-change (and other issues), when it drifts into the realm of cyber competition, space, and technological prowess, the US-China rivalry comes into view. It’s in this notion that a Cold War-style division of specific industries with implications for a nation’s success make sense.

How to create a new market for laptops

Remind the public that people in sensitive work don’t trust the fundamental security of a brand of computers.

That’s what this article on spy agencies not using China-made Lenovo computers does.

From the Australian Financial Review

The ban was introduced in the mid-2000s after intensive laboratory testing of its equipment allegedly documented “back-door” hardware and “firmware” vulnerabilities in Lenovo chips. A Department of Defence spokesman confirmed Lenovo ­products have never been accredited for Australia’s secret or top secret ­networks.

The classified ban highlights concerns about security threats posed by “malicious circuits” and insecure firmware in chips produced in China by companies with close government ties. Firmware is the interface be­tween a computer’s hardware and its operating system.

And while spy agencies are in the upper end of the sensitive work, in a knowledge economy, most knowledge that is not broadcast has some level of sensitivity, whether they are corporate spending plans, sales contacts lists, leads, schematics, blueprints, code, strategy, etc, etc.

Balkanization of internet, Balkanization of technology, and Ed Snowden

Network

 

Even as the search for Snowden continues, the impact of his data bomb is rippling across continents. Bloomberg reports US company Cisco may face a backlash in China as the media urges industry to shift away from US made routers and switches in favor of locally produced ones. 

From Bloomberg: 

China should develop its own Internet technology, the Global Times newspaper wrote in an editorial this week, alleging that the U.S. can “attack China almost at will.” U.S. companies, including Cisco, represent a “terrible security threat,” China Daily reported, citing an industry source it didn’t identify. Shenzhen-based Huawei Technologies Co. is poised to benefit from any clients seeking Cisco alternatives.

 

And the US government has banned federal agencies from buying Huawei an ZTE equipment. Rather than a Cold War with a world divided by a wall or a political border, it’s a world with considerable cross border trade and travel. Yet the closer you get to the power blocs, the more dense the web of business and political allegiances. I imagine that circularity of the trade and trade allegiances between businesses and states will grow. And then you’ll have some countries that use both Cisco and Huawei equipment side by side.