Why AI isn’t nearly as smart as it looks

Artificial Intelligence promises to free humanity from mental drudgery and spark a productivity revolution but we’re not there yet

by Jonathan Tennenbaum – June 1, 2020

This is the first installment in a series

The intention of this article is not to attack artificial intelligence as a technology.

Apart from the dangers inherent in every revolutionary development, AI has a vast and growing set of benefits, unleashing cascades of advances in the most varied fields of science and technology, freeing people from mental drudgery, making life more convenient and the economy more productive. 

That being said, AI still has a long way to go. Given the colossal, unprecedented scale of effort and creativity invested the development of AI systems, and embodied in its databases, it is not clear that AI has produced more intelligence than humans have put into it.  

There is a problematic side to artificial intelligence, which I shall refer to under the general heading of “stupidity.” Here I intend the term “stupidity” to be understood in an analytical, not a pejorative sense. In humans, at least, stupidity and intelligence – even great brilliance – do not exclude each other. They often coexist, as experience teaches us.

In this and the following articles I intend to address the AI stupidity problem in three interrelated dimensions: 

A. Inherent weaknesses of computer-based systems designed according to the principles of artificial intelligence as presently understood, which make them stupid in a sense somewhat analogous to stupidity in human beings. The stupidity of AI systems is a root cause for most of the well-known problems and risks connected with their use in real-life situations.  

B. The stupidity of AI pioneers and most of their successors – despite great intellectual brilliance – in embracing the notion that human cognition is fundamentally algorithmic in nature; or is ultimately based on processes of an algorithmic type. Likewise the stupidity of adopting digital computing devices as a chief paradigm for understanding the human mind and the brain as a biological organ.

These gratuitous assumptions, having no scientific basis, energized some of the early work on AI systems; but in my view they greatly hamper its further development. As a result, not only AI per se, but a large part of what is nowadays called “cognitive science” became trapped in the tiny, flat world of combinatorics and formal mathematical models. 

The Chinese expression 井底之蛙 (jǐngdǐzhīwā) – the frog at the bottom of the well – fits perfectly!  

The fictional artificial intelligence character “HAL” from the film 2001: a Space Odyssey directed by Stanley Kubrik. AI pioneer Marvin Minsky was a scientific advisor to the futuristic production. Photo: Wikimedia

C. Stupidity induced in human beings by their interactions with AI systems and by the impact of the so-called “cognitive revolution” and its philosophical precursors on language, education, science and culture in general.

The danger is not that AI systems will become more intelligent than humans. Rather, people may become so stupid that they can no longer recognize the difference. Here the same rule applies to specifically human forms of cognition, as to exercising our muscles: “use it or lose it”!    

What is stupidity?

It is difficult to nail down the meaning of “stupidity” in a manner that would fit present-day academic criteria. Notwithstanding, the phenomenon of stupidity has been a focus of attention in human culture from the earliest known times, reflected in ancient oral traditions, in teachings of elders and wise men, in countless fables, stories and anecdotes.

From the earliest times, metaphorical humor and irony were cultivated as countermeasures to stupidity. One might rightly speculate that the human race would not have survived without them. Although the “database” has greatly expanded in the course of history, it is doubtful whether people today have more insight into the nature of stupidity than they had 3000 years ago. 

That being said, recent decades’ literature on the problem of stupidity contains useful characterizations, which I draw from here. 

Typical problem: A company has highly intelligent, capable employees and a seemingly excellent management. After some initial successes it fails and goes bankrupt, as a result of persistent mistakes, misjudgments and poor performance. What happened? 

Study of such cases has led scholars and management consultants to the concept of “functional stupidity.” (See for example The Stupidity Paradox – The Power and Pitfalls of Functional Stupidity at Work by Mats Alvesson and André Spicer.) 

Although “functional stupidity” generally refers to an institutional context, it sheds light on the whole spectrum of stupidity, from that of individuals to entire societies. 

The following points are my attempt to capture the essence of stupidity in four points. They do not apply in exactly the same way to each of the dimensions A, B and C identified above, but the analogies should become clear as I go on:

1. Continued adherence to existing procedures, habits, modes of thinking and behavior, combined with an inability to recognize clear signs that these are inappropriate or even disastrous in the given concrete case. Rigid adherence to past experience and rote learning in the face of situations that call for fresh thinking. One could speak of blindly “algorithmic” behavior in the broadest sense.

2. Inability to “think out of the box”, to look at the bigger picture, to mentally jump out of the process in which one is engaged, and pose overreaching questions such as, “What am I really doing?” and “Does it make sense?” and “What is really going on here?”

3. A tendency to greatly overestimate the efficacy of adopted strategies and methods for dealing with a new problem (for example the Dunning-Kruger effect in humans, typically exhibited in AI utilizing statistical methods of optimization).

4. Lack of ability to grasp the meaning and significance of statements, situations and events – a deficit typically referred to in humans by expressions such as, “This person is too stupid to understand ….”

Stupidity in AI systems

Not surprisingly, with the spread of AI to practically all sectors of society and economy, and growing dependence on AI systems, concern has grown about the consequences of AI failures.

Beyond straightforward errors (such as false identification of objects), malperformance of AI systems can lead to unwanted and harmful consequences in areas where they are supposed to substitute for human judgment.

That includes choosing between alternative courses of action – for example while driving a car in a potential accident situation, or responding to military threats with short warning times – as well as in tasks like processing job applications and designing medical treatments. 

AI promises to free the mind from mental drudgery. Photo: iStock

The subject here is not whether AI systems perform better or worse than humans in a given case. It is, rather, stupidity as a systemic problem, embracing both the human dimension and that of AI systems.

These are often intertwined, and it is an interesting issue, with legal implications, how responsibility for consequences for AI failures is to be shared among the designers, the database suppliers and the managers and users of the system.    

AI systems fail and malperform in a great variety of ways. (See Classification Schemas for Artificial Intelligence Failures by P J Scott and R V Yampolski.) Few analysts have sought to identify a common denominator in a rigorous manner.

But I am sure that many who have dealt with AI systems long enough – not least those who, often with great insight and ingenuity, have sought to remedy the failings of AI systems and improve their performance – will be able to draw analogies to stupid behavior of human beings.

They have had to invest vast amounts of additional human intelligence into AI systems in the effort to make them less stupid.

Next is Part 2: How algorithmic mechanics hold back today’s AI systems

Jonathan Tennenbaum received his PhD in mathematics from the University of California in 1973 at age 22. Also a physicist, linguist and pianist, he’s a former editor of FUSION magazine. He lives in Berlin and travels frequently to Asia and elsewhere, consulting on economics, science and technology.

Asian century began in May 2020

Region has emerged as an economic zone as closely integrated as the European Union

by David P. Goldman – May 21, 2020

Economic historians may date the start of the Asian century to May 2020, when most Asian economies bounced back to full employment while the West languished in coronavirus lockdown. Asia has emerged as an economic zone as closely integrated as the European Union, increasingly insulated from economic shocks from the United States or Europe.

Google’s daily data on workplace mobility uses smartphone location to determine the number of people going to work – by far the most accurate and up-to-date available reading on economic activity. As of May 13, Taiwan, South Korea and Vietnam were back to normal levels. Japan and Germany had climbed back to 20% below normal. The US, France and the UK remain paralyzed. Google can’t take readings in China, but the available evidence indicates that China is on the same track as Taiwan, South Korea and Vietnam.

Asian economic recovery is consistent with success in controlling the Covid-19 pandemic. China, Japan, Taiwan, South Korea, Hong Kong and Singapore have Covid-19 death rates a tenth of Germany’s and a hundredth of the rate in the US, UK, France or Spain. As I reported May 21, the US is struggling to re-open its economy despite a much higher rate of new infections than the Asian countries or Germany. That entails substantial risk. Two Ford Motor plants in the US that had re-opened May 17 shut yesterday after employees tested positive for Covid-19, for example.

Asia’s short-term surge followed its success in disease prevention. But the long-term driver of Asian growth is China’s emergence as a tech superpower. This week’s session of the People’s Congress in Beijing is expected to pass a $1.4 trillion of new government investments in 5G broadband, factory automation, self-driving cars, artificial intelligence and related fields. 

Asia now acts as a cohesive economic bloc. Sixty percent of Asian countries’ trade is within Asia, the same proportion as the European Union. The Google mobility numbers confirm what we learned earlier this month from China’s April trade data. Intra-Asian trade surged year-over-year, while trade with the United States stagnated. 

The surge in Chinese trade with Southeast Asia, South Korea and Taiwan shows the extent of Asian economic integration. China’s exports to Asia have grown much faster than its trade with the US, which stagnated after 2014.

China’s stock market meanwhile is this year’s top performer, down only 2% year-to-date on the MSCI Index in US dollar terms while all other major exchanges are deep in negative numbers. The strength of China’s stock market is noteworthy given the escalation of economic warfare with the US, including a US ban on third-party exports of computer chips made with US intellectual property to blacklisted Chinese companies, and the threat to de-list Chinese companies on US stock exchange.

Healthcare technology companies, though, led the Chinese stock market, with Alibaba Health Information more than doubling year to date. China’s ambition to lead the world in artificial intelligence and big data analysis in the health sector got a boost from the Covid-19 pandemic, to the consternation of US officials.

Last week the US Commerce Department imposed controls on sales of semiconductors to Chinese firms on Washington’s “entity list,” if they are produced anywhere in the world with US technology. China’s telecommunications giant Huawei, the world leader in 5G broadband, designs its own chips and contracts their fabrication to Taiwan Semiconductor Manufacturing Corporation, the world’s top chip foundry. TSMC uses American chip-making equipment and will fall under the ban. Industry analysts are waiting to see how strictly the US will enforce these rules, which have a 120-day grace period.

As I wrote on May 18, this represents a bet-the-farm gamble on the part of the Trump Administration, which has failed to dissuade most of its allies from doing business with Huawei, which Washington labels a threat to US national security. A handful of US companies and Holland’s ASML now dominate the market for semiconductor fabrication equipment that can produce state-of-the-art chips. If the US prevents foundries around the world from selling to Huawei, the Chinese firm will have no source of high-end semiconductors. Huawei reportedly has a large inventory of chips; China’s semiconductor imports doubled between late 2017 and late 2018, suggesting that China has stockpiled chips as a precaution. The US ban if fully implemented would damage the Chinese firm.

But that is the last card that Washington has to play. Semiconductor manufacturing equipment is America’s last control point among critical technologies. In US corporate boardrooms and engineers’ Internet chat rooms, the question is not whether, but when China will reverse engineer American or Dutch machines and produce its own. China may not be able to buy high-end computer chips, but it can hire all the chip engineers it wants anywhere in the world. Taiwan now dominates chip fabrication, and a tenth of Taiwan’s chip engineers are now working at double pay on the Chinese mainland, according to media reports. 

In the past, China has established its high-tech autonomy much faster than most observers expected. Its number two telecommunications equipment firm ZTE nearly shut down in April 2018 after Washington embargoed sales of the Qualcomm chips that power its smartphones. By December 2018, Huawei was producing its own Kirin chipset, with more power than the Qualcomm product. China still uses American software to design chips, and depends on Taiwanese foundries using US equipment. If China reaches self-sufficiency in chip production quickly, the last stronghold of US tech dominance will fall.

Morrison’s accord is WORK-CHOICES 2.0

Irrelevance is the enemy of political leaders, and to avoid sinking to the bottom of the field, they need to keep moving, adapt and make continuous announcements, even when there’s not too much to announce

May 30, 2020 – Eddy Jokovich

During a crisis, it’s absolutely essential for a prime minister to be seen to be ‘doing things’, while keeping an eye on their long-cherished agendas and engaging in political gamesmanship.

Scott Morrison is not one to miss opportunities, and engages in doublespeak, mistruths and fabrications to achieve his goals. And why not? There’s so much that can be achieved when a largely compliant media is happy to wave away political problems and create avenues for him to achieve his agenda with the least amount of friction.

During the week, Morrison was asked if he would consider a temporary salary reduction as a sign of solidarity with the Australian community. After all, he has frequently said “we’re all in this together” and, during the coronavirus crisis, many employees across Australia have had their salaries reduced, and many have lost their jobs completely.

Morrison rejected this idea, simply saying “I will continue doing the good job that I’m doing”. Which, of course, was the narrative that featured in the evening news, rather than his refusal to accept a pay cut.

‘Solidarity’ seems to be anathema to conservative politicians and unless it’s the form of solidarity implemented in the 1980s by the Polish union leader, Lech Walesa – which precipitated the fall of communism in Eastern Europe and ultimately introduced a brand of Thatcherism in Poland that was more extreme than Thatcher herself – it’s unlikely to embraced.

But when there’s a break in the media news cycle, a politician needs to fill it immediately and from absolutely out of nowhere, Morrison announced it was time to “put down the weapons” on industrial relations and extended an invitation to business groups and unions to reach agreements on how to change a system which he claims is “not fit for purpose”.

Morrison has not yet outlined which purpose the current industrial relations system doesn’t fit into, but the media was quick to announce Morrison’s move as ‘Accord 2.0’, and made comparisons with former Prime Minister, Bob Hawke, the instigator of the original Accord in the 1980s. Hawke was a giant of Australian politics: these are grand comparisons, but are they reasonable and is it fair to place Morrison and Hawke on the same pedestal? Short answer: no.

The Labor Accord

The original Prices and Incomes Accord was a series of seven reforms introduced by Labor administrations between 1983–1991 and included far-reaching consequences for employees, businesses and the economy. It was largely a response to the recession of the early 1980s and an attempt to revive a moribund economy still recovering from the 1970s oil crisis, the high frequency of industrial disputes, and poor economic management from Malcolm Fraser’s Liberal–National government.

Paul Keating and Bob Hawke.

The Accord became the centrepiece of the Hawke–Keating governments reform agenda to implement wage increases linked to the consumer price index; introduce universal health care (Medicare); agreed pay rises of over 6 per cent between 1985 and 1986; mandatory superannuation; increases in pensions and unemployment benefits; a reduction of the top personal tax rate; tax cuts for low and middle-income workers; and family income supplements for low-income families.

In addition, there were structural adjustment and investments plans for manufacturing industries; implementation of key tax avoidance measures; a national workplace health and safety framework; and a target of achieving the highest level of employment and economic growth among OECD countries.

The Australian economy at the end of Fraser’s tenure in 1983 was at a crossroad. Between 1981–83, there had been a 3.7 per cent fall in GDP (a 6.2 per cent fall in GDP per capita), unemployment had risen to 10 per cent, and much-needed reforms recommended by the Campbell Commission into Banking – supported by many economists and business leaders at the time – were shelved.

The measures introduced through the Accord were necessary to turnaround a badly performing economy but, in all likelihood, could only have been implemented by a Labor government, with Bob Hawke as the consensus leader. Many of those key reforms and financial supports for working people required strong support and trade-offs from the union movement, and these reforms were antithetical – and still are – to the values of the Liberal Party.

Fraser was never likely to win that 1983 election but, even if he did, he would not have had the political capital or the abilities to achieve any of the key reforms arising from the Accord. And this is precisely the same situation Morrison finds himself in now.

The key attributes of a post-coronavirus economy in Australia are different to Morrison’s core beliefs and those of the business community. Stabilising the economy – which had been performing poorly even before the economic effects of coronavirus became apparent – will require strong and effective government intervention, social security support and high levels of productive national government debt, and these are the measures the Liberal Party and the business community, traditionally, are not supportive of.

And, like Fraser after his role in the 1975 dismissal of the Whitlam government, Morrison is an opportunistic and divisive figure, untrustworthy, and unlikely to have the ability to bring diametrically opposing parties together to work towards a united goal.

WorkChoices 2.0?

Morrison hasn’t articulated what he hopes to achieve with his invitation of union leaders, employer and industry groups to “put their differences” aside and work towards a series of workplace changes that will overhaul Australia’s industrial relations framework. But whatever that might be, it’s unlikely to be as comprehensive as the original Accord. The Accord was a series of reforms implemented over eight years; Morrison wants a new industrial relations model formed by September, just three months away.

He has proposed five policy areas for discussion: award simplification; enterprise agreements; casual employment; compliance; and ‘Greenfield’ agreements for yet-to-be established enterprises.

Of course, assessing industrial relations, the role of the Fair Work Commission and the future of employment, especially during a time of crisis, is an essential part of government. The world continuously evolves and governments that fail to adapt to this changing world or fail to implement economic benefits that spread across as many of its citizens as possible, usually suffer the same fate as the Fraser Government in 1983 – ignominious removal from office for ignoring necessary and inevitable reforms.

Conversely, political parties forcing agendas too radical for the times, or ideological overreach – such as John Hewson’s Fightback! proposals in 1991, or John Howard’s WorkChoices agenda from 2005 – also suffer electorally. The correct balance has to be met but will Morrison be the one to achieve this?

Former Prime Minister, John Howard.

A closer look at Morrison’s record suggests he is not the political leader with the ability to make a consensus.

In pages lifted directly from former Queensland Premier Joh Bjelke–Petersen’s strategy book, Morrison rarely provides direct or clear answers to the public and frequently engages in brazen lying and obfuscation.

There’s no question about this: from the time of the battle with Michael Towke to win Liberal Party preselection in the seat of Cook in the 2007 federal election, Morrison will say the words that he needs to use to achieve his personal and ideological goals.

As Treasurer in 2017, he claimed he’d never made any cutbacks to aged care services, even though the 2016 Budget papers clearly showed a $1.2 billion reduction.

In early 2019, Morrison told the public his government had enacted “world’s best practice” legislation for the protection of endangered species, even though no such legislation had ever been tabled by Parliament or even discussed by his government.

In late 2019, Morrison’s office denied he had left the country during the bushfires emergency across Australia, even though he was actually on a family holiday in Hawaii. Afterwards, he claimed he was “receiving regular updates on the bushfires disaster” but Prime Minister and Cabinet Secretary, Phil Gaetjens recently told the Senate Committee Hearing on the Black Summer Bushfires, no such briefings were ever made.

Morrison also denied any involvement in the misappropriation of funds from the Community Sport Infrastructure Program, even though the former Minister for Sports, Bridget McKenzie made the claim that it was the Prime Minister’s office that made the final adjudication about which marginal seats should be targeted in the lead-up to the 2019 federal election.

These are just a few of the litany of mistruths Morrison has put out into the public realm and, somehow, he’s managed to seduce the media to such an extent that egregious mistakes and lies are subtly filtered away or ignored, as if they never occurred.

Will his claim that he won’t pursue union-busting legislation (the Ensuring Integrity Bill) as “a sign of good faith” just be another case of about-face, followed by a denial that he ever made the suggestion, or yet another rejection of an assertion?

We have to remember the Morrison government re-tabled this Bill in Parliament last month, a few months into the pandemic and just weeks after Morrison suggested this was “not the time for ideologies”.

Like Howard before him, a complete overhaul of the industrial relations system to benefit business, at the expense of employees, is Morrison’s ‘Holy Grail’ of agendas, and it’s very unlikely he’ll be putting this agenda aside.

In November 2019, he announced he wanted to remove “unnecessary clutter” within industrial relations, including a reduction in award compliance measures, wholesale changes to enterprise bargaining, and allowing businesses to employ staff as subcontractors without the same protections currently offered to employees.

And there’s nothing new in this agenda: it’s a replica of Morrison’s comments when he was Treasurer in 2015, and it’s the ongoing wish list of the Business Council of Australia. And in classic political marketing, Morrison keeps repeating “the industrial relations system is broken”, without offering a clear idea of what is actually broken.

Already, he has refused to guarantee existing pay and conditions but surely an “act of faith” to the union movement would be to make such a guarantee?

John Howard eventually added a ‘no-disadvantage’ test to WorkChoices, when it became obvious the policy was designed to reduce worker benefits and favour the business community, and became a political liability for the Liberal–National Government.

Morrison wants to avoid the mistakes made by Howard, mistakes which ultimately contributed to his loss in the 2007 election. And, through one side of the mouth, he’ll try to convince workers across Australia these reforms – if it comes to that – are in their best interests, while through the other side, telling the business community sotto voce they’ll essentially be getting everything they’ve ever wanted. And then he’ll deny he ever said any worker wouldn’t be worse off, once they discover they’ve lost most of their working conditions and stability of employment.

Because that’s what Morrison does: he manipulates and denies evidence from his past and it’s a behaviour which has been a key feature of his time in office.

The framing of Morrison’s proposals as ‘Accord 2.0’ is premature. The reforms and employee benefits from the original Accord were developed over eight years and the main architect of the program, Bob Hawke, had the experience, the intellect, the ability for consensus as well as the stature, to bring parties together and work towards common goals. Morrison has few of these abilities.

Of course, we’ll have to wait to see what the outcomes are in September, but Morrison is unlikely to support measures which are anathema to his personal political thinking and the business community. And this is where the problem lies: Morrison wants to force more free-market philosophies at the worst possible time to implement them, and is reluctant to accept these ideas might just have been the cause of the many economic problems in the first place.

Originally published by NewPolitics

China: one country, two sessions, three threats

Getting back to domestic business quickly is essential for a renewed push on the grand chessboard

by Pepe Escobar – May 22, 2020

The key takeaways of the Two Sessions of the 13th National People’s Congress in Beijing are already in the public domain.  

In a nutshell: no GDP target for 2020; a budget deficit of at least 3.6% of GDP; one trillion yuan in special treasury bonds; corporate fees/taxes cut by 2.5 trillion yuan; a defense budget rise of a modest 6.6%; and governments at all levels committed to “tighten their belts.” 

The focus, as predicted, is to get China’s domestic economy, post-Covid-19, on track for solid growth in 2021. 

Also predictably, the whole focus in the Anglo-American sphere has been on Hong Kong – as in the new legal framework, to be approved next week, engineered to prevent subversion, foreign interference “or any acts that severely endanger national security.” After all, as a Global Times editorial stresses, Hong Kong is an extremely sensitive national security matter.

This is a direct result of what the Chinese observer mission based in Shenzhen learned from the attempt by assorted fifth columnists and weaponized black blocs to nearly destroy Hong Kong last summer. 

No wonder the Anglo-American “freedom fighter” front is livid. The gloves are off. No more free lunch. No more paid protests. No more black blocs. No more hybrid war. Baba Beijing’s got a brand new bag.

The three threats

It’s absolutely essential to position the Two Sessions within the larger, incandescent geopolitical and geoeconomic context of the de facto new Cold War – hybrid war included – between the US and China. 

So let’s focus on an American insider: former White House national security adviser Lieutenant General HR McMaster, author of the upcoming Battlegrounds: The Fight to Defend the Free World.

This is as clear cut as it gets in terms of how the “free world,” in Pentagonese, perceives the rise of China. Call it the view of the industrial-military-surveillance-media complex. 

Beijing, per McMaster, is pursuing a policy of “co-option, coercion and concealment,” centered on three axes: Made in China 2025; the New Silk Roads, or Belt and Road Initiative; and a “military-civil fusion” – arguably the most “totalitarian” vector, centered on creating a global intel network in espionage and cyber-attacks.  

Call these the three threats. 

Whatever the spin across the Beltway, Made in China 2025 remains alive and well – even if the terminology has been skipped.

The target, to be reached via $1.4 trillion in investments, is to profit from the knowledge accumulated by Huawei, Alibaba, SenseTime Group and others to design a seamless AI environment. In the process, China should be reinventing its technological base and restructuring the entire semiconductor supply chain to be domestic-based. These are all non-negotiables.  

Belt and Road, in Pentagonese, is synonymous of “economic clientelism” and a “ruthless debt trap.” But McMaster gives away the game when he describes the cardinal sin as “the goal of displacing the influence of the United States and its key partners.” 

As for the “military-civil fusion,” in Pentagonese, that’s all about fast tracking “stolen technologies to the army in such areas as space, cyberspace, biology, artificial intelligence and energy.” It amounts to “espionage and cyber-theft.” 

In sum: “pushback” is essential against those China’s commies becoming “even more aggressive in promoting its statist economy and authoritarian political model.”

Chinese diaspora speaks

Apart from this binary, quite pedestrian assessment, McMaster does make an interesting point: “The US and other free nations should view expatriate communities as a strength. Chinese abroad – if protected from the meddling and espionage of their government – can provide a significant counter to Beijing’s propaganda and disinformation.”

So let’s compare it with the insights of a true master in Chinese diaspora: the redoubtable professor Wang Gungwu, born in Surabaya in Indonesia, who will be 90 years old this coming October and is the author of a delightful, poignant book of memoirs, Home is Not Here.

For outsiders there’s no better explanation of the predominant frame of mind across China: 

“At least two generations of Chinese have learnt to appreciate that the modern West has valuable ideas and institutions to offer, but the turmoil of much of the 20th century has also made them feel that the Western European versions of democracy might not be that important for China’s national development. The majority of Chinese seem to approve of policies that place order and stability above freedom and political participation. They believe that this is what the country needs at this stage and resent being regularly criticized as politically unliberated and backward.” 

Wang Gungwu stresses how the Chinese think quite differently from the “universalist” trajectory of the West, and thus reaches the heart of the matter: “Should the PRC succeed in providing an alternative route to prosperity and independence, the US (and elsewhere in the West) would see that as a fundamental threat to its (and Western European) dominance in the world. Those who feel threatened would then do everything they can to stop China. I think this is what most Chinese believe is what American leaders are prepared to do.” 

No US Deep State assessment can possibly stand when ignoring the wealth of Chinese history: “The nature of China’s politics, whether under emperors, warlords, nationalists or communists, was so rooted in Chinese history that no individual or group of intellectuals could offer a new vision that could appeal to the majority of the Chinese people. In the end, that majority seemed to have accepted the legitimacy of PRC’s victory on the battlefield coupled with the capacity to bring order and renewed purpose to a rejuvenated China.” 

Remixed long telegram

Federal prosecutor Francis Sempa, author of America’s Global Role and an adjunct professor of political science at Wilkes University, has compared McMaster’s assessment of the China “threat” to the legendary “long telegram” written by George Kennan in 1947, under the pseudonym X. 

The “long telegram” designed the subsequent strategy of containing the Soviet Union, complete with the building up of the North Atlantic Treaty Organization. It was the prime Cold War blueprint.

The current, pedestrian long telegram remix might also have long legs. Sempa, to his credit, at least admits that “McMaster’s timid policy recommendations will not lead to the gradual break-up or mellowing of Chinese Communist power.” 

He suggests – what else – “containment,” which should be “firm and vigilant.” And he recognizes, to his credit, that it should be “based on an understanding of Chinese history and Indo-Pacific geography.” But then, once again, he gives away the game – in true Zbigniew Brzezinski fashion: what matters most is “the need to prevent a hostile power from controlling the key power centers of the Eurasian landmass.”

It’s no wonder the US Deep State identifies Belt and Road and its spin-offs such as the Digital Silk Road and the Health Silk Road across Eurasia as manifestations of a “hostile power.” 

The whole fulcrum of US foreign policy since WWII has been to prevent Eurasia integration – now actively pursued by the Russia-China strategic partnership. New Silk Roads across Russia – part of Putin’s Great Eurasia Partnership – are bound to merge with Belt and Road. Putin and Xi will meet again, face-to-face, in mid-July in St. Petersburg, for the twin summits of BRICS and the Shanghai Cooperation Organization, and will further discuss it in extensive detail. 

So presiding, in silence, over the Two Sessions, is the understanding by the Chinese leadership that getting back to domestic business, fast, is essential for a renewed push on the grand chessboard. They know the industrial-military-surveillance-media complex will pull no punches to deploy every possible geopolitical and geoeconomic strategy to sabotage Eurasia integration.

Made in China 2025; Belt and Road – the post-modern equivalent of the Ancient Silk Road; Huawei; China’s manufacturing pre-eminence; breakthroughs in the fight against Covid-19 – everything is a target. And yet, in parallel, nothing – from a remixed long telegram to stale ruminations on the Thucydides Trap – will derail a rejuvenated China from hitting its own targets.

Trump bets the farm on Huawei equipment ban

US president opts for so-called nuclear option to stop Chinese telecom giant’s rollout of 5G mobile broadband

by David Goldman – May 22, 2020

After a failed two-year campaign to stop China’s Huawei Technologies from leading the world’s rollout of 5G mobile broadband, the Trump Administration announced the so-called nuclear option, asserting control over sales of computer chips made anywhere in the world with US equipment.

Silicon Valley firms like LAM and Applied Materials provide high-end fabrication equipment to the chip-fabrication giants who manufacture the chips that Huawei designs, and the US rule announced Friday could shut off Huawei’s access to the top-of-the-line chips it buys from Taiwan Semiconductor Manufacturing Corp (TSMC).

The ban may apply not only to the high-end chips that Huawei buys from Taiwanese fabricators for its high-end smartphones and servers, but also to radio frequency devices that power its 5G base stations.

That might hold back China’s US$170 billion internal rollout of 5G and hamper Huawei’s network building elsewhere, according to industry experts.

Earlier this year, the Trump Administration floated a number of plans for competing with Huawei, including a “virtual 5G” approach that substitutes software for hardware, or the purchase of Sweden’s Ericsson, the second-largest builder of 5G networks.

Ericsson is presently worth about $28 billion; add an acquisition premium and a $15 billion shot to its R&D budget, and for $50 billion the US would have had a national champion to take on Huawei. The tech war might cost the US many times that amount. 

If China retaliates by shutting US tech companies out of the Chinese market, the outcome will be a collapse of trans-Pacific technology trade, aggravating what already is the worst economic downturn since the Second World War.

Both sides will suffer, perhaps gravely.  The dispute has the potential to escalate into an all-out trade war that would push the world into depression. 

In the medium term, China will build substitutes for US equipment. China buys nearly 60% of the world’s semiconductors, and the loss of the Chinese market would cripple the American semiconductor industry.

When the US stopped American chipmakers from selling chips to China’s number two telecommunications equipment firm ZTE in April 2018, the company shut down. By December 2018, though, Huawei had designed its own chipset for smartphones with capability that matched Qualcomm’s.

TSMC fabricates the chips, and that is what the new US ruling threatens to block.

The new US rules pushes the world into uncharted territory. Semiconductors drove the digital transformation of the world economy, and their design and manufacture combines technology from thousands of firms in dozens of countries.

The next shoe to drop will come from Beijing, which is mulling retaliatory sanctions against US companies like Apple, Qualcomm, Boeing and Cisco. Chinese leader Xi Jinping did not handle the initial phase of the epidemic well and suffered a significant loss of prestige. He cannot afford to be humiliated by the United States, and will respond in kind.

Washington’s after-the-fact assertion over extraterritorial rights over sales of products made by American equipment has no precedent. During the Cold War, foreign companies that bought American technology had to give assurances in advance that the products would not be sold on to the Soviet Union and its allies.

In this case, Taiwan Semiconductor and other fabricators bought American equipment to make products for Huawei and other Chinese companies. Huawei is now TSMC’s largest customer, overtaking Apple. The semiconductor industry around the world will scramble to remove as many American components as possible from the supply chain.

It’s also unprecedented for the United States to try to stop the rollout of a key technology – in this case 5G broadband – rather than lead the rollout itself. If Huawei can’t source radio frequency devices from Taiwan, it will not fulfill its contracts to build 500,000 base stations. 

It’s possible that Huawei’s 5G rollout in Europe will be set back by a year or more, giving Washington more time to think up  an alternative. But it’s also possible that the US semiconductor industry will be the odd man out, as the rest of the world finds alternatives to US technology.

Washington is betting the farm on the hope that China and its partners won’t find a workaround in time. If they do, the new restrictions will be America’s last hurrah as a tech power. Ten years ago China would have been helpless. But during the past decade Chinese universities have muscled their way up to world class, thanks in large part to the return of tens of thousands of Chinese with doctorates from American universities.

China’s tech industry has the depth and breadth to attack the whole range of semiconductor production issues. Throughout the escalating Sino-American tech war, the Chinese have come up to speed faster than either Washington or the industry consensus expected.

The risk is that the US might lose the crown jewels – its leadership in semiconductor technology. That’s why the Trump Administration hesitated to impose a third-party export ban earlier.

At the urging of the US Defense Department, the White House rejected the nuclear option late in 2019, after America’s top tech designers warned that Chinese retaliation would shut them out of the Asian market. National Economic Council Chairman Larry Kudlow told the Wall Street Journal February 4: “We don’t want to put our great companies out of business.”

The president tweeted February 18: “The United States cannot, & will not, become such a difficult place to deal with in terms of foreign countries buying our product, including for the always used National Security excuse, that our companies will be forced to leave in order to remain competitive.”

Trump changed his mind after blaming China for the coronavirus epidemic. His trade adviser Peter Navarro declared last week, “We are at war with China,” and accused China of deliberately sending infected passengers on international flights from Wuhan to spread the virus.

Some observers attribute Washington’s increasingly hostile stance towards China to election rhetoric, but Trump didn’t have to throw a hand grenade into the semiconductor supply chain to get votes.

There is another, more ominous motivation. America faces a GDP decline of perhaps 10% during 2020, and an extremely uncertain recovery as it gradually reopens business activity without widespread testing or contact tracing.

The Asian economies – where the epidemic is largely under control– are coming back on line rapidly, and intra-Asian trade is booming (see “Who’s Decoupling from Whom?,” Asia Times, May 11, 2020).

Defense Secretary Mike Espers warned May 4 that China will use the pandemic to expand its footprint in Europe, “as a way to invest in critical industry and infrastructure, with effect on security in the long term.”

As a spinoff from its flagship 5G product, Huawei offers a series of artificial intelligence (AI) applications for healthcare, including diagnostic, telemedicine, and pharmaceutical research. China’s AI capacity played a key role in suppressing the epidemic, and hopes to lead in medical AI, possibly the 21st century’s biggest industry. China’s success in applying AI to epidemic control is an important selling point.

China meanwhile badly misplayed what should have been a strong hand. Navarro’s allegation that China deliberately spread the epidemic is inflammatory nonsense, and Secretary of State Mike Pompeo has yet to provide evidence that Covid-19 came from the Wuhan Virology Lab, as he alleged vociferously last week.

But China did prevaricate for weeks before admitting that an epidemic was underway – despite warnings from top Western virologists early in January that the world might face a global pandemic.

Western scientists had an accurate picture of the risk by the first week in January, but with few exceptions failed to persuade their governments to act quickly. Beijing’s ham-handed attempts to buy influence through so-called face-mask diplomacy annoyed the Western countries most sympathetic to China.

Washington hopes that China’s loss of face through the epidemic will make it easier to impose controls on technology.

Retaliation against China through extraterritorial bans on chip sales is a high-risk  response. LAM, Applied Materials and other American equipment makers dominate the present market, although Holland’s ASML has a monopoly on extreme ultraviolet lithography (EUV), the technology required to make the chips with the highest density of transistors.

Late last year the US persuaded the Dutch government to block the sale of a EUV machine to China. Last year the Chinese Academy of Sciences announced that it had developed its own EUV machine, but it is far away from application to large-scale production. If China puts its industry on a wartime footing with Manhattan-Project style resources, it might develop substitutes faster than the US expects.

According to Dr Handel Jones, the CEO of International Business Strategies, a prominent semiconductor consulting firm, “Blocking 5 and 7 nanometer sales to Huawei” from Taiwan Semiconductor and other fabricators “will have a major impact on the ability of Huawei to be competitive in smartphones.

Blocking radio frequency devices and other products to Huawei will stop the buildout of 5G in China, and that will not be tolerated. Even switching designs to [the mainland Chinese fabricator] Semiconductor Manufacturing International Corp at 14 nanometers would take a year.”

“It is both a very serious and volatile situation,” Dr Jones added. “There is a 120-day grace period where hopefully compromises will emerge.”

China meanwhile is considering its response. From the Chinese side of the board, elementary game theory indicates a maximalist response designed to inflict extreme damage on the already-weakened US economy.

The Chinese English-language daily wrote May 17: “Some industry analysts believed that a counterstrike against US companies like Qualcomm and Apple might prompt them to lobby against such restrictions as their interests in the Chinese market are important for maintaining their sustainable growth. For instance, 65% of Qualcomm’s total revenue lay in China, according to media reports in August 2019.”

Predictive vs. Preventive Maintenance: Which is Best?

The key to an effective, optimized strategy is finding the right balance

Matt Sabee

Most facilities today have well-thought-out maintenance programs. However, many facility managers are still asking one question: Which is better for my electrical system—preventive maintenance or predictive maintenance? In order to administer the best program, both types of maintenance need to be incorporated. This often begs additional questions: Why should we continue to utilize older technology? Shouldn’t we jump on the new technology bandwagon and utilize only predictive maintenance?

It’s true that predictive maintenance is the wave of the future, and new technology will assist facility managers and business owners with making decisions around data. For example, alerts will be configured into analytical programs to notify users when particular assets are out of tolerance. When this happens, maintenance staff will have the ability to utilize all the data from the electrical system to best implement plans to remove assets or schedule downtime to maintain them. Either way, facilities will be able to shut down assets at a planned time, saving money and frustration for the maintenance staff.

You now may wonder: If we are able to schedule downtime with predictive maintenance, why would we still incorporate preventive maintenance into our plan?

Preventive maintenance still fits in many areas of an electrical system. While predictive maintenance is the wave of the future and will assist in increasing uptime, it will not work in every scenario. For example, every motor control center, starter panel, and smaller distribution panel board has critical equipment that it feeds. It may not make financial sense to install temperature sensors in all of these buckets, and the technology may not be available for each breaker. In these scenarios, performing preventive maintenance with a thermal imaging camera on a semi-annual or annual basis will give you the best protection against costly downtime.

Preventive maintenance is also recommended for breakers and large fused switches. This equipment needs to be exercised on a yearly basis to ensure that the lubrication doesn’t become sticky, preventing the operation of the equipment. Trip units within the breakers also need to be tested on an annual or three-year basis depending on voltage and manufacturer.

Best-in-class maintenance programs incorporate both predictive and preventive maintenance. Utilizing the best of both will create the highest levels of facility uptime.

Matt Sabee is director of power solutions for Faith Technologies in Menasha, Wisc, In this role he is responsible for the overall management of field solutions services, including electrical, arc flash, predictive maintenance, and mission-critical services.

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Japan could carry the day in a US-China conflict

Japan’s military rise has been stealthy but strong and is increasingly concentrated on China’s perceived threat

by Bertil Lintner

When Japanese Prime Minister Shinzo Abe said last month that the Covid-19 pandemic was the biggest national crisis since World War II, it was widely overlooked that just weeks earlier his government passed by far the nation’s biggest defense budget since the end of that conflict.

The Japanese Diet, or parliament, approved a whopping US$46.3 billion defense budget on March 27, replete with earmarks for new hypersonic anti-ship missiles and helicopter carrier upgrades that will allow for the carrying of Lockheed Martin F-35B stealth fighters.  

Defense-related spending in Japan has traditionally aimed chiefly to shield against neighboring North Korea’s nuclear threat. But the new ramped up spending is more clearly pointed towards an expansionist and increasingly assertive China, according to Japanese military insiders.

“It is China, not North Korea, that is the main concern,” said a Japanese official who requested anonymity.

As the US ramps up Covid-19 inspired threats against China and fears of a possible armed conflict mount, many strategic analysts have speculated that the Asia-Pacific’s strategic balance may have shifted in favor of China in sight of its fast rising military might and capabilities.

But that calculus often overlooks Japan’s stealthier military progress and the support it could provide the US in any potential conflict scenario, including through new weapons’ systems designed specifically to counter China’s new-age military assets including aircraft carriers.

Exhibit A is Japan’s new hypersonic anti-ship missile, which is specifically designed to pose a threat to Chinese aircraft carriers in the East and South China Seas. The missile, qualified as a “game changer” by the Japanese defense establishment, can glide at high speed and follow complex patterns, making it difficult to intercept with existing anti-missile shields.

When finally put into service, Japan will be the fourth country in the world after the United States, Russia and China to be armed with hypersonic gliding technology.

New spending will also go towards deploying Japan’s first real aircraft carriers since World War II as well as enhancing its space security, including through research into using electronic waves to disrupt what the budget terms “enemy communication systems”, likely meaning China’s.

Japan’s bolstered naval capacities will allow it to monitor or, from its main and outlying islands, even interdict Chinese naval forces from breaking out of the Yellow Sea into the Pacific in a potential conflict scenario.

In April 2018, moreover, Japan inaugurated its first marine unit since World War II. Serving under the military’s Amphibious Rapid Deployment Brigade, it is ready for action anywhere in the immediate maritime region.

Some observers believe that the Japanese Navy is now as capable, and possibly superior, to any force in the Pacific including China.

Meanwhile, more China-oriented defense spending is on the way. Ministry of Defense forecasts show that the defense budget will increase to $48.4 billion in fiscal 2021 and rise to $56.7 billion by 2024.

That would appear to be conflict with Japan’s pacifist 1947 constitution, imposed on it by the US after its defeat in World War II to prevent a repeat of its invasions across the region.

Japan’s defense budget is still maintained at 1% of gross domestic product (GDP), a rule imposed in the late 1950s to prevent Japan from becoming a military superpower, an era when memories of the country’s wartime atrocities were still fresh.

But with China’s recent strong emergence as a military power, that budgetary limit looks increasingly anachronistic and could soon be lifted if defense hawks in Tokyo have their way.

By law, the former expansionist power’s Self-Defense Forces (SDF) are still not permitted to maintain armed forces with war potential. But since its formation in 1954, SDF has quietly grown into one of the world’s most powerful, if not understated, militaries.

Indeed, Japan now has the world’s eighth-largest military budget, trailing only the US, China, India, Russia, Saudi-Arabia, France, Germany and the United Kingdom, according to the Stockholm International Peace Research Institute, a think tank.

The SDF now has nearly 250,000 active personnel and is equipped with the latest weaponry and technology procured mainly from the US. That includes a wide range of missiles, fighter planes and helicopters, as well as some of the world’s most technologically advanced diesel-electric submarines and indigenously built battle tanks.

Japan also maintains a permanent naval base in Djibouti on the Horn of Africa, where the US and China also maintain military bases.

Tokyo has come under pressure from US President Donald Trump to boost its budget and shoulder more financial responsibility for US-provided defense protection at Japan-situated bases, a rising point of contention between the allies.

In April last year, then defense minister Takeshi Iwaya declared that Japan is already spending 1.3% of GDP on defense when peacekeeping operations, coastguards and other security costs are tallied.

Tokyo has increased defense spending every year under Abe. Moreover, the constitution’s Article 9, which outlaws war as a means to settle international disputes, was re-interpreted in 2014 to allow the SDF to defend its allies, including the US, if war is declared upon them.

That provision has enabled Japan to participate in future more actively in military operations outside its own boundaries, a trend that actually began in the early 1990s through the SDF’s participation in a UN intervention to establish peace in war-torn Cambodia.

Although the SDF’s mission was termed “non-combatant”, it was the first time since World War II that Japanese troops were seen outside the country. That deployment was followed by participation in a range of other UN peace-keeping operations in Africa and East Timor. In 2004, Japan sent troops to Iraq to assist the US-led reconstruction of that country.

That deployment was controversial even at home in Japan as it was the first time since World War II that Japan sent troops abroad except for participation in UN peace-keeping missions.

But Tokyo has since increasingly coordinated its defense policies with the US as well as India, two countries which are equally worried about China’s growing clout in the Indo-Pacific region.

Japan’s participation in Exercise Malabar, an annual tripartite naval exercise that involves partnership with the US and India since 2015, has demonstrated its naval prowess far from home and sent a muscular message to China, significantly at a time when Beijing extends its naval reach deeper into the Indian Ocean.

It is unclear whether Exercise Malabar will be conducted this year due to the Covid-19 crisis, but Japan’s defense relations with India have grown apace since Narendra Modi became prime minister in 2014.

Japanese ambassador to India Kenji Hiramatsu, speaking to media after a visit to Japan by Indian Defense Minister Rajnath Singh in September last year, was clearly upbeat about the partnership, stating that the visit “is very significant to compare notes on various aspects of Japan-India defense cooperation, including some joint exercises [and] defense equipment cooperation…we are very excited to have a good discussion on opening the Pacific also. We are on the same page on various aspects of international affairs.”

That cooperation involves not only Exercise Malabar but also land-based maneuevers. In October and November last year, a joint exercise called “Dharma Guardian-2019” between India and Japan was conducted at the military’s Insurgency and Jungle Warfare School at Vairangte in the northeastern Indian state of Mizoram.

According to an official Indian statement at the time, the aim of the exercise was to carry out “joint training of troops in counter-insurgency and counter-terrorism operations in mountainous terrains.”

Why Japan would be interested in counterinsurgency operations in India was not made clear, but “the statement also said that, “Exercise Dharma Guardian-2019 will further cement the long-standing strategic ties between India and Japan.” Northeastern India is a volatile region where the border with China is still in dispute.

China has been quick to respond to what it perceives as an emerging US-led, Japan-supported anti-China axis in the region. China has two combat-ready aircraft carriers, the Liaoning and the Shandong, and a third is under construction. According to the US-based International Institute for Strategic Studies, China plans to have five or six aircraft carriers by 2030.

Hu Xijin, editor-in-chief of the Global Times, an English language newspaper under the communist party organ People’s Daily, wrote in an editorial on May 8 that China needs to expand its stockpile of nuclear warheads from 260 currently to 1,000. “Some people may call me a war monger”, Hu wrote, but “they should instead give this label to US politicians who are openly hostile to China…this is particularly true as we are facing an increasingly irrational US.”

Irrational or not, the US has stepped up its verbal attacks in China during the Covid-19 crisis with Trump even saying that the virus, which originated in China and as of May 10 had claimed 279,345 lives globally and 78,794 in the United States, is the “worst attack” ever on his country, more severe than the Japanese bombing of Pearl Harbor during World War II and the 9/11 terrorist attacks of 2001.

Abe, on the other hand, has refrained from openly blaming China for the virus crisis. The Japanese government even donated medical supplies to China when it ran short of masks, gloves and other protective gear, and when the cruise ship Diamond Princess was quarantined in Yokohama, China sent testing kits to Japan while Chinese billionaire Jack Ma donated a million masks.

But such gestures of goodwill cannot hide the fact that new battle-lines are fast being drawn in the Indo-Pacific and that Japan will play an increasingly important role in the region’s post Covid-19 geo-strategic contests, regardless if the US becomes more or less committed to the region’s security.

South Korea is the pivot in the Huawei wars

Restrictions on semiconductor sales to Chinese companies are ‘unacceptable’ to Seoul

by David Goldman

South Korea has told Washington that restrictions on semiconductor sales to Huawei and other Chinese companies are “unacceptable,” according to industry sources. 

Seoul is trying to mediate between Beijing and Washington following the US Commerce Department’s May 18 announcement that sales of computer chips to companies on its “entity list” will require a license if they are produced with US technology, even if they are produced overseas by foreign companies.

After the US temporarily banned exports of high-end smartphone chips to China’s ZTE Corp in Aprl 2018, Huawei began a crash program to design its own chips. 

The Commerce Department’s new rules are designed to close what it calls a loophole in US export restrictions, the fabrication of Chinese-designed chips in Taiwan.

The extraterritorial assertion of control over third-party sales of products made with US equipment is unprecedented, and has no basis in international law, South Korea has remonstrated with Washington. China bought almost twice as much from South Korea during the last 12 months as the United States. 

‘Egocentric actions’

Sixty percent of all Asian trade stays within Asia, due to tight integration of industrial supply chains. The Korea Times in a May 27 editorial denounced “Washington’s egocentric actions and Beijing bashing,” warning that “a new Cold War and a trade war will deal a severe blow to Korea.”

President Trump bet the farm on the Huawei chip ban, I argued in a May 22 analysis. The US present has a monopoly on some key chip-making technology, in part because the R&D cost of challenging US companies is huge compared to the size of the equipment market. 

If the US uses its advantage to suppress technology elsewhere, China and other countries will put the resources required into breaking the US monopoly. China may not be able to buy chips made with US companies, but Chinese companies can hire anyone they want, and Chinese electrical engineers are conducting most of the research in the field. 

The US may extract short-term advantages, but at the cost of losing one of its last remaining advantages in high tech.

China may also retaliate against US tech companies, but it is unlikely to take any action until the details of the Commerce Department’s restrictions are clarified.

South Korea may be the odd man out in Washington’s strategy. Industry analysts say that a deal is possible under which Huawei would spin off its smartphone division, a major consumer of chips fabricated by TSMC, leaving a much larger market share to Samsung. 

Samsung sold 59 million handsets in the first quarter of 2020, compared to 49 million for Huawei, 40 million for Apple, and 30 million for Xioami. In return, Samsung would continue to provide memory chips for China as well as fabricate Chinese-designed logic chips that are now produced in Taiwan. 

Huawei executives say that the smartphone division has low margins compared to its core telecommunications equipment business.

The Commerce Department ruling is intended to stop Taiwan Semiconductor Manufacturing Corporation from fabricating its state-of-the-art chips for Huawei’s HiSilicon division. 

TSMC and South Korea’s Samsung are the only fabricators in the world that can produce top-of-the-line 7-nanometer chips containing more than 10 billion transistors, the powerhouse for high-end smartphones and artificial intelligence applications.

Fear of retaliation

South Korea fears Chinese retaliation if the US compels Samsung to stop selling chips to Huawei and other “entity list” companies. Samsung is a major supplier of memory chips to China, but it has the capability to fabricate the custom-designed logic chips that power smartphones and AI servers. 

South Korea relies on Beijing to keep North Korea in check, and the consequences of a rupture in relations with China would be dire.

The semiconductor industry is lobbying furiously with the Commerce Department to interpret the new rules flexibly. In the worst-case scenario, the Commerce Department would ban all chip sales to Huawei from Taiwan and South Korea. 

That would cripple a large part of Huawei’s business. A looser interpretation would allow a large volume of products to flow to the Chinese telecommunications giant. 

The Commerce Department is expected to announce the details of its rules in mid-July.

Virtually all the world’s major chip fabricators buy equipment from American firms like LAN, Applied Materials and KLA. If a foreign chip foundry were to violate the ban, the US could shut off its access to US machinery. The semiconductor equipment makers are working flat out to accelerate shipments, semiconductor industry sources report. 

The US no longer makes the most sophisticated chip-making equipment, though. The Dutch firm ASML, a spinoff of Philips NV, is now the world’s only produce of Extreme Ultra-Violet (EUV) lithography machines that etch impossibly small patterns on 5- and 7-nanometer chips. At the request of the US government, Holland canceled the sale of an ASML machine to China late in 2019.

It is hard to tell what would happen if the Commerce Department attempted to enforce an absolute ban on chip sales to Huawei and other “entity list” companies. Huawei buys chips from Taiwan not only for its smartphones, but for the base stations that power China’s $170 billion rollout of 5G mobile broadband. 

7-nanometer capability

It is unlikely that any US action could stop China’s 5G plans. Huawei reportedly has enough inventory to last through the end of 2020. Chinese chip foundries, of which Semiconductor Manufacturing International Corp (SMIC) is the largest, produce older 14-nanometer chips. 

With some rapid redesign, mainland Chinese chips could be adapted to replace the newer Taiwanese chips in Huawei’s radio frequency devices. SMIC also claims that it will have 7-nanometer capability by year-end. 

SMIC uses American semiconductor manufacturing equipment, and presumably would be subject to a ban on purchases of US machines if it sold to Huawei.

Samsung uses a variety of American, Japanese and Dutch equipment. According to one industry expert, Samsung’s foundries could run without American machines. It would be difficult for the United States to prevent Holland’s ASML and Japan’s Tokyo Electron from selling chip-making equipment to South Korea.

China also could enlist Sweden’s Ericsson, the world’s second-largest telecom equipment maker after Huawei, to increase its role in China’s 5G buildout. Ericsson last month won a contract for 11.4% of the new 5G network under construction for China Mobile and China Unicom. 

Ericsson’s largest and newest plant is in Nanjing, and it is capable of scaling up production rapidly. The Swedish company has almost 15,000 employees in China vs. 9,000 in the United States. It has a plant in Texas, but it has only 100 employees, a token concession to American demands that Ericsson produce 5G equipment in the United States.

Chinese telecom industry executives insist that nothing will stop China from rolling out its 5G network, and building a range of Fourth Industrial Revolution applications, including tele-medicine, autonomous vehicles, self-programming industrial robots, and smart cities.

An important unknown is the speed at which China can come to speed in chip production. SMIC, its national champion in chip fabrication, just increased its annual R&D budget to $4.3 billion from $2.3 billion, with an injection of government aid. 

Dr Yohann Tschudi, an analyst for the French semiconductor consultancy Yole Développement, wrote May 28 that SMIC is the “potential final winner” in the chip wars. “TSMC is doing around $6 billion business per year with Huawei, and it seems difficult to turn down that money. 

However, if it happens, SMIC will be the beneficiary as China will accelerate the move to autonomy at the highest nodes and SMIC will get Huawei’s orders,” Tschudi argued at Micronews.com.

Missing element

A missing element in Washington’s campaign to stave off Chinese dominance in Fourth Industrial Revolution technologies is research and development at home. 

The Trump Administration presented TSMC’s decision to build a $12 billion chip foundry in Arizona, but that is a qualified success for several reasons. From a national security standpoint, a Taiwanese company that makes chips for sensitive US defense applications will never be entirely secure. 

By the time the projected plant comes on line in 2024, moreover, the 5-nanometer chips that it builds will have been superseded by 3-nanometer chips, leaving the United States with what will by then be an antiquated product. And the plant’s output of a projected 20,000 wafers per month will meet only a fraction of US demand; Apple alone uses twice that much.

After spending nearly $6 trillion between the US Treasury and Federal Reserve on income protection and market stabilization, no additional funds were allocated for basic R&D in a vital industry that changes by the month. 

During the Reagan years, federal subsidies for basic R&D amounted to 1.4% of GDP, nearly double today’s level. Washington wants to throw its weight around without spending the money required to bulk up. That could end badly.

China’s Belt and Road keeps steaming ahead in Laos

Covid-19 pandemic has not slowed Beijing’s increasingly crucial plan to build a railway connecting China to mainland SE Asia

by John McBeth

Under fire for bullying neighbors in the South China Sea, China is patting itself on the back for the progress it is making on the 411-kilometer China-Laos railway through a sparsely populated nation that has barely been touched by the Covid-19 pandemic.   

The official Xinhua News Agency reported on April 25 that all the beams are now in place for the 1,458-meter Luang Prabang cross-Mekong super-bridge, one of the biggest undertakings on a track that includes 169 other bridges and 72 mountain-blasting tunnels.

Construction resumed on the signature Belt and Road project only 23 days after Vientiane’s communist government closed its borders on April 1 with China, Thailand, Vietnam and Cambodia in response to the discovery of its eighth Covid-19 case.

Although there is skepticism about the official figures, landlocked Laos still has only 19 confirmed coronavirus infections among its 7.3 million people, less than any of the 10 Association of Southeast Asian Nation (ASEAN) states, ahead of Cambodia (122), Myanmar (178) and Vietnam (288).

Only last week, the government announced that nine patients who had recovered from the virus were being recalled to hospital to undergo follow-up tests in a bid to calm public concerns.

Short of a cover-up, the only explanation for the small number of cases lies in Laos’ sparse population, few major urban centers and bare-bones public transportation. Vientiane, the capital and biggest city, has only a million people.

Foreign health experts point to the same apparent mitigating factors in neighboring Cambodia, coupled with the fact that hugging, cheek kissing and hand shaking are not part of either culture.

World Health Organization (WHO) figures seem to speak for themselves: With a total of 56,981 confirmed cases and 1,848 deaths, the ASEAN nationsand their collective 620 million population have less victims than 14 individual countries around the globe.

Laos has recently joined China and Vietnam in moving to ban the sale and consumption of rodents and exotic animals, whether wild-caught or captive bred, which were believed to be the cause of the original Covid-19 outbreak in Wuhan.

Laos’ Wildlife Conservation Society says over the past 10 years the Department of Livestock and Fisheries has detected known and novel coronaviruses in rodents, bats and other wildlife being sold in wet markets across the country.

It is not clear whether the Chinese workers on the railway were required to return home, or were merely placed in partial lockdown when the Lao government closed its borders and introduced other stricter social distancing measures on April 1.

But as Xinhua pointed out: “Taking advantage of the experiences of epidemic prevention and control in China, the Chinese engineering team took multiple measures, including strictly implementing a safety production management system.”

The railway originates in Kunming, the capital of China’s southern Yunnan province 572 kilometers north of the Lao border, and broadly aims to connect China to mainland Southeast Asia by a 160-kilometer-per-hour link all the way through Thailand and Malaysia to Singapore.

Map of the Lao-China Railway currently under construction in Laos. The Thai line has not yet been built

It may still take a decade or more for that dream to be realized given the different stages of development and commitment, but creating an alternative transport infrastructure for the importation of energy, food and other vital resources has always been a long-term Chinese goal.

Apart from helping to bring the broader region into its sphere of influence, Beijing would avoid its dependency on coastal areas which could become vulnerable to potential Western sanctions and naval blockades, particularly in a more volatile post-pandemic world.

Spanning spectacular ravines and burrowing under rugged mountains, the 504-kilometer-long Xuxi-Mohan section between Kunming and the Laos frontier is still expected to be finished by 2022, despite a two-month delay caused by the pandemic.

Across the border, Xinhua reports that work has only recently been completed on the nine-kilometer Na Mor tunnel in Laos’ northern Oudomxay province, 50 kilometers southeast of the new Boten economic zone where the track crosses from China.

Engineers have had to proceed carefully because of unexploded mines and other ordnance dropped by US aircraft during the Indochina War – a hazard confronted by road-building crews across most parts of the country.

The Lao government already claims to have spent US$1 billion on developing the 700-hectare Boten zone, which it expects will eventually attract as much as $10 billion in new Chinese investment and generate 300,000 jobs.

Further to the south, the new rail link crosses the Mekong River twice on the approach to Luang Prabang, the former royal capital and a major destination for a tourist industry that last year earned $785 million in foreign exchange.

The China-Lao railway is eventually designed to link with a planned 630-km high-speed line between the Thai Mekong border city of Nong Khai and Bangkok, part of which was originally due to open in  2023.

Wary of being loaded down with Chinese debt and the implication of that for the future relationship, Thailand has declined Beijing’s offer of high-interest loans to finance the $5.85 billion first phase to Nakhon Ratchasima on Thailand’s central plains.

Already with an external debt burden of $9.7 billion that concerns the International Monetary Fund (IMF), Laos will have to pay $900 million towards the $6 billion cost of the project, about 60% of which will supposedly be borne by private and state-owned enterprises.

Much of the financing arrangements, however, are far from transparent and if past experience is any indication, Laos will have to pay in land concessions and natural resources if it can’t meet its obligations for a project that, in the end, is part of a Chinese grand design.

Who’s decoupling from whom?

As US reevaluates its relationship with China, Asian giant’s export data show increasing regional integration

by David P. Goldman May 11, 2020

China’s March export value rose 8.5% year on year, diverging widely from analyst forecasts which foresaw a 12% decline. Strong exports growth to Asia, and especially Southeast Asia, fed the unexpected improvement.

The March data denote a steady increase in Asian economic integration, in which a larger portion of Asian trade is directed towards Asia itself. While America contemplates decoupling from China, it seems that Asia is decoupling from the United States. Since the US-China tech war began in April 2018 with Washington’s ban on chip exports to China’s ZTE Corporation, “de-Americanization of supply chains” has been the buzzword in the semiconductor industry.

Taiwan, Vietnam, Thailand and Indonesia purchased about 50% more Chinese products in April 2020 than they did in the year-earlier month. Japan and Korea showed 20% gains. Exports to the US rose year-on-year, but from a very low 2019 base. 

China’s imports from Asia also rose sharply.

The sharp increase in intra-Asian trade may reflect the re-start of Asian economies. A combination of massive testing, digital surveillance, and social solidarity kept death rates from Covid-19 at less than 10 per million of population in most of Asia, vs hundreds of deaths in the United States and most of Europe. Most of China’s manufacturing economy now above 90% of capacity. The re-opening of supply chains explains a good deal of the surge in both imports and exports. Nonetheless, the strong two-day data set in relief the growing integration of the major Asian economies.

A shift in supply chains away from the United States, though, probably accounts for some of the jump in Asian trade. Japan now ships more semiconductors to China than it does to the United States. As late as 2014, Japan sold three times as much semiconductors to the US than to China.

A small part of the import surge can be explained by Chinese stockpiling of semiconductors as a precaution against American exercise of the “nuclear option” against China’s telecommunications giant Huawei. The US might forbid foreign companies to sell computer chips to Huawei if they use American equipment to fabricate them. That would in theory prevent Taiwan Semiconductor Manufacturing Corporation, the world’s largest chip fabricator, from selling to Huawei, now TSMC’s biggest customer with 13% of total sales. Huawei’s chip-design subsidiary HiSilicon now ranks among the world’s top 10 chipmakers, and its domestic sales in the first quarter exceed those of Qualcomm. But HiSilicon cannot manufacture its own chips, and China’s onshore chipmaking capacity cannot provide the top-of-the-line chips that Huawei puts into its high-end smartphones and servers.

US technology companies persuaded the Trump Administration not to try to bar Huawei from access to Taiwanese and other foreign chips, arguing that the measure would delay but not prevent China from achieving self-sufficiency. In the meantime, American firms would lose market share in China – as Qualcomm and Nvdia already have lost to HiSilicon – while the rest of the world would scramble to remove as much American content as possible from the supply chain. That would be a difficult and costly exercise, as the Hinrich Foundation argued in a January 2020 report

The Hinrich report argues, “The risks of facing more draconian US extraterritorial laws, including those  that fall under the Office of Foreign  Assets Control (OFAC) – especially as  the US dollar remains the predominant  international currency – means that  even a simple financial transaction with  a restricted entity could be prohibited,  thereby killing the business relationship  entirely. As such, Huawei and other Chinese  tech companies are looking to  decouple entirely (or bide their time  until it is possible) from US-influenced  supply chains. To do this, Chinese firms  must form alliances with non-American  technology companies.”