As China and the U.S. signed a phase one trade deal in an effort to put the brakes on the trade war, the controversy over alleged security risks of using Huawei’s equipment in 5G networks continued unabated. UK officials said that information presented by a U.S. delegation contained nothing its intelligence agencies had not already foreseen. As it ponders a decision on whether to allow UK telecom companies to buy Huawei’s equipment, the official position of the UK authorities is that that the security risk the Chinese company’s technology presents to British citizens is manageable. While UK Prime Minister Boris Johnson said that he would not put UK security at risk in upgrading the country’s 5G network, he also said that critics “must tell us what’s the alternative” to not using Huawei equipment. Johnson is due to make a final decision on whether to allow the tech firm to supply “non-core” parts of the UK telecoms system within weeks. In his first interview of the new year with BBC Breakfast, Johnson said: “The British public deserve to have access to the best possible technology. We want to put in gigabit broadband for everybody. Now if people oppose one brand or another then they have to tell us what’s the alternative,” the Guardian reports.

The U.S. is also trying to create a competitor for Huawei. New legislation introduced in the U.S. Senate aims to create a viable Western alternative to Huawei Technologies and undercut China’s dominance in global 5G networks. One of the biggest problems in Washington’s bid to counter Chinese strength in 5G networks is the lack of global alternatives to Huawei. The U.S. does not now have a viable competitor, while Finland’s Nokia, Sweden’s Ericsson and even South Korea’s Samsung cannot match the complete technological package and attractive financing that Huawei offers. The Senate bill tries to address that gap. If passed, it would spend more than USD1 billion to bolster Western competitiveness, allocate new spectrum and support research and development in the telecommunications industry, the South China Morning Post reports.

“We are at a critical point in history for defining the future of the U.S.-China relationship in the 21st century, and we cannot allow Chinese state-directed telecommunications companies to surpass American competitors,” said Republican Senator Marco Rubio of Florida, a sponsor of the bill. Speaking in Silicon Valley a day earlier, U.S. Secretary of State Mike Pompeo echoed the Senator’s contention that excluding Chinese carriers from 5G systems in the West was essential. “China – specifically the Chinese Communist Party – presents unique challenges, especially to your industry,” Pompeo told the Silicon Valley Leadership Group. “We’re putting our allies and partners on notice about the massive security and privacy risks connected to letting Huawei construct their 5G networks inside of their countries. This isn’t about selling American stuff. It’s not an American commercial effort. It’s a national security effort,” Pompeo added. The six Democratic and Republican Senators who introduced the bill – the Utilising Strategic Allied Telecommunications Act – underscore that moves aimed at challenging China enjoy broad bipartisan support in Washington these days.

Huawei said the bill was misguided. “Huawei has spent billions in 5G research, so it would be unfortunate to see such a waste of U.S. taxpayer’s money to duplicate efforts when there are more cost effective ways to ensure the security of a network,” said Donald J. Morrissey, the company’s U.S. Director of Government Affairs.

Meanwhile the case of Meng Wanzhou, Huawei’s CFO, is winding its way through Canadian courts. The U.S. extradition request hinges on allegations Meng made a fraudulent presentation to HSBC in 2013 over a Huawei subsidiary’s business ties in Iran, but recently revealed documents show the bank had been aware of Huawei’s business relationships in Iran for years earlier. The documents seen by the South China Morning Post show communications between HSBC staff and Huawei employees about the bank accounts of Skycom Tech dated from as early as 2010. Meng made her presentation to the bank in August 2013. The existence of the documents could raise questions about allegations that Meng had misled HSBC about Huawei’s financial connections with Skycom and the latter’s business in Iran, which Washington alleges violated U.S. sanctions. If extradited to and convicted in the U.S., she could face up to 30 years in prison on some of the charges.

The legal battle has become one of the most widely watched cases in the world, also causing a rapid deterioration in the bilateral relationship between Beijing and Ottawa. The British Columbia Supreme Court in Vancouver started hearing the case on January 20. New litigation to force Canada to disclose more documents related to her case could extend it beyond November and possibly into 2021.

The Chinese government downplayed its ‘Made in China 2025’ plan under pressure from the U.S., but is now aiming to rely on domestic production for 75% of its key components by creating 40 national manufacturing innovation centers by 2025, up from 15 at the end of 2019. Domestic production can currently only provide around a third of the key components required by China, but Li Yizhong, a former Minister of Industry and Information Technology, said that the level would be lifted to 40% by 2020 and 75% by 2025.

New industries and business models fostered by WeChat, China’s all-in-one mobile phone application connecting people and businesses with a QR code, created a market value of more than CNY8.58 trillion last year, WeChat operator Tencent Holdings said in a joint study with Tsinghua University’s Institute for Global Industry. Featuring WeChat’s mini programs – which run inside the app – public accounts and payment functions, comprising the so-called WeChat ecosystem, generated some 26 million jobs related to transactions via QR codes last year, the company said during its annual WeChat-themed Open Class in Guangzhou, Guangdong province. Transactions through mini programs reached CNY800 billion in 2019. The adoption of a WeChat Pay Score, which evaluates users’ credit worthiness using data analytics, helped save deposits worth over CNY100 billion.

WeChat currently hosts over 1 million mini programs, with 1.5 million developers and 82 million third-party platforms devoted to enriching various services via the app, which boasts 1.15 billion users globally. Among them, 800 million have chosen to tie their bank cards to the app so that they can pay with their phones across tens of millions of stores in more than 300 cities. Due to its ubiquity, WeChat has effectively prolonged the operating hours of businesses. Data showed that evening expenditure was most vibrant between 8 pm to 10 pm, while a quarter of WeChat Pay users opened their virtual wallets from 10 pm to midnight.

Technology has also empowered mom-and-pop stores and individual peddlers. The number of transactions settled via WeChat Pay tripled between 2017 and 2019. More than 50 million small merchants, or 79.4% nationwide, use WeChat Pay as a payment method. Customers used WeChat Pay 5.8 times per month on average for purchases last year. Scanning QR codes for food purchases jumped six times, while public transportation benefited from increased adoption of QR code swiping for metro rides and consequently enhanced access speed by three times. Over 60% of hospitals used WeChat Service Account, a customer relations function that cuts the average queue time by 43.6 minutes.

As a bridge connecting the real world and the virtual world, QR codes lower costs for business operators, add more value in a smoother fashion, and are set to accelerate digitalization of the entire society, said Wu Jing, Researcher with the Institute of Science and Development at the Chinese Academy of Sciences (CAS). WeChat said it plans to include more functionalities this year to better monetize mini programs, including live-streaming, targeted QR codes pegged to items, and object-recognition capabilities to help merchants better convert clicks into cash, said Du Jiahui, Vice General Manager of WeChat Open Platform, as reported by the China Daily.

Lenovo’s upcoming Yoga 5G laptop

The U.S. Federal Communications Commission (FCC) has begun accepting public comments on its decision that Chinese companies Huawei Technologies and ZTE pose national security risks to the United States. Interested parties have until February 3 to give feedback on a November vote that could ban America’s rural wireless providers from buying telecoms equipment from the companies with money from the U.S. Universal Service Fund worth USD8.5 billion. At the end of the one-month period, the FCC will review the comments and make a final decision. The latest move reflects the U.S. government’s continuing determination to block any Chinese telecom equipment maker from having a role in developing 5G networks in the U.S.

The Trump administration in May put Huawei on a blacklist barring the company from doing business with U.S. tech companies. The Commerce Department has since delayed the start of the ban three times to reduce the repercussions for U.S. companies that have continued to sell to Huawei. The prohibition is now slated to take effect on February 16. The U.S. has also been pressing governments globally to keep Chinese suppliers out of 5G networks because of potential national security threats from China. The FCC said it aimed to strip Chinese equipment from American rural wireless networks to curb Chinese influence in the sector. “Both companies are subject to Chinese laws broadly obligating them to cooperate with any request from the country’s intelligence services and to keep those requests secret,” FCC Chairman Ajit Pai said. “The concern is that hostile foreign actors could use hidden back doors to our networks to spy on us, steal from us, harm us with malware and viruses, or otherwise exploit our networks.” In September, the House Energy and Commerce Committee voted unanimously to send on to the House legislation that would authorize a USD1 billion fund to help telecoms carriers with fewer than 2 million customers to rip out and replace the Chinese equipment. Huawei has strongly disputed the FCC’s conclusions, urging Pai to reconsider designating Huawei as a national security threat.

The White House pressed the Netherlands to cancel the sale of Dutch chip manufacturing technology to China to prevent it from getting machinery that would allow it to make the world’s fastest microprocessors. Dutch semiconductor equipment company ASML, the global leader in lithography, is waiting for an extension of a government license to sell its most advanced machine to a Chinese customer, the South China Morning Post reports.

The discussion on whether to involve Huawei in European countries’ 5G rollouts has been politicized by some politicians, senior Chinese officials and experts said. They noted that European countries, which have reaped massive benefits from the Chinese market, should make a cautious choice on whether to follow unreasonable U.S. bullying of the Chinese firm or cooperate and achieve win-win results with China in the coming era. A right decision will not only get European countries a ride on the fast track of future technology development, but also herald a new era for China-EU cooperation that brings tangible benefits for both sides, they said, as reported by the Global Times.

China’s Ambassador to the United Kingdom Liu Xiaoming said a British ban on Huawei would leave the nation’s technological development “trailing far behind” the competition and severely delay Britain’s transition from 4G to 5G networks. He also said there is no evidence to support claims that Huawei poses a cybersecurity threat. “Fabricating ‘Huawei risk’ in the name of national security is tantamount to giving a dog a bad name to hang him,” Liu said. “Doing so will only hamper normal cooperation between countries, and in the end, those who intend to scare others would lift the stone only to drop it on their own feet.”

Cristiano Amon, President of U.S. chipmaker Qualcomm, estimates that 200 million 5G smartphones will be shipped in 2020. Forty-five operators now have 5G commercially deployed, while 340 operators are investing in 5G globally. We expect that the number will go up to 1 billion connections by 2023; two years faster than what it took for 4G to get to 1 billion,” Amon said. Chinese companies continue innovating in the 5G sector. In partnership with Qualcomm, Lenovo unveiled the world’s first 5G personal computer, the Yoga 5G, which will be available in the spring for USD1,499. “The 5G PC is now a reality, and that will define the future of productivity,” said Amon. 5G is “getting to lower price points so that we can scale”, he said, adding that the market is “moving toward 5G smartphones on a global scale”. 5G will also bring further developments in the autonomous driving industry by allowing C-V2X, which enables vehicles to communicate with each other and the environment around them, to share the 5.9 GHz band, the South China Morning Post and the China Daily report.

Beijing has been accelerating a de-Americanization campaign in core technologies like semiconductors and servers as the Chinese government has backed homegrown chipset makers amid the escalating tech cold war with the U.S. in 2019. Chipmaker Loongson Technology, a joint venture of the Beijing-based Chinese Academy of Sciences (CAS) and the Beijing municipal government, in December unveiled a new generation of general-purpose central processing units (CPUs) with improved performance. The company aims to compete with global rivals in 2020 and 2021 by promoting a 12-nanometer technology and world-class processing capabilities. All the chipsets’ source codes were designed in China, with the security mechanism, core processor and open-source operating system ensuring compatibility. Loongson Technology has been exploring setting up a new information technology ecosystem beyond U.S. tech giant Intel and UK-based Arm systems – the two dominant architectures for processors. Loongson said it expected to ship over 500,000 chipsets in 2019. It took two decades for a Chinese firm to develop its own chipset.

2019 marks a year when China and the U.S. descended into a new cold war not only in trade but also in high technology. While the world’s two largest economies have agreed on a phase one trade deal, Washington has not eased its restrictions on high-tech exports to China, a rising strategic rival in emerging technologies such as artificial intelligence (AI), big data and 5G. “2019 is a turning point for Chinese homegrown technologies,” Ni Guangnan, Academician with the Chinese Academy of Engineering (CAE) in Beijing, told the Global Times. “The Huawei issue helped us realize that core technologies have to be in our own hands, which should also be controllable. That largely boosted the replacement process.” Beijing has long pursued homegrown core technology development, but the task became more urgent after the U.S. cut supply to Huawei in May. “It partly explains the acceleration of homegrown technology development, as the central government has been very determined in making concrete progress and supporting domestic sectors,” Fang Xingdong, Founder of Beijing-based technology think tank ChinaLabs, said.

The central and local governments have expanded procurement of homegrown software, chipsets and servers this year. Some offices and public institutions have removed foreign computer equipment and software, increasing the country’s reliance on Chinese technologies. At state banks and security firms, office PCs of foreign brands have been replaced with domestic products.

Chipset and operating systems are considered as shortcomings in China’s IT industry, and homegrown technology is considered to be needed to safeguard the country’s network security. Domestic tech firms and research institutions including Lenovo, Sugon, Founder Group and the China Academy of Launch Vehicle Technology have come up with PCs, laptops, servers, network security equipment and industrial computers based on the new Loongson CPU. “Considering the country’s ambition in technological self-reliance, it will take three years for domestic companies to catch up with improving performance and building ecosystem,” ChinaLabs’ Fang said. The wholesale replacement of foreign computer equipment and software at government offices will generate a potential CNY200 billion market from 2019 to 2020, the Global Times reports.

China plans to replace foreign computer hard- and software with domestic products in three years’ time, in a potential blow to companies like HP, Dell and Microsoft. The Global Times reported that the move is part of a broader campaign to increase China’s reliance on home-made technologies, and is likely to fuel concerns of “decoupling,” as supply chains between the U.S. and China are being severed. Shen Yi, Professor at Shanghai-based Fudan University, said that linking the issue with trade was unprofessional, because long before the China-U.S. trade war, the Chinese government had already started to reduce its reliance on foreign-made equipment step by step. The Financial Times, which first published the story, also quoted analysts at China Securities, saying that a broker estimated that 20 million to 30 million pieces of hardware will need to be swapped as a result of the Chinese directive, with large scale replacement beginning next year.

China Standard Software Co (CS2C) and Tianjin Kylin Information Co (TKC) will jointly build a domestic operating system, according to the China Electronics Corporation (CEC). The NeoKylin Linux operating system developed by CS2C and the Kylin server operating system developed by TKC are the two most important domestic operating systems in the market. The NeoKylin Linux operating system fully supports mainstream open-hardware platforms at home and abroad, covering both server and desktop versions, and it is compatible with more than 4,000 software and hardware products, said Han Naiping, General Manager of CS2C.

In the contest between the U.S. and China for technological dominance, the latest battle is taking place under the Pacific Ocean with the laying of undersea cables to connect the Pacific Island countries. Of the 378 cables currently operating worldwide, 23 are under the Pacific. But many of these cables run right by Pacific Island nations on their paths between hubs in Los Angeles, Tokyo and Singapore. Just half a million of the 11 million people living in Pacific Island countries and Papua New Guinea – less than 5% – have access to a wired internet connection and only 1.5 million to a mobile connection. More than USD4 billion worth of cables are to come into service by 2021. Chinese tech firms like Huawei have divisions devoted to undersea connectivity that have laid thousands of kilometers of cable, and Chinese state telecommunication companies such as China Unicom have access to many of the existing trans-Pacific cables.

Meanwhile, Huawei has secured an important vote of trust, with Telefonica Deutschland selecting it as a key telecom equipment supplier for its 5G network, alongside Finland’s Nokia. This led Chinese analysts to conclude that Washington’s intensified efforts to ban Huawei on groundless accusations will ultimately fail. Part of the Spanish Telefonica group, Telefonica Deutschland said in a statement that the deal still has to be approved by German authorities, who are currently finalizing the security rules for telecom equipment suppliers. The company has followed in the footsteps of Switzerland’s Sunrise which has already launched its Huawei-powered 5G network. Sunrise has so far rolled out 5G services in more than 262 Swiss towns and cities, and over 50% of telecom equipment in its 5G core and radio networks is provided by Huawei.

But the company also suffered a setback, as Norway’s Telenor picked Swedish firm Ericsson to build its next-generation network after an extensive security evaluation. It would still use Huawei to maintain its 4G network. The Chinese ambassador in Berlin, Wu Ken, added to the controversy by threatening “consequences” if Huawei was excluded from supplying equipment to Germany’s 5G network. German lawmakers are preparing a bill that would ban on “untrustworthy” 5G vendors, without explicitly naming Huawei. Ambassador Wu said it was important that Chinese companies were not discriminated against. “Can we also say that German cars are not safe because we’re in a position to manufacture our own cars? No, that would be pure protectionism,” he said.