By Kevin Policarpo
“The Digital Silk Road: China’s Quest to Wire the World and Win the Future”, authored by Jonathan E. Hillman, details the rise of China’s telecommunications industry and how the United States could regain the lead in the telecommunications race.
Hillman is a Senior Advisor, Policy Planning Staff at the U.S. State Department. Previously, Hillman was a Senior Fellow at the Center for Strategic and International Studies (CSIS) and Director of the Reconnecting Asia Project.
Hillman notes:
- Telecommunications has become a key component in keeping the world running and China has become one of the key leaders of the industry.
- China’s telecommunications companies have supplanted Western companies by copying their technology and hiring their employees.
- China quickly took advantage of both their newly gained knowledge and the gap caused by the failure of Western companies to extend their reach overseas.
- China is using its electronics companies to enhance their surveillance capabilities, allowing the Chinese Communist Party (CCP) to monitor their own people. China has established a virtual fortress, allowing it to control the information available to people inside and outside their country and has been developing their own systems to reduce dependency on foreign companies.
- There are methods that the United States and democratic nations can employ to prevent China from dominating the world’s networks and using it for their own goals.
BACKGROUND
Back in the late 1970s, China’s paramount leader Deng Xiaoping oversaw the economic reforms that allowed China to switch to a market economy. Among his reforms were the Four Modernizations. These four goals were designed to strengthen China’s agriculture, industry, science and technology, and defense sectors.[1]
Among the four industries in question, the growth of China’s science and technology sector has garnered significant attention.
Part of China’s success in telecommunications has been achieved in taking advantage of Western companies by playing them against each other and copying their communications technology.
With the end of the U.S. and NATO system of blocking communications companies from making business deals with Communist countries, China began to invest in communications infrastructure.
Western companies saw China’s efforts to connect to the internet as an opportunity to make money. However, China took advantage of the communications ‘gold rush’ and used the competition between Western companies to make deals and absorb other companies’ technologies.[2]
TARGETING NORTEL
Among these companies was Northern Telecom or Nortel. Based in Montreal, Canada, Nortel was one of the world’s largest telecommunications companies in the mid-1990s, Hillaman writes.
In 1994, Nortel negotiated an agreement with China, to set up an R&D center in Beijing and a semiconductor plant in Shanghai. Nortel agreed to the arrangement in anticipation that China’s open markets would bring dramatic increases in sales for Western companies. In addition, the Canadian government agreed to finance the Chinese purchase of Nortel equipment.
However, Nortel’s venture in China would end up sealing its fate as Chinese companies grew to compete with Nortel. In 2004, a cyber unit of the People’s Liberation Army (PLA) may have been able to hack into Nortel’s servers. The hackers extracted over 1,400 documents (including technical documents, product development plans, and sales proposals). While Nortel’s security advisor Brian Shields tracked the data trail to the PLA’s Unit 61398, he couldn’t definitely prove they were the source of the hack, Hillaman writes. What made matters worse was that the hack was done via the fiber-optic network in Shanghai that Nortel itself built:
“Nortel’s secrets were being plucked from its computers in North America, and en route to their final destination, they were literally flowing through the network it had built in Shanghai.” [3]
Nortel’s loss was to gain a new Chinese telecommunications company named Huawei:
“The rivals’ interests appeared aligned, but their partnership revealed a fundamental reversal in roles. Nortel once had the technology that Huawei craved. Now it wanted to sell Huawei’s broadband products. Huawei once had the market access that Nortel craved in China. Now it wanted Nortel’s access to North American markets. It was clear which company had the momentum. Huawei was ascendant, and Nortel was about to fall faster than anyone realized.”[4]
In the end, Nortel would declare bankruptcy in 2009.[5]
As Nortel was declining during the 2000s, Huawei expanded its operations into North America. When Nortel announced plans to liquidate, Huawei attempted to purchase Nortel but dropped the bid due to national security concerns from the U.S. Government.[6]
HUAWEI
Based in Shenzhen, China, Huawei is the largest telecommunications equipment manufacturer in the world. It has supplied communications infrastructure to several nations, providing phone service and internet service for millions of users. However, Huawei has been blocked in countries such as the U.S., Australia, New Zealand, and democratic European nations. The U.S. and its allies believe that Huawei’s equipment provides China with a backdoor into their telecom network: “Copying technology, processes, and people, the capture was complete.”[7]
As the company grew, Huawei negotiated deals with various Western firms and acquired their technologies through reverse-engineering, joint ventures, and R&D labs.[8] Part of Huawei’s overseas expansion was entering developing markets. The company sold its products based on low cost, fast delivery and attention to customers: “ Huawei’s expanding role in Afghanistan and Iraq raises uncomfortable questions about U.S. strategy, or lack thereof.”[9]
One of the company’s current projects is setting up 5G antennas in the Himalayas. Huawei’s intent is for the towers to provide better communication for mountaineers and scientists and be used for “… “smart tourism”—with high-definition video streaming and virtual reality experiences for digital tourists to “visit” Everest from anywhere in the world.”[10] However, this project has been met with controversy. India has expressed concern about the “… Himalayan 5G stations as 5G would allow for elevated levels of data transfer for battlefield communications and connecting to military AI and machines.”[11]
HIKVISION’S GLOBAL SURVEILLANCE
Alongside Huawei, other Chinese companies have contributed to the advancement of their communications technology.
One of these companies is Hikvision, the world’s largest video surveillance company. Hikvision works closely with the Chinese government and military, building the cameras that keep surveillance on Chinese civilians. Hikvision has also taken advantage of deals with U.S. and foreign companies to improve their surveillance capabilities.
Hillman cites some examples:
- The purchase of programmable chips from Nvidia (a multinational software company based in Santa Clara, CA) to train Hikvision’s AI algorithms.[12]
- Hikvision collaborated with Seagate Technology (a U.S. data storage company based in Cupertino, CA), to create the first hard drive that was specifically developed for surveillance equipment. Hikvision has also claimed partnership deals with Sony, Intel, and Western Digital.[13]
- People in North America and Europe have been caught on Hikvision’s cameras. Hillman says that concerns of the cameras sending information back to China was so great that the United States banned Hikvision cameras from its government agencies in 2018 and ripped out the equipment.[14] These cameras have been set up in apartment buildings, hotels, and public recreation centers and are in use by police departments to monitor their streets. Cities that use Hikvision cameras include New York City, Los Angeles, Philadelphia, Memphis, Lawrence, and London.[15] Hikvision cameras have also been installed in U.S. embassies and even military bases: “ Offerring huge discounts to American redistributors, the company’s cameras eventually made their way to Patterson Air Force Base in Colorado, home to the North American Aerospace Defense Command and military units that were later integrated into the U.S. Space Force. The U.S. embassies in Kiev, Ukraine, and Kabul, Afghanistan, also installed Hikvision cameras.”[16]
HOW THE US CAN RESPOND
Hillman says the United States has several advantages over China:
- Cloud computing (which is the on-demand use of computing resources) and satellite technology.
- Advanced semiconductor manufacturing.[17]
He advocates that the United States invest in additional financial support for digital infrastructure. There has been some progress with this method as Congress created the U.S. International Development Finance Corporation (DFC) and reauthorized the U.S. Export-Import Bank. Both agencies are working to acquire support from the private sector, but Hillman notes that they also need more public resources.[18]
An additional method is for the U.S. to adopt a more entrepreneurial stance when it comes to foreign markets. By creating both portfolio managers and a foreign technology venture fund, the U.S. can target the larger developing economies (Indonesia, Nigeria, and Brazil) that would shape regional trends. Additionally, by adopting a mindset that is more accepting of failure, the U.S. would gain insight into local economic dynamics even if their bets failed to secure a deal. With these insights and having actual stakes in local ventures, the U.S. would be more effective in encouraging countries to adopt policies that favor resilience and openness.[19]
Hillman considers it vital that the United States increase collaboration with other democratic countries to help drive innovation. Plans for such a coalition include forming a political bloc of allied nations to pool resources as part of an “Alliance of Free Nations.” This alliance would collaborate on multiple subjects including technology.[20] Such a coalition would be beneficial as allied nations could provide commercial incentives for partners to reach out to developing nations.[21]
CONCLUSION
China’s success in telecommunications leaves companies such as Huawei ahead in the global telecommunications race with the West. Huawei has the global reach that allows China to spread its influence around the world. However, the situation is not hopeless as the U.S. and other democratic nations do have options. One option, of course, is to stop getting telecommunications technology stolen.
FOOTNOTES
[1] Policarpo, Kevin, How China’s Technology Advancements Leave the United States Further Behind, Published 6 April 2022, rbtus.com, https://rbtus.com/how-chinas-technology-advancements-leave-the-united-states-further-behind/
[2] Hillman, Jonathan E., The Digital Silk Road China’s Quest to Wire the World and Win the Future, Published in NewYork City, HarperCollins Publishers, October 2021, p.22
[3] Ibid., p. 51
[4] Ibid., p. 52
[5] Ibid., p. 52
[6] Ibid., p. 53
[7] https://rbtus.com/how-chinas-technology-advancements-leave-the-united-states-further-behind/
[8] Hillman, Jonathan E., The Digital Silk Road China’s Quest to Wire the World and Win the Future, p.55
[9] Ibid., p.74/75
[10] https://rbtus.com/how-chinas-technology-advancements-leave-the-united-states-further-behind/
[11] ibid.
[12] Hillman, Jonathan E., The Digital Silk Road China’s Quest to Wire the World and Win the Future, p.99
[13] Ibid., p. 99
[14] Ibid., p.100
[15] Ibid., p. 99
[16] Ibid., p.100
[17] Ibid., p.208
[18] Ibid., p.235
[19] Ibid., p.235/236
[20] Ibid., p.207
[21] Ibid., p.209