In this hybrid seminar, Mr John Lee and Ms Asha Hemrajani provided a deep dive into the competition between US-China in the technology sector.
REGIONAL STRATEGIC AND POLITICAL STUDIES PROGRAMME HYBRID SEMINAR
23 January 2024, Tuesday – In a hybrid seminar held by the ISEAS – Yusof Ishak Institute, Mr John Lee and Ms Asha Hemrajani shed light on high technologies as an arena of U.S.-China strategic competition, Chinese efforts at technological upgrading, and Chinese tech companies’ inroads into Southeast Asia in the sectors of data centres, cloud services, artificial intelligence (AI) and electric vehicles (EV).
Mr Lee highlighted the macro-level dynamics within the global trading system, especially the U.S.’ recalibration of its approach to global trade, as exemplified in the Biden administration’s relinquishment of the Indo-Pacific Economic Framework (IPEF) trade pillar, U.S. shifting positions at e-commerce negotiations at the World Trade Organisation (WTO), and the recent political brouhaha over the purchase of a minor U.S. steel maker by a Japanese company. According to Mr Lee, such a shift in the U.S.’ trade approach can be ascribed to the imperative of reorienting global trade to align with its “perceived economic and national security interests”, evidently manifested through policy measures such as the Inflation Reduction Act and the CHIPS and Science Act. The U.S.’ declining influence in the global trading system contrasts with China’s commitment to trade and investment, which has undergone significant changes in recent years. Hitherto known for low value-added manufacturing and process trade catering to high-income markets, China now plays a central role as the world’s hub of advanced value-added manufacturing, a departure from the flying geese model or the globalisation model of the preceding decades. Analysing market exchange rates, Mr Lee identified that China’s manufacturing sector now surpasses the U.S. by 60 per cent, marking an unprecedented departure from the post-World War II era when the U.S. dominated global manufacturing. He described Chinese leaders’ goal to make the country a manufacturing powerhouse as “Leninist Germany” or “the Amazon of manufacturing”, wherein Chinese firms play a substantial role in the global production and supply chains.
Mr Lee delved into the automotive sector, particularly emphasising the imminent “tidal wave” of Chinese EVs onto the global stage. Projections indicate that by 2030, China is poised to commandeer 60 per cent of the global EV market. This prominent position in the automotive industry is not merely a result of the Chinese government’s consumer subsidies, but is rooted in China’s holistic approach spanning minerals, battery technology, manufacturing information and semiconductors. Giving the example of BYD Company, Mr Lee highlighted that China’s strategic advantage lies in vertical integration, facilitated by its inherent capacity throughout the supply chain to manufacture not just batteries or cooling systems, but also provide functions such as the design and fabrication of semiconductors, and the production of materials for microchips. This concentration of scale and capability within China poses a formidable challenge for other nations seeking to compete in the open market. Notably, China’s import substitution within the auto supply chain has also increased significantly in recent years, reflecting a shift from being a net importer to a net exporter of both EVs and traditional combustion engine vehicles. Mr Lee caveated that this transformation, coupled with a steep decline in net imports of vehicle components, signifies China’s growing self-reliance and ability to meet international quality standards. In view of China’s increasing presence, he noted that various countries in the region, such as Thailand, Indonesia, Malaysia, and Vietnam, are all “jumping on the Chinese bandwagon in the automotive sector”, in a bid to grab a share of the “supply chain pie”, and to integrate with the Chinese automakers for opportunities of joint Research and Development (R&D), setting up of Chinese factories in their countries, and use of Chinese suppliers in the supply chain.
Mr Lee underscored the evolving U.S. response to the U.S.-China technology competition, critiquing the “small yard, high fence” approach centred on military technologies and national security. He made the case that this strategy, previously focused on restricting China’s access to advanced semiconductor fabrication for military AI development, is now proving untenable as the landscape shifts towards economic security. This shift in the U.S. response is exemplified by the securitisation of the broader supply chain, with the U.S. Commerce Department surveying on companies sourcing for legacy chips to inform U.S. policy on how to promote a “level-playing field” for global chip production. The Chair of the House Select Committee on the Chinese Communist Party Mike Gallagher also echoes concerns about the economic security threat, prompting enquiries into the possibility of establishing “component tariffs”.
In her presentation, Ms Hemrajani highlighted the importance of digital transformation for ASEAN, as it unlocks new growth opportunities in the digital economy, is a catalyst for achieving regional integration within ASEAN, and enhances societal resilience in the face of future pandemics or natural disasters. Ms Hemrajani said that ASEAN’s collective digital economy size would increase from US$300 billion to 1 trillion by 2030. She also underscored the potential doubling of this figure to US$2 trillion if the proposed initiative of the Digital Economy Framework Agreement (DEFA) comes to fruition, due to its focus on digital trade, identification, and payments, all while prioritising cybersecurity and emerging technologies such as artificial intelligence.
Ms Hemrajani delved into the evolving competition between American and Chinese companies in the cloud computing sector. While American Cloud Service Providers (CSPs) such as Microsoft, Amazon Web Services (AWS) and Google Cloud Platform (GCP) currently dominate the market, Chinese players are rapidly gaining ground due to their cost-effectiveness. Chinese CSPs, notably Huawei Cloud, Tencent and Alibaba, are making significant inroads by investing heavily in the region and offering “aggressive price discounts”. She highlighted that the tech battleground in Southeast Asia, notably Indonesia, has been intense, driven by factors such as a large population, growing middle-class, tech-savvy youths, and vibrant e-commerce platforms. She said that Chinese CSPs have secured a bigger foothold in e-commerce and education domains due to their price-effectiveness; they also partially owned some of the largest e-commerce players in the region, such as Shoppe and Tokopedia. Ms Hemrajani, however, caveated that price is no longer the number one criterion for the public and critical infrastructure companies. Other factors, such as downtime guarantees and security, have become more important. She therefore strongly recommended that ASEAN prioritise these factors to bolster national security and data privacy, particularly in light of China’s legal frameworks that raise several concerns. For example, Articles 7 and 10 of China’s National Intelligence Law require potential data transfer by Chinese tech companies upon the Chinese government’s demand. Additionally, China’s Counter-Espionage Law, which prohibits the transfer of information related to national security without clear definitions, confers on the Chinese authority the broad powers to gain access to data and electronic equipment for the purpose of anti-espionage investigations.
Moving to the AI field, Ms Hemrajani first underscored its paramount significance with a warning against neglecting its implications. Describing it as the “next fire, next electricity, or the next steam engine of the fourth Industrial Revolution”, she said AI is simultaneously hailed as transformative and inherently risky. In terms of AI development, Ms Hemrajani identified that the U.S. is positioned ahead of China, attributing it to substantial investments in American cloud computing giants, such as Microsoft’s acquisition of ChatGPT. While Chinese CSPs like Tencent and Alibaba have also introduced analogous AI and language models, their performance relative to their U.S. counterparts is yet to be determined. She further raised the potential constraints on AI development in China due to internet restrictions and censorship, and the extent to which large language models in China can harness the wealth of internet information essential for optimal functionality. Amid this U.S.-China AI rivalry, Ms Hemrajani contended that ASEAN need not be “caught in the crossfire” between the two AI powerhouses because ASEAN itself possesses intrinsic strengths for AI advancement such as youthful and ambitious population, growing middle class, and technology innovation hubs in countries like Singapore, Vietnam, Thailand, and the Philippines. For example, Singapore holds the 14th position globally in AI contribution, and recently announced its ASEAN large language model generation. Gaming start-up VNG in Vietnam is planning to roll out a ChatGPT-like artificial intelligence service in Vietnamese. These examples underscore a growing trend where ASEAN member states emerge as significant contributors to AI.
Regarding the implications of the U.S.-China technological competition on the development and adoption of next-generation technologies in ASEAN, Ms Hemrajani emphasised the potential pitfalls of selecting technology vendors based on geopolitical considerations, and advocated for a thoughtful and strategic approach whereby ASEAN member states make decisions guided by three key angles: technology, business, and security. Discouraging the consideration of political gain or foreign aid as primary criteria, she suggests that the focus should be on specific project needs. As such, she emphasised that ASEAN countries must meticulously define their criteria for selecting their “vendors” of technologies, including price, national security, stability, sustainability, privacy of data, or advanced capabilities. These factors should be prioritised and ranked, with tendering processes and requirements designed to address them effectively, while steering clear of geopolitical influences.
The hybrid seminar was attended by an online audience of around 100 people, and a physical audience composed of analysts, media, and government officials. Among the inquiries addressed were the influence of major powers in shaping the rules and standards in the technological domain, the U.S.’ efforts to engage Australia, India, and other partners in Open Radio Access Network (ORAN) investments, potential collaborative efforts between rival powers in addressing concerns arising from AI, the infancy of international laws in the technological domain and their impact on future market scenarios, and the potential bifurcation of tech ecosystems.