Virtual Meeting

CFR Master Class With Adam Segal

Tuesday, November 24, 2020
Bobby Yip/Reuters
Speaker

Ira A. Lipman Chair in Emerging Technologies and National Security and Director of the Digital and Cyberspace Policy Program, Council on Foreign Relations; @adschina

Presider

Vice President, Deputy Director of Studies, and Nelson and David Rockefeller Senior Fellow for Latin America Studies, Council on Foreign Relations; @shannonkoneil

Adam Segal discusses the evolution of China's technology policy and how it has changed the U.S.-China relationship. 

The CFR Master Class Series is a biweekly 45-minute session hosted by Vice President and Deputy Director for Studies Shannon O’Neil in which a CFR fellow will take a step back from the news and discuss the fundamentals essential to understanding a given country, region of the world, or issue pertaining to U.S. foreign policy or international relations.

O'NEIL:  Welcome, everybody. Glad to have you with us this afternoon at our Master Class series, I'm Shannon O'Neil and I'll be presiding over it. Today's topic is China's tech policy. And we are lucky to have our senior fellow Adam Segal with us, who has deep knowledge on both China and tech and China tech together. So he is our Ira A. Lipman senior fellow for emerging technologies and national security. He is also the director of our program on digital and cyberspace policy. You guys all have probably seen Adam and seen his work. He's written several books on a lot of these subjects, his latest one is called Hacked World Order: How Nations Fight, Trade, Maneuver, and Manipulate in the Digital Age, which looks at the geopolitics of cyberspace. He's written several books before and he's working on a new one that tackles a lot of these issues, as well as several articles. And he has a blog called Net Politics that you all if you haven't checked it out, you should follow him and his larger program. So I'm going to do what we normally do here. I'm going to turn it over to Adam to set the stage and provide some initial comments for the first eight to ten minutes to guide our conversation. And then I'll open it up to all of your member questions. So please go ahead, Adam.

SEGAL:  Thanks, Shannon. And I look forward to the conversation today with everyone here. So what I'm going to do is introduce I think three big themes that kind of define Chinese tech policy or tensions that define tech policy. And then I'll talk a little bit about where the Chinese are in the reform of the science and technology system, the S&T system, which has really been a forty-year process, right. So the Chinese came out of the Cultural Revolution, and under Deng Xiaoping and the move towards the opening and reform movement, Deng made science and technology, one of the four modernizations and they were really worried about falling behind from the rest of the world they had adopted in the '50s, and '60s, the Soviet model of science and technology innovation, that had produced a major breakthrough in what's known as the two bombs in one satellite, so the atomic bomb and the hydrogen bomb and Chinese satellites and ICBMs, but had really hampered development on the industrial side. So these are the three tensions, three themes really have played themselves out over the last forty years.

The first one is between what we consider science and tech policy, verse innovation strategy. So science and tech policy is a kind of top-down setting of agendas and metrics, and goals, which is what we often think about is the Chinese strategy. So things like the artificial intelligence plan or Made in China 2025, that sets out these specific targets where they thought China is going to be verse innovation strategy, which is a broader thinking about how do you encourage the economy, the larger environment to be more supportive of innovation? And so those types of policies include protection of intellectual property, how do you get the financial system right, how do you encourage risk and entrepreneurship? And so the top down in the bottom-up model are often intention, and we've seen that over the last four years.

The second is the balance between globalization and nativism, or indigenous innovation, right? How much should China rely on technology from the outside? And how much should it develop on its own? So the two bombs one satellite example I gave before the Chinese often referred to as an example of what they can do on their own, but so much of Chinese technology development and moving up the value chain the last four years has been because China could tap into global supply chains. It could collaborate with universities and companies around the world. And extremely important, it could send hundreds of thousands of students and scientists abroad into the United States. So how do you balance between how open you are and how do you focus on how much you should do alone?

And the third tension that's present is what we might think of the kind of the political question, how much should the party be in control? And how, how do you support and develop what we would think of as professionalization, independent science, entrepreneurs willing to push the edge? And here again, we've seen a kind of constant going back and forth between efforts to professionalize science, to create some type of independence and then the party reasserting its control, insisting on political leadership. And you know, there's a long running debate about how innovative can the Chinese system be if it continues to rely on tight information controls, tight party control.  So I think what we've seen broadly is kind of two waves reform in the Chinese science and technology system. The first one coming out of 1978 basically tried to address several problems. One was the talent problem, right? So there was very little science and technology talent in China, and that existed had been persecuted under the Cultural Revolution. So we saw a massive expansion of university education, and particularly in the STEM, in the science, technology, and engineering and mathematics. And we saw, as I mentioned before, lots and lots of people going abroad for training. There was a really concerted effort to close the gap between research and production and manufacturing.

So before Chinese research institutes, universities had very little contact with industry, industry had almost no contact with universities. And there was a huge amount of redundancy in the industrial sector, every ministry had their own R&D labs. And so the way the Chinese tried to address this was cutting budgets for universities and labs and telling them, you have to make up the difference by going out to the industry and providing consulting services. The government tried to encourage entrepreneurship. So the first startups were started in the '80s, and '90s. And that's a fact what I did my dissertation on was called "jumping into the sea." So scientists and university professors left the comfort of the of the iron rice ball to start the first companies which became Lenovo are legend and some of the others. And then this focus on internationalization: relationships with United States most importantly, but also with the EU, Australia and other places. Beginning around the, I would say, the 2005-2006 period, there was a real concern about alright, we've built this system, it seems to be okay at catching up to the West. But how do we build a system that can help us innovate, right, where we have mastered a lot of technologies that have been absorbed, but can we move to this new area of innovation. And so what we saw here was a massive increase in expenditures.

So R&D funding in China has gone up by an average of 18 percent, since the 2000s, a consolidation of that funding in a number of central organizations like the Ministry of Science and Technology, but also the National Science Foundation of China, and increasingly industrial policies designated for specific emerging technology. So I mentioned, Made in China 2025, which looked at Internet of things as well as new manufacturing, the artificial intelligence plan, and particularly important recently, semiconductors. We saw increasingly companies that grew up in the private sector, being named national champions and technology experts in AI.

So Alibaba and Tencent, SenseTime, iFLYTEK, all of these companies took specific applications of technology, and are developing them. And still a number of big science projects. So the first one in the first wave of innovation was called the 863 Plan because it came out in March of '86, and was a focus on areas like new energy, new materials, semiconductors, we still see a lot of big science plans around those same areas often have dual use, so often connected to the military. And we've seen a lot of discussion about civil-military fusion, about how do you make sure you get more spin on from the private sector into the People's Liberation Army in the PLA. So I'll end there, but I'll just conclude by saying what we're seeing now in the U.S.-China tech debate, as the U.S. moves to decoupling, is kind of heightening those three tensions I started with or those three questions and most of the direction so far seems to be an increasing focus on tech policy verse innovation strategy, and increasing focus on domestic tech verse globalization, or at least connections with the U.S. and increasing assertion of party authority over tech entrepreneurs and other parts of the S&T framework. So I'll stop there, Shannon and look forward to the questions.

O'NEIL: Great, thanks, Adam. That was great. And I'm going to ask you the first question, but Teagan, I'm going to ask you just to tell people how to put their question, put themselves in the queue, to ask the question themselves, okay.

STAFF: (Gives queuing instructions.)

O'NEIL: Great, you know, so Adam, this was fascinating in this long history in these tensions. And I guess I would love to hear your take as someone who's looked at this carefully, and sort of answering the question you threw out there, which is, how innovative can China be? Right? And if you do have these tensions going back and forth, and it seems like a return to this one side that's a heavier state hand and a little less entrepreneurship and supportive environment a little more direction from the top? What is your take? Can you just throw enough money at it that that it can become it can be moved beyond catch up? Or how, how innovative can China really be?

SEGAL: Yeah, so I'll give you the academic answer, which is how do we define innovation? Right. And so I think there's no doubt that the Chinese economy has become and Chinese entrepreneurs have become extremely innovative in a number of areas, right? In particular, around social media platforms and fintech, so, you know, Ant, and Alipay. And so they took a lot of internet platform ideas, and really innovated them in ways that have left their American competitors behind. We are certainly seeing innovation on artificial intelligence, right. The Chinese are leading in facial recognition, in particular, quantum encryption, and in quantum communication, the Chinese seem to be world leaders. For a while on nano, they seem to be world leaders.

But I think overall, what we see is that the Chinese economy is really not innovative in the sense of new-to-the-world, science-based innovations, right, the Chinese have so far not yet created whole new industries, whole new areas of discovery, or move forward that with that with those things. So that I think they still lag behind the United States. I think some of that is political control, and questions about information control. Some of it is incentives, right, so in in the early stages, you know, scientists were rewarded very much for how many patents or did they publish in the right journals, which created lots of incentives for very low-quality patents and lots of corruption and academic plagiarism and misbehavior. They're starting to readjust on those things. But you still see, you know, the best and the brightest from Chinese undergraduate degrees from Tsinghua or Beijing, when they think about trading to be a scientist, they still want to come to the United States or to Europe or Australia, I think they still, that is where we lead, we could be losing that because of U.S. immigration policy and other things we can discuss. But, you know, consistently the best and the brightest still want to come here. And I think, until they get that right, it's going to be hard to move to this, you know, narrowly defined innovation of new-to-the-world, science-based.

O'NEIL: Let's take the first member question.

STAFF: We'll take our first question from Ted Pulling.

Q: Hi Adam, my question concerns Tencent, Alibaba, Baidu, etc. Do you consider these companies to be part of this state surveillance and security architecture? And if so, when I read the Uyghur Act, which Congress passed, do you think there's a risk that companies like Tencent and Baidu could be sanctioned by the U.S. government? Thank you.

SEGAL: Yeah. So I think that's one of the been the most dramatic changes of the last four years is that, you know, before I had an argument, or I could generally make an argument that you could often see space between what the tech companies wanted, and what the party and what and what the central government wanted, and they often acted in intention. You know, as the tech firms globalized, I expected them to try to exert some type of independence and show some space now. Xi Jinping has clearly eliminated that political space. And people often refer to the National Intelligence Law of 2017, which, you know, seems to suggest that all companies or individuals and entities have to play a role in either intelligence gathering or counterintelligence kind of services there. And it does seem, you know, I think we should assume that most companies, you know, really have that all companies have very little say if the CCP shows up for them, Ministry of State Security, shows up and says "we want the data" that they turn over that data.

There have been a few cases where they drag their feet for example, you know, the Uber example in China, when they were asked from the Ministry of Public Security for some data about users, gave the data in printouts right and paper printout. So they were clearly trying to not be particularly helpful, but those examples are few and far between. I do think it is possible. You know, the question is, I think, well, the Trump administration get to it on their way out the door. I think Biden administration is less likely they're going to be, I think more narrowly focused, and probably go after firms that are more specifically tied to Uyghur repression. But it is it is possible given the reading of the bill and certainly the administration's willingness to block WeChat and go after individual firms.

Q: Thanks. I mean, I guess, you know, the bill is passed. So even after Trump is gone, it's still effectively a law. And if we think about some leading senators like Hawley, Cruz, Rubio, Shaheen, etc., both sides of the aisle. There are pretty dogmatic on this. But that's just a comment. I don't want to occupy too much of the Q&A. Sorry, Shannon.

O'NEIL: No worries. Thanks for that. Let's take another question.

STAFF: We'll take our next question from Joseph Nye.

Q: Hi, Adam. I wanted to ask you about the importance of intellectual property theft. In the past there is you which I think you held at one time, as well as many others, that using intellectual property theft as heavily as they did actually allowed China to help with catch up, but it inhibited innovation. Then, in 2015, Obama and Xi Jinping signed an agreement that China would no longer use cyber means of stealing intellectual property and passing it on to Chinese companies, i.e. for commercial purposes. After the 2016 or 2017, the Chinese went back to business as usual. What is the significance of intellectual property theft today? In other words, if it was somewhat overrated in the past, is it now very important? should we worry about the demise of the Xi-Obama agreement? Should the Biden administration tried to renegotiate such an agreement? Tell us what your current thinking is.

SEGAL: Yeah. Thanks, Joe. I hope you're doing well. So yeah, I think right now, we're actually probably under-paying attention to it and under-appreciating it, I think what we've seen is a kind of, again, a return to, as you mentioned, a return to the espionage and now increasingly focused on semiconductors, design equipment, semiconductor software, COVID-related, vaccine-related, so certainly is back in, it is certainly happening on very specific, critical technologies. There, I think they're, you know, they're still, I think, some uncertainty about how it's absorbed and how it's used. Although there's an article in, I think, last month, Asia Policy that argues, I think, relatively persuasively that they're getting better at absorbing and using it, that I would have said, you know, a decade ago that there was a lot of knowledge that was lost, and you couldn't, you know, just having the blueprints or having the information was not the same thing as having the tacit, tacit knowledge.

So I would say right now, we're probably not thinking about it enough. We just kind of accepted that it's back, I would imagine that the Biden administration is very unlikely to try to reengage that kind of discussion. Considering I suspect, some of the same people will be around again, I think they're going to be worried about, you know, attacks from China hawks, that they, you know, why are you making an agreement that the Chinese ignored the first time? I suspect that they will, at least in the early stage, double down on the Trump administration response, which has been joint attribution, with Five Eye partners and some other players, along with indictments. And we may, you know, see some leaks about actual Cyber Command forward engagement operations to disrupt Chinese hackers. You know, most of the information we've gotten so far about those type of operations has been related to election security or the Iranians. Bolton said something about, you know, Chinese hackers on his way out the door, but I've never seen any other follow up on that. I suspect that we will rely on those two tools, we will not try to negotiate another agreement.

O'NEIL: Let's take another question.

STAFF: We will take the next question from Linda Lourie.

Q: What's your assessment of the success of the Thousand Talents Program is we're seeing increased enforcement FBI, tracking down of university professors who are participating. And I'm wondering what your what kind of technology flowing back that is innovative or just sort of incremental? And at the same time, are you finding Chinese researchers returning home with the knowledge that they have, whether it's from their university education, or, or research they've had? Thanks.

SEGAL: Yeah. So for those on the call, who don't know, the Thousand Talents Program is a Chinese effort to both recruit foreign talent to come to China and also to get Chinese nationals who have historically tended to want to stay in the U.S. to develop their science careers to return to their labs. And the Trump administration has focused a lot of attention on it as a way that technology is flowing out of U.S. universities, and there was a very high-profile case, with the head of the chemistry department at Harvard, who had a lab in Wuhan. You know, so my, my sense is, is that, you know, it is, what we've seen is, and this is probably this has changed a little bit over time is that most of the scientists that are going back, tend to be either at the very beginning of their career, or at the very end of their careers, they like to either they get a lot of money upfront, which they couldn't get in a U.S university, or they're retiring, and they get a lot of money at the backend. And they like to have the labs on both sides. If you're in the most productive part of your career, let's say, you tend not to be all that interested, you want to stay in the U.S. and keep doing it.

Again, the immigration discussions and some of the access language from the Trump administration may have started shifting some of that, but that has historically been what's happened there. Because most of this is university research. It's basic research, right. And so it's not necessarily all that it could be cutting edge on the basic research side, but it's destined to be public. And so is not usually that close to the industrial side. Now that there are you know, there are two reports that came out about the Thousand Talents, which take very different views of it. One of them was a Senate view, which basically, you know, totally saw Thousand Talent as an espionage problem. And the universities were failing to deal with the espionage problem and basically argued that the U.S. which is always defaulted towards openness for basic research should reconsider that, right. So we had a debate about this in during the '80s, with the Soviets, and there was an agreement in 1986, that basically said, our default is always going to be towards openness for basic research, because we're going to run faster. This was reasserted right after 9/11, Condoleezza Rice. And so were, the Senate report said, maybe it's time to re-think this.

Then there was another report from a group called JASON, which is a kind of elite scientific group. And they basically framed it as a process problem that a lot of these scientists didn't know. They were that they shouldn't be double dipping, they shouldn't accept money from the Chinese government and the U.S. government. They didn't know how to report. And if we just had more transparency side, we could address a lot of those problems. I would say I'm a little bit in the middle. I do think our default should be openness and we should continue to try to run faster. But I do think that universities have to do better, and I and I know they are starting to do better. But my answer is it should be more resources for counterintelligence, right? If we gave more money to the FBI to visa consuls to people that actually could kind of identify what technologies we're worried about. That I think is a better long-term solution, then, then, you know, overcompensating on the academic exchange.

O'NEIL: Let's take another question.

STAFF: We will take our next question from Lucas Kunce. Please accept the unmute now prompt.

Q: I am sorry about that. I didn't know that unmute prompt. So here I am. I'm Lucas Kunce. I'm from the American economic liberties project. And I noticed China's doing a little bit more antitrust action than they used to do. And I'm just curious, you know, there's been a lot of talk about Chinese national champions, U.S. national champions in the tech sphere. What is your take on their antitrust policy now? And going forward?

SEGAL: Yeah, thank you, Lucas. So it's like Lucas mentioned, you know, we have kind of two, two variables right now and on this, so one, of course, is the very high-profile delay of Ant's IPO. And the apparent kind of smacking down of Jack Ma, after he insulted the regulators on fintech. And, you know, according to some reporting, Xi Jinping himself was involved in the decision. And then also the State Council asked for, basically, you know, requests for comment on anti-monopoly regulations for Chinese tech firms that they have grown too big. And they show too much concentration in the market. So I think some of the concern, actually, you know, is mirrors what's talking about in the U.S., there has been a growing debate that the big tech companies in China, buy their competitors, you know, a lot of the VC, domestic VC in China is either from Tencent or Baidu or Alibaba. So they are also funding most of the competitors. There is a lot of, you know, lock-in, so you can't, you know, move between different platforms, there's been a number of cases where they, you know, significantly punish others for doing that. And so given from the leadership's concern on domestic stability, and independent sources of power, it makes sense. Now, you know, as you mentioned, on the U.S. side, Facebook, in particular, has argued, you know, don't regulate us, because, you know, if you do, then the Chinese firms are going to grow so big, and we're not going to be able to compete. I haven't seen, you know, the Chinese firms yet making those kind of arguments or trying to make that argument. I think, to be quite honest, there is a concern, you know, that this idea of dual circulation, which is the economic strategy that they're moving forward with, which is focusing on domestic consumption, indigenous innovation, and increasing the domestic market, I think they already are believing that a lot of external markets are going to be blocked anyway, because of, you know, concerns about supply chains or data uses in other markets. So in some ways, that may also be reinforcing their sense that they have to make sure that the domestic market remains competitive and more open.

O'NEIL: And, Adam, can I just build on that and ask you, what is their international strategy within their tech policy? How does that play in?

SEGAL: Yeah, so we're seeing some interesting kind of messaging from Xi this last week and the week before, which is, you know, I guess one of the ways that I've always said is that we shouldn't think about the tech competition as we're working towards two blocks, what we're working for is competition over different network systems. And so what Xi has been talking about, is to say, well, you know, we're going to remain open, we're going to remain focused on globalization. But also, we want to make sure that, you know, other countries can't exert leverage on us, and particularly in the semiconductor supply chains. But we want to make sure that other countries remain dependent on our supply chains, so if we have to exert leverage on them, we can do it. So that's been the one set of messaging, which I don't think is going to go over all that well, you know, in Europe, in the U.S. and other places. And at the same time, you know, they I think are doubling down on the Belt and Road Initiative, and other places where they're not going to get political pushback on kind of digital authoritarian issues or data issues. And so they're going to try to work to make sure that those markets, you know, rely on Chinese tech, are relying on Chinese standards. And so I think they're going to do both of those things kind of signal that they are still the responsible global player and tightening these tech relations to Belt and Road and other developing countries.

O'NEIL: Thanks. Let's take another question.

STAFF: Certainly. Just before we go to our next question, ladies and gentlemen, a reminder to ask a question, please click the Raise Hand icon on your Zoom window. When you are called on please accept the unmute now button and proceed with your name, affiliation, and question. We will take our next question from Patricia Rosenfeld.

Q: Thank you. And thank you very much, Adam and Shannon, for this important conversation. I wanted in my question, my follow up on what you just were saying. I'm wondering with the, with China's outreach through the regional Comprehensive Economic Partnership, if they might not be thinking of setting up a regional scientific partnership, or they might draw on expertise and talent from outside the usual players and find that a more efficient and more politically astute strategy from their perspective and form different scientific networks in different fields. I'd love to have your take on that.

SEGAL: Yeah, yeah, that's a great, that's a great question. They're already doing that. And I don't unfortunately, I don't have the data right, right in front of me, and some of it is actually in the in the Task Force report. But so there is a Belt and Road Initiative that the Chinese Academy of Sciences is leading, and some of that is setting up R&D labs in those countries and some of it is bringing more PhD students to China. There was a great report in Nature maybe two years ago that, you know, that the number of PhD students, which is always traditionally been true, but it from Africa and Southeast Asia is going up. And so, again, it kind of goes to my earlier point about networks and not blocks that the Chinese, you know, very much now see, you know, what used to be a long-term U.S. strength, size diplomacy, as being an important tool for them as well. And because they are no longer, you know, they have lots to offer, both on the training side and the actual scientific R&D side. I think you're right, they are going to double down on those relationships, and try and reorient a lot of global science away from the U.S. and UK, EU, and Australia, to China. So far, that's happened more on the academic side, than in the company side. So Chinese companies other than Huawei, Huawei is the outlier. Huawei is very, very active in setting up joint R&D labs with universities and industries. But Chinese universities, Chinese Academy of Science, becoming more and more involved in that.

O'NEIL: Next question please.

STAFF: We will take the next question from Andy Zelleke.

Q: Hi Adam, Andy Zelleke, Harvard Business School. We'd love to get your judgment on whether you believe that the competition in non-military tech has become the center of gravity of this strategic competition between the U.S. and China more so than Belt and Road, the economic balance of power military competition, etc.

SEGAL: Yeah, so I think what's become the center of gravity is, you know, what's broadly called emerging or strategic technologies, and all of them are dual use. And so that's why the competition over AI and 5G and quantum, and synthetic biology, all of these things have become, you know, what before really was, you know, way down the agenda on the bilateral relationship is now, you know, it's not the top issue, I would say, it's easily in the top three, and I think some of this will change under the Biden administration, because they will, I think they're going to try to engage on other issues. And I think they want to frame it so that all that all technical, technological competition is not zero sum, I think they want to, you know, be able to point to clean tech and perhaps, you know, trend, transnational issues, like pandemics were areas where, you know, all innovation is good for everybody. But the, the Trump administration, you know, increasingly frame the tech competition as ideological between, you know, digital authoritarian states and democracies. And so all attack on the Chinese side became kind of fed into the supporting and strengthening digital authoritarianism. And so, you know, you have to kind of push back against every type of technology. So that's why I think it really did. I think you're right; it became such an issue that no matter what you were talking about competing with China, you could point to or attack a certain technology and say, "well, you know, we either have to control the technology, we have to run faster. We have to work with our allies to make sure the Chinese don't define the norms there."

O'NEIL: Next question.

STAFF: We will take the next question from Aynne Kokas.

Q: Hi, everyone. Hi, Shannon. And, Adam, thank you so much for this great panel. This has been really fascinating. I am particularly curious about how, about how we might think about the data regulations that we saw emerging from our RCEP. And, you know, we saw India kind of pullback at a late date. So what are your, what are your visions for how this might play out? In the event that actually comes to fruition?

SEGAL: Yeah, thanks for the question Aynne. I'm not particularly optimistic, right? Because, you know, there's a lot of language about not allowing data localization, but then basically saying, well, for national security reasons, and you know, many of the countries that sign RCEP already have data localization provisions. I do think it's an important symbol, right, as many people have pointed out that this is Asia, kind of asserting Asian-ness or, kind of Asian regionalization. And I think, again, as others have pointed out, it's an important signal that they don't really want to be pulled into the U.S.-China conflict and have to choose sides that they're going to try to, you know, reinforce regionalization as a buffer and balance to that, to that conflict between the two sides. But I do think you're, you know, I don't think there's going to be a lot of leadership coming from the partnership, because as you said, with India and others, there's just so much difference. And there right now, there is still such a gap between how people think about these data governance issues, that I don't see that as pulling us along, to the extent of, you know, the U.S., I think, is in a better position to try and re-engage a lot of those countries on those discussions, and hopefully forge some kind of common perspective.

O'NEIL: Let's take another question.

STAFF: We'll take the next question from Tim Ferguson.

Q: Thank you, Adam. I'm wondering, you mentioned the special case of Huawei. Do you think that that issue the great question of whether it is a bad actor, or sort of arm of the Chinese military? Do you think that's been settled? Obviously, Huawei is going to continue to try to penetrate Western markets. And that may change to some degree over time. But as the general nature of Huawei, more or less, reached a point to our understanding of it, that's not going to change.

SEGAL: I don't, I don't think the definitional issue has been settled. But I think in many ways, the policy question has been settled. So I think you know, the U.S. has, as you say, kind of consistently argued that, that Huawei is an arm of the Chinese government and will point to, as I mentioned earlier, the National Intelligence Law as proof of that, or, you know, subsidies that Huawei received and bank supporting and lending. And, you know, that that argument, I think, generally has not worked all that well. And, you know, certainly worked with Australia and Japan and a few others. But, you know, in many parts of the world, you know, the input in my senses is that, you know, many of them still either think the U.S. is making that up to for economic competitiveness reasons. Think the U.S. does the exact same thing with its own tech companies, or just don't care that much, right? If I'm a developing country, and I'm really worried about bridging the digital divide, or, you know, the move from 3G, 3G to 4G, and then eventually to 5G.

 

You know, I, my assumption is, I'm going to get spied on by the U.S. and China, right? And I might as well at least get the Huawei equipment at a relatively cheap price and deal with the spying, you know, anyway, that said, I think the U.S in many ways turned the corner by the use of the sanctions and entity list, right, so the, the tightening of the list this summer, you know, and dropping the, the U.S. technology requirements for 25 percent to 10 percent, you know, effectively cutting Huawei off from TSMC and the chip supply really took the kind of decision out of a lot of countries hands and you saw that most clearly with the United Kingdom, right? The United Kingdom had been arguing to the U.S. that look, we know it's a risk, but it's a risk that we can mitigate through by putting them on the periphery by doing certain types of inspections by having multiple suppliers, which, you know, really incensed the U.S. But it was a type of argument and you could make from a security perspective and was having some impact on other European partners. But once this new entity list, the new sanctions came out, GCHQ, you know, the UK security arm basically said, "well, we can't be sure of the supply chains any longer. And so we can no longer really be sure about Huawei security. So we're going to reverse the decision." And that began to have a cascading effect in other European countries. So I don't think the definitional issue was ever really solved for other countries. But through the sanctions, it really doesn't matter so much anymore.

O'NEIL: Think we have time for one more question? So please go ahead.

STAFF: We will take our last question from Jim Thompson.

Q: Adam, hope you can hear me. So the U.S. has a lot of difficulties these days in converting dual-use technology into the military capabilities. And, and there are a lot of reasons for that but they the principle one is because most of this technology has been developed in the private sector. And the private sector doesn't like dealing with the rigidity of the Pentagon's processes. And moreover, you seen the unwillingness of companies even to work with the Pentagon, at least more recently. This all makes it sound, it must be very smooth in China, they may have a real edge on us in this regard. And I just wonder what you think of that?

SEGAL: Yeah. So I don't think that I think you're right. So you know, certainly identified a lot of the problems on the U.S. side, the procurement strategy, the mismatch between the type of technologies that are being produced and how the Pentagon acquires them, culture issues, as you mentioned, there was a rebellion in some of the big tech companies, but for example, Google is, you know, now back bidding on lots of DoD contracts. I think there are, there are real issues, there are lots of groups addressing them, and trying to bridge that gap. I suspect, you know, the, there's a group, the Defense Innovation Unit that's trying to do that. And I suspect that Michelle Flournoy is named head of DoD that she will embrace all those efforts and double down on a lot of them. I am somewhat skeptical on the Chinese side that they you know, they do it much better than us. The Chinese have tried been trying this for forty years, right there. There have been attempts for civil-military fusion, or there was a group that, you know, there have been numerous different organizations inside of the Chinese bureaucracy that accosted which was the Committee on Science and Technology for National Development. They've tried for a long time, the difference now is that they have, you know, their own tech platforms that have these technologies. And Xi Jinping has really made it a central part of his mission. And there's a small leadership group for it. So far, the evidence is, is pretty mixed. You know, they have the same recruitment problems. When you read Chinese writings about it, the tech companies complain about they don't understand how it works. It's not transparent. It's hard to work with them. So I would imagine that it's going to be a bumpy road for them. It's been a bumpy road for them for a long time.

O'NEIL: Well, there's so much more to talk about, and especially how the U.S. should react to all of this, but we've reached the end of our time, Adam on behalf of everybody, I want to thank you for that expose and your ideas would have to come about have you come back to talk about the other part of it. And then to everyone else, we're going to take a short break over the holidays. We'll be back in early 2021 to have more of these Master Class series but until then, everybody stay safe, stay well, and happy Thanksgiving.

SEGAL: Happy Thanksgiving everybody, thank you.

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