"China's leadership in 5G Networks: Economic and Geopolitical Implications". An interview with Julen Berasaluce, a professor and researcher at the Economics Studies Center of El Colegio de México.

This is the translation to English of my interview with Julen Berasaluce, a professor and researcher at the Economics Studies Center of El Colegio de México, published by Comercio Exterior Magazine (Nueva época, Número 24, octubre - diciembre de 2020, pp. 18 - 21). 

CHINA’S LEADERSHIP IN 5G NETWORKS: ECONOMIC AND GEOPOLITICAL IMPLICATIONS

By César Guerrero

The technological revolution is under way and the world is watching, day after day, its capacity to deeply transform our daily lives. 5G networks make up the backbone of that technology’s most ambitious applications, and China is one of its leading developers. Julen Berasaluce, a doctor in economics from the Universitat Autònoma de Barcelona and a researcher at El Colegio de México, has carried out in-depth research into the economic and geopolitical implications of the technological predominance of 5G, and shares with us some of his most relevant findings.

Why are 5G networks at the center of the technological dispute between China and the United States?

5G networks imply infrastructure with a huge capacity to incorporate multiple connections and transmit large volumes of data with very little delay or latency. As well as knocking down barriers to economic competition, 5G will be a vital channel of circulation for the most relevant applications of the dawning digital revolution: the operation of autonomous vehicles, the Internet of Things and large-scale e-commerce, among other things. It is not surprising, therefore, that the hegemonic nations are seeking to remain at the cutting edge of this technology and to block the progress of other countries. Since 5G networks require high-frequency bandwidth, the range of their transmission towers is shorter than that of 4G networks, which will require large investments to develop the sufficiently dense infrastructure.

 

Does China’s apparent lagging in the production of advanced microprocessors compromise its leadership in 5G technology and artificial intelligence?

It’s a fact that right now China is behind in terms of very advanced microprocessors and if the US restricts its supply it could impede China’s development of that technology in the short term. However, we have to bear in mind that Chinese companies have developers who are on a par with those of the leading companies five or six years ago, and if we add to that their capacity to make new investments and the evident risk in which they find themselves, there is no question that they will have an enormous incentive to develop their own microprocessors. In the long-term I don’t see so many restrictions: China has strategic access to rare earth materials that are indispensable for the manufacturing of electronic equipment, to the extent that isolating it from the most advanced microprocessors would be counterproductive. It would therefore make sense to pursue the opposite strategy, to collaborate so that China does not develop them on its own.

 

What are the characteristics that define China’s industrial and innovation policy?

China is very aware that its road to world technological leadership by 2049, the year in which it will mark the centenary of the founding of the People’s Republic, is one that is moving forward in stages. The development that it plans in priority sectors, according to its plan “Made in China 2025,” takes in almost all areas of its economic activity: agriculture, railroad equipment, biotechnology, pharmaceuticals, among others. To that we must add its aim to substantially increase national added value in much of its manufacturing output, and in which technological leadership is key. China is aiming for the internally incorporated value of raw materials to be as much as 70% in 2025, and it has established specific goals for each of its components. Perhaps in some cases those goals will not be achieved by the date set, but China’s capacity for success should not be doubted.

What is the Digital Silk Road and how does it fit into the Belt and Road Initiative?

Following the 2008 financial crisis, a component of internationalization with its own characteristics emerged in China. The crisis of demand in the US, a market of reference in China’s growing industrial output and exports, and the awareness of the risk of tying its growth to that of the US, led China to explore new development alternatives. The multiple names of China’s plans are a reflection of its conceptual flexibility, which are not restricted to one vision. They therefore provide a conceptual framework that will later be complemented by specific goals. In the same way that there were already elements of internationalization in the continental territory and its maritime zones, known today as ‘belt’ and ‘road,’ aspects of the Digital Silk Road were already in development before it was given that name.

How is the Digital Silk Road articulated within the international collaboration policy of the Chinese government?

Digital is the essential complement of the belt and road plan, as the network is the natural space for the internationalization of economic activity in this new era. The Digital Silk Road is an illustrative example of the way in which China seeks to exercise its leadership. It does so in a flexible way and by obeying the natural and historical characteristics of each initiative. China invokes the Silk Road towards Southeast Asia and Central Asia, while in its approach to Mexico it invokes the Nao. In order to give strength to each of its initiatives it seeks a story that sustains them. If the counterpart does not want to sign a memorandum, China will adapt the instrument until it achieves its aim. As it goes out into the world, China has national interests that it does not hide, and making them obvious favors understanding between all sides.

Why is international collaboration indispensable and among the public and private sectors so that 5G technology can be fully rolled out?

With any technology it is necessary and beneficial to establish international standards that determine the framework of competition. It would not be optimal to be constantly changing the spectrum for current and potential development of 5G, and the spectrum should therefore be made available in a coordinated way. Each country has to draw up infrastructure development allowing for the 5G strategy to be rolled out across all of its territory and do so based on social criteria that guarantee equal access to this technology for all the population, both urban and rural. We should not see a public sector that is fearful of the benefits to businesses, there are technical aspects that are complex enough to boost collaboration among companies, regulators and legislators. Beyond selling spectrum to companies, governments should be collaborating with those companies regarding their feasibility and costs, and promote their democratization.

How is the Project for the Pakistan East Africa Cable Express (PEACE) qualitatively different from other Chinese fiber optic infrastructure?

This will be the first cable that will link up the overland and undersea routes of China with those of Africa and Europe. Geo-strategically speaking, this implies a new connection to the sea from its own territory, from Xinjiang to the Pakistani port of Gwadar. With that cable link-up, China will have an alternative route with a much more fluid maritime circulation. In that sense, the collaboration with Pakistan could help China to control possible adverse policies with the Uyghur ethnic minority in Xinjiang, who share the Islam religion with the Pakistanis. For Pakistan, a country with a large population and of much importance in the region, it represents the arrival of huge quantities of investment in infrastructure for land transport and the opportunity to diversify its technological connections. These are the elements that make this project qualitatively distinct.

What is the difference between Asia’s technological development plan and that of the West, and why is the Chinese model so relevant to developing countries?

Since the start of the Industrial Revolution there has been collaboration between the state and private companies to advance in the development of national productivity. But the West has perhaps abandoned a philosophical aspect that Asian countries have maintained: the perspective of the common benefit. There are technological developments that are not profitable, that require the disbursal of not insignificant public funds, such as the Maglev train that runs between Shanghai and its airport. Although they appear to be patriotic values that do not serve for much, they motivate a series of national efforts: the national pride of having a novel form of transport that serves the population. In China’s case, these symbolic, collective and philosophical elements are fed by technological development, favoring material improvements at both an individual and collective level. The big individual sacrifices do not lead to criticism of public actions because they materialize in community improvements.

How is the progress of fintech and e-commerce in China, and why is it important for developing countries such as Mexico?

One of the aspects that most surprises me about China is its global leadership in the use of electronic money: today it is common to buy candy from an itinerant vendor and pay with your cellphone. It was expected that the US, given the strength of its financial sector, would show clear leadership in this sphere, except that in the US there are big companies that also have big interests, and currently US banks are not so attracted to the small quantities provided by these transactions. Its advantages, on the contrary, are very relevant to Latin American countries. By having an electronic record of transactions, this technology also has the extraordinary capacity to fight informality and increase the country’s fiscal capacity, which are two fundamental economic problems in Mexico. A third one would be to fight financial crimes. Although formalizing the economy would affect many structural interests, this pandemic has shown that people’s habits are modifiable when they are obeying short-term interests. China offered gifts and implemented a regulatory system so that fees would be very low. As an Internet connection is required, and almost everybody has a mobile phone, this technology makes it more feasible to increase the penetration of banking than opening debit accounts for the majority of the population. If Mexico could achieve 70% of payments being made via cellphones, the debate about the state collecting very few taxes would be resolved to a great extent. With the massification of a viable technological tool that promotes formalization, Mexico’s economy could undergo a substantial change in just five years.

 Are the fears in the West of threats to security and privacy implied by the circulation of data via Chinese devices and networks well founded?

Asian societies have a different perspective than ours regarding the privacy of personal data. According to their criteria, it is very probable that their companies have shared more information with their governments compared to their European counterparts. But I do not see concrete elements that generate greater concern toward Chinese companies compared with US companies, a country which allows a greater commercialization of data than in Europe. Huawei is not the new kid on the block in telephone networks or its infrastructure, and until now has not been specifically singled out as Facebook, a US company, has been for the data it shared with Cambridge Analytica. Why all of a sudden is the focus of concern aimed at Huawei? That concern should be extended to all companies. To be honest, behind this discourse is a clear intention to limit technological competition.

Asia’s growing weight in the registration of patents and its technological leadership awakens in some a fear of geopolitical risks. Will rivalry outweigh competition?

The research behind many of those patents has a very clear component of international cooperation, for which I doubt that there will be a resurgence of a dispute between blocs as differentiated as during the Cold War. Countries and regions will compete for different areas of influence alongside that collaboration. Countries seek to exercise technological leadership through the numbers of patents because it is useful and productive for the material well-being of the population, not because it makes them stand out in the way an Olympic medal table would. In Asia there are countries that have this vision of the future and they clearly aim for technological development. We need to be attentive to their policies and to their outlook. I have the sensation that, in Western countries, our horizon is much more short-term, I don’t know if that is due to the mechanics of our electoral systems or due to the philosophical vision that I mentioned. The vision of Fukuyama of the end of the Cold War, according to which the Western worldview is the only one that prevails, does not appear to have real foundation. Asian countries are doing things better in some spheres. 

Irrespective of whether Asia has democracies, such as Japan, autocratic countries such as China, capitalist nations such as Singapore, or even closer to communism, such as Vietnam, their common philosophical roots possess a sense of collective citizen responsibility that has allowed them to handle the pandemic much better. In the West it has been difficult to combine the discourse of individual liberties with the citizen responsibility to use face masks. An effort for national or family pride are almost conservative references in the West, which has perhaps lost its own elements of civic responsibility. Without spurning the Western vision at all, which I consider to be highly valuable for humans in spheres such as individual liberties, we must be aware of their limitations and have the disposition to overcome them. That requires reflection.

Will globalization become segmented by blocs?

It is very difficult to mention an aspect in which there is not global integration, although the vision that we had of one globalized world does not exclude regional aspects that could perhaps gain more weight than in previous decades. We had lived in a more globalized world and then that aspect of regional conflict with their respective leaders re-emerged. But the current economic complexities have fomented international cooperation that will prevail because it is useful. The USSR and the US never achieved a degree of integration that is now being shown by the US and China. There will be cooperation and a globalized world along with visions from each bloc and areas of influence. China is becoming internationalized at the same time as the US is retracting. There are areas of opportunity in that differentiation. The new protagonists will prefer markets that are undergoing expansion over the more mature ones. It is no surprise that China is interested in positioning itself in areas that are less integrated in digital matters: it has made large-scale investments in Africa in the search for natural resources, and in some Latin American countries, particularly in Brazil and Argentina, areas with much more potential for development going forward, and with large populations. It will depend on those countries to take advantage of those opportunities for their own benefit./