China is no longer a low-wage economy. To avoid being caught in a trap where its products are neither really cheap, nor really good, it wants to go upmarket, moving from low-tech standard products to high-tech, high-value products. This is what the strategy “China 2025” is about, supported by big government funding. Is this a legitimate strategy, or is it unfair competition? The US thinks the latter and is determined to do what it can to stop it. But they are unlikely to succeed.
The spectacular arrest in Canada of the chief financial officer from Chinese telecom giant Huawei follows on the heels of the US punishing another Chinese telecom company, ZTE, earlier this year. The argument is that these companies have violated the US sanctions against Iran. But this is a much deeper conflict and of existential importance for both the US and China and the consequences are far-reaching. How far is the US willing to go to prevent China from becoming a technological great power?
The US has during the last couple of years blocked Chinese technology firms from entering their market. One of the targets has been Huawei, one of the world's leaders in communication equipment. According to Michael Rogers, chairman of the House Permanent Select Committee on Intelligence, “Huawei and ZTE provide a wealth of opportunities for Chinese intelligence agencies to insert malicious hardware or software implants into critical telecommunications components and systems”. The reason, it becomes clear now, is that this is what NSA makes US companies do. This validates the old saying: Thieves believe everybody else steals.