Could the China Dream Turn Into a Nightmare for China?

This article, with content taken directly from my book The Future is Autonomous: The U.S. and China Race to Develop the Driverless Car, describes the problems of the political, security, and trade conflict between the U.S. and China. The article then discusses how much of this tension is exacerbated by the desire by China to become a leader in the potentially revolutionary new Fifth Generation (5G) technology. This push is led by companies such as Huawei and State-Owned Enterprise (SOE) ZTE. I will then discuss the problems China faces in developing its semiconductor industry. Semiconductors are responsible for fabricating microchips that are crucial for the processing power of autonomous vehicles and every other computerized product.

In China, beginning in elementary school and continuing throughout a person’s life, they are taught about China’s five thousand years of history. During the period of dynastic rule, China or 中国,the “Middle Kingdom,” saw itself as the center of the universe. Representatives of other countries had to bow down before the emperor and offer goods as part of the “tributary system.” In return, their countries were granted trading rights with China, their leaders received political recognition, and occasionally economic or military aid to defeat rival leaders.

On November 15, 2012, Xi Jinping addressed the Great Hall of the People in Beijing. In his speech he mentioned China’s five-thousand-year history, which had made an “indelible contribution” to global civilization. Xi then called for “the great revitalization of the Chinese nation” after others had “failed one time after another” in this goal.

Xi’s “great revitalization” refers to his China Dream. The policies he has pursued in pursuit of that dream include the BRI, Made in China 2025, and the push for “New Infrastructure” projects described in this chapter. Implicit in the speech is his criticism of his predecessors for not reaching these goals and the implication he would not fail as they had done.

US President Donald Trump has failed to respect Xi’s passion for making China a respected world power, and Trump’s anti-China rhetoric during and after the 2016 presidential election campaign have resulted in faltering trade negotiations between these two countries. This created misperceptions in China about the seriousness of trade negotiations on the part of the US. The resulting trade war between the two largest economies in the world could slow down Xi’s great ambitions for the China Dream.

Another point of historical misunderstanding concerns the “Century of Humiliation.” This concept refers to the century beginning with the Treaty of Nanking which ended the First Opium War between China and the United Kingdom. This treaty gave Hong Kong to the UK and opened several new trade ports for British merchants to sell goods to China with no restrictions. Similar treaties were signed in the 1850s by China, ruled by the Qing empire, with Russia, the US, and France.

This “Century of Humiliation” is reinforced throughout a person’s life in China as much as the pride of its five-thousand-year history. China will always approach any trade negotiation with wariness and skepticism, particularly negotiations involving the US. Cutting subsidies to its SOEs, getting rid of the technology transfer requirements, and opening the country to allow for the import of more goods would be difficult for China to accept.

However, the main issue of contention from the Chinese side involves the measures demanded by the US for enforcement of any Chinese companies who do not live up the terms of the agreement.

One US Senator involved in the trade negotiation strategy described what he viewed as the proper enforcement mechanism. “What we want is the ability to put on unilateral tariffs that can’t be counteracted by a tariff from China,” Senator Charles E. Grassley of Iowa, the Republican chairman of the Senate Finance Committee, told reporters.

The desire by US policymakers to assure China abides by a deal is justified because there is a lack of transparency and inflated sales figures inherent in China’s public-private partnership. This was evident in the fraud uncovered by companies in the EV industry, as described above. However, this strategy by the US indicates a failure to understand Chinese history and echoes the unfair treaties signed by China during the “Century of Humiliation.” Any request for “unilateral tariffs” would immediately raise red flags for any Chinese negotiator, given how engrained this troubling history is for everyone in China. Negotiators from China and the US should have knowledge of both the issues that could cause negotiations to fail and each side’s intentions behind their demands to reach a deal suitable for both countries.

Both the US and China have underestimated the other country’s resolve and have overestimated their own leverage at different times during this trade dispute. However, it is in neither country’s interest to prolong this trade war, particularly for their country’s respective autonomous vehicle industries. Trade conflict between China and the US creates a lose-lose situation for companies in both countries.

The push for electric vehicles that Xi inherited from his predecessor showed the growing pains of his effort to revitalize China’s economy with Made in China 2025. Xi turned this failure into a success through policy revisions. China now produces more electric vehicles than any country in the world. China’s investment in “New Infrastructure” projects supports the investment in new technology, particularly autonomous vehicles. This bodes well for the future of the autonomous vehicle industry in China.

China Seeks to Lead the World in 5G Technology

Huawei Technology’s founder and CEO Ren Zhengfei, a former engineer in the People’s Liberation Army (PLA), requires employees to have military discipline and toughness. Before new employees start working at Huawei’s headquarters in Shenzhen, they must travel to the company’s training facility called Huawei University.

At the site, new employees must undergo a two-week-long boot camp. Everyone sleeps in dormitories and wakes up at 5 a.m. for running and other exercises in Huawei uniforms. They then attend classes literally called “brainwashing.” These classes cover history, Huawei company products, and discuss the company’s work culture. This culture was described as “bloodthirsty like a wolf” by an employee.

These business camps are not uncommon in China. However, Huawei’s work culture sets it apart from other companies. A former employee, speaking anonymously, called his first year at Huawei “panful,” but he later said, “If it wasn’t because of the passion, if it wasn’t because of the striving, how could Huawei be where it is today?”

The passion of CEO Ren Zhengfei has led Huawei to become one of the biggest tech companies in China. It has also led Huawei to lead China’s push for global 5G dominance. This push has also earned Huawei the ire of US President Donald Trump.

5G networks allow users and products, such as autonomous vehicle, Virtual Reality (VR) headsets, and other artificial intelligence products to download data wirelessly at blazing fast speeds. 5G is significantly more capable than the current top-speed 4G-LTE wireless networks in the US.

According to Qualcomm’s official site, it is roughly ten times faster than 4G-LTE, with a peak downloading speed of twenty gigabits per second (GBps). It also has over one hundred megabits per second (MBps) average data rate. This increased speed would allow a person to download a movie in seconds.

There is also significantly lower latency with 5G. This reduced latency allows it to deliver more instantaneous, real-time data transfer of one millisecond. This would reduce the lag time for devices such as video games and make VR headsets run much more smoothly.

Finally, 5G networks offer more capacity. This means more people can use it at once because it is designed to support a one hundred-times increase in traffic capacity and network efficiency. Therefore, more people could effectively stream on more devices in a household.

I discussed the benefits of a 5G network connection for autonomous vehicles in a previous article introducing the near-term use cases of autonomous vehicles to the US. These benefits include the ability to rapidly download large and frequent data updates wirelessly to the autonomous vehicle. These updates could include map updates to the vehicle’s cloud computing system or other perception updates. 5G network connections would also allow for remote operators to more easily recognize a problem and assist people driving an autonomous vehicle to prevent an accident.

Huawei and SOE ZTE have created 5G network connections in cities all over China. As discussed last chapter, the 5G network connectivity assists autonomous vehicles to communicate with both other vehicles and roadside infrastructure crucial to the success of autonomous vehicles. However, Xi Jinping and the CCP’s efforts to export this technology cause concerns related to the security of these networks. US policymakers fear the CCP could create a backdoor in the network to spy on corporations and foreign governments.

Huawei and SOE ZTE Go Global Leading to Retaliation by the US

Huawei and ZTE have invested heavily in 5G equipment in China and have also begun to export their 5G equipment. At the first Belt and Road Initiative Forum in May 2017, Xi Jinping proclaimed China would integrate big data into the BRI. The BRI consists of loans to developing countries in Asia, Europe, South America, and Africa.

By including the development of a 5G network in this plan, Xi Jinping intends to create “the digital Silk Road of the 21st Century.” Emphasizing 5G expansion has raised alarms in the US because ZTE is a State-Owned Enterprise (SOE) and there are suspicions Huawei is too close to the CCP. Ren Zhengfei categorically denies this assertion, but Huawei’s support for the CCP on projects such as the BRI raise serious questions about Ren’s denials of CCP interference.

Ren Zhengfei is notoriously private and has rarely spoken to the media since he founded the company back in 1987. Ren’s daughter and Huawei CFO, Meng Wanzhou was arrested in Canada in December 2018 on orders from President Trump. She was then extradited to the US on charges of bank and wire fraud in violation of America’s sanctions against Iran. Meng’s arrest came during trade negotiations between China and the US and was one of the reasons why the negotiations failed.

The US and China almost came to a trade agreement in April 2019. President Trump even started planning for a signing ceremony. However, there was less enthusiasm by China and they decided not to sign it.

Largely seen as retaliation for the failure to come to a deal with China, Trump signed an executive order the following month banning Huawei equipment in the US. This was followed almost immediately by numerous government agencies also banning Huawei products and services. These agencies have created export controls of equipment to Huawei for their products.

The decision by President Trump to arrest Meng Wanzhou and ban Huawei has led to widespread anger by the people in China. The US is seen as going after one of China’s greatest success stories. These actions recall the painful memories of China’s traumatic “Century of Humiliation” from the nineteenth century of a foreign country attacking Chinese companies unjustly.

Ren has downplayed questions of rivalry with the US. He said technology companies have a “peaceful competition.” This may be true for the companies themselves. However, these companies do not compete in a vacuum. Ren ignores Xi Jinping’s effort to transform the Chinese economy and the geo-political battle for technological and political supremacy between the US and China.

Like it or not, Ren’s calls for peace often fall on deaf ears in Washington, DC. President Trump does not see the competition as peaceful. He sees it as a challenge to the US’s global technological supremacy and leadership. This gives Xi Jinping the potential to advocate for standards that advance his interests over the interests of the US.

The US has not been able to offer a viable alternative for 5G technology. Large US carriers like Sprint and Verizon offer expanded 5G access to consumers. However, they lack the critical wireless infrastructure to access 5G network connections. The US needs to import this technology from Sweden’s Ericsson or Finland’s Nokia.

The US has a weakness and vulnerability for the infrastructure which allows for 5G networks. China has two companies, Huawei and ZTE, to provide 5G connections to support all of its new technology products, including autonomous vehicles. China’s weak semiconductor industry for fabricating critical computer microchips could slow Xi’s plans for the China Dream, especially if trade tensions with the US continue.

Cracks in China’s Armor: How Being Late in the Semiconductor Industry Could Slow China’s Autonomous Vehicle Industry

Chinese companies have made enormous progress in advancing new technological developments in recent years. According to the World Intellectual Property Organization, in 2019 Chinese companies narrowly beat companies from the US (58,990 to 57,830) in patent applications. This was the first time the US did not file the most patents since the figures were recorded in 1978.

This also represents a two-hundred-fold increase for China in the last twenty years. Elizabeth Economy argues most of the patents are just improvements on existing products and not brand-new products that change industries. However, this is an impressive milestone to celebrate for Chinese companies and for Xi’s Made in China 2025 program.

One flaw which could slow down China’s ability to continue on this breakneck pace is their weak semiconductor industry. This industry is responsible for producing high-quality microchips for computers and computerized technology. These microchips are a critical component for the automate driving systems for autonomous vehicles.

Semiconductors, and the machines fabricating microchips, represent some of the most complex technology in the world. Very few countries and companies have mastered this technology. This is because it requires a group of highly skilled, expensive staff with years of training to even design the machines required to fabricate the microchips. Autonomous vehicles in particular need extremely advanced and powerful microchips to produce the processing power necessary to drive a vehicle autonomously.

Because the microchip fabrication process is so complex, the supply chain for microchips is global. For the most difficult to fabricate microchips, like CPUs and GPUs, they may pass through three different companies in countries on three different continents to fabricate, test, and package them before they are ready. Therefore it is unlikely China will succeed in the next few years, or even the next ten years for CPUs and GPUs, in Xi’s desire to achieve technological self-sufficiency in this field.

I asked Michael Dunne about potential Chinese vulnerabilities in the semiconductor industry. He admitted, “China is vulnerable there for sure.” He continued by saying, “Both Nvidia and Qualcomm are deeply embedded in China already. If Chinese AV companies were to be cut off from chips and from that know-how, it would be a setback.” Even with China’s substantial increase in patents, this weakness has troubled the CCP and technology companies are trying to address it.

China has been desperately trying to address this issue. According to Taiwan’s Business Weekly, China has poached over three thousand Taiwanese semiconductor engineers by offering them exorbitant salaries. Taiwan is one of the world leaders in semiconductor technology. This hiring of Taiwanese experts represents approximately ten percent of all Taiwanese people engaged in semiconductor research and development.

Chinese semiconductor companies have also been sued for intellectual property theft. In one instance, US semiconductor company Micron sued Chinese SOE semiconductor company Fujian Jinhua for intellectual property theft. The US government barred Jinhua from buying vital tools and materials for fabricating microchips.

In a last-ditch effort, Jinhua offered to sell Micron the chip fabrication plant, or “fab.” One of the principle shareholders of Jinhua argued, “It should be a pretty attractive proposition for Micron, because they gain access to a brand-new fab without having to invest billions. It should be attractive for a lot of manufacturers for that matter.” This would not exactly make China less dependent on foreign manufacturers, but it would help it overcome potentially its greatest vulnerability in chip supply in the short term.

Both the US and China have weaknesses. These weaknesses could slow down, or potentially halt, their respective autonomous vehicle industries. The US may be in a better position to overcome its weakness in lacking 5G infrastructure by importing it from other countries. The US also has companies, such as Cisco, which make similar infrastructure projects and could be incentivized to start making infrastructure for 5G networks.

Xi Jinping has the right idea of investing billions of dollars to address China’s weak semiconductor industry but improving it will be very difficult. It is difficult to envision China being able to produce less complicated memory chips from its fabs in the next few years, let alone fabricating GPUs or CPUs for autonomous vehicles before the next ten years. China must rely on countries like the US for these chips.

I discussed that there is a misunderstanding and underestimating in the trade and security negotiations between the leaders of the US and China. However, there is also misunderstanding and underestimating between established companies in the US and Chinese technology companies. This leads companies in the US to fail in China because they do not understand that the consumer behavior, business tactics, and relationship with the government is completely different in China as opposed to the formula that they are used to in the US.

If you are interested in learning more about whether China will be able to overcome the challenges in its race with the US to develop and produce AVs, buy my book on the below link from Amazon! If you like the book, please rate and review it on Amazon!

Here is the Amazon link to buy The Future is Autonomous: https://www.amazon.com/Future-Autonomous.../dp/B08PVRL38J