Introducing Inquisitorial by Indianaut, a long-form newsletter where we explain and analyze important stories stemming out of the Indian entrepreneurial ecosystem & economy. New articles every Saturday & Sunday.
Four teams sat at workstations set up like high school carrels. Sergeants sat before keyboards; intelligence analysts on one side, linguists, and support staff on another. Each station was armed with four flat-screen computer monitors on adjustable arms and a pile of target lists and IP addresses and online aliases. They were cyberwarriors, and they all sat in the kind of oversize office chairs Internet gamers settle into before a long night.
From his vantage point in a small elevated bay at the back of the Operations Floor, Neil had a clear line of sight to all the operators' screens. And what they contained weren't glowing lines of code: Instead, Neil could see login screens — the actual login screens of ISIS members half a world away. Each one carefully preselected and put on a target list that, by Operation Day, had become so long it was on a 3-foot-by-7-foot piece of paper hung on the wall.
It looked like a giant bingo card. Each number represented a different member of the ISIS media operation. One number represented an editor, for instance, and all the accounts and IP addresses associated with him. Another might have been the group's graphic designer. As members of the terrorist group slept, a room full of military cyber operators at Fort Meade, Md., near Baltimore was ready to take over the accounts and crash them.
This is an excerpt from NPR’s recent piece titled How The U.S. Hacked ISIS detailing Operation Glowing Symphony, one of the largest and longest offensive cyber operations in U.S. military history.
Technology has evolved a tremendous amount over the years. It is the sole reason why this newsletter, the device you are reading it on, the device I’m writing it on not only exists but is available at an accessible price. Technological advancements have not only led to the democratization of information like never before but are also being actively used by nations to shape the new world order.
(Image Credits: Jason Lee/Reuters)
China is a country that is keen on establishing dominance and self-reliance on both hardware and software ecosystems. It has come a long way from setting up the Great Firewall to censor the internet and manufacturing electronics based on schematics of other companies. Today, it is developing hardware and software solutions that not only fulfill the demand of the domestic markets but also seek to compete in foreign markets, taking on the mighty Korean, Japanese and American tech giants.
China’s Semiconductor Industry
Semiconductors are the heart and soul of an electronic device, whether it’s a calculator, smartphone, or a supercomputer. Designing and manufacturing semiconductors and chips are not only a great business opportunity as the market for such devices is expanding every day, but also a great way to ensure that systems are secure and not vulnerable at the architecture level.
China is having to re-evaluate its options in the technological sector amidst the ongoing trade war with the USA. In June this year, The Federal Communications Commission (FCC) designated Huawei and ZTE as national security risks which made it even more difficult for these companies to acquire semiconductor chips from Intel and Qualcomm which lie at the heart of their devices. Other countries are also looking at restricting Huawei and ZTE’s participation in building 5G infrastructure stating risks of system backdoors.
Following these sanctions, the world saw the rise of China’s domestic semiconductor chip industry. This move aims at making Chinese companies self-reliant and moving away from their dependence on US companies like Intel and Qualcomm. The company that is leading the charge is Beijing’s Semiconductor Manufacturing International Corporation (SMIC). China is giving incentives to its chip manufacturers like corporate income tax relief of up to 10 years to boost production.
On the other side, Beijing’s intentions of making its own semiconductor aren’t exactly going according to plan despite huge valuations and government support. Its late induction in the manufacturing game has resulted in its products being outdated from the get-go. SMIC is working on the manufacturing of 14nm chips while the rest of the manufacturers such as Taiwan Semiconductor Manufacturing Company (TSMC) have gone on to develop 7nm chips that are smaller, and more power-efficient (what is being used by tech companies in mobile phones and computer processors). This leads to lesser demand for chips made by SMIC in comparison to those advanced chips made by other major players.
However, the sanctions put on TSMC limiting its supply to Huawei has been a blessing in disguise as SMIC is now supplying chips to Huawei, helping SMIC gain useful expertise in designing and manufacturing, helping China’s become self-reliant and decouple tech-trade relations with the United States.
Rare-earth Metals and China: Road to Semiconductor Dominance
Low prices and state-backed investment in technology and infrastructure have helped China in gaining dominance in the mining of rare-earth metals, which are essentially used in making semiconductor chips, electronics, etc. China accounts for 78% of rare-earth metal imports to the US which shows the amount of investment and strategy put behind the mining of rare-earth metals. After the US put restrictions and increased tariffs on Chinese goods, Beijing threatened to restrict rare earth metals exports to the US, which would limit Washington D.C.’s production of semiconductor chips.
The move would put China in the driver’s seat as opening new mines and extracting, separating, and refining these metals seems to be an alternative approach that the US could adopt to maintain its dominance in manufacturing these chips. However, this approach is easier said than done. Such activities are extremely high risk because of capital ownership, environmental damage, and high cost of production which could cripple the US economy further.
China’s economic aggression is guided by strategic industrial policies and exporting rare-earth metals at subsidized rates to drive out competitors and prevent new entrants in the global market. China’s dominance in this sector has been due to investments in human capital, industrial policy, and price controls which would help companies like SMIC to capitalize upon it and ramp up its production of semiconductor chips at low cost and widening its customer base.
Most recently, President Trump signed an executive order aimed at expanding the domestic production of rare-earth minerals in an effort to reduce dependence on China. The order, which declares a national emergency in the mining industry, directs the Interior Department to explore using the Defense Production Act to hasten the development of mines. The administration has previously used the law to accelerate the production of medical supplies during the coronavirus pandemic.
The Fallout
The strategy of isolating trade relations with a major economic power to choke them in global trade worked during the cold war era but can’t work in a globalized system. The rigid sanctions and accusations on Chinese companies engaging in Intellectual Property (IP) theft have failed to stop China. Instead, they have prompted Beijing to retaliate in innovative ways like opening an entire trading board - STAR Index, registering Chinese tech companies on it, and boosting their market value amongst other measures.
China’s dominance in the market of rare-earth metals would make it difficult for others to establish new supply chains. The US imposed restrictions on intersecting supply chains with China makes it harder for international economies to maintain their trade with the USA and China at the same time.
China’s ambitions to boost its domestic semiconductor development is starting to hurt American tech giants. According to the Semiconductor Industry Association (SIA), USA’s trade surplus in the semiconductor chip sector is over $2.1 Billion, would now be heavily affected post-sanctions and China’s domestic bid. Secondly, the increased tariffs on semiconductor chip trade are compelling companies to allocate additional resources to create duplicate or alternate supply chains, resulting in reduced profitability, increased costs, taking away productivity.
Chinese government’s directive to remove foreign PCs and software from its government offices and public institutions and replace them with Chinese alternatives within the next three years indicates that we are likely to see China building alternatives not only its hardware but also in the software space.
While China’s homegrown products lack the ability to compete at the global level right now, its fast advancements and manufacturing prowess is a threat to tech giants around the world. In the future we are likely to see Intel, AMD, Samsung, Apple, etc. not only competing with each other, having to advance and enhance their supply chains, finding new demand for its products but also tackling the Chinese tech industry’s efforts to globalize its trade as well.
Ayush Jha is a second-year undergraduate student pursuing B.A. (Hons.) Political Science Delhi College of Arts and Commerce, University of Delhi. He has an immense interest in international politics and economics and writes on these issues.