Tech Diplomacy Now: Issue 2, 2023
The intersection of technology, policy, and the news you need to know
Welcome to Tech Diplomacy Now, a publication of the Krach Institute for Tech Diplomacy at Purdue, providing you with critical information and global news on the intersection of emerging technologies, foreign policy, and national security.
Top News of the Week – Are foreign investors reconsidering their exposure to China and if so, what are the implications for technology and industrial policy?
Last week Reuters broke the news that Vanguard Group, the world’s largest provider of mutual funds, will close its office in Shanghai and exit from its joint venture with Ant Group. This will end Vanguard’s six-year experiment in the People’s Republic. The collapse of Silicon Valley Bank has destroyed a key bridge linking Chinese start-ups to U.S. investors (and perhaps the intangible experience that those venture capitalists provide).
While Apple’s CEO provides a keynote at the China Development Forum praising Apple’s ‘symbiotic’ relationship with the PRC, behind the scenes, Apple and its suppliers are investing in alternative manufacturing centers outside of the PRC.
The research firm, Rhodium Group, released a report last year assessing European foreign direct investment in the PRC. Rhodium found that European investment in China was becoming increasingly concentrated in just a handful of companies. In each of the past four years, just 10 companies made up 80% of the investment. This represents a significant change from a decade ago which saw a broader distribution of investment across more companies. Additionally, the researchers observed that there had been no new entrants into the China market during that period. In essence, European investment was being concentrated in a small group of firms that already had significant sunk costs in China.
For three decades, our projections about the growth of the Chinese economy and the trajectory of the country’s technological development assumed ever-increasing foreign investment and technology transfer to the PRC. Today, it is much more difficult to be confident in those two assumptions. These changes should be driving forecasts by businesses away from rosy projections of unending growth to risk avoidance strategies.
A pattern of recent articles to consider:
China Detains Japanese Employee from Drugmaker Astellas – Wall Street Journal, March 27, 2023
Chinese Authorities Raid Office of U.S. Investigations Firm Mintz Group – Wall Street Journal, March 24, 2023
Chinese Government Raids and Shuts Down a Well-Known American Business. This is a REALLY BIG Deal. – Dan Harris, Harris Bricken, March 24, 2023
Longtime China investor Anatole to open ‘outpost’ in Singapore – Financial Times, March 18, 2023
Many Investors Are Skeptical of Jumping in on China’s Highly Touted Recovery – Wall Street Journal, March 18, 2023
Tech war: US directors resign from board of Shanghai-listed chip equipment firm amid Washington restrictions on citizens – South China Morning Post, March 15, 2023
China tightens grip on emerging tech, spooking foreign investors – Nikkei Asia, March 14, 2023
Silicon Valley Bank’s Troubles Threaten a Key Bridge Between Chinese Startups and U.S. Investors – The Information, March 10, 2023
Majority of US Firms Don’t See China as Priority for Investment – Bloomberg, February 28, 2023
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Latest News
As expected, the House Energy and Commerce Committee hearing did not result in an immediate ban on TikTok, but the future of the social media app in the United States looks dim.
Speech by President von der Leyen on EU-China relations to the Mercator Institute for China Studies and the European Policy Centre
https://ec.europa.eu/commission/presscorner/detail/en/speech_23_2063
European ammunition maker says plant expansion hit by energy-guzzling TikTok site – Financial Times, March 26, 2023
Biden’s Options on TikTok Narrow After Beijing Pushes Back – New York Times, March 23, 2023
The Biden administration recently told TikTok that it wanted the app’s Chinese owners to sell the app or face a possible ban in the United States. But that plan hit a roadblock on Thursday, when Beijing said it would oppose a sale. The announcement scrambled the debate over the future of the app, leaving the White House with few if any clear options.
TikTok admits it banned former NBA player critical of China – Washington Post, March 23, 2023
Enes Kanter Freedom, the former NBA player known for his outspoken political activism against China, was banned from TikTok for 12 days before being reinstated Thursday, when lawmakers were grilling the Chinese-owned company’s chief, the company confirmed Friday.
Freedom’s account was banned on March 11 following several warnings that his past videos had broken the app’s “community guidelines,” he told The Washington Post.
Freedom appealed the ban shortly after but was told that TikTok reviewers had determined his account would not be restored. On Thursday, TikTok reinstated the account while CEO Shou Zi Chew was on Capitol Hill to argue that Americans’ TikTok feeds are unaffected by China’s censorship rules.
AI might have already set the stage for the next tech monopoly – Politico, March 22, 2023
Deny, Deflect, Deter: Countering China's Economic Coercion – CSIS, March 21, 2023
A report from Matthew Reynolds and Matthew Goodman at CSIS on the PRC’s growing “propensity to engage in acts of economic coercion against both its neighbors and more distant countries.” The report examines eight cases of economic coercion by the PRC and recommends a series of policy steps countries could take to deter and deflect Beijing’s actions.
Technology Strategy and Policy
One of the main policy themes across the U.S. federal government is the debate over how, not if, the United States should pursue and industrial and technology policy with regards to the rivalry with China.
Precision Targets: Accelerating the U.S.-India Defense Industrial Partnership – ORF America, March 27, 2023
This report details the opportunities for U.S.-India collaboration across their defense industrial enterprises, building on years of closer cooperation.
Pentagon Woos Silicon Valley to Join Ranks of Arms Makers – Wall Street Journal, March 26, 2023
Loophole Allows U.S. Tech Exports to Banned Chinese Firms – Wall Street Journal, March 24, 2023
The U.S. moved this month to cut off a Chinese conglomerate’s access to Western technology, but the firm can still secure those goods through a technicality that some former senior officials say is a major loophole in the U.S. export-control regime.
'No line to be drawn' in tech war with China, says former Commerce Department BIS official – DigiTimes Asia, March 24, 2023
Talking to DIGITIMES, Nazak Nikakhtar, who served as the Assistant Secretary for Industry and Analysis between 2018 to 2021 while also fulfilling the duties of the Under Secretary for the BIS, saw the possibility of wider sanctions against China in the future to close current loopholes. Currently, Nikakhtar serves as a senior fellow at Krach Institute for Tech Diplomacy.
"There are specific gaps in the rules and those will inevitably be fixed after reports are made public about China's continued acquisition of sensitive semiconductor technology," said Nikakhtar. "A number of companies have received exemptions from compliance with the new export control rules so that will need to be addressed as well."
What Kind of Industrial Policy: Progressive or Hamiltonian? – Robert Atkinson, ITIF, March 20, 2023
Artificial Intelligence
Unless you’ve been living in a cave for the past three months, you have come across ChatGPT (Generative Pre-trained Transformer) and its competitors, which are Large Language Models (LLMs) refined through machine learning. Combined with AI Image Generators, like DALL-E, folks are experimenting with how they might be employed. To know that it has completely entered our mainstream culture, South Park did an episode on it three weeks ago.
Baidu cancels launch event for cloud services integrated with Ernie Bot – South China Morning Post, March 27, 2023
The Beijing-based internet search giant called off the press event at the last minute, turning it into a closed-door meeting for corporate clients. Baidu’s ChatGPT-like Ernie Bot has faced scepticism over its capability, with investors questioning the lack of a live demonstration at launch.
Microsoft Now Claims GPT-4 Shows 'Sparks' of General Intelligence – Vice, March 24, 2023
On Wednesday, Microsoft researchers released a paper on the arXiv preprint server titled “Sparks of Artificial General Intelligence: Early experiments with GPT-4.” They declared that GPT-4 showed early signs of AGI, meaning that it has capabilities that are at or above human level.
Databricks open-sources an AI it says is as good as ChatGPT, but much easier to train – Silicon Angle, March 24, 2023
Big-data analytics firm Databricks Inc. has emerged as an unlikely player in the generative artificial intelligence space, open-sourcing a new AI model that it claims is “as magical as ChatGPT,” despite being trained on far less data in less than three hours using a single machine.
AI chatbots compared: Bard vs. Bing vs. ChatGPT – The Verge, March 24, 2023
Telecommunications Networks and Infrastructure
U.S. and China wage war beneath the waves – over internet cables – Reuters, March 24, 2023
Subsea cables, which carry the world's data, are now central to the U.S.-China tech war. Washington, fearful of Beijing's spies, has thwarted Chinese projects abroad and choked Big Tech's cable routes to Hong Kong, Reuters has learned.
China and 5G Technology, a Weapon for Dictatorships in Latin America – Dialogo Americas, March 17, 2023
Critical Minerals
Indonesia’s nickel superhighway – The Interpreter, March 20, 2023
Indonesia currently has the most significant nickel deposit in the world, putting it in a prime position to build advanced industries such as renewable energy, in which rare earths are vital to production. The climate emergency has brought momentum and put additional pressure on the global supply chain for green technology, with the result that rare earth and clean technology development is increasingly considered a national security matter. Indonesia must start building its industrial capacity to tackle such challenges.
Lithium Prices Nosedive Amid Weaker Demand – Caixin Global, March 23, 2023
The price of lithium carbonate, the key raw material for power batteries, fell by half over four months, reflecting weakened demand. The spot price of lithium carbonate in China was 290,000 yuan ($42,138) per ton Wednesday, down 30% from the previous month and 41.7% lower than a year ago, data from metal industry information provider Shanghai Metals Market showed. The price fell by more than 50% from the peak of nearly 600,000 yuan per ton in November 2022.
Rare Earths Supply Chains and Confrontation with China – National Interest, March 21, 2023
Europe Moves to Revive Mining to Cut Reliance on China – Wall Street Journal, March 18, 2023
Race for metals and minerals amid growing battery demand spurs innovation and erodes European resistance to local production.
Synthetic Biology
China Clears First Homegrown mRNA Covid Vaccine – Caixin Global, March 23, 2023
China approved its first homegrown Covid-19 vaccine using the advanced mRNA technology, months after the country pivoted from its “zero-Covid” strategy toward living with the virus.
U.S. companies must stop enabling mass DNA collection in Tibet – Washington Post, March 17, 2023
Quantum
China is developing a quantum communications satellite network – SpaceNews, March 10, 2023
Chinese research institutes are working to construct a quantum communications network using satellites in low and medium-to-high Earth orbits. Pan Jianwei, a scientist with the Chinese Academy of Sciences (CAS) and a member of the member of the 14th National Committee of the Chinese People’s Political Consultative Conference (CPPCC), made the comments in an interview with media March 4 on the sidelines of China’s annual political sessions in Beijing.
Quantum Technology in China: 2023 Review – The Quantum Insider, March 23, 2023
China is estimated to have committed significant government funding in quantum. Although actual funding levels are difficult to accurately calculate, the report notes confirmed funding is at least $4 billion with many sources guiding to funding of over $17 billion. The upper end of the range would amount to approximately double the total committed funding across the EU (or 4x the US). The exact budget breakdown for the amount is not public but is understood to include a significant construction component for the world’s largest quantum research facility, the 37-hectare National Laboratory for Quantum Science in Hefei.
Quantum Computers: Why We Should Be Both Excited And Concerned – Forbes, March 22, 2023
How Much Money Has China Already Invested into Quantum Technology? – Quantum Computing Report, April 16, 2022
Advanced Aerospace Technology
If China Arms Russia, the U.S. Should Kill China’s Aircraft Industry – Foreign Policy, March 20, 2023
Beijing’s aerospace future is uniquely dependent on Western companies. U.S. and EU trade sanctions could bring its indigenous aviation sector to a halt.
Semiconductors and Microelectronics
Keith Krach, Chair, Krach Institute for Tech Diplomacy at Purdue, discussed the latest developments in the US-China relations:
South Korea to Surpass China in Chip Machine Spending Next Year – Bloomberg, March 27, 2023
US pressure weighs on China’s ability to buy key equipment Semiconductor supply chains are realigning along security ties.
Huawei Touts Progress Replacing Chip Design Software Led by US – Bloomberg, March 27, 2023
China frees top chip investor to bolster semiconductor efforts – Financial Times, March 23, 2023
Head of Hua Capital released from detention as Beijing seeks expert help to navigate tough western sanctions.
Taiwan braces for drought in key chip hubs again – Nikkei Asia, March 23, 2023
Taiwan, home to Asia's biggest semiconductor industry, is once again bracing for water shortages less than two years after overcoming its worst drought in a century. Chipmaking is a thirsty business. Take Taiwan Semiconductor Manufacturing Co., the world's biggest contract chipmaker, for example. Its chip facilities in the Southern Taiwan Science Park alone consume 99,000 tonnes of water per day, according to the company's latest figures. And as chip production techniques become more advanced, their water needs grow.
China gives chipmakers new powers to guide industry recovery – Financial Times, March 20, 2023
China is giving a handful of its most successful chip companies easier access to subsidies and more control over state-backed research, as tightening US controls on access to advanced technology force a major rethink in Beijing’s approach to supporting the sector.
Energy and Climate
China continues to plan and build coal-fired power plants faster than the rest of the world decommissions theirs. Carbon emissions cuts by North America and Europe are offset by the increased carbon emissions by Beijing.
China Automakers in Price War: How Soaring EV Sales are Reshaping the Country's Automotive Industry – Baiguan, March 23, 2023
World drives forward on No New Coal but China takes a detour – E3G, March 14, 2023
China now accounts for 72% of global pre-construction capacity of coal fired power plants, up from 66% in July 2022. The next five countries (India, Turkey, Indonesia, Laos and Mongolia) account for 18% combined with the remaining 10% spread across 27 countries.
Joe Biden’s Push to Counter China Steers EV Investments to Canada – Wall Street Journal, March 22, 2023
LG Will Spend $5.5 Billion on a Battery Factory in Arizona – New York Times, March 24, 2023
A South Korean battery manufacturer said it would quadruple its planned investment in a new factory in Arizona to meet growing demand from automakers that are trying to ramp up production of electric cars and trucks.
The company, LG Energy Solution, said it would invest $5.5 billion to build the complex near Phoenix, where it plans to make batteries for electric vehicles in 2025 and for energy storage systems the next year.
Opinion and Commentary
China, Japan and the Ukraine war – Gideon Rachman, Financial Times, March 27, 2023
The merging of geopolitical rivalries in Asia and Europe has disturbing echoes of the 1930s.
The Cold War with China Is Changing Everything – David Brooks, New York Times, March 23, 2023
So I guess we’re in a new cold war. Leaders of both parties have become China hawks. There are rumblings of war over Taiwan. Xi Jinping vows to dominate the century.
I can’t help wondering: What will this cold war look like? Will this one transform American society the way the last one did?
The first thing I notice about this cold war is that the arms race and the economics race are fused. A chief focus of the conflict so far has been microchips, the little gizmos that not only make your car and phone work, but also guide missiles and are necessary to train artificial intelligence systems. Whoever dominates chip manufacturing dominates the market as well as the battlefield.
Second, the geopolitics are different. As Chris Miller notes in his book “Chip War,” the microchip sector is dominated by a few highly successful businesses. More than 90 percent of the most advanced chips are made by one company in Taiwan. One Dutch company makes all the lithography machines that are required to build cutting-edge chips. Two Santa Clara, Calif., companies monopolize the design of graphic processing units, critical for running A.I. applications in data centers.
The dollar is our superpower, and Russia and China are threatening it – Fareed Zakaria, Washington Post, March 24, 2023
The most interesting outcome of the three-day summit between Vladimir Putin and Xi Jinping got limited media attention. Describing their talks, Putin said, “We are in favor of using the Chinese yuan for settlements between Russia and the countries of Asia, Africa and Latin America.” So the world’s second-largest economy and its largest energy exporter are actively trying to dent the dollar’s dominance as the anchor of the international financial system. Will they succeed?
Xi is using Putin for influence in Europe – Edward Lucas, Times of London, March 27, 2023
Russia’s relationship with China may be tactically smart but is strategically stupid for the Kremlin.
A full-blown alliance between China and Russia spells dread for the West. On the surface the signs are ominous. Military co-operation has been intensifying for years. Xi Jinping and Vladimir Putin meet each other more often than either of the dictators sees anyone else. Their 40th summit was in Moscow last week. Amid cloying rhetoric about their personal and strategic ties, they lambasted the American-led global order for its hypocrisy and hegemonic pretensions. But despite the common enemy, and Xi’s childhood fascination with the Soviet Union, any talk of an alliance is overblown.
One reason is Chinese contempt for an ill-run and backward Russia. In the Sino-Soviet era, China was the junior partner. Now it is the senior.
The Last Word
Michelle Giuda, Director, Krach Institute for Tech Diplomacy at Purdue: “TikTok calls itself “The Last Sunny Corner on the Internet.” But in reality, the app is a powerful weapon of the Chinese Communist Party.”
The dark side of TikTok - Michelle Giuda, The Hill, March 23, 2023
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About: Tech Diplomacy Now
Technology is the crossroads and main battlefield of the four-dimensional diplomatic, economic, cultural and military contest between freedom and authoritarianism. Technology is either grounded in trusted democratic principles—respect for the rule of law, human rights, property, transparency, sovereignty and the environment—in order to advance freedom, or it is weaponized by authoritarian regimes and malign actors in order to control and oppress.
We believe technology must advance freedom.
The nonpartisan Krach Institute for Tech Diplomacy at Purdue is the preeminent global authority on Tech Statecraft, a new model of diplomacy that integrates high-tech strategies with foreign policy and national security tools to ensure trusted technology is used to advance freedom. We focus on rallying our allies, leveraging the innovation of the private sector, and amplifying democratic values based on trust, leveraged by Purdue University’s strength in innovation, deep expertise in technology, and global prowess in educating transformational leaders.
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