U.S.-China tech game escalates, where do Wall Street giants go from here

The outline of the 14th Five-Year Plan officially released by the National People’s Congress recently shows that artificial intelligence and chips are identified as the core keys that the Chinese Communist Party wants to break through, indicating that the Chinese Communist Party is strengthening its offensive against the United States in the field of science and technology. In the face of the escalating U.S.-China technology war, Wall Street financial giants are already deeply involved in the whirlpool, and it is difficult for them to stay out of it.

China’s “14th Five-Year Plan” Escalates U.S.-China Technology War AI, Chips Become Key Focus

In March this year, artificial intelligence (AI) became the new high ground in the U.S.-China technology battle.

On March 1, the National Security Council on Artificial Intelligence (NSCAI), established by the U.S. Congress, released the final version of its report, recommending that the U.S. government take action to address the Chinese Communist Party’s challenges in order to “win the AI era”.

The report notes that AI is the “foundation of all technologies” and the top technology area for Chinese venture capital investment in the U.S.; that the chip/semiconductor industry is the foundation for other industries, such as artificial intelligence, the military, etc.; and that the Chinese Communist Party has mobilized national efforts to deliberately target key sectors, companies, and research institutions in the U.S. for technology The Chinese Communist Party has mobilized national forces to target key sectors, companies and research institutions in the U.S. for deliberate technology theft and transfer.

NSCAI recommends that the U.S. government consider the hardware component of AI, i.e., chips, and research talent as choke points to address the CCP’s challenges; and proposes three major response strategies: upgrading export controls on photolithography, a key equipment for chips, especially coordinating export control policies on Dutch and Japanese photolithography; strengthening screening/disclosure of CCP investments in the U.S.; and strengthening scientific research protection and countering the CCP’s recruitment of foreign talent.

On March 13, 2021, the CCP released its 14th Five-Year Plan, which officially lists AI as the first priority target for research in frontier areas of science and technology. (Screenshot of the 14th Five-Year Plan released by the Chinese Communist Party’s Xinhua website)

It is no coincidence that a few days later, the Communist Party’s two sessions listed artificial intelligence as the first priority target for the next five years in the frontier areas of science and technology, and chip hardware, which is the foundation of AI, was also identified as the focus of science and technology research and resource optimization.

In fact, this is not the first Time that the U.S. and China have crossed paths in the field of science and technology and national strategy.

The Trump administration has actively countered the CCP’s technological and military ambitions in recent years, for example, by launching a high-profile blacklist of “Chinese Communist Party military companies” last year to counter the CCP’s use of U.S. civilian technology to develop its military power through its “civil-military integration” strategy. For example, a high-profile blacklist of “Chinese military companies” was launched last year to counter the CCP’s use of U.S. civilian technology to develop its military power through its “civil-military integration” strategy.

On Nov. 12, 2020, the U.S. government ordered a ban on U.S. investment in 31 Chinese companies owned or controlled by the Communist Party’s military, including the China Aerospace Industry Corporation, which makes the PLA’s fifth-generation fighter jets, and the China Aerospace Science and Industry Corporation, which produces tactical and strategic missile systems. The Defense Department identified the 31 Chinese companies as “Chinese Communist Party military companies” in blacklists published in June and August of that year, and expanded the blacklist twice, in December of last year and January of this year.

Many of the 31 blacklisted companies are listed on the Chinese mainland and Hong Kong stock exchanges, and many are listed on the U.S. stock exchange, the Wall Street Journal reported on Nov. 13, 2020 (original article). The White House said Americans were not aware that their retirement funds were being invested in these companies that support the military ambitions of the Chinese Communist Party.

U.S. Joins Allies to Strengthen Chip Ban to Snipe at Communist Party’s Military Ambitions

The Wire reported on Feb. 7 this year that the U.S. government lobbied the Dutch government to prevent Dutch lithography giant ASML from selling lithography machines to SMIC, citing security risks.

U.S. Commerce officially opened a guillotine against SMIC.

SMIC, China’s largest chipmaker whose major shareholders are all state-owned capital, was identified by the U.S. government as being under the control of the Chinese Communist Party’s military in December 2020, but rumors have been circulating in the mainland market since the end of the year that SMIC has been granted a mature process license in the U.S., and even ASML’s chip manufacturing equipment, which had been frozen for nearly three years, was released to the U.S.

However, ASML issued an announcement in March (original ASML announcement) clarifying that on February 1, 2021 SMIC and ASML extended the purchase agreement signed on January 1, 2018, and that the order, totaling $1.2 billion, was completed between March 16, 2020 and March 2, 2021; and that the order was only for “deep ultraviolet (DUV)” lithography equipment. DUV” lithography equipment (not the more advanced “Extreme Ultraviolet (EUV)” lithography).

ASML is the only company in the world that can manufacture EUV lithography, which is the key equipment for producing high-end chips for artificial intelligence, advanced missiles, etc.

“The Wire reported that EUV lithography could help the Chinese Communist Party quickly upgrade its military, surveillance and AI technologies, but the Trump Administration blocked SMIC’s 2018 order to buy ASML’s EUVs.

According to a March 5 report by Hong Kong media outlet “hk01,” Taiwan experts say that even if the U.S. ban is relaxed and SMIC is able to obtain licenses for mature processes (above 14nm), it will only be purchasing previous-generation equipment, and its high-grade chip yields are quite low, making it difficult to catch up with Taiwan in the short term.

On September 26 last year, Reuters cited a September 25 document from the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) indicating that the U.S. would restrict exports to SMIC; SMIC issued an announcement on October 4 that year acknowledging that U.S. export controls “may have a material adverse impact on future manufacturing operations” of the company.

On December 3, 2020, the U.S. Department of Defense expanded its blacklist of military-related sanctions against the Chinese Communist Party to include SMIC, China National Offshore Oil Corporation, China Construction Technology and China International Engineering Consulting Corporation, restricting U.S. investors from investing in them. Also on December 18 of that year, the U.S. Department of Commerce added SMIC and more than 60 other Chinese companies that support the CCP’s military ambitions to its trade control blacklist.

Ali backed by the Chinese Communist Party’s military to invest in key areas of military-civilian integration

While the U.S. and China are already at war in the technology sector, the U.S. counterattack has encountered constraints from its own people, such as disagreements within the U.S. government over sanctions and expansion of the military-related blacklist.

Alibaba said it will provide its own chips with available access for its cloud services.

The Wall Street Journal reported on January 15, 2021, that the U.S. Treasury Department vigorously opposed adding Alibaba, Tencent and Baidu, three Chinese tech giants, to the blacklist despite their alleged cooperation with the Communist Party’s military and intelligence services, fearing that sanctions would lead to serious economic consequences such as a massive sell-off.

On Jan. 12 of this year RWR Consulting released a report (Report PDF) revealing that the Chinese Communist Party is developing a military Cloud Computing system by uniting companies such as Alibaba and Tencent with equipment suppliers and Chinese companies developing high-tech weapons. Alibaba, Tencent and Baidu are among China’s largest cloud-based service providers.

After ZTE was sanctioned by the U.S. for cutting off its core in 2018, the Chinese Communist Party launched a national movement to build cores, and Ali joined in, setting up a wholly owned semiconductor chip company, Pingtougo, in September of that year. According to a report by the mainland media in May last year, Ali’s “Pingtou” is expected to become TSMC‘s main customer. TSMC is the world’s top chip foundry.

In addition to actively investing in the CCP’s military and civilian priorities, Ali has also been exposed as having more ties to the CCP’s military.

The New York Times reported on September 16, 2014 (original story) that Alibaba’s ties to the top levels of the CCP military are evidenced by tombstones.

The report said that in Changshou Township, Hunan Province, the ancestral tombstones of Zhang Zhen’s Family, former vice chairman of the Communist Party’s Central Military Commission, are inscribed not only with the names of the deceased, but also with living family members, including Zhang Lian Yang, Zhang Zhen’s second son and former head of the PLA General Staff’s Military Generations Bureau, and his wife Chen Xiaoying.

Chen Xiaoying was then chief executive of CITIC 21, and Zhang Lianyang was a board member until April of that year, when the company’s board was chaired by Wang Jun, the son of Wang Zhen, a Communist Party army general and former vice chairman of the country.

The company’s shares rose more than sevenfold after Alibaba bought the small, unknown company for about $170 million in January 2014; CITIC 21 didn’t even have a website before it was acquired by Ali, and hadn’t made a profit since 2006.

The New York Times report said the acquisition showed how the Chinese Communist Party’s princelings were profiting from the private sector, with the market value of Chen Xiaoying’s stake in CITIC 21 increasing by about $500 million.

Since 2018, chips have become one of the top priorities of the Communist Party’s civil-military integration strategy, with China’s three biggest IT giants, commonly known as “BAT” (initials of Baidu, Ali and Tencent), all starting to develop and build cores.

According to land media reports, Ali has set up the Pingtou Brother Chip Company, which has launched the Xuantie 910 CPU and the Huanguang 800 AI inference chip; Baidu has launched the Kunlun AI chip; Tencent set up the Tencent Cloud Computing Co.