New - Tech Cold War
27th Jul, 2020
The U. S. has moved to block China's access to chip-making tools and designated Huawei, ZTE as national security threats.
- A report by the US House Intelligence Committee flagging issues posed by Chinese telecom companies Huawei Technologies and ZTE nearly a decade ago has evolved into a full-scale duel between the two global technology powerhouses.
- In February 2011, Huawei published an open letter to the US government denying the security concerns raised about the company or its equipment, and requesting a full investigation into its corporate operations.
- In response, the House Permanent Select Committee on Intelligence began an investigation in November 2011 into “the counterintelligence and security threat posed by Chinese telecommunications companies doing business in the US”.
- In its report submitted in 2012, the House panel noted that “Huawei and ZTE cannot be trusted to be free of foreign state influence and thus pose a security threat to the United States”.
- Last month, the US Federal Communications Commission designated the two companies as national security threats.
- A subsequent move by the UK to block Huawei from its 5G networks aligns with the US view and marks an escalation of the Sino-American tech slugfest to beyond just these two countries.
How could this develop into a tech cold war?
- Most observers refer to this as a ‘technological cold war’ that could extend beyond just the US and China, and compel other countries, including India, to effectively choose between one camp and the other.
- It is being described as a geopolitical struggle over technology that threatens to divide the world into two distinct technological blocs, with both countries striving to limit the other’s access to its advanced know-how.
- The main challenge is whether other countries think the risks are high enough to dump a cheaper, viable option.
- For China, the action has come at a time when 5G is set to be rolled out globally. For a lot of countries, a viable 5G rollout will need Chinese firms.
- But the 5G network in China relies on key components from the US, and the new American restrictions on the use of chipmaking tools mean Huawei could face shortages in the supply of specialist chips.
- In December 2009, the Department of Telecommunications (DoT) had asked Indian mobile companies to suspend deals with Chinese equipment makers after fears that Chinese equipment was being used for hacking and spying. But India has never fully banned Chinese companies from its telecom equipment industry.
- After the recent standoff in Ladakh, the government has asked the state-owned telecom service providers to exclude Chinese companies from the scope of their network upgrade contracts; this was part of the wider decision to signal curbs on Chinese investments and tech companies in the country.
- India justified the ban on 59 mobile apps with Chinese links on grounds of a threat to national security.
- India’s hesitation in completely banning the Chinese equipment has derived from the view that the Chinese have brought in a semblance of competitiveness to a market earlier dominated by pricier European firms. However, the border clashes and the US action could now force India into the anti-China camp.
Implications for the stakeholders in the telecom industry
- Huawei could face shortages in its supply of specialist chips.
- Globally, the concern is that the fresh wrangling could end up in cascading actions by other western countries
- This could have a bearing on the growing competition to dominate next-generation technologies such as 5G networks and artificial intelligence, and impact the plans of most countries preparing to transition to a 5G regime, including India.
With the Chinese being increasingly blocked by governments in 5G networks, other global players could be at a competitive advantage. Even in the US, small operators in rural parts of the country will no longer be able to access federal subsidies to buy or maintain Chinese equipment and will be forced to deploy components by other manufacturers. This could have a bearing on how the global 5G rollout takes place, especially in the countries outside of North America and Europe.