Has China Overplayed Its Hand?

Xi Jinping, Chairman of China's Communist Party, envisions a "China Dream", not to cool or feed the planet, but to regain China's place, center stage in world history. Kublai Khan's civilization, superior to Europe's in the 13th century, waited for Marco Polo to discover Chinese people paid for their goods with paper money and healed their wounds with a kind of vasoline. Unwilling to wait for China to be discovered in the 21st century, Chairman Xi chooses to dream of world domination by following Deng Xiaoping's 1978 advice, "It is a glorious thing to be rich." To be a rich country in the 21st century requires the technological superiority the world associates with Silicon Valley. When Chairman Xi learned, in April, 2018, a US ban on microchip exports could cause the bankruptcy of a Chinese firm, ZTE, he saw how the patent a US company held on a specific semiconductor chip established the international standard for an item essential in every device connected to a cell phone network. From that point on, his "Made in China 2025" program aimed for self reliance and acquiring standard essential patents (SEPs). Using a SEP without being licensed subjects a user to the charge of infringement. According to a German patent data source, Huawei now holds 2000 5G SEPs. Normally, a firm has to license its monopoly rights to anyone on FRAND (fair, reasonable and non-discriminatory) terms. The US wants to withhold licensing its SEPs to competitors because of national security concerns. To be fair, Huawei would have to be allowed to do the same. The chip situation is very complicated, because Washington has not been able to resist lobbying from US firms that want to continue selling chips to Huawei, a short term gain, since China is determined to end reliance on US supplies. Nonetheless, as of September 26, 2020, the US Commerce Department requires US suppliers to obtain hard-to-come-by licenses to export what China's Semiconductor Manufacturing International Corporation (SMIC), considered a supplier to the Chinese military, needs to upgrade and maintain its manufacturing and hardware equipment. Not easy to replicate or fund are the processes of: 1) designing the delicate silicon microchips created for different purposes, such as operating driverless cars, and 2) constructing the automated, super-cooled and shock resistant facilities where chips are manuractured. Ironically, Taiwan, which Beijing claims under its "one country, two systems" policy framework, currently is among the countries with facilities capable of fabricating microchips. Yet, Beijing is at odds with the democratic government Taiwan re-elected in January, 2020. Chairman Xi's detrmination to maintain stability through surveillance-guaranteed control and conformity undermines a relationship that provides Taiwan's top tier brainpower and technology. What steps is China taking to reduce external dependency, even from Taiwan, on foreign sources of semiconductor chips? - Enhanced domestic training of top quality skilled workers - Using experienced Chinese hackers to scoop up foreign researh and development progress in a wide variety of high tech industrial, medical, engineering, solar, gaming and military fields - China Talent Plan, a spy-like program for recruiting foreign individuals with access to intellectual technology property who are willing to work with Chinese partners - Huawei, a Chinese company with total annual earnings of over $100 billion annually from 170 countries, sells smartphones and cellular and internat gear that give Beijing potential access to big data from around the world. Some US professors targeted by the China Talent Plan have seemed oblivious to the way China uses them, but the FBI has been concerned for more than a decade. Yanqing Ye, for example, would see herself on an FBI wanted poster after she entered Boston University's Department of Physics, Chemistry and Biomedical Engineering without declaring, on her visa application, her status as a Lieutenant in China's military, her membership in the Chinese Communist Party and her association with China's National University of Defense Technology (NUDT). The FBI found a Princeton professor working on unmanned drones and autonomous submarines with a scientist from NUDT. Although Huawei has global sales, its biggest customer is China, where a 2017 law requires any citizen or organization, including Huawei, to comply with all government requests. Therefore, the US attempts to prevent countries from making Huawei purchases, especially the countries in the "Five Eyes" spying pact that shares intelligence among Australia, New Zealand, Canada, the UK and US. When Britain concluded a review of an April 24, 2019 decision to build its 5G (fifth generation) network with a limited amount of Huawei equipment, the decision was overturned on July 14, 2020. In October, 2020, Sweden also decided not to use Huawei products in its 5G network. Following the UK's decision, Britain suggested forming a 10-country alliance of democracies to develop 5G technology and to eliminate dependence on Huawei and other Chinese technology companies. With 6G technology already on drawing boards, an alliance of G7 countries (Britain, Canada, the US, France, Germany, Italy, Japan) and Australia, South Korea and India represents an important source of brainpower and financing to develop future networks. Such a NATO-like coalition also could more than match China's future investments in computing power to handle big data, the semiconductor industry, drones, robotics, autonomous weapons and other advanced technology. By attempting to gain world domination, China has stirred up widening opposition to its transgressions, such as internment of one million Uighur Muslims in so-called re-education camps, disregard of Hong Kong's 50-year guarantee of rights under China's takeover agreement with Britian and an expanding claim to the South China Sea. What some are calling a tech Cold War is more. Chinese Communism and the democratic ideals of human rights, the rule of law and representative government are waging a battle for history's center stage.

Unmask Inscrutable Chinese Intentions

China has an uncanny ability to describe what the United States wants to hear while pursuing the future Beijing is determined to create.

     At a 2014 Asia-Pacific Economic Cooperation summit, Chinese President Xi Jinping told President Obama the Pacific Ocean was "broad enough to accommodate the development of both China and the United States." A year later, China declared it had no intention of militarizing its artificial islands in the South China Sea. Today, China has radar installations, reinforced concrete bunkers, and missiles on three of its artificial islands and claims "indisputable sovereignty" in their adjacent waters.

     In 2017, the Taiwan-based Chinese company, Foxconn, arrived in Wisconsin offering to create 13,000 new jobs in a State, where then Republican Gov. Scott Walker had failed to deliver on a campaign promise to create 250,000. In return for the increase in employment and plant investment that Foxconn agreed to bring to Wisconsin, the State offered the company generous tax credits said to be anywhere from $3 billion to $4.5 billion.

     During the past two years, Foxconni 's Technology Group changed its original plan to manufacture TV liquid crystal display panel screens in Wisconsin. While holding to its contractual obligation to employ 13,000, Foxconn now claims three-quarters of the jobs in Wisconsin's 6G "technology hub" will be in research, development, and design, rather than in blue collar manufacturing jobs.

     In Manhattan, Mayor Bill de Blasio said any attempt to change the terms of the agreement that brought Amazon's second headquarters to the city would nullify the contract. How can Foxconn alter plans for its operation in Wisconsin without any consequences?

     Whether there are 9,750 employees with skills to handle the 6G tasks Foxconn now expects to perform in Wisconsin is doubtful. In 2018, Foxconn did not qualify to receive any tax incentives, because the company only created 178 of the 260 positions it agreed to fulfill in that period. Were these 178 positions filled by Wisconsinites?  Since an audit in December, 2018 found the Wisconsin Economic Development Corporation has a policy of awarding tax credits for employees who do not work in Wisconsin, it seems possible Foxconn even could receive tax credits for 6G jobs performed by Foxconn employees in China.

     I do not pretend to know how a 6G (sixth generation) network works, but I doubt Gov. Tony Evers and the GOP legislature that approved the Foxconn contract do either.  I do know 6G networks are designed to facilitate the IoT
(Internet of Things). If home appliances and office electronics with display panels instantly transmit everything they see, an advanced ultra-high frequency 6G network is needed to instantly transmit an enormous amount of data. And memory chips are essential to this technology.

     By locating in the United States, Foxconn can purchase memory chips from U.S. companies, such as Qualcomm, and avoid the export ban that nearly put ZTE out of business in China, when Congress initially prohibited the exports it needed. (See the earlier post, "China's Domestic Economic Belt.")

     Chinese scientists suggest how lovely it would be to use 6G technology to share a holiday dinner with friends and relatives thousands of miles away. Benign 6G applications in driverless cars, aviation, and medicine do seem beneficial. But you only need to imagine paying China for devices that allow Beijing to look into every home and business in the United States to recognize problems and the need for government regulation.

     U.S. officials already indicate they consider the practices and equipment of China's telecom firms a national security threat. Huawei, which builds networks in 170 countries, is charged in the U.S. with flaunting sanctions forbidding exports of memory chips to Iran, stealing intellectual property, and improper banking disclosures. After Canada arrested Huawei's chief financial officer, Meng Wanzhou, Washington asked for her extradition to the United States. To date, no evidence reveals Huawei's smartphones or networks have been used for spying, but the fear that they, or their 6G successors, could be used for that purpose persists. As long as Huawei offers good service at a lower price than competitors, U.S., European, and other companies will not shy away from buying their products. In China, President Xi is determined to eliminate  dependence on, and influence related to, chips supplied by U.S. companies.