Category Archives: Technology

China Steals A March In Global Battle For EV Battery Market

IN THE BATTLE to control the critical industries of the future, score one for China.

Bolivia has chosen a Chinese-led consortium, CBC, to extract the lithium, a rare earth essential to the batteries that power electric vehicles (EVs), that lies in significant quantities under the South American country’s salt flats.

CATL, China’s leading EV battery maker, and the mining company CMOC (the old China Molybdenum) are prominent members of CBC. Bolivia’s state-owned Yacimientos de Litio Bolivianos (YLB) will front the project.

Bolivia’s laws require the state to exploit the country’s natural resources. Bolivia’s energy minister, Franklin Molina, made a point of saying the deal with CBC showed there were ‘sovereign alternatives to the privatisation models of lithium exploitation’.

Bolivia and neighbours Argentina and Chile sit atop the so-called ‘lithium triangle’, which contains more than half the world’s reserves. Hitherto, YLB has not been particularly successful in commercialising Bolivia’s deposits, which is why the government in 2021 called for foreign partners to participate. CBC outbid Lilac Solutions from the United States, the Uranium One Group from Russia and three other Chinese companies.

China already dominates the world’s lithium production through its processing capacity, which gives Chinese battery makers a cost advantage over foreign rivals.

CATL’s decision to squeeze efficiency gains from an older-generation lithium-ion phosphate battery technology rather than betting on newer alternatives has further enhanced its market position, generating the revenue to reinvest in other technological development that keeps it as a world leader.

German automakers have been courting it as a partner, as have several EU governments keen to create jobs in the sector and feeling irked that they have been cut out of the subsidies for EV production under last autumn’s US Inflation Reduction Act.

These subsidies are diverting investment from Europe, potentially including investment by Europe’s leading homegrown battery maker, Northvolt, which is reconsidering its plans to open a plant in Germany.

CATL, exploiting the opportunity, is considering opening a third battery factory in Europe.

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China Formalises State Guidance Of Its Tech Platforms

Screenshot of Youku hope page captured January 14, 2023

AN INVESTMENT FUND set up by the Cyberspace Administration has acquired a stake and a seat on the board of an Alibaba subsidiary to control the content of one of China’s leading video streaming services, Youku.

The ‘rectification‘ of the tech sector is being completed — or at least having a line drawn under the current phase — by government agencies acquiring golden shares in many of the country’s major domestic internet platforms.

The ‘special management’ shares confer a 1% stake and special powers over a company’s operations. The aim, as in the case of Youku, is to control the content hosted on the platforms and the data they create more tightly.

A government entity yet to be decided will reportedly take a stake in the video business of Tencent, the gaming and social media conglomerate. ByteDance, which owns TikTok, and Weibo reportedly already have such an arrangement.

The policy appears to have been quietly pursued for some time in less prominent companies and subsidiaries of the major platforms. The special management shares formalise for the tech platform giants the ultimate and arbitrary power that authorities already hold over businesses in China.

Doing so will allow for it to be exercised more routinely and precisely, removing the need for the heavy-handed and disruptive measures taken during the crack-down on tech over the past couple of years to rein in the tech platforms’ power.

It also cements the intention of aligning the tech companies with Party and state policy, and delegates implementation to the appropriate agency.

Since 2017, the Party has pursued closer guidance of entrepreneurs and made clear its expectation that entrepreneurs will be ‘patriotic’. The tardiness of the sector in responding led to the use of the stick in preference to the carrot over the past two years.

Tech company resources will henceforth be more diligent in redirecting resources to upgrading the ‘real economy’ and other policy goals such as preventing private monopolies, improving conditions for gig workers and regulating fintech.

There is nothing particularly novel in the concept of the Party or state being in the vanguard of the organisation of economic activity.

In traditional industry, state-owned enterprises played the industrial policy steering role. The tech sector never had those, allowing private companies to flourish in their absence.

That vacuum has now been filled, and government agencies will set about the competitive business of building the next generation of national champions.

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China Scrambles For The High Ground In Chip War

HARD ON THE heels of the World Trade Organization (WTO$ ruling against the Trump-era US tariffs on steel and aluminium from China and other countries. China has filed a complaint about US export controls on sales of advanced semiconductors and the equipment to make them.

Beijing is alleging that these are protectionist, an overreach of national security arguments for trade measures and undermine the international economic and trade order.

To this Bystander, China seems to be scrambling to attain the high ground rather than escalating the trade and technology confrontation between the two countries.

With Japan and the Netherlands, the two other significant players in advanced chip making, falling into line with the US strategy of denying China the technology, a complaint to the WTO is likely to have little practical impact, especially in the short and medium terms.

Chinese companies’ efforts to find loopholes in and workarounds to the US sanctions are likely to be more productive.

Mainly, filing a WTO complaint will let Beijing portray Washington as a unilateralist willing to build coalitions of its allies outside multilateral institutions, a message mostly directed at developing nations.

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US Further Closes The Door To Chinese Tech Companies

Screenshot of US Federal Communications Commission order baning authorisation for sale in United States of products from five Chinese tech companies, November 21, 2022

THE FIRST RESTRICTIONS on Chinese telecom equipment being used in US networks because of security concerns came from the Obama administration. The Trump administration stepped them up dramatically, particularly against kit made by Huawei and ZTE. The Biden administration has now widened the restrictions further.

On November 26, the US Federal Communications Commission (FCC) said no equipment produced by Huawei, ZTE, two companies that make video surveillance equipment, Hikvision and Dahua, and two-way radio systems supplier, Hytera, would be authorised for use in the United States, citing national security grounds.

The ban is not retroactive, so the five firms can still sell their products and services previously approved for sale in the United States. However, the FCC is seeking comment on future revisions to the rules regarding equipment already authorised to be imported or sold. To this Bystander, that appears to be a step down the path towards future revocation of existing approvals.

The FCC specifically mentioned a threat to US citizens’ data security. The five companies have previously all denied supplying data to Chinese authorities.

Hikvision is the only one of the five to respond publicly so far, saying the ruling will 

make it more harmful and more expensive for US small businesses, local authorities, school districts, and individual consumers to protect themselves, their homes, businesses and property.

Its security cameras, like those made by Dahua, are widely used by US government agencies. Many police departments in the United States use Hytera radios.

The latest bans fit a broader pattern of containing the development of China’s indigenous tech industry. The Biden administration has also expanded US export controls to prevent the sale of advanced US hardware and software to China, especially that for making cutting-edge semiconductors. 

It is also pressuring US tech companies to move their supply chains out of China. The reported decision by the Taiwanese contract manufacturer Foxconn to move half its global iPhone production for Apple from China to India would be a significant win for the Biden administration; it would also disrupt the huge networks of sub-contractors and component makers and assemblers that feed into Foxconn’s Chinese supply chains. That would diminish the economies of scale benefiting the smaller Chinese companies, which also supply indigenous brands.

US officials and the US arm of ByeDance’s short-form video platform, TikTok, are also discussing how TikTok can assuage concerns that the data it collects on its US users will not be shared with Chinese authorities. Calls for the app to be banned in the United States are increasing, particularly from Republican lawmakers. 

However, the politics of banning a popular consumer app, especially among younger US citizens who vote 2-1 Democrat rather than Republican, complicate any decision the Biden administration might take, including following through on a Trump administration proposal that TikTok be forcibly divested to a US owner.

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Biden Kicks Xi When He’s Up

WITH THE 20TH Party Congress starting on Sunday, the United States has timed two announcements that are only likely to reinforce the sense in Beijing that Washington is bullying it.

The more recent, the newly published unclassified version of the US National Security Strategy, identifies China as the main threat to US interests, saying it is the only country with both the intent and the means to reshape the international order.

It repeats a phrase used by US Secretary of State Antony Blinken earlier this year, emphasising how the United States must ‘invest, align and compete’ with China, which he described in the same speech as ‘the most serious long-term challenge to the international order’.

US President Joe Biden sees President Xi Jinping as an authoritarian leader who is antipathetical to Western democracy and needs to be checked not only by hard power but also by strengthening the US economy and its political institutions to negate Xi’s narrative that this is ‘China’s moment’..

The earlier announcement was regarding new restrictions on the export to China of US advanced technology, notably chipmaking equipment, published on October 7. These will significantly slow China’s development of advanced semiconductors and dependent technology, a high priority for Beijing for economic development and military applications.

They constitute a significant escalation in Washington’s confrontation with Beijing.

In both technology and security, Biden is making sure that the United States does not soften its focus on China, deflected by Russia’s invasion of Ukraine.

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Corruption Probes Aim To Kickstart China’s Lagging Semiconductors Sector

THE SEMICONDUCTOR INDUSTRY has been hit with a series of anti-corruption investigations over the past month.

On August 9, the Central Commission for Discipline Inspection announced that three senior executives connected to the management of the investments of the National Integrated Circuit Industry Investment Fund, the main channel through which the government has provided more than $100 billion of state support for the sector, were under investigation for corruption.

In addition, the Commission is sending a team into the Ministry of Industry and Information Technology, whose minister, Xiao Yaqing, is already facing disciplinary proceedings.

The latest investigations follow hard on those of six other senior figures. These include Ding Wenwu, president of the National Integrated Circuit Industry Investment Fund, Lu Jun, president of Huaxin Investment, an asset manager for the Fund, and four top executives of Tsinghua Unigroup, the Tsinghua University-owned chipmaker and technology business beset by debt problems. Yangtze Memory Technologies was one of the Tsinghua Unigroup companies backed by the National Integrated Circuit Industry Investment Fund.

One of the four is former Unigroup Chairman Zhao Weiguo, who is associated with several businesses backed by the National Integrated Circuit Industry Investment Fund. He will be remembered outside China for leading a $23 million takeover bid for the US chip maker Micron Technology in 2015, which Washington blocked at the last minute.

China’s semiconductor industry has expanded rapidly since 2014 under government direction. Yet, despite the massive state support, China has not caught up to the cutting edge of chip manufacturing. Semiconductors remain its largest category of goods imports.

The anti-corruption crackdown reflects top leadership’s frustration with the semiconductor sector’s lack of progress even as its strategic importance grows in the face of US export controls on semiconductor manufacturing equipment and a new multi-billion-dollar programme to develop the US semiconductor sector. A further source of frustration is that the world’s largest supplier of advanced chips is Taiwan.

Public investment in state-backed sectors commonly has large inefficiencies. In this case, these appear to have been greater than usual — returns and outcomes look very poor compared to, say, the investment in the space industry — and worsened by who at this point knows what side deals were cooked up in the shadows of that mountain of money.

The shake-up of the sector that the anti-corruption investigations will cause will likely leave it better managed than before, though not necessarily better able to deliver ‘technological breakthroughs’ to order.

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US Stacks The Chips In High-Stakes High-Tech Game With China

Extreme ultraviolet source, droplet generator and collector mirror in a NXE3400b lithography system. Photo credit: courtesty ASML.Copyright © (ASML) All Rights Reserved

REPORTS FROM THE NETHERLANDS say that Washington is pressing the Dutch government to ban exports of semiconductor fabrication equipment to China.

ASML, one of the key manufacturers in the sector, is headquartered in Veldhoven near Eindhoven in the southern Netherlands. China is the company’s third-largest market after Taiwan and South Korea, worth $2.1 billion in 2021, one-sixth of total annual sales.

Since 2019, a Dutch-US agreement on export licences for dual-use technologies has prevented the company from selling Chinese firms its most advanced lithography systems — the machines that use ultraviolet light to trace the circuitry on computer chips (a detail of which can be seen in the photograph above).

According to the reports, Washington wants to expand the scope of the restrictions as it moves to slow Beijing’s drive for technological self-sufficiency. Last year, the US National Security Commission on Artificial Intelligence recommended that the United States ask its allies to prevent all lithography tool exports to China.

The Catch-22 for Washington is that restrictions on sales of advanced Western technology to China only spur Bejing’s development of its indigenous tech industries to end run US sanctions.

Last month, Bloomberg reported that China’s chip industry was growing faster than any other, with 19 of the world’s 20 fastest-growing chip industry firms being Chinese, compared to just eight a year earlier.

Beijing is pouring billions of dollars of investment into chipmaking by funding national champions, encouraging Chinese firms to ‘buy Chinese’ and through industrial policy programmes like ‘Little Giants’, which backs high-tech start-ups. It is also lobbying as discretely as it can manage against a bill in the US Congress that would provide $52 billion to supercharge US semiconductor manufacturing.

The long-term opportunity for China lies in developing a globally competitive chip industry that would dethrone its US rival and perhaps fatally damage US technological leadership. Former Google chief executive Eric Schmidt and Harvard scholar Graham Allison wrote in the Wall Street Journal last month that:

If Beijing develops durable advantages across the semiconductor supply chain, it would generate breakthroughs in foundational technologies that the US cannot match.

Schmidt and Allison proposed that Washington use carrots (tax incentives and subsidies) and sticks (leaning on their governments) to encourage chipmakers TSMC and Samsung to partner with US chip designers and fabricators to manufacture advanced chips in the United States. That would do nothing but escalate Beijing’s reaction to what it already calls ‘technological terrorism’.

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Shanghai Police Data Hack Reveals As Much As It Hides

THE REPORTED BREACH of the Shanghai police database is — at the very least — an embarrassment to China’s cybersecurity services but could have more serious ramifications.

According to Bloomberg, unidentified cybercriminals stole 23 terabytes of data, including personal and criminal case information of more than 1 billion citizens. An anonymous poster on the Dark Web using the handle ‘ChinaDan’ claimed to have stolen the data trove from the Shanghai National Police database and offered it for sale for 10 bitcoin ($197,00 at current depressed crypto prices).

Authorities have thus far disclosed no information on how the most extensive known hack of Chinese data happened or who might have executed it. We may never know, even if the official investigation reveals a vulnerability at the Shanghai police’s cloud services provider, almost certainly a Chinese big-tech firm. Alibaba, Tencent and Huawei are China’s leading cloud services providers.

Early speculation by outside cybersecurity experts is that there was a bug or misdeployment of the distributed search and analytics engine widely used by cloud services. Tighter regulation or rectification of cloud-service providers would hint at where authorities believe the cause of the hack to have been. So, too would be demotions, or worse, of police personnel or other members of the security apparatus.

One reason that the hack is so embarrassing for the Chinese government. Another is that it is now implementing a strict data privacy and protection regime under the umbrella Data Security Law and Personal Information Protection Law enacted last year and the earlier Cybersecurity Law. The trio imposes stringent data privacy obligations on all businesses regarding personal and non-personal data while giving state agencies extensive leeway over collecting and processing such data.

Internationally, the leaking of data files on Xinjiang haves had reputational and sanctions consequences for China. The scale of this breach will again expose Beijing to scrutiny over the extent of state surveillance.

Should reports escape the censors (the hashtag #dataleak has been blocked on Weibo), some Chinese may ask themselves not just why authorities hold so much personal data but why police in a city of 28 million have data on more than 1 billion people. However, police are a national force under the Ministry of Public Security, and the hacker(s) may have accessed the ministry’s records via the Shanghai police database. Yet that, in turn, reminds how interconnected China’s internal security systems are.

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The Unhealthy Use Of China’s Health Codes App

THE PUNISHMENT OF five local officials in Henan province for using a COVID-19 quarantine enforcement app to prevent protesters from travelling shows the capacity for digital repression and Beijing’s desire that local officials’ use of it does not get out of hand.

The punishments of two officials for ordering the tampering with the codes and three for carrying it out followed an investigation by the local discipline and supervision commission in Henan’s provincial capital, Zhengzhou.

Earlier this month, hundreds of people who had lost savings in a Ponzi scam in Henan found their health codes on the smartphone apps used to enforce COVID-19 quarantines suddenly turned red, despite testing negative for COVID-19.

A red code prevents access to public transport, hotels and other facilities. This prevented the citizens from travelling back to Henan to access their frozen bank accounts and petition authorities for redress.

The scam had already been widely shared on social media, and the apps turning red outraged social media users already weary from lockdowns. Posts about family members of depositors being placed in mandatory quarantine after their relative’s health code turned red further fuelled the anger at health codes being turned into what was called certificates of good citizenship.

The public relations damage at a time when Beijing was doubling down on its zero Covid policy soon had state media condemning the alleged abuses by local officials. China Daily described tampering with health codes as ‘ one of the worst forms of abuse of power’.

China’s new digital privacy regime limits the independent misuse of digital technology by China’s vast bureaucracy. However, while central leadership will not impose any limits on its ability to use technology for political ends, it is demonstrating that it will discipline lower-level officials if they do so for their own ends, even if that is a misguided attempt to maintain local public order.

However, the more significant concern remains that the health code system provides higher-level authorities with a repressive tool to track and quarantine arbitrarily any opponent or critic.

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Canada Finally Bans Huawei From Its 5G Networks

CANADA’S DECISION TO ban Huawei and ZTE from providing equipment for the country’s 5G network suggests that flesh is, at last, being put on the bones of the comprehensive new approach to China that Prime Minister Justin Trudeau has been promising since last year.

Nor can it be a coincidence, this Bystander suspects, that the announcement comes in the wake of the United States preparing sanctions against Hikvision and ahead of US President Joe Biden’s trip to US allies in Asia, where he will unveil the United States’ long-awaited Indo Pacific Economic Framework.

Canada’s decision brings Ottowa in line with the other members of the ‘Five Eyes’ intelligence-sharing community (the United States, United Kingdom, Australia and New Zealand). 

The decision to ban Huawei and ZTE had been expected once China freed two Canadian citizens last September who had been ensnared in the diplomatic row caused by Ottawa acceding to a request from Washington to detain Huawei’s CFO, Meng Wanzhou, on suspicion of sanctions evasion.

Concerns among Canadia’s telecom operators about the extent of re-equipping that the bans will make necessary may have caused the subsequent delay. They will now have two years to remove any 5G equipment from the two Chinese companies already installed and five years to replace any used for current 4G service. However, there will be no government money to do so.

Beijing’s response has been boilerplate, accusing Ottowa of political manipulation and colluding with Washington. The Chinese embassy in Ottowa said in a statement:

China will comprehensively and seriously evaluate this incident and take all necessary measures to safeguard the legitimate rights and interests of Chinese companies.

That suggests some foot-stamping but likely little if any material retaliation.

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