Podcast: How China’s Role in Technology Development Affects the United States and the World, With Sam Olsen

February 7, 2022

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China views technology and the tech companies that produce it as strategic assets to be leveraged in a global race for geopolitical advantage. That’s why it doesn’t treat its domestic champions as players in a free market—the point is to make sure they win at the expense of Western competitors. Rob and Jackie sat down with entrepreneur and strategist Sam Olsen, author of What China Wants, to discuss the implications of China’s technological development.

 

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Rob Atkinson: Welcome to Innovation Files, I’m Rob Atkinson, founder and president of the Information Technology and Innovation Foundation, we’re a DC-based think tank that works on technology policy.

Jackie Whisman: And I’m Jackie Whisman, I head development at ITIF, which I’m proud to say is the world’s top ranked think tank for science and technology policy.

Rob Atkinson: And this podcast is about the kinds of issues we cover at ITIF, from the broad economics of innovation to specific policy and regulatory questions about new technologies. And today we’re going to talk about the role of China in technology development and the effect on the US and other countries.

Jackie Whisman: Our guest is Sam Olsen, an award-winning entrepreneur and independent strategic advisor to a number of companies in Southeast Asia and Hong Kong, Sam is the founding partner of MetisAsia and is the author of What China Wants, available on Substack, which we’ll link in our show notes, welcome, Sam.

Sam Olsen: Hi, thanks for having me.

Jackie Whisman: Tell us a bit about yourself and what you’re doing in China.

Sam Olsen: So, yeah, we’ve just moved back to the UK after a long time in Asia and in Asia, I was doing several things related to technology, first, I was the head of intellectual property protection for Kroll and I also ran Asia’s largest social media analysis firm. And more recently at Evenstar, we’ve been doing a lot of public policy work around business intelligence and political and economic risk, we’re looking specifically at Chinese influence around the world, but specifically in Asia, and my focus is on looking at the technological influence of China.

Jackie Whisman: What’s going on with China’s internet tech crackdown right now? We’re seeing a pretty dramatic clash between public and private power over there and curious on your thoughts on how significant this all is.

Sam Olsen: This has to be put into context of what’s happening across China more broadly, which is what we call the red reset, in essence, Xi Jinping has, along with his advisors, decided that there needs to be a whole scale change in the strategic direction of China back towards an [inaudible 00:02:09] commerce better socialist principles. In essence, it’s about Xi consolidating his rule, he’s now the most powerful ruler since Chairman Mao, and putting in place a lot of changes to augment the power of the communist party. This is something that they’re free and willing to admit as well, and as part of that, the technology industry has come under increasing fire, but it is not the only one, the real estate industry, which accounts for approximately 25% of the country’s GDP and provides an awful lot of the actual revenue at the local and municipal levels, that is coming under just as much fire but it’s less noteworthy than technology.

But when it comes to the tech world, what we’re seeing is two things, first of all, a crackdown on the individuals at the top of the tree, Jack Ma being the obvious one and that’s to do with removing any alternative power bases, but secondly is also about getting better control of a centralized bureaucracy to make sure of the power of the communist party and not letting anything else get in the way of that. And a great example is in district currencies, having people use WePay and Alipay is all very well, but that will get in the way of the Chinese national digital currency, which is obviously where Beijing has decided it wants to go, so in essence, technology is just getting in the way of what Xi Jinping wants for the country.

Rob Atkinson: That’s my take on it as well, and when that was going on in the US, there were a lot of people there, a lot of people in the US who I think got it wrong and they were saying things like, well, this just goes to show that the Chinese don’t care about internet technology and they care about military technology. I always looked at it the way you did, that this is really about exerting power and this was, “Hey, Jack Ma you may be the richest person in China, but you’re still under our thumb and we can make that happen any time, any day we want to.”

And that goes back to your overarching point about Xi exerting power, I remember when I was chair at this US-China innovation experts group for the Obama White House, we would go over to China every six months or so, and I remember we visited a very big state owned enterprise and while we’re waiting to talk to the vice chairman, we’re in the lobby and they have this long sort of set of pictures of the history of the company and the first picture starts with Karl Marx and then it goes to Lenin, then it goes to, I think, Mao, and then Stalin, and then it goes to the company, and it was like, what’s going on here? And at one level you can laugh at that and go, yeah, this is just symbolic, but it’s not symbolic, to me it was really reflective of how that company and the overall Chinese government and communist party think of themselves.

Sam Olsen: Yeah, I completely agree and it’s really important to note that the way that the Chinese authorities think is a completely different way to the west, and many times we hear that people say, the crackdown of Huawei or other similar companies like NuTech, which do border scanning machines, they crack down on them or push back against them, their perhaps unfair practices while cutting the competition, et cetera, that is not considered to be the right thing to do for the west because it’s perhaps somehow interfering in the free market. The Chinese authorities do not consider that anything to do with their technological champions to be in the free market, it is all about making sure that they win at the expense of Western companies, and the reason for that is because they’re so carefully and heavily entwined with the rule of the communist party.

That sounds nefarious, but perhaps it’s not as nefarious as it means and what I mean by that is that it’s not just about them using specifically Huawei, for example, to spy on everyone. But it’s the whole shebang in terms of these companies provide massive amounts of money for China, they provide massive amounts of outreach political capital around the world, and they allow China to control parts of the future economies, which are really important, not just for prosperity China, but future prosperity of the world.

So they are a strategic asset, and so therefore it is absolutely imperative that China uses these companies to win what they think of as a global technological race, that does not mean that they don’t care about sort of domestic technology rather than military technology for example as you mentioned, it is all part of the same thing, that’s why we have military civil fusion where civil companies can be used for military purposes and vice versa, and that is part of the strategy of China.

Rob Atkinson: I couldn’t agree more, I finished up a book this weekend and the author actually is going to be on our podcast, he’s a professor, I think at Dartmouth, Stefan Link and he has a fantastic new book, certainly for wonks like me, it’s fantastic, Forging Global Fordism: Nazi Germany, Soviet Russia, and the Contest over the Industrial Order. It’s a very interesting book about how the Soviets and the Nazis got so much technology from Detroit, they really learned, some of it was similar to how the Chinese have gotten it, some have stolen it, some of them sent workers over there and bringing back. But he has a quote in there which is really spot on to what you said, and he said, “Productive dual use technologies are fiercely contested by states”. And I think that’s, what’s going on here, although China is a super state and they’re fiercely contesting these dual use technologies, and who’s going to be able to have output and control over them.

Sam Olsen: Yep, there’s no doubt that there is a concept in China about dual use technologies, but it is not necessarily one that’s looked upon in the same way in the west, the example I always think of is Google, so if you remember a few years ago, there was a great outcry when Google was going to be involved in helping the Pentagon to develop some new algorithms for future war fighting capabilities, and 3,000 or so Google employees wrote an open letter saying they didn’t want their company to be involved in this, and sure enough, Google pulled out of it. But about a month or two later, Google was hosting a competition out west in the deserts in California, which was basically allowing international teams to come along and compete against each other using autonomous vehicles through different conditions like sandstorms and fog and other stuff, obviously with military potential to help missiles navigate through bad weather, cetera.

And the team that won the competition that was given the prize by Google was a team from the Chinese People’s Liberation Army, so there is a lot of naivety in the west about the way that technologies can be used for both purposes, and this has been born out as well, time and time again, by looking at the infiltration, China’s infiltration of civil research in lots of different departments across universities in the west, whether it’s Australia, or the UK, or US, and what could be considered to be humdrum, civilian things, actually turned out to be very useful for the development of the Chinese military.

Jackie Whisman: Stepping back now that we’re a year out from the end of the Trump administration, how would you assess the administration’s actions towards China in terms of their effect?

Sam Olsen: So before I answer that, it’s important to note that there’s a big difference between what Trump’s actions [inaudible 00:10:03] domestically in America and what he was doing vice versa China and in Asia-

Jackie Whisman: Good point.

Sam Olsen: And I was watching what he was doing from the confines of Singapore and Hong Kong, where we’re living and what was interesting is that he had a very different viewpoint to President Obama and basically did not trust the Chinese and was the first president, so Asia thinks, to actually stand up properly to the Chinese and recognize what they were doing from a strategic end and operational point of view. And he... I think it’s fair to say in Asia, he is recognized as the man who basically changed the entire relationship between America and China, now, obviously there will be a lot of people that don’t like what happened after that and a lot of people that say, for example, the trade war failed from an American point of view.

That may be true, I think the jury’s still out on that when you actually see the effects on the ground, and he did do a lot of things which will be regretted by America, for example, not joining the CPTPP, but when it came to actually highlighting the issues that China was causing, for example, intellectual property theft and mercantile policies designed to undermine Western manufacturing and Western R and D, I think that there is an awful lot of people in Asia who think that he did a good job in highlighting that. Perhaps the method of his execution was a bit brusk and perhaps could have been done in a better way, but I think from a strategic point of view, he totally changed the game between China and America and the west more broadly.

Rob Atkinson: I remember when I was over at one of the S&ED meetings—the Strategic and Economic Dialogue meetings that China and the US had—and I was talking with a US government official about how egregious the... The term we had coined at ITF, innovation mercantilism was, and he said to me, well, you’re right, but I just don’t know what else we can do, and at some point maybe they’ll stop, and I’m not saying he spoke for everybody in the Obama administration, but I think that was the general view in the Washington trade world and the foreign policy world was, well, what can we do? And Trump said, hey, wait, we can do something and you can argue with what he did or not, but as you say, he highlighted that.

Sam, I want to sort of segue over, we were talking earlier before we went live about when I was over in the UK, maybe a decade ago and I was highlighting to some folks in a meeting in 10 Downing, why I thought China was a huge problem, and just basically everybody just said, no, that’s ridiculous, we have to be free traders with China, obviously, now the UK is in a different position, they’re not quite as far along as the US is, but they’re certainly farther along than Brussels is, give us a sense on your side of the Atlantic, kind of where this debate is going and how far along it is and what we need to do?

Sam Olsen: Well, you’re right, there’s a big division between the UK and continental Europe, the UK is really waking up now and the big catalyst was the Huawei debate because for the first time the actual ambitions of China were laid bare in the press about how they wanted to do this then the other, and through the [inaudible 00:13:30] rightly or wrongly of the Huawei debate. And there’s lots of emphasis put on the fact that Huawei was an effect and organ of the state because it had to comply with national security laws and there was a lot of talk as well about sort of the use of Huawei’s technology to feed data back to China for consumption by analysts within the Chinese government. And I think it’s fair to say that all of that is completely true, but the way that Huawei tried to defend itself was not particularly well received, especially when it started giving the offensive.

And everybody asks about this, but it was put very well by a friend of mine’s wife who said, before the Huawei debate, I didn’t really know much at the communist party, but now I’ve seen them, I really don’t like what I see, and that has led to a strong hardening of views in the UK and the days of the golden era, which were [inaudible 00:14:31] by David Cameron, especially around 2015, are long gone. However, there is still a lot of people in the UK, and I think this is to be commended who don’t want to throw the baby out with the bath water, but actually want to see, okay, well, if we don’t trust you for many particular reasons in terms of IP theft or defense issues, whatever, are there ways where we can find areas of common understanding and to continue trading with each other? But just in a way where we don’t feel that we’re being taken advantage of.

But for the Europeans, I don’t think... For the majority of people in Europe, there’s still very much around, we generally kind of trust China, not in the public level but the government level, obviously not every country, Lithuania and other small countries, which are having a big argument with China now, not withstanding, but in Germany particularly, there is generally a view that a lot of the security concerns, etc, are being overact, and that it’s much better to have a warmer relationship with China now than it is to have a cold one.

Jackie Whisman: I was wondering, what’s your take on how effective formal alliance against China might be?

Sam Olsen: It’s a very difficult one to answer because I think that a formal alliance would only really crystallize at the time of acute international tension [inaudible 00:15:52] a war, but even then I think that it would be very hard, simply because you have to work out what the consequences of a former alliance against China would be, china would take it as basically an act of war if we put together something which was called the anti-Chinese thing, like for example, NATO of the East. And even though it might not lead to a hot war, it would really lead to a lot of economic issues, the UK, the US, Europe, they’ve got massive exposure to economic assets within China, 40%, 50% of HSBC’s profits came from China a couple of years ago, didn’t know last year’s figure. But for Britain to formally sort of declare economic or whatever war against China would be very difficult without there being some massive provocation because that’s what China would think of it.

However, does it mean that there can’t be a grouping of countries who are coming together and trying to come up with a much stronger relationship whilst looking at not just China, but Russia and other countries, and allow different blocks to form depending on your preferences, yeah, I think there’s a lot of scope for that and we are seeing that happen for example, the Democratic 10. And also, on the fight when it comes back to technology, the fight of Western companies to be aligned on principles of technological regulation and technological alignment, it is very much the beginning. And I think over the next few years you will see a coalescing of the side, but there won’t, I don’t think, be a formal agreement or alliance against China, it will just be on its own and happening to be different to China, if that makes sense?

Rob Atkinson: I always looked at China as, they’re masters at playing countries off against one another and we’re seeing that right now as we’re recording with Lithuania who had supported Taiwan, and the fact that Europe seems to want to let Lithuania twist in the wind, sends a clear message that China can get away with that. So, I 100% agree with, there’s a difference between a NATO kind of thing versus a collaboration, cooperative agreement to say, wait a minute, we’re going to certainly have four more formal agreements on certain types of technology transfer, for example, I would say what we should do is we should have a formal agreement on technology transfer that we cannot allow technology transfer to any Chinese company that either steals intellectual property or has massive state subsidies. Now, that’s not going to be effective unless you get a lot of countries, most countries do agree with that because there’ll be holes in the agreement, so is that just wishful thinking?

Sam Olsen: No, I think it’s actually along the lines of what a lot of government ministers here are certainly thinking, and in Europe there is a ground swell of opinion that this is the right thing to do, it just hasn’t quite translated into formal policy yet. I would be very surprised if we were sitting here in two years’ time without having witnessed a massive change in the way that countries do talk about in Europe here, that countries do consider China to be a friend or a foe when it comes to technology, simply because the evidence keeps mounting up as to how much damage China has done through its innovation mercantilist policies. For example, on the German solar industry and anything to do with rare earths and mining and there’s so much happening out there which is detrimental to the West’s economic future. But I think that eventually and very soon things will tip towards more of a confrontational stance from Europe and more just in the beginnings of that, but this 2022, we’ll see more of that, I’m convinced.

Rob Atkinson: Yeah and you see that a little bit, I think their changes within, I think the fact that Merkel is no longer in power is probably a good sign because she was really a recalcitrant in terms of pushing China, and Macron seems very much more oriented to pushing China, I think the really interesting question will be, how much market share does China get in terms of electric vehicles? Because they certainly seem like they’re going in that direction, if they start getting market share particularly exports to Eastern Europe, you could see that being a game changer, I would think.

Sam Olsen: Yeah and actually, it’s important to note here that, again, talking about technology, China is very ambitious when it comes to industry 4.0 and there are strong desires within Beijing to make sure that the industries of the future, whether for robotics or whether it’s autonomous vehicles, all of which require a platform as per the sort of industry 4.0 way of doing things, that those platforms will be run by China. And interesting, the Chinese Apollo autonomous vehicle platform is already the world’s leading autonomous vehicle industry 4.0 platform and it’s got many European car makers signed up to it, and I think that increasingly there will be a coming together, if regulators allow it, of Chinese and Western companies, because don’t forget, these Chinese companies have got huge amounts of money, they are very ambitious, they’re bank rolled in terms of their exports by massive lines of credit.

Huawei perhaps has got $100 billion dollars’ worth of credit to use, and unless regulators take a stand, it’s going to be very easy for these Chinese companies to continue to push into parts of Europe and the less developed world and get market share there, especially since actually a lot of the Chinese technology you mentioned about autonomous vehicles are quite good and a lot of the raw materials that come into it, like rare earths, are controlled by China already. So, I think that unless regulators really take a stand that the market conditions, especially a market that’s manipulated by Chinese and fair intervention is going to be a tidal wave that many companies in the west cannot compete with in their own markets or in their export markets.

Rob Atkinson: Yeah, I agree.

Jackie Whisman: We have to end here, but I’d love for you to tell our listeners where they can read or hear your work.

Sam Olsen: Well, I write a newsletter called What China Wants, which is on Substack with me, Sam Olson and I write every week about geopolitical, geoeconomic issues, as you can imagine, a lot of which is technology based and feel free to come and read it, and if you want to disagree, then always happy to have a conversation about it.

Rob Atkinson: I would encourage readers to do that, I really enjoy reading Sam’s insights, it’s really helpful to my own thinking, I guess I would answer that question, is everything, what does China want?

Sam Olsen: Yeah, well, we can talk about it another time, but people that say that China just wants to sit around and doing not much around the world are sadly misguided.

Rob Atkinson: Yeah, well, Sam, thank you so much for spending some time with us, it was really great.

Sam Olsen: Thank you for having me.

Jackie Whisman: And that’s it for this week, if you liked it, please be sure or rate us and subscribe, feel free to email show ideas or questions to [email protected], you can find the show notes and sign up for our weekly email newsletter on our website ITIF.org, and follow us on Twitter, Facebook and LinkedIn @ITIFdc.

Rob Atkinson: And we have more episodes and great guest lined up, new episodes will drop every other Monday, so I hope you continue to tune in.