US Focus on Blocking China’s 5G Technology Misses Bigger Risk

Source:scmp.com

China’s Great Firewall, erected over the past 15 years to restrict domestic access to the internet, may be a bigger problem than concerns over the spread of China’s 5G technology, according to a US venture capital investor.

Fears that networking equipment manufactured by China’s national champion Huawei Technologies could offer Beijing a back door to spy on computer networks may not be as big a deal as China’s Great Firewall effectively dictating how devices connected via this new technology will be manufactured, said the investor.

“By having a bifurcated internet, it has created a very effective trade barrier for hardware. Everything that is being manufactured has to be for the China market and then the rest of the world market,” Sean O’Sullivan, founder of the US$650 million venture capital firm SOSV, said on the sidelines of the 2019 China Institute Executive Summit in New York.

“The Great Firewall used to be just for software. Now the Great Firewall applies to all manufactured things just because the connectivity of manufactured things is being built into everything,” he said in an interview with the South China Morning Post on Thursday.

In China’s case, the creation of the firewall means they have been rebuilding the internet in their own image for quite some time, O’Sullivan said, and whatever Washington is doing to forcefully stop Huawei on 5G will be overshadowed.

O’Sullivan, a long-time investor in Chinese technology companies, has not been deterred by the spat between China and the US. He said Beijing’s support in the last three years for domestic start-up companies had resulted in some miserable failures because of “unskilled” VC funds. He said he had recently allocated 300 million yuan to scoop up assets that had fallen from “artificially inflated valuations”.

The US contends that back doors could be built into Huawei gear that could facilitate Chinese intelligence efforts, a claim that the company has vehemently and repeatedly denied.

The US stance has split many of its European allies. The UK’s foreign intelligence chief has said that an outright Huawei ban may be excessive while Italy’s deputy prime minister said that his country’s intelligence has no security concerns about the Chinese company. Germany’s economy minister Peter Altmaier has said that any restrictions cannot involve targeting specific companies but will have to involve security standards for all potential service providers.

While China has its 5G champion in Huawei, Finland has Nokia and Sweden has Ericsson. The US however, currently has no hardware maker ready to come to market with scale and depth.

Fifth-generation wireless networks are expected to revolutionise everything from the internet of things to autonomous driving, smart cities and virtual reality, with billions of dollars of economic benefit set to accrue to countries that are able to keep up with the technology.

The development and dominance of 5G technology has become a matter of economic and national security given that the data transfer speeds can be up to 100 times faster than those currently available, with ultra-low latency, meaning near instantaneous response.

The importance of 5G was highlighted by its inclusion in the December 2017 US National Security Strategy outlined by the Trump Administration.

“I think, as far as I know, [this was] the first time a telecom technology has been mentioned in the thing,” Adam Segal, Director of Digital and Cyberspace Policy Program at the Council on Foreign Relations told the Post ahead of the summit.

“I think we are moving towards a world where we will have systems that are separated. I don’t know how compatible they will be. We may end up in a world where 5G is the undergrid and we have services that are on top of it. Some of it may be incompatible,” Segal said.

While the US and China have clashed over who will dominate 5G technology in the short-term, the longer-term impact will be felt in third countries, those forced to choose between two competing systems of infrastructure equipment makers.

“The issue will not be so much China/US because those systems are already beginning to pull apart and separate, creating these security barriers. I think the issue is going to be more the developing third party economies,” said Segal. “They are being told to make a choice now and they don’t want to do that. They won’t or they will try to continue to play off both or they will choose China because it is cheaper.”

Analysts at Eurasia Group have said there could be some compatibility issues as a result of the division.

“There could even be some limited interoperability issues – for example, around low- vs high-frequency bands if the US and China push ahead with separate (radio) spectrum strategies,” they wrote in a November white paper.