US-China Tech Competition in the Biden Era – The Diplomat

Trans-Pacific View author Mercy Kuo regularly engages subject-matter experts, policy practitioners and strategic thinkers across the globe for their diverse insights into U.S. Asia policy. This conversation with Winston Ma – adjunct professor at NYU School of Law and Young Global Leader at the World Economic Forum (WEF) and author of newly published “The Digital War: How China’s Tech Power Shapes the Future of AI, Blockchain and Cyberspace” (Wiley 2021) – is the 256th in “The Trans-Pacific View Insight Series.”

Describe the strategic context of the digital war.

In May 2017, China hosted the historic Go match between the world champion and the artificial intelligence (AI) algorithm AlphaGo, designed by Google’s DeepMind Lab. The Wuzhen showdown was ripe with suspense and symbolism: human vs. machine, intuition vs. algorithm, tradition vs. modern – and, China vs. U.S. The AI machine’s straight 3-0 win over best human player stunned China’s internet industry.

Perhaps a coincidence, but months after the Wuzhen Go match, China’s central government released an “AI Development Plan,” calling Chinese AI to be the world’s undisputed leader by 2030. During the last few years, Chinese tech companies have proven their mettle by catching up to global rivals in the smartphone and fourth-generation (4G) technology. Now in the age of 5G, China is one of the most interesting innovation centers in the world, just like Silicon Valley. The current China-U.S. tech competition is a closer match than the Go game years ago.

Explain how China’s tech power is shaping the future of AI, blockchain, and cyberspace.  

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For AI, China’s unique advantage is the data from the largest internet population globally – 900 million and still increasing. AI runs on data and that correlation leads to a self-perpetuating cycle of consolidation in industries: the more data you have, the better your product. The better your product, the more users you gain. The more users you gain, the more data you have.

On blockchain, in April 2020, China’s central bank unveiled the world’s first sovereign digital currency that is based on blockchain-like technology. The background is that, in a speech October 2019 speech, Chinese President Xi Jinping declared blockchain would play “an important role in the next round of technological innovation and industrial transformation.” That marked the first major world leader to issue such a strong endorsement of the widely hyped – but still unproven – distributed ledger technology (DLT).

Similarly, China is moving aggressively into cloud computing, 5G networks, driverless cars, and more cutting-edge technologies. As Chinese digital economy expands overseas, its impact is felt across cyberspace.

Analyze which leading countries and non-state actors are setting the rules of engagement in this digital war.    

In addition to the U.S. and China, more countries are joining the 5G (and 6G) race for international competitiveness. For example, the European Union has floated proposals to create a “European Future Fund” to avoid its over reliance on non-European companies. As the new venture capitalists, the sovereign funds of numerous countries are at the front line of this digital war, as we discussed previously in an interview on my book “The Hunt for Unicorns: How Sovereign Funds Are Reshaping Investment in the Digital Economy.”

And the non-state actors are also important. For example, in 2018 as a member a member of the Council for Digital Economy and Society at the World Economic Forum, I joined the report titled “Our Shared Digital Future Building an Inclusive, Trustworthy and Sustainable Digital Society.” The title is a perfect summary of what we all hope for – with the digital war backdrop. For that, multi-stakeholder platforms like WEF will play a critical role.

Identify three key trendlines of the digital war that policymakers, business strategists and institutional investors should watch.

First, 5G networks. During the pandemic, global telecoms infrastructure has been overloaded with a surge in traffic, and the 5G network, with its larger bandwidth and low latency, is seen as a business solution. The West is keen to develop their 5G networks without using Huawei technologies.

Second, semiconductor chips. In the semiconductor industry’s globally integrated network, policies aimed at decoupling will hurt everyone. Both Chinese and U.S. semiconductor players are looking for a new equilibrium from the Biden administration.

Third, in a rare consensus among China, the U.S., and Europe, all the major digital economies are tightening the regulation of the Big Tech companies. In 2021, China’s Personal Data Protection will become effective, and its antitrust law will also be updated. Many countries will take similar actions.

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For the new U.S. administration, what are the policy implications of the digital war on global digital governance and capital markets?

After the Biden-Trump transition, many naturally expect the new Biden administration will reverse the U.S. sanctions on Chinese tech companies (such as SMIC and Xiaomi) soon, just as some Trump executive orders were reversed on inauguration day.

The reality, however, is that while the Biden administration has the power to suspend U.S. sanctions already in place or choose to keep them, they may even put more restrictions on these Chinese companies, especially those tech companies that are competing directly with the U.S. counterparts for global leadership positions.

The good news is that there is at least one issue where the U.S. and China see eye to eye: the regulation of Big Tech. The two tech superpowers may collectively develop a global regulatory framework for the digital economy in the coming decade.