In the growing animosity between the two sides in the last decade, the Americans have shifted their attention towards the South China Sea. They have increased their physical presence, built new capabilities and forged alliances in the Indian and Pacific Ocean regions. The Chinese, on the other hand, chose to move over land through their Belt and Road Initiative (BRI), popularly known as CPEC in Pakistan, for circumnavigating the US and its allies.
The Ladakh incursion by the Chinese in 2020 was thus a gambit in and beyond the political calculus of South Asia. With this, the Chinese physically stepped into the historic Kashmir dispute. This happened at a time when we were faltering to create a semblance of support for the Kashmir cause in the face of the growing India-US partnership and India’s repeal of Article 370. Maybe this is how the Kashmir dispute will diplomatically simmer in the coming years, and Pakistan will remain deeply embedded in the Chinese camp.
This great game is also about global technological leadership. Last year, the US imposed controls on Chinese access to advanced semiconductor manufacturing equipment. It is not the first time that the US has used digital technology sanctions on leading Chinese firms. US sanctions in 2019 led Google to cut off all future Huawei smartphones from the Android ecosystem. This effectively turned Huawei from an aspiring leader of the smartphone market with an 18% share in the global smartphone market to a meager 2% share in 2021. Similarly, US sanctions on ZTE curtailed its ability to do business elsewhere, including in Pakistan. Today, these and several other Chinese companies are either banned or profiled as ‘High-Risk Suppliers’ in western markets.
The fall of Taiwan can give the Chinese access to technology that the US and its allies are currently trying to deny them.
At the foremost, these sanctions are meant to retain US and western technology supremacy in quantum computing, 5G networks, Big Data and the AI domains, and also cripple current and future Chinese ability to compete with the west. Today, China practically faces a universal ban with Japan, South Korea, Taiwan and Netherlands, all producers of high-performance chips and associated equipment enforcing US sanctions. Some consider these sanctions to be too little, too late. But this is something only time will tell!
The consequences of these controls are also reverberating from rare earth mineral mining to geopolitical disputes. Chinese response to these sanctions has two distinct parts. It placed restrictions on the export of precious minerals such as germanium and gallium that are critical in production of high-performance semiconductors. Currently, China produces 60% of germanium and 80% of gallium of the total annual global outputs.
The second part of the Chinese response has been increasing reliance on domestically produced semiconductor chips, operating systems, and advancements in manufacturing equipment for high performance semiconductors. They seem to have been anticipating this conflict for some time and had already commissioned a national technology vision under the banner of ‘Made in China 2025.’
In this context, the dispute across the Taiwan Strait has more to it than geopolitics and history. Taiwan produces over 90% of the global high performance semiconductor chips, and meets the majority of the west’s chip demand. It previously also met 30% of the annual Chinese demand for semiconductors before these sanctions.
The fall of Taiwan can give the Chinese access to technology that the US and its allies are currently trying to deny them. Similarly, the fall of Ukraine to Russia is not an option for Western policy planners from a technology perspective. The country provides 50% of the annual global supply of neon gas, another critical component in advanced semiconductor manufacturing.
Modern day advanced semiconductor production is a complex affair, involving up to 500 different machines and around a thousand steps. The most expensive of these can cost around $300 million apiece. The Chinese responses are thus, an ideal response for a nation with an annual semiconductor acquisition bill of over $400 billion, has its own deep pockets, industrial base and trained workforce.
Similar indigenization efforts are also taking place in EU and US, where they have budgeted around a combined $100 billion for developing their respective domestic infrastructures. Chinese allocations on the other hand are around $146 billion, and dwarf those in Europe and US. This is the extent and seriousness of the situation in the push for protecting semiconductor supply chains from hostile countries and geopolitical disputes. This is necessary, since hundreds of chips are required in our individual lives, from PS5 consoles, to our fancy cars, home appliances and smart phones. Nearly every device and appliance we interact with is powered by a semiconductor.
This great game is also about global technological leadership.
In Pakistan, we are deeply invested into Chinese technology products. Chinese companies are major local players with deep access in the telecom, law enforcement, space, defense, higher education sectors, besides flooding our market with numerous home appliances and other products. Pakistan also has an overland Internet cable connecting it with China, funded and set up by Chinese banks and vendors, respectively.
This unprecedented access has grown under the overhang of political sweet talk of a relationship with oxymoronic overtones of being both deeper than the deepest ocean and higher than the highest mountain. It also encompasses CPEC investments, and a multidimensional strategic and military relationship. Then, there is also the promise of low-rate Chinese financing for setting up new projects with the attached strings of using only Chinese equipment or Chinese sourced equipment.
Western concerns over Chinese companies are primarily centered on both allegations and proven cases of IP theft and commercial espionage. Secondly, there is a plethora of issues, from freedom of speech to data protection, intrusive intelligence capabilities and their deployment against their own people. The West regularly prioritizes these goals in political, diplomatic, digital and technology policy discussions. These recent global developments in the context of our domestic situation pose a few challenges for us.
Commercial Chinese hardware and software solutions will need more time to catch up with their western counterparts in terms of their competitiveness. But it is also a never-ending race that they usually win through cut-pricing in upfront costs. Furthermore, there is always a need for closer inspection of the contractual fine print when dealing with these vendors, both with and without financing. There are actually many lessons to be learnt from various local deployments.
In Pakistan, we are deeply invested into Chinese technology products. Chinese companies are major local players with deep access in the telecom, law enforcement, space, defense, higher education sectors, besides flooding our market with numerous home appliances and other products.
We also have an India problem, and a population problem at home. Keeping pace with regional and global developments in AI, IoT etc. and creating sufficient local opportunities may be undermined in the future if our principal technology suppliers are either globally sanctioned, or are unable to source competitive equipment for us. In this regard, our invitation for foreign investments under the SIFC umbrella may be a litmus test of investor confidence in a market tightly controlled by Chinese vendors.
Furthermore, we need to come clean on key issues like data protection, and the political use of the state’s intrusive abilities. Our dependency on the IMF and trading ties with the West will depend on significant progress in these domains, since digital policy is fast becoming a foreign policy objective. Furthermore, a clear position will be essential in becoming an effective participant in the global conversation on digital policy, AI regulation etc. led by the United Nations.
Lastly, the deep penetration of Chinese vendors in different sectors of our economy is worrying in the foreground of allegations of commercial theft and industrial espionage. Today, they have already provided network equipment and data centers to a vast range of organizations, ranging from defense to higher education. These have been in the form of both loans and gifts. Behind the great wall of language and technical capability of our iron-brother, we do not know how the Chinese determine the value and use of their frequent and easy loans and equipment to us. Similarly, do we know whether they have access to our data and how they use it? It will be surprising if they don’t! It is only logical to access it for both scientific and machine learning and, for keeping taps on an important ally.
Thus, it is prudent for us to develop a national guideline on hardware and software acquisitions, besides statutory safeguards on data and other soft and hard safety nets around our digital infrastructure. These are essential for protecting us against a risk of technology driven keeling of a sovereign foreign policy, commercial interests or strategic objectives beyond this decade or two. The main concern here is not with the Chinese or another nation, but a case for developing our own capabilities in protecting our own sovereign interests and our markets.
In our case, the Chinese have mostly chosen to provide us the fish instead of teaching us how to fish. Or maybe we were only keen on getting the fish! We have been a frontier state in the US-China Great Game for many years now. We are already feeling the pressure of being on the commercial and economic faultlines between these superpowers.
Our diplomatic situation today appears to be a poor balancing act, created through either indecisiveness or inability of our political masters to choose between one of the two. This diplomatic balancing is not aligned with our domestic technology ecosystem today. Thus, playing both sides cannot happen forever.
We have a rather simple political choice waiting for us today: either choose a side in the Great Game or try creating a balance in technology acquisitions and development.