The 5G War Heats Up: Will the US or China End Up Wining the Technological War?

The 5G War Heats Up: Will the US or China End Up Wining the Technological War?

Brett King 18/08/2021
The 5G War Heats Up: Will the US or China End Up Wining the Technological War?

The War on Huawei and 5G is really about 21st century economic relevance.

5G is the term given to 5th generation technology used on broadband cellular networks. By 2025, it is estimated that close to 2 Billion subscribers (roughly 20–25% of the global population) will be using 5G connections for watching streaming video, playing and downloading video games, and making phone calls, etc. But this is just a small part of the intended usage of the 5G spectrum.

Next-generation cloud and edge computing infrastructure, IoT devices, autonomous vehicles, robot delivery vehicles, and such all will rely on 5G technology. By 2025, more than 24 billion IoT devices are expected to be connected wirelessly to cellular networks. GSMA intelligence said that while the first half of 2020 saw some pandemic-led slowdown in new 5G launches, the industry has since recovered and is forecasting at least $890 billion spend on 5G networks over the next five years alone.

Over the last 5 years, we’ve seen the US government and media turn on players like Huawei, supposedly over fraud accusations and national security threats, but the truth, it appears, is quite a bit simpler, and it speaks to the very heart of capabilities nationally in respect to infrastructure and innovation.

China’s Technological and Economic Edge

Economies of the 21st century will need to be Knowledge-Innovation-Communication (KIC) based — see our new book The Rise of Technosocialism (Global release date Oct 21st, 2021)

That means that technology capability will dominate the industries, markets, and economies of the 21st century more than any other element of growth and competitiveness. Based on these criteria, China is clearly going to be a strong global competitor against US innovation and commerce.

China already has the largest single consumer market, which means it is starting to look a great deal like the post-World War II US economy in terms of broad, grass-roots growth levers. China has significant innovation advantages over the US economy of 70 years ago, and they are clearly investing at much higher levels in 21st century infrastructure and skillsets that will keep their economy relevant.

Infrastructure

Today, China has invested around $3.5 trillion across 2,881 projects in 70 countries spanning the globe [1]. By the completion of the One Belt One Road (OBOR) initiative in 2050, it is estimated China will have spent something in the order of $8 trillion. It has been billed as the largest and most ambitious infrastructure mega-project of the modern era. Once completed, it will stretch from East Asia to East Africa and Central Europe. China’s annual spend in infrastructure is 3.5x that of the United States, including in technologies like 5G.

Artificial Intelligence and R&D spend

“The rapid development of artificial intelligence will profoundly change human social life and the world. To seize the major strategic opportunities for the development of artificial intelligence, build China’s first-mover advantage in artificial intelligence development, accelerate the construction of innovative countries and the world’s science and technology power, this plan is enacted in accordance with the requirements of the CPC Central Committee and State Council.”
— Notice of the State Council Issuing the New Generation of Artificial Intelligence Development Plan, 8 July 2017, China

The US military estimated that China’s spending on AI grew to at least $70 billion in 2020. In contrast, the Pentagon had plans to invest about $4 billion in AI and machine-learning research and development in 2020. China has 730 million internet users, more than twice that of the United States.

In 1999, the World Intellectual Property Organization (WIPO) received just 276 patent applications from China; in 2019 that had exploded to 58,990 patents. The US recorded 57,840 patents in that same year, with Japan coming in third at 52,660 patents. Huawei filed 4,411 of these patents alone.

China has rapidly developed broad AI capabilities throughout China, surpassing the US’ national capabilities in respect to everyday AI use. China has more than twice the graduate students in STEM disciplines when compared with the US.

Chinas_focus_on_AI_is_broad_with_more_national_investment_than_the_US.png

 

The US Response

The trade war initiated by the Trump Administration against China was just one of many steps taken over the last few years in response to China’s growing technical competency. In the US press, you’ll regularly find opinion pieces about China’s counterfeiting practices or them stealing ideas from US corporations. However, today China has long surpassed the US in everything from smartphone production, renewable energy deployment, image and facial recognition technologymobile paymentsAI-based language translation, to the use of electric vehicles.

When it comes to 5G in particular though, China’s growing dominance caught the attention of US policymakers on both sides of the aisle by the middle of the last decade.

The emerging threat to US competitiveness

In January of 2018, the National Security Council (NSC) released documents to a White House working group to float the idea of a national 5G infrastructure plan. The NSC documents entitled, “Secure 5G: The Eisenhower National Highway System for the Information Age” describe a world where China dominates 5G capability. In the document, the NSC outlines the threat of Chinese 5G as follows:

China sets aside 70 percent of its mobile infrastructure market for Huawei and ZTE…Huawei as gone from a market share in the radio infrastructure of roughly 11 percent in 2011 to a share equal to or greater than Ericsson and Nokia, the two largest western mobile infrastructure suppliers. Similarly, in routing, Huawei more than doubled its market share in an 18-month period, and in several areas has surpassed market leader Cisco.
National Security Council assessment on Huawei’s 5G capability

By the end of Q1, 2021, China had already deployed 820,000 5G base stations, with plans to deploy 600,000 total base stations in 2021 alone. In contrast, the US had only deployed some 10,000 5G base stations by April 2020. If the US wants to dominate 5G-related industries and technology, they seem to be going about it the wrong way.

US 5G Spectrum Restrictions

The biggest problem for the US is that the low-frequency spectrum used for 5G across the rest of the world, is currently owned by the US government (read DoD) and isn’t available for commercial use. There’s also real debate over whether the US could sustain the investment required in 5G infrastructure that would be needed to match China.

Despite the sub-6-GHz setup’s advantages, U.S. telecoms and the U.S. Federal Communications Commission (FCC) still seem to favor the mmWave approach. That’s largely because the U.S. government owns large chunks of the sub-6 spectrum and restricts commercial use of those bands. And it’s currently unclear whether the U.S. government will be willing to share or auction off even a sliver of it.
How the U.S. Can Prepare to Live in China’s 5G World, IEEE Spectrum, 23 April 2019

The ownership of the global 5G spectrum by the DoD has forced US mobile operators into using a higher-frequency bandwidth (mmWave 30–300GHz) which performs poorly in comparison to the 3–4 GHz bands used elsewhere, particularly in respect to latency and coverage over larger distances. The global low-frequency spectrum in the US may be opened up in 2024, but even then there is a question as to whether the US will want to embrace the global standard tied to China manufacturers like Huawei, due to national security concerns.

What’s all the fuss about spectrum and bandwidth? The mmWave coverage would likely provide edge speeds of 100 megabits per second to less than 12 percent of the U.S. population, whereas the sub-6 approach would deliver 100-Mb/s transmission speeds to more than 57 percent of the population.

Despite messaging from various marketing initiatives in the United States, very little U.S. territory has seen deployment of 5G infrastructure that can deliver 1 Gbps or even 100 megabit per second service at the edges of coverage. Whereas LTE deployment resulted in 10x end user speed improvement across large parts of the United States, carriers to date have not demonstrated deployment capability that would deliver high speeds to large parts of the U.S. population.
Pentagon Advisory Board report calling out “5G” announcements from US carriers

When it comes to 5G, the US doesn’t really have low latency, high bandwidth, wide coverage capability as defined by the rest of the world, who already relies on the likes of Huawei tech. It’s hard to fight for global dominance when the US hasn’t even adopted the broader 5G spectrum standard. Thus, it’s no surprise that when the US concluded it was unrealistic for them to expect they could compete with China in terms of 5G infrastructure, that they decided to take another route.

The War on Huawei 5G

Starting in 2018, the Trump administration launched a broad series of attacks against Huawei. In December of 2018, Huawei CFO, Meng Wangzhou, was arrested at Vancouver airport based on a US extradition request. In May of 2019, the US announced an “Entity List” based on an Executive Order (EO) issued by President Trump citing “the risk of sabotage to communications, general national security risks, and the risk to critical infrastructure and the digital economy”. Immediately after the issuance of the EO, the US Commerce Department added Huawei to this so-called Entity List, effectively banning all Huawei products for use in the US. There remains very real issues about the US legal position against Meng, including allegations of ‘outright false claims’.

Realistically, the claims of fraud leveled against Meng don’t exactly lend support the broader US position that Huawei is a national security risk. But it does speak to the broader intent of the US simply to attack Huawei as often and as broadly as possible because of their technology leadership.

Washington has pressured allies, including the UK, not to use Huawei equipment in new 5G telecoms networks amid claims that it could pose a security risk, an allegation strongly denied by the company.
HSBC documents revealed in Huawei extradition battle, BBC News, 30 June 2021

Given reports from the NSC, Eurasia Group Whitepaper (“The Geopolitics of 5G”), Defense Innovation Group (“The 5G ecosystem: Risks & Opportunities for DoD”), and so forth, the timing of action against Huawei must be seen as a simple response to the clarity around the dominance of 5G infrastructure globally. And more broadly the likely impact of such on the US economy as respects competitiveness. It also speaks to China’s broader technical capabilities in respect to Artificial Intelligence, Edge Computing, and Robotics which rely on 5G infrastructure for deployment.

In all, the threat from Huawei was a very real technology threat, that translated to a national security threat to the US only because it remains years behind China in this key arena. Instead of investing in 5G capabilities that would bring western technology players up to the levels of Huawei’s capability globally, the decision was instead made to attempt to slow Huawei and China’s progress. To some extent it worked.

US trade “bans” against Huawei had a tangible effect on the company’s smartphone sales even in China. Huawei’s China market share dropped to 16 percent in January 2021, down from 41 percent in the first quarter of 2020[2]. However, Huawei still posted record profits in 2020 despite a slowdown in growth as a result of both the pandemic and the US administration’s hardline trade position. And let’s not forget the US/China trade war initiated by the Trump administration.

September 2019 study by Moody’s Analytics found that the trade war had already cost the U.S. economy nearly 300,000 jobs and an estimated 0.3% of real GDP. Other studies put the cost to U.S. GDP at about 0.7%. A 2019 report from Bloomberg Economics estimated that the trade war would cost the U.S. economy $316 billion by the end of 2020, while more recent research from the Federal Reserve Bank of New York and Columbia University found that U.S. companies lost at least $1.7 trillion in the price of their stocks as a result of U.S. tariffs imposed on imports from China. The US’ position that China is the enemy appears to be damaging the US and China equally, rather than restoring any national advantage the US has lost as China’s R&D and innovation capabilities grow.

China is set to overtake the US economy as the largest economy globally somewhere between 2028–2032. The COVID-19 pandemic appears to have accelerated the likelihood of that. China’s core economic engine has already shifted to one based on 21st century competencies and capabilities. While the US boasts some of the world’s biggest technology companies, the grassroots infrastructure required to support a KIC economy of the 21st is yet many years away, with infrastructure spending and STEM investment flagging China by magnitudes.

Ultimately, 5G dominance is just one small part of the battle we’re going to see play out over the next decade or so as the United States comes to grip with China’s growing technical and innovative dominance in areas like communications and artificial intelligence. While the US may slow China’s technical dominance for a time, the US’ own experiences during the industrial revolution and after the second world war, show that slowing China’s progress is the best they could hope for.

[1] Source: Refinitiv, “Bridging the global infrastructure investment gap requires better data”, Sherry Madera, Jan 2020

[2] The sale of Huawei’s “Honor” brand was part of the reason for this decline in market share — see Engadget

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Brett King

FinTech Expert

Brett King is a futurist, best selling author, award winning speaker and host of a globally recognized radio show. He is also co-founder and CEO of Moven, a New York-based $200m mobile banking startup with over a million users. He is widely regarded as one of the top 5 global influencers in financial services, and his book Augmented was cited by China's President Xi Jinping as recommended reading on artificial intelligence. He advised the Obama administration on the Future of Banking, and has spoken on the future in 50 countries in the last 3 years. Brett focuses on how technology is disrupting business, changing behaviour and influencing society. He has fronted TED conferences, given opening keynotes for Wired, Singularity University’s Exponential Finance, The Economist, SIBOS and many more. He appears as a commentator on CNBC and has appeared regularly on the likes of BBC, ABC, FOX, Bloomberg and more. His radio show, Breaking Banks, began in May 2013. It was the first global show and podcast on FinTech, and has grown to be the most popular with an audience in 140 countries/ 3.6 million listeners.

   

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