Mapping China’s Technology Giants Reining in China’s technology giants Fergus Ryan, Audrey Fritz and Daria Impiombato S OF AS AR PI E S Y T Y R T A T N E E G Y W T Issues paper 2 0 1 01 - 20 2 Report No. 46/2021 About the authors Fergus Ryan is an analyst with ASPI’s International Cyber Policy Centre. Audrey Fritz is a researcher with ASPI’s International Cyber Policy Centre. Daria Impiombato is a researcher with ASPI’s International Cyber Policy Centre Acknowledgements Thank you to Danielle Cave, Cheryl Yu and Elena Yi-Ching Ho for all of their work on this project. We would like to also thank our external peer reviewers, Elliott Zaagman and Peter Cai. We’re also grateful for the valuable comments and assistance provided by Michael Shoebridge and Fergus Hanson. This research report forms part of Mapping China’s Technology Giants, a multi-year project mapping and analysing the overseas expansion of key Chinese technology companies. This project seeks to: (1) Analyse the global expansion of a key sample of China’s tech giants by mapping their major points of overseas presence, and (2) Provide the public with analysis of the governance structures and party-state politics in which these companies have emerged, and are deeply entwined. The Mapping China’s Technology Giants project is produced by researchers at ASPI’s International Cyber Policy Centre. The re-launch of this project, and associated research, was funded with a US$270,000 grant from the US State Department. What is ASPI? The Australian Strategic Policy Institute was formed in 2001 as an independent, non-partisan think tank. Its core aim is to provide the Australian Government with fresh ideas on Australia’s defence, security and strategic policy choices. ASPI is responsible for informing the public on a range of strategic issues, generating new thinking for government and harnessing strategic thinking internationally. 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ISSN 2209-9689 (online), ISSN 2209-9670 (print). Cover image: ASPI ICPC, Nathan Attrill Funding for this report was provided by the US State Department. Mapping China’s Technology Giants Reining in China’s technology giants Fergus Ryan, Audrey Fritz and Daria Impiombato Issues paper Report No. 46/2021 Contents 1. Introduction 03 2. Covid-19 05 3. US–China tech tensions 10 3.1 The ZTE case 12 3.2 Huawei’s global struggles 12 3.3 Sanctions for all 15 4. Localising supply chains: from a ‘choke point’ to ‘dual circulation’ 18 4.1 Mobilising the tech industry 18 4.2 All about the chips 19 4.3 Dual circulation 20 5. Reining in the tech giants: tougher regulation at home 21 6. Conclusion 23 Appendix 1: Timeline of US entity listings and other measures 24 Acronyms and abbreviations 26 Notes 26 02 Policy Brief: Supply chains and the global data collection ecosystem 1. Introduction Since the launch of ASPI ICPC’s Mapping China’s Technology Giants project in April 2019, the Chinese technology companies we canvassed have gone through a tumultuous period. While most were buoyed by the global Covid-19 pandemic, which stimulated demand for technology services around the world, many were buffeted by an unprecedented onslaught of sanctions from abroad, before being engulfed in a regulatory storm at home. The environment in which the Chinese tech companies are operating has changed radically, as the pandemic sensitised multiple governments, multilateral groups and companies to their own critical supply-chain vulnerabilities. The lessons about national resilience learned from the pandemic are now being applied in many sectors, including the technology sector, where a trend towards decoupling China and the West was already well underway. As the geopolitical rivalry between the US and China has heightened, both sides increasingly see any reliance on the other for strategic commodities, such as rare-earth minerals and semiconductors, as dangerous vulnerabilities. Supply-chain vulnerability has ignited work in Europe, North America and other regions to reduce dependence on China. Telecommunications companies such as Huawei and ZTE that are deemed ‘high risk’ by multiple countries are increasingly finding themselves locked out of developed markets. Amid the trade war between the US and China, which began in 2018, the Trump administration unleashed a relentless series of actions targeting Chinese companies in an effort to slow their advance. That onslaught has further convinced China’s leadership to redouble its efforts to dominate the commanding heights of technology as a source of strategic and economic power. Among the measures meted out by the Trump administration were limits on investment by Chinese technology companies,1 blocks on the operations of Huawei and other Chinese telecom companies in the US,2 pressure on other countries to block Huawei’s operations,3 new export control regulations,4 tariffs on products benefiting from Beijing’s ‘Made in China 2025’ program5 and an attempt to ban ByteDance’s TikTok and Tencent’s WeChat apps.6 The effects of the actions have been uneven— dealing a major blow to Huawei, for example, while barely touching the major Chinese internet firms’ businesses. For China’s leadership, the twin crises of the Covid-19 pandemic and the growing China–US strategic and technological competition highlighted the country’s need to achieve its long-held goal of ‘technological self-reliance’.7 The US’s ability to cut off China’s technology companies’ access to semiconductors, in particular, is seen by leaders from Xi Jinping down as an unacceptable ‘choke point’ holding back China’s progress.8 The 14th Five-Year Plan, unveiled in March 2021, reflected the Chinese Communist Party’s (CCP) sense of urgency. For the first time, it described technological innovation as a matter of national security, not just economic development.9 The now 27 Chinese technology firms that we cover on our Mapping China’s Technology Giants project (‘our map’) span sectors including biotechnology, surveillance, artificial intelligence (AI), e-commerce, finance, entertainment and telecommunications. All of them are set to play a key role in the coming years as Beijing ramps up major investments in strategic technologies such as 5G telecommunications, quantum computing and AI. Both state-owned and private businesses are being mobilised in a ‘whole 03 country’ approach to reduce reliance on foreign technologies and seek breakthroughs in strategic science and technology projects.10 Beijing’s new goal is to increase R&D investment by 7% each year.11 Already, several of the companies featured on our map, including SenseTime, Huawei, ZTE, Megvii, YITU, CloudWalk, Baidu, Alibaba, Tencent and China’s three major telecommunications companies, have been recruited into a US$2 trillion ‘new