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Be ready: China and the East to dominate technological development

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Chinese President Xi Jinping, Mongolian President Khaltmaagiin Battulga and President Vladimir Putin (image via President of Russia)

The Huawei boycott has wider implications for the political and economic order of the world, writes Paul Budde.

IN OUR globalised economy, it is important that we do establish levels of fair trade and the U.S. is right in addressing that issue.

However, making technology a key element of the trade war will backfire.

Let’s take (again) the Huawei issue as an example. The company has admitted that the U.S/ boycott is hitting them severely with an estimated loss of $30 billion in revenues. One of the other elements of the trade boycott is that Google is no longer allowed to provide its Android operating system (OS) to Huawei. With the enormous popularity of Google, this is a major setback.

The question, however, is who will be the longer-term winners and losers?

Many companies – but technology companies in particular – depend on global markets. There is little economic and population growth in the developed countries but there is enormous growth in Asia, Africa and to a lesser extent, South America.

The current spread of the world population is as follows: North and South America house one billion, Europe one billion, Africa one billion and Asia has four billion.

By the year 2100, the spread of the world population is estimated by the UN to be as follows: the Americas with one billion, Europe also with a billion, four billion in Africa and Asia growing to five billion.

If we link population numbers to political and economic developments, it is clear where the global power will move to between now and then.

These new emerging economies are no longer following the neoliberal capitalistic model of the West. Instead, they look more to China. This "China" model is based on mixed capitalism, with governments playing an active role in the economy by supporting champion companies and actively steering investment in strategic sectors. The political systems here are more of a mixture of emerging democracies and technocracies.

Looking at the global population, more people are now living in Asian-style economic and political systems than in Western systems.

The current technology boycott will now mean that China will have to develop their own alternatives for those technologies that so far were available from the U.S., but which are now blacklisted.

With or without trade bans, technology developments in Asia are continuing at great speeds and we see that Asia (read China) is rapidly taking over international leadership in artificial intelligence, electric vehicles, 5G internet, renewable energy systems, smart cities and mobile finance.

While the U.S. is retreating from international cooperation and intends to become even more isolated, Asia is forging more and more international business relationships. China – including its Government – is heavily investing in the research and development (R&D) behind these new technologies. In the West, investments in R&D have dwindled. It's nono wonder that not only manufacturing but also innovation is shifting to the East.

The boycott will only force China to further step up its own R&D which will lead to a further increase of Asian leadership in IT. This will most certainly lead to further growth of its market share in IT, especially in the developing economies. 

Even if the boycott is lifted, China will no longer want to rely on American technology. This is a lightbulb moment for China and will only further propel Huawei – and other Chinese companies – in the lead as the West doesn’t have the political and economic systems in place to counteract Chinese hegemony in IT.

Without access to the latest innovations and developments in IT, this could have very severe consequences for economies in the West — which increasingly relies on modern technologies. The end result of the boycott will be an even more significant reliance from the West on China.

It is crystal clear that longer term the boycott will be more detrimental to the West than to China. While the U.S. and Australia are boycotting Huawei, the Chinese Government simply sped up its own 5G licencing process so the company can compensate for a loss of business is from those countries through growth in their domestic market. On top of that, Russia also came with a massive order for the embattled company.

Huawei’s forecast for the next year will now be flat and is hurting but it still stands at $100 billion. The company is now – together with other companies in Asia – developing their own technologies including their own OS in order to no longer needing to be depending on U.S. technologies. Huawei alone has 80,000 people working in R&D. It's true that China’s new push might have little effect on the global market in the short term.

However, the need for China to now develop and manufacture more and more IT, plus the sheer economic power of the country and the support it will get from its Government will create a serious increase in fierce new competition for the West. 

Looking at the numbers upon which markets are growing and the fact that China is economically becoming more successful in these developing economies than the West, it is not difficult to predict that this will seriously undermine the scale and influence of the international operations of the IT companies in the West.

Under its neoliberal capitalistic structure, many manufacturing sectors have moved away from the West. Trying to now rebuild those lost industries – as Malcolm Turnbull recently suggested for the telecoms industry – will be nearly impossible within the current neoliberal structures in the West.

If the West wants to stay relevant in the technology sphere, there is no other option than to go back to the international collaboration models we have so successfully built up over the last few decades.

The boycott also has absolutely nothing to do with security, to be sure. If we want to address this, we will need to make the underlying internet infrastructure more secure and this again will require international collaboration.

Paul Budde is managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.

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