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After a puzzling on-again, off-again trade action against China’s information and communications technology (ICT) giant ZTE in 2018, the Trump Administration began sanctioning China’s number #1 ICT player Huawei in May 2019. The sanctioning action involved putting Huawei on a Commerce Department “entity list” and thereby restricting U.S. suppliers from selling their goods and technology to Huawei.
As with all of Trump’s trade actions against China, impulse outweighed well thought-out execution in the Huawei crackdown. Initially, some sales were allowed and others denied without clear criteria being communicated to U.S. industry. Later, without preparatory signaling, the Huawei campaign was intensified by expanding U.S. government authority to require licenses for sales of semiconductors made abroad with American technology.
The fitfulness of this policy can be measured by (1) the number of licenses (and dollar value of affected goods and technology) pending but held up in the inter-agency process and (2) the number of licenses (and dollar value of affected goods and technology) which had been applied for by U.S. companies but not processed towards the end of the Trump Administration. (As things stood at the time of the November 3rd election, the expectation was that products in both categories which had clear 5G application would likely be rejected while non-5G products would likely be processed on case-by-case basis.)
Meanwhile, in the international sphere, the Trump Administration pursued a parallel campaign to try to persuade traditional allies to disallow Huawei technology from 5G infrastructural build-out in their respective markets on the grounds that – despite price and performance competitiveness — Huawei’s products represent a national security threat. The results of this international campaign were mixed at best, not least because many of these traditional allies had themselves been targets of different tariff sanctions under Trump’s America First trade policy. Without delving into the changing fortunes of this campaign at different times in different parts of the world, a summary headline on November 3rd might have read “Trump’s 5G Campaign Against Huawei: Embraced in India, Accommodated in the UK, Begrudged in Germany and Repudiated in Thailand and Elsewhere.”
The Biden Administration, while making a quick and clean break from Trump Administration trade policy in the area of climate change mitigation and clean energy technology, has largely kept the Trump Administration domestic policy of restrictive licensing for sales of advanced ICT goods in place. At least, it has made clear that no substantive change should be expected until after the completion of a whole-of-government review of China trade policy and a parallel review of strategic global supply chains which includes semiconductors. In the international arena, it has relaxed the narrowly-focused pressure campaign against Huawei adoption in favor of a more broadly-conceived alliance strategy to rally traditional allies and other democracies to rise to the 21st century challenge posed by China’s autocratic model.
So where do things stand today? The restriction of supplies of U.S. advanced semiconductors to Huawei under both the Trump and Biden Administrations has taken the biggest toll on Huawei. Less impactful but still a headwind for Huawei has been the doubt sown internationally as the U.S. and China edge closer towards global confrontation and supply chain de-coupling. The result? Huawei reported last Friday its third straight quarterly decline in revenues, falling a significant 38% against 2021Q1 results.
Huawei is likely to remain at the center of a highly-fraught tug-of-war between the U.S. and China over 5G. On one side, China has ability to leverage the world’s largest installed base of advanced mobile phone users in the world. On the other, the U.S. dominates the global market for the advanced microchip designs on which advanced telecom markets depend. And the U.S. maintains close partnerships with the world’s leading microchip fabricators in Taiwan and the makers of the world’s leading fabrication equipment in the Netherlands and elsewhere.
Expect more tremors and seismic activity on this fault-line for the foreseeable future. Just last week, the PRC government issued retaliatory actions against Huawei’s main Western rivals – Sweden’s Ericsson AB and Finland’s Nokia, among others. And, as fall-out from the recent spread of the SARS-COV-2 Delta-variant in China, it was announced over the weekend that the World 5G Conference – scheduled for August 6-8 in Beijing – would be postponed indefinitely. Pressure continues to mount while chances to release that pent-up pressure close off.

“We are in competition with China and other countries to win the 21st century,” Biden said on April 28th. “We are at a great inflection point in history. We have to do more than just build back better. … We have to compete more strenuously.”
The question we are examining today is what does “compete more strenuously mean.” I’ll be identifying four distinct fields in which heightened competition is likely to come to the fore but first some context and disclaimers.
The first point to note is that, in President Biden’s own words, some partial answers are already clear. Biden has made clear that he sees this 21st century competition as one between the US and its democratic allies on the one side versus Xi, Putin and other autocratic leaders on the other side. in other words, the heart of the competition is democracy versus autocracy. What Biden has also made clear involves timing, that the competition will not be joined in earnest until the U.S. has emerged from the worst of the COVID-19 pandemic and largely revitalized the performance of the U.S. domestic economy.
Two caveats are also in order. The analysis provided below is strictly my own. The Biden administration – under Kurt Campbell, deputy assistant to the President and coordinator for Indo-Pacific Affairs at the National Security Council — is currently directing an assessment under which cabinet-level departments and some agencies are re-viewing their policies and procedures as they relate to China. These departments and agencies will be reporting their findings to the White House later this year at which point Kurt Campell, his senior director for China Laura Rosenberger, and their staff will be synthesizing these inputs and articulating an updated “whole of government” policy towards China. (This process is consistent with the ‘get our house in order now’ before focusing on generational competition with China, as referenced above.) Clear answers to the question we’re examining today likely won’t be rolled out by the Administration until that process is complete.
In the meantime, the single best open-source for a quasi-authoritative readout of Biden’s thinking on what heightened US- China technology competition will look like may be the Penn Biden Center. While I am affiliated with Fox Leadership International under the School of Arts and Sciences at Penn, I want to make clear that this blog post does not draw on any information from that source. This is my analysis and I bear sole responsibility for any deficiencies.
So, on to the substance …
At the broadest level, the U.S. needs to up its game in four areas of traditional strength to respond more effectively to the 21st century tech challenge from China:
Field 1: Industry Sector Focus
NASA’s manned mission to the moon and DARPA’s role in the creation of the internet are the most storied examples of U.S. Government success in mid-wiving new high technology industries. What has changed since those early post-war successes is the subsequently accelerated pace of technology innovation and development in the Fourth Industrial Age. In fields as diverse as semiconductor design and fabrication, 5G telecommunications, artificial intelligence and robotics, quantum computing, EV batteries and biotechnology, U.S. government policy is currently nowhere near as focused in positioning its support role as is China. What is called for is not a return to 20th century “industrial policy” (and its poor record of picking company-level winners and losers) but a new, 21st century approach to policy support to better prepare eco-system support for the emergence of entire new industries.
Field 2: Funding for Innovation & Regulation of Foreign Acquisitions
Despite the recent trend-line of falling investment in basic research in the U.S. and increasing levels of basic research investment in China, the fact remains that China is still no match for the U.S. in terms of the breadth, depth and quality of its basic research or of the commercial potential of the developments it spins off. This is readily apparent in cutting-edge fields like advanced semiconductor design and gene therapy. In these fields, China can’t put a home-grown team onto the field but instead tries to snap up foreign talent and fledgling foreign companies in hit-or-miss hopes of leveraging that into a domestic breakthrough. Committee on Foreign Investment in the U.S. (CFIUS) and other related government entities need more focus on the dynamics underpinning tomorrow’s industries and less on yesterday’s. Likewise, less silo-ing between basic research and commercial development is urgently needed.
Level 3: Rule of Law
Perhaps no societal field offers greater contrast between the U.S. and China than the field of law and legal practice. The U.S. system of case law based on precedent stretches back to the time of the Saxon Kings of England (with very occasional admixtures from the Roman system of law more common to Continental Europe). As enshrined in the U.S. constitution, ours is the rule of law, not the rule of men (or women). While the Chinese Communist Party (CCP) has borrowed legal ‘parts’ from a wide variety of sources since 1949, the legal system it has assembled from those parts is principally designed to serve the interests of the governing party rather than to protect inherent rights of its citizens or its private companies. It is rule by law, rather than rule of law, as was vividly demonstrated with the imposition of the new security law in Hong Kong in the summer of 2020. Despite the slowness and costs associated with it, the U.S. legal system provides a level of predictability and protection for investors and businesspeople which can’t be matched in China. We can expect to see the Biden Administration act to shore up the foundations of this legal system following the strains put on it by the previous administration.
Level 4: Wellsprings of Economic Vitality
Two of the deepest sources of support and revitalization for technology innovation in the U.S. are immigration and our capital markets. Immigration brings a steady stream not only of young and eager workers but also on occasion transformational business talent such as Sergey Brin and Elon Musk. Our capital markets spread risk over a broad pool of investors and investment vehicles, incentivize iconoclastic thinking and efficiently channel capital to the points of likely greatest return. While China has through its tax policy been impressively building an investment-led structure for its markets, the efficiency and speed of execution of the U.S. capital markets can’t be matched in China. In broad view, China currently tries to leverage its centralized leadership and ‘command economy’ model to try to neutralize this U.S. advantage as well as hoping to ride the momentum from its high-growth domestic macro-development over the last four decades (and the internationalization of that development model over the last ten years). How China fares in field of competition in the years ahead as it emerges from its fast-growth phase of development and collides with a dire demographic imbalance will be one of the more consequential questions of the early 21st century.
Editorial Note: Upcoming posts in the TEA Collaboratives T-series on technology topics will pick up and expand on some of the topics identified above. Our focus in this Technology Competition sub-series will mostly fall under the industry and innovation topics identified above but we will also have occasional invited guest experts to delve more deeplly the legal and capital markets topics. Also, it’s important to note explicitly that the viewpoint expressed in this post and other future posts in the series are obviously a perspective from the U.S.-side. We will present the ‘emic’ view (as seen through the eyes of Chinese government planners and officials) separately through our A-series (Ambitions) posts which appear on Fridays.
As a final note, the Technology Competition sub-series posts introduced in today’s post will alternate on Mondays with our TECH-tonics sub-series posts (which focuses exclusively on issues associated with the micro-electronic supply chain fault-line between the U.S. and China passing through Taiwan). In any given month, we’ll be producing in alternating fashion two posts in the TECHtonics and and two poss in the Tech Competition sub-series.
On May 27th speaking at the annual Stanford University Oksenberg Conference, Kurt Campbell, Biden’s National Security Council Coordinator for Indo-Pacific Affairs, delineated the new ‘continental divide’ in U.S.-China Relations.
The period in U.S. policy toward China that was broadly described as ‘engagement’ has come to an end, said Dr. Kurt M. Campbell, deputy assistant to the President and coordinator for Indo-Pacific affairs at the National Security Council, speaking at Shorenstein APARC’s 2021 Oksenberg Conference. “The dominant paradigm is going to be competition. Our goal is to make that a stable, peaceful competition that brings out the best of us,” he added.
This low-key pronouncement is attention-grabbing for several fundamental reasons: (1) it marks the end of a 39-year bipartisan effort to encourage China to become, through a concerted program of cooperative outreach, a “responsible stakeholder” in the post-WWII liberal democratic world order and (2) the epitapth was delivered by one of the principal architects of that cooperative program.
To back up this somewhat sweeping statement on my part, I’ll be spending the weeks ahead examining what this sea-change portends from three perspectives:
Aspirationally …
On Mondays, we’ll be looking at various aspects of what heightened competition with China will look like for the Biden Administration in the tech sphere. This will include high-level perspectives of competition in artificial intelligence and robotics; sourcing of rare earths needed for smart phones, electric vehicles and other high-tech products; 5G build-out in domestic and international markets; quantum computing competition; the Great Firewall of China as an export product to Belt & Road partners countries; and social media platforms and data privacy issues. But most saliently, we’ll be looking in-depth at global supply chains in microelectronics and the fraught issue that 40% of the world’s microchip production — and 80% of its high-performance products — are produced in Taiwan at a distance of only 90 miles from the PRC mainland.
On Wednesdays, we’ll be examining the fields of energy and environment where cooperation still rules the day under Cabinet-level John Kerry’s aegis but where cooperation is shifting from a government-to-government level to a more market-based model of comparative advantage cooperation.
On Fridays, we’ll be examining what these changes look like from the Chinese perspective. Our sources for this perspective — what cultural anthropologists call the emic (in-group) view as opposed to the etic (outside observer) view — will include macro-perspectives such as the Five Year Plans, primary-source research findings provided by my UPenn masters-level students, and also micro-perspectives such as interviews and insights gleaned from business people operating on the ground in China.
My heart-felt thanks go out to the many subscribers who have been with me on the journey to date. I look forward to welcoming hopefully many others choosing to subscribe to the blog for this next leg of the journey.
Henry “Hank” Paulson — former Chairman of Goldman Sachs, former Secretary of the U.S. Treasury and creator of the U.S.-China Strategic & Economic Dialogue — was in Philadelphia last Wednesday. He came to publicize his new book Dealing With China: An Insider Unmasks the New Economic Superpower.
The media frame for the talk and Q&A which he gave to the World Affairs Council of Greater Philadelphia was: ‘Hank, you’re a real patriot. Why are you helping China?”
In response, Hank Paulson was very clear that his interest in promoting a better understanding of China is rooted in his desire to do what is best for America.
You can read the full article here but, for the purposes of this post, I’m going to focus on one small, but important, piece of the big contemporary China puzzle: Is Xi’s ongoing crackdown (on corruption but also on foreign businesses, NGOs, press freedoms, social media, connectivity to the global knowledge-pool, etc) flashing green, yellow or red for China’s paramount challenge of rebooting its economy on a more sustainable basis?
China’s ‘old software version’ of infrastructure build-out, inbound investment and export of cheap stuff is clearly no longer operating smoothly on the new global hardware system. China’s future – and Xi Jinping’s for that matter – depends on a smooth updating to a ‘new software version’ of consumer-led spending, outbound investment and innovation up the product value-chain. Under any circumstances, that’s a tall-order to pull off in just a few years. For those of us who believe that helping China matters to America’s future, the key question is whether the crackdown on political thought in China is – or is not — inimical to the desperately needed surge of commercial innovation needed to upgrade China’s economy to version 2.0.
It is perhaps not entirely a coincidence that, in the same week that Hank Paulson was wrestling with this question in Philadelphia, so were two other leading experts on the trajectory of China’s globalization elsewhere: Shaun Rein and Tom Friedman in respective articles. If Hank Paulson occupies the pivot point as a U.S. patriot committed to helping China, Shaun Rein is a self-acknowledged China booster and Tom Friedman a “color me dubious” observer of China’s steep road ahead to globalization.
Here’s what each of them has had to say over the past week on the ‘sword of Damocles’ question facing Xi and China: crackdown or start-up? (Click on the name below in order to source the original publication from which the following excerpts are taken):
“Paulson believes the Communist Party has reached a simple accord with the Chinese people: prosperity in return for continued state control. The question, of course, is whether China can have it both ways – economic freedom without cultural freedom, a subject I raised with Paulson at the World Affairs Council.
‘In today’s information economy, I don’t know how economies can innovate and do the sorts of things they do to stay on top without having a free flow of ideas and information,” Paulson replied. “I’ve run a global company, and, boy, you need to be connected. You can’t have an Internet that’s not connected. You need to know what’s going on politically, regulatory systems, economically, in terms of ideas all over the world.’
He added: ‘But understand what’s going on right now. Xi Jinping . . . is focusing on the things that the people care about the most. So, corruption. He recognizes the party won’t survive unless he curbs corruption. So he’s focused on corruption, the environment, dirty air, and water.’
“So . . . managing China, just think what it’s like because they have to deal with the kinds of issues that afflict developed countries at the same time they have to deal with issues that developing countries are dealing with because a big part of the country is still poor. It would be like, . . . looking at Europe, Germany and Slovenia. They are both European, vastly different stages of development, they need different economic policies. So think about managing both of those in a single country under one party, and I mean that’s sort of the challenge.’”
“China´s much needed anti-corruption drive has now put the country into a lock-down mode, and new projects have halted,” tells business analyst Shaun Rein at CNBC. “The cut in the reserve ratio ratio (RRR) this weekend is one way for a kickstart, although nobody know what will really work.”
China Herald: “What does the Chinese market need to stimulate the economy and if this growth continues to disappoint then would you expect an additional benchmark rate cut in the next couple of quarters, something that many experts are now talking about?”
Rein: “I think what we need to look at is not gross domestic product (GDP) growth but we need to take a look at unemployment and the second reason why I am more concerned about the economy is in the last month urban unemployment has been hovering around 5 percent – that’s really a problem. So the unemployment rate in areas of manufacturing are still fairly strong and you can easily stimulate that by forcing state owned enterprises to do heavy investment; train construction, airport construction and you can get jobs there but the issue is urban unemployment is weak and there aren’t a lot of easy remedies. The government is trying to switch from manufacturing oriented economy more towards one of technology and innovation as I outlined in my new book ‘The End of Copycat China’ but it is not easy to do that. You cannot get companies that are producing things all a sudden to become innovators, so there is definitely going to be some weakness, some problems in the economy over the next three-four months and frankly there are no easy answers on how they stimulate the economy.”
“Americans … are asking of President Xi: “What’s up with you?” Xi’s anti-corruption campaign is clearly aimed at stifling the biggest threat to any one-party system: losing its legitimacy because of rampant corruption. But he also seems to be taking out potential political rivals as well. Xi has assumed more control over the military, economic and political levers of power in China than any leader since Mao. But to what end — to reform or to stay the same?
“Xi is “amassing power to maintain the Communist Party’s supremacy,” argued Willy Wo-Lap Lam, author of “Chinese Politics in the Era of Xi Jinping: Renaissance, Reform or Retrogression?” Xi “believes one reason behind the Soviet Union’s collapse is that the party lost control of the army and the economy.” But Xi seems to be more focused on how the Soviet Union collapsed than how America succeeded, and that is not good. His crackdown has not only been on corruption, which is freezing a lot of officials from making any big decisions, but on even the mildest forms of dissent. Foreign textbooks used by universities are being censored, and blogging and searching on China’s main Internet sites have never been more controlled. Don’t even think about using Google there or reading Western newspapers online.
“But, at the same time, Xi has begun a huge push for “innovation,” for transforming China’s economy from manufacturing and assembly to more knowledge-intensive work, so this one-child generation will be able to afford to take care of two retiring parents in a country with an inadequate social-safety net.
“Alas, crackdowns don’t tend to produce start-ups.
“As Antoine van Agtmael, the investor who coined the term “emerging markets,” said to me: China is making it harder to innovate in China precisely when rising labor costs in China and rising innovation in America are spurring more companies to build their next plant in the United States, not China. The combination of cheap energy in America and more flexible, open innovation — where universities and start-ups share brainpower with companies to spin off discoveries; where manufacturers use a new generation of robots and 3-D printers that allow more production to go local; and where new products integrate wirelessly connected sensors with new materials to become smarter, faster than ever — is making America, says van Agtmael, “the next great emerging market.”
“It’s a paradigm shift,” he added. “The last 25 years was all about who could make things cheapest, and the next 25 years will be about who can make things smartest.”
President Xi seems to be betting that China is big enough and smart enough to curb the Internet and political speech just enough to prevent dissent but not enough to choke off innovation. This is the biggest bet in the world today. And if he’s wrong (and color me dubious) we’re all going to feel it.”
Philadelphia was selected today to join an economic development network created by the Global Cities Initiative (GCI) , a five-year joint project of the Brookings Institution and JPMorgan Chase. Philadelphia’s application to, and participation in, the Global Cities Initiative is being co-led by the Economy League of Greater Philadelphia and the World Trade Center of Greater Philadelphia.
Launched in 2012, the Global Cities Initiative helps business and civic leaders grow their metropolitan economies by strengthening international connections and competitiveness. GCI activities include producing data and research to guide decisions, fostering practice and policy innovations, and facilitating a peer learning network. This network, the Global Cities Initiative’s Exchange, assists metropolitan areas as they develop plans to achieve sustainable growth through increased exports and foreign direct investment.
Philadelphia is one of eight metro areas accepted to the GCI Exchange’s 2015 group, the final cohort of the full 28-metro-area network. The Brookings Institution selected metro areas for the Exchange through a competitive process based on their readiness and commitment to pursue the Exchange’s global competitiveness principles.
In addition to Philadelphia, the other 7 members of the new and final cohort include Baltimore; Fresno, Calif.; Houston; Kansas City, Mo.; Salt Lake City; Seattle; and St. Louis.
The 2015 cohort joins participating municipal regions selected during the three previous years – 4 in 2012; 8 in 2013; and 8 in 2014. Those previous participating municipal regions include: Atlanta; Charleston, S.C.; Chicago; Columbus, Ohio; Des Moines, Iowa;Indianapolis; Jacksonville, Fla.; Los Angeles; Louisville-Lexington, Ky.; Minneapolis-Saint Paul; Milwaukee;Phoenix; Portland, Ore.; Sacramento, Calif.; San Antonio; San Diego; Syracuse, N.Y.; Tampa Bay, Fla.; Upstate S.C. representing the Greenville-Spartanburg-Anderson CSA; and Wichita, Kansas.
For more information on the Global Cities Initiative please visit:
www.brookings.edu/about/projects/global-cities/exchange
Happy Year of the Snake!
I have some major catching up to do so let me begin here with a link to my book which the Wilson Center launched on September 24, 2012. (Note: if you want to download the PDF of the book, just right-click and use the Save As option).
More 2012/3 updates to follow in rapid sequence.
Thanks for hanging in there,
This is the second in the 2012 series of Cooketop News commentaries and news recaps.
By reviewing the previous week’s top stories involving — broadly speaking — U.S./China clean energy, the commentary section isolates one trend/dynamic which points forward and can help illuminate news-in-the-making for the week(s) ahead. Following the commentary is a summary of the week’s top stories.
This week? We look at the headline (Cooketop News, Friday, January 13th) that, after four years, the U.S. re-took the lead from China as the front-runner in global clean energy investment.
* * * * * * * * * * * * * * * * *
From 2008-10, the U.S. visibly lost pace – and, in some instances, lead position – to China as the world’s top investor in clean energy. In 2010, China – then just over one-third the size of the U.S. economy – invested twice the absolute amount in clean energy as the U.S. Yet, in 2011, the U.S. bounced back, reclaiming top-spot for the first time in four years: U.S. investment increased 33% to US$56 billion while Chinese investment remained flat at $47 billion, according to Bloomberg New Energy Finance. What does it mean? Less than the headlines might suggest.
Here are three key points to keep in mind while tracking current results – and handicapping future results – in the global clean energy arena:
(1) It’s not a sprint, it’s a marathon. The bragging-rights prize will ultimately go to the economy which manages the best combination of technological innovation, political support, and financial sustainability over many years. Germany and Spain have seen political support for their heavily subsidized systems erode with the euro. The U.S. is in near political grid-lock over how to set that balance. China’s position looks strong on the surface but is hobbled by lack of technology innovation, political accountability and financial transparency.
(2) How high’s the bounce? The U.S. resurgence is due to short-term programs due to expire soon, such as biofuel support programs and energy efficiency measures. Absent a broad national consensus, there is no strong reason to expect the U.S. “bounce” to remain strong throughout 2012, an election year.
(3) The bottom-line is this is a race is against time, not a Sputnik-type competition. For either nation’s efforts to pay off, investment will need to be scaled to a global level by investors, public and private. That won’t happen unless there is a clear middle-way between the extremes which tend to bedevil U.S.-China relations – zero-sum, highly-nationalistic competition on the one hand vs. unrealistic and unsustainable ideas of cooperation on the other.
While the metric of renewed investment vigor in the U.S. is encouraging, the real challenge for the future will be to define and align complementary ‘skill-sets’ in both the U.S. and China so that capital can be attracted and deployed on a global scale through these two massive markets accounting for 40% of the global GHG emissions problem. We’ll need a discerning eye for the different strengths which our two countries can bring as complementary partners in this effort as well as a realistic understanding of our enduringly different systems and values. Regardless of who has the momentary lead in investment level, we need to recognize that there is no path to a sustainable future for either country without clear-eyed, realistically-based and sustained cooperation between the two.
Monday, January 9, 2012
Africa & China: How it all Began
China to Tax Carbon Emissions by 2015
China Vows Backing for Firms Abroad
China Spring Festival Migration Begins
Tuesday, January 10, 2012
Hottest Solar Markets in Early 2012
12 Challenges for China in 2012
DoE Heads Off Cleantech Materials Shortages
Wednesday, January 12, 2012
China’s Export Engine Downshifts
China Pumps In $10bn to Water Project
Brand Make-Over for Philly Energy Hub
Thursday, January 12, 2012
Does the U.S. Prefer a Ma Victory in Taiwan?
The Perils of Cleantech Investing
China Braces for Turbulent Year
Friday, January 13, 2011
China’s Forex Reserves Decline