The US has virtually told China that it must stop trying to be No. 1, but Beijing continues to push back. Relations seem to be at their worst since 1979The two countries remain locked in what began as a conflict over trade and tariffs, but has now become all consuming and is affecting their relationship across the board. In the meantime, the clock is ticking for the March 1 deadline before which the two countries are supposed to work out their trade issues. Donald Trump had extended the deadline by three months after meeting Xi Jinping at the G-20 in Argentina earlier this month for the two to work out issues before the US clamps down additional tariffs on $200 billion worth of Chinese goods.
The signals coming out of the Central Economic Work Conference (CEWC) that concluded in Beijing last week suggest the Chinese will make efforts to stimulate their economy to combat a slowdown and at the same time work towards a trade deal with the US. The resolution following the CEWC indicated that as of now, there are no changes in China’s plans to become a “high end manufacturing powerhouse”. The Chinese Communist Party still views the current period as one of “strategic opportunity.”
To show that they are serious in addressing US concerns, China’s legislature recently began discussion a draft proposal that would prohibit the forced transfer of technology to domestic companies using administrative measures. Just how this would work is not clear, since the draft agreement speaks of promoting “voluntary technological cooperation based on business rules”.
Meanwhile there is serious business ahead, early in the New Year. The CEWC did make favourable noises about quickening reform, enhancing foreign investor access, protecting IPR of foreign companies and removing ownership caps in more areas and “implement the consensus from the China-US summit (in Argentina).” But so far, the Chinese have not provided any detailed list of concessions that could meet the heightened expectations of the Trump-Xi meeting.
Two spheres of technology
Some within the Trump administration, like Peter Navarro, want to shift supply chains out of China and even foresee two distinct technology areas – one Chinese and the other Western. They point out that it is the Chinese themselves who have created that division by excluding global giants like Facebook, Amazon, Google and Instagram from China.
Now the west is gearing up to exclude Chinese companies like Huawei from its sphere. It’s not that the Chinese sphere is backward – features in WeChat are better than those of WhatsApp – Alibaba and JD.com are difficult to beat in China.
But from the hardware point of view, in the short-to-medium term, there are the linkages, say in ICT, between Japan, Singapore, South Korea and Taiwan and China, and any disruption could be disastrous for all of them. Likewise, while Vietnam and Bangladesh are important garment producing centres, in the longer term, they cannot match China in terms of scale and integrated supply chains.
Yet, US business leaders are keen for a quick compromise before their bottom lines are hit. Notwithstanding the problems that some of them face in China, others are making huge profits. In November, Navarro criticised Wall Street leaders for trying to pressure the US President into compromising with China.
As of now, we are not clear as to what the US wants from the Chinese. While the conventional line is that they are seeking to balance their trade, it is well known that issues have gone well beyond that. At one level, the US has cracked down on visas for Chinese science, technology, engineering and mathematics (STEM) students, at another, they are in the process of instituting export controls in 14 new areas ranging from genomics to AI chips, quantum computing and flight control algorithms.
The real undercurrent of US concern
The real undercurrent of concern in the US relates to how many of these technologies can enhance Beijing’s rising military capabilities. According to Christopher Ashley Ford, US assistant secretary for the Bureau of International Security and Non Proliferation, the Chinese want to ensure that they will be part of the next revolution in military affairs (RMA). The chine believe this would be based on intelligent military technology involving the incorporation of artificial intelligence into military systems and doctrines.
Americans express greater concerns to the Chinese policy of “Civil Military Fusion” (CMF), which seeks to ensure that new technologies developed by the private sector are shared by the military. In January 2017, Xi also became the Chairman of the a new Central Commission for Integrated Military and Civilian Development (CCIMCD), which is the apex body to promote this integrationAccording to US specialist Lorand Laskai, rather that waiting for technologies to develop, “China’s leadership is determined to bake Civil Military Fusion (CMF) into the overall design of emerging sectors through top-level planning. In some ways, this process is partly modelled on that of the US. Perhaps for that reason, the US is worried.
What really worries the US is that in certain areas of technology, China is feeding off US research. It is well known, for example, that the leaders of Chinese AI research like Baidu have had a research lab in the US since 2014. Huawei promised $1 million for AI research to University of California, Berkley. The Chinese company CETC has partnered with the University Technology of Sydney in AI projects.
An Australian study found that the People’s Liberation Army had sent 3,000 scientists to universities in the west over the past decade to focus on AI disciplines. Chinese entities have funded 10-16% of all venture capital deals between 2015 and 2017 in Silicon Valley, according to a study by an outfit linked to the Pentagon.
The Wire December 27, 2018