Policymakers in the US and EU have focused on communications network equipment from Huawei and ZTE, noting that certain products should be restricted, if not banned outright.
The media likes to sensationalise Huawei, but there is more to the story. In addition, it’s important to put facts on the table, particularly as policymakers have tough decisions to make about how to manage security risks in communications networks. Many credible security analysts around the world have described and detected espionage, malware, and theft by manufacturers affiliated with the Chinese government and military.
The Huawei equipment identified for restriction is just one part of a large value chain with many points that can be compromised. It raises the question if network infrastructure equipment made by Huawei and ZTE is a threat, then what about the other (and quite considerable) components of the internet made by other firms affiliated with the Chinese government? What about the Chinese owned Lenovo, the world’s largest maker of personal computers and servers? What about the many made in China Internet of Things devices, which we connect in our homes, offices, and businesses? These are frequently connected to the internet via Chinese made apps on Chinese made mobile phones They collect data which is processed and stored in Chinese data centres. How much insight do we have to these products and services, and have we considered the risks?
China drives much of the technological innovation that is the foundation of the digital society.
The US was the front runner in Internet innovation, and the EU; the historical leader in mobile communications innovation. The leaders of these regions believed that they would lead the pack when it comes to the next generation of connectivity. That is not necessarily the case for the US, and certainly not for the EU. While the US is making strides in 5G, China is ahead. The EU is at least two years behind the US.
Look at the bulk of engineering papers on 5G technologies; they are published by Chinese scholars at Chinese universities, not Americans or Europeans. Look at the EU. After two decades of telecom regulation proffered by EU policymakers to drive internet innovation, the EU has essentially no leading internet companies today. Many patents are filed in communications technologies in the EU, but they are not necessarily filed by Europeans. Huawei files the most patents in the category.
In 2008, 2693 patents were filed in Europe within the telecommunications and connectivity categories. Of these, just 116 were filed by Chinese firms. In 2017 China accounts for 1478 of the 3717 patents granted, a 12-fold increase.
Outside of a few demonstration sites outside China, Chinese firms do the bulk of their research and development in China, not the US or Europe. China’s share of communications patents filed in the EU has grown from 4.3% to a 39% share in just 10 years. At this pace, in just a few years, Western companies will not be able to produce telecommunications technology without using Chinese patents.
With EU elections in just a few months, Europeans should ask the leaders why Europe has gone from being a net exporter of communications technology to a net importer. Indeed, Europeans should ask why the EU continues to promote policies that fulfil the opposite of their state objective.
The bad news is that the worst is yet to come.
European telecom policy has succeeded to turn the EU from the leading region for investment and innovation to the follower behind China, Japan, South Korea, and the US. The EU once accounted for one-third of the world’s investment in telecom infrastructure, had six makers of mobile phones, and significant R&D budgets and thousands of patents to show for it. But no more. If one compares the EU to the United States, then the Americans have invested twice as much in infrastructure per 12-year period.
China may be a security threat, but its leaders understand the economics that Europe rejects. The Chinese understood that combining high volume (large and efficient telecommunications companies) with large investments in innovation delivers global leadership.
EU leaders love to talk about the Digital Single Market and while they have imposed plenty of regulations to ensure a single standard, they have restricted European firms from getting scale.
If a mobile network that transports data is critical infrastructure, then hardware used to process and store data should also be critical infrastructure. Cyber attacks can be waged both deep in the network and at its edges with end users. However, it is not just the catastrophic attack which is a concern, but cyber trench warfare, small scale attacks, espionage, and surveillance which occurs just below the critical threat threshold.
While there is a risk that China could paralyse Western society by blocking critical telecommunications infrastructure produced in China, whether servers, routers, laptops, or phones – the even greater likelihood is that the West has become so dependent on Chinese technology, that it doesn’t produce its own innovation anymore.
When China entered the World Trade Organization in 2001, Western leaders assured that China would just do the low-end manufacturing while the high-end innovation would remain in the US and EU. That is no longer the case. Not only does China have high-quality manufacturing, but it also does R&D too.
Moving toward 2025, China’s goals are clear: dominate strategic industrial sectors and be independent of Western technology while getting the West addicted to its products and services.