Is a new 5G Iron Curtain emerging:  Russia and China Tech Cold War vs the U.S.?

A decision by Russian telco MTS to select Huawei Technologies to develop its 5G network comes just as the U.S. ban of the Chinese telecom gear provider could leave the U.S. lagging behind other global powers, analysts say in a CNN article.

Huawei Chairman Guo Ping and MTS boss Alexei Kornya signed the agreement in the Kremlin on Wednesday, with Russian President Vladimir Putin and Chinese leader Xi Jinping watching.

“We both add momentum to strategic cooperation between the two companies in high tech, thus building a foundation for commercial 5G rollouts in Russia in the nearest future,” Kornya said in an emailed statement. Guo highlighted that Huawei’s more than 16,000 5G-related patents make it “number one worldwide.” “We hope that our joined efforts will help Russia enter the 5G era sooner,” he added.

Guo Ping -chairman of Huawei- shaking hands with Alexei Kornya- head of MTS- at the Kremlin in Moscow, Russia.

The Kremlin noted that several business deals had been signed in a ceremony attended by Russia President Vladimir V. Putin and China Premier Mr. Xi.

It’s not clear Russia will have a national 5G network, using Chinese or Western equipment, as the military has so far declined to free up the necessary radio frequencies.

“The situation there is a bit complicated,” a deputy prime minister, Maksim Akimov, said at a meeting with Mr. Putin in April. “We’d like to ask you for relevant orders,” to the military, so Russia can keep up with the new (5G) cellphone technology.

MTS’ pending 5G Huawei deal comes as Chinese authorities moved this week to license its first array of 5G wireless service providers.   China approved its first batch of 5G licensing for commercial use, unveiling, in the words of state media, “a new era for the telecom industry.” Huawei will be deeply involved in that effort, adding to the more than 45 commercial 5G contracts the firm has signed in 30 countries around the world.

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The referenced CNN article stated:

The US has also been urging allies to restrict or ban the use of Huawei equipment in their 5G networks, warning that Beijing could use the sensitive data infrastructure for spying. Huawei has repeatedly denied that any of its products pose a national security risk.
While some US cities have begun rolling out 5G technologies, analysts have warned the Huawei ban risks slowing down countrywide adoption, and could see it lag behind China. Now even Russia, not usually thought of as a tech leader, may be poised to pull ahead.
Outside of the US, whether to buy from Huawei or not is increasingly becoming a political litmus test, one that threatens to exacerbate the bifurcation of the global internet into separate spheres, and hasten the demise of the open, truly worldwide web as we know it.
Those that choose to avoid Huawei also risk falling behind as the world moves towards the next stage of internet and communications technology.
“Having mutually exclusive technological spheres doesn’t simply mean supply chains will mirror each other on different continents,” technology analyst Tim Culpan wrote recently. “Rather, for countries around the world, it means that every business and investment decision becomes a political one.”
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“If the lights go out in the West, the East will still shine,” Huawei founder Ren Zhengfei said in February. “And if the North goes dark, there is still the South. America doesn’t represent the world. America only represents a portion of the world.”  Ren  previously suggested there were plenty of business opportunities outside the U.S.
Of course that is true and is how Huawei became the top telecom equipment maker without selling anything in the U.S. other than to rural telcos (as noted in this IEEE Techblog post).
USA vs. Huawei
On June 6th, China’s Commerce Ministry said it planned to draw up its own list of “unreliable” foreign companies to retaliate against the U.S. government ban of Huawei.
The MTS-Huawei deal came as Russia is courting Chinese investment at a business conference this week, the St. Petersburg International Economic Forum. Russian media reported about 1,000 Chinese businessmen attended, while the United States ambassador, Jon M. Huntsman Jr., boycotted the conference over the arrest this year of an American investor, Michael Calvey.
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Ron Amadeo wrote on ars Technica:
According to a report from The Financial Times, Google’s recent discussions with the US government actually argue that the Huawei ban is bad for national security. Google is reportedly asking for an exemption from the export ban.
The argument, reportedly, is that Huawei is currently dependent on Google for its Android smartphone software, and that dependence is a good thing for the US. The Financial Times quotes “one person with knowledge of the conversations” as saying, “Google has been arguing that by stopping it from dealing with Huawei, the US risks creating two kinds of Android operating system: the genuine version and a hybrid one. The hybrid one is likely to have more bugs in it than the Google one, and so could put Huawei phones more at risk of being hacked, not least by China.”
Banning Huawei from dealing with U.S. companies is definitely a double-edged sword. Huawei would have a tough time building smartphones or an app ecosystem without the help of U.S.-originated technology and app developers, but US hardware and software companies would lose access to the second largest smartphone maker in the world.
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Huawei faces loss of Google’s Android and Facebook Apps:
Huawei is preparing the release of its operating system, as it will soon lose access to Google’s version of Android in three months.  However,  Huawei’s operating system is not a solution for any market but China, and that’s mainly because of the Play Store that comes with Google’s Android.

Facebook will no longer allow its apps to be pre-installed on Huawei phones as the Chinese tech giant faces the ongoing fallout of a blacklisting of its services in the U.S.  That means that people who already own Huawei phones with apps such as Facebook, WhatsApp and Instagram will not be impacted, Facebook confirmed Friday that new phones from the tech company will not come with the applications.  However, Huawei devices (smartphones and tablets) that are already in the hands of consumers will still be able to run the apps and receive regular software updates, Facebook told Reuters.

Huawei, the second biggest smartphone brand in the world, has denied it cooperates with the Communist Party in Beijing. In retaliation to the administration’s blacklisting, China announced last month it would establish an “unreliable entity list” of foreign companies and individuals that “seriously damage” Chinese enterprises.
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Conclusions:
Chinese President Xi Jinping and his Russian counterpart Vladimir Putin have vowed to bolster Sino-Russian ties and oppose unilateralism, as the two nations seek to counterbalance the United States’ power on the international stage.  According to China’s state broadcaster CCTV, Xi told Putin that the frequent high-level exchanges between the two countries reflected the “uniqueness and distinction” of their relationship.
“Both nations have to oppose unilateralism and trade protectionism, and build a new type of international relations and shared human destiny,” Xi said.  Putin acknowledged Xi’s commitment to boosting ties between Moscow and Beijing, which he said were based on trust in areas ranging from politics to defense.

“We have a relationship of trust in the sphere of politics, security and defense,” he said. “We know that you [Xi] personally pay great attention to the development of Russian-Chinese relations.”

The new era of closer Sino-Russian relations is born out of concerns that the US-China trade war – sparked by US President Donald Trump’s “America first” foreign policy and which has cost Beijing billions of dollars in export tariffs – could escalate into a cold war between the two countries.  As China and Russia get ever closer and agree to boost ties in the face of U.S. pressure, we are seeing the beginnings of a new 5G iron curtain and tech cold war.

8 thoughts on “Is a new 5G Iron Curtain emerging:  Russia and China Tech Cold War vs the U.S.?

  1. Great summary, Alan. It is a strange and confusing time when the newspapers are quoting leaders of Russia and China as praising “free markets and globalism”.

    Will the 5G iron curtain (love the term) simply be another manifestation of what is already happening with China’s “Great Firewall”, where content is strictly regulated by the government?

    https://www.newscientist.com/article/mg24132210-400-chinas-great-firewall-and-the-war-to-control-the-internet/

    And Russia’s efforts to create its own firewall

    https://www.wsj.com/articles/kremlin-clamps-down-on-internet-11554213601

    In some ways, content filtering/surveillance is the bigger and related story, as “5G” is just another way of accessing the end device to the Internet (granted, it becomes part of that story, as that capability is inherent in the equipment). And this other way may enable new capabilities, such as human implantable communications devices, that will literally change how we function.

    But, does it really matter, if it doesn’t change the fundamental nature of how we get along with each other? In the words of the poet/philosopher Graeme Edge, “Nothing Changes”.

    1. Ken, Many thanks for your comment. Ken is a world class videographer that has applied his skills to video record many IEEE SCV videos in last 10 years. He is the owner of viodi.com and viodi.tv. Take a look!

      What seems to be the most appropriate response is Glenn Frei’s line in the song “You Belong to the City:” “So much has happened, but NOTHING HAS CHANGED!” Or maybe not? Do you think anything has changed? If so reply to this comment or leave your own comment. Many thanks!

  2. Good summary and here are some off the top thoughts…

    5G is a radio technology with the underlying transport being the internet (Web, email, voip, IOT, etc.) Sure there will various firewalls at the (typically created for political reason) but I think this “5G Iron Curtain” — better referred to as the “5G Silicon Curtain” is a business issue not a technology issue.

    Each country will have allocate Radio Bands for UE devices, but that is no different that what exists today in the 3G world. I don’t see the “other side” of the 5G Curtain disrupting inter country roaming – Russia to Eastern Europe – China to other Asian countries. And besides if you want to spy you need compatible UE

    As the the network core (which I think is the issue here), if a country / region goes with a Huawei core, it will certainly be a closed core. But is that so different than an Ericsson core?

    I also find the ever present security topic a red herring. It is public knowledge from the Snowden dump that network equipment from “Western” suppliers, presumably without their knowledge, sometimes had snooping features. So it is to be expected that Huawei might be so equipped.

    But is that really an important issue? There was a threat, since rolled back, issued to the UK that US would stop sharing intelligence if UK went ahead with Huawei core equipment. Knowledgeable intelligence professional always assume their communications are over untrusted networks and employe end to end encryption, so why would these professionals worry about traffic passing over Huawei equipment. Of course there are some, like Flynn, who don’t seem to grasp that concept.

    The general public is becoming aware of what google, facebook, etc is doing with your meta data. And of course your meta data would be passing in the clear over a Huawei, but is that so different than the meta data that passes over comcast core as I post this message.

  3. OPINION: Digital ‘Iron Curtain’ makes no sense in 5G era

    5G technology is a product of global innovation and cooperation. Its industrial, supply and value chains are so widely spread and interlinked that almost everyone has a stake in it.

    Drawing an ‘Iron Curtain’ would therefore have an impact on all, Chinese, Europeans, Americans, and others alike.

    Such an attempt would upset global economic and scientific cooperation, undermine the principles of free trade and fair competition, disrupt market order, and eventually, hurt the interests of every consumer.

    It is perfectly understandable to see unease about the potential vulnerability of 5G, as it is indeed opening a brand new horizon in our daily life.

    No country can afford to be naive on this. For each and every 5G company, meeting high security standards holds the key to customer trust and sustainable development.

    I could not think of any company which would like to ruin itself by being slack on security issues. Whether there are security risks or not requires a well-informed and facts-based technical judgment, not politically motivated bashing or fear-mongering, still less pressuring and coercion.

    It is a sad truth that our world is imbued with security challenges. Cyber insecurity is one of them and has been with us ever since the invention of the Internet.

    To keep our cyberspace safe and secure, more action is needed from both public and private sectors, and global cooperation and coordination is the only right way to go. It is even more so in a 5G era.

    https://euobserver.com/stakeholders/144260

  4. Thanks for your insight and perspective on the new “5G Iron Curtain” – China & Russia vs U.S. unilateralism. It’s really helpful for me to understand the dynamics as you nicely summarized. I am looking forward to your next IEEE Techblog!

  5. India may get caught in Sino-US 5G war: NSAB chief

    India faces the unsavoury prospect of getting caught between the United States and China in the 5G battle, which is akin to a technological cold war between the nations, said PS Raghavan, the head of the National Security Advisory Board (NSAB).

    Identifying an Indian standard essential patent that is awaiting global approval as the silver lining that can give the nation a toehold into the worldwide 5G pie, the senior diplomat made a strong case for independent technology development that has a bearing on national security.

    “Today the kind of rhetoric that you are hearing (on 5G) from the US and China, with Europe stuck somewhere in between, you are looking at the real possibility of a technology cold war replacing the ideological cold war of the past. We are in the danger of being caught in it very badly unless we get our act together,” said Raghavan.

    The diplomat, who served as India’s ambassador to Russia, was talking about new templates for India’s national security management at the Vivekanand International Foundation (VIF). He was referring to the trade war between the US and China over telecom firm Huawei that has been banned by the US over national security concerns. His views were echoed by former deputy national security adviser and head of VIF, Arvind Gupta, who said that the 5G issue “is the reflection of a new kind of cold war that is already beginning”.

    https://telecom.economictimes.indiatimes.com/news/india-may-get-caught-in-sino-us-5g-war-nsab-chief/69797392

  6. New World Order Will Have China On Top by Leslie P. Norton in Barron’s (subscription required)

    Thirty years after the Tiananmen Square massacre, China has seemingly become a problem without a solution for the Trump administration. The trouble is that China’s growing strength is fundamentally related to the U.S.’s own behavior regarding the dollar. This is one of the many stimulating points in Louis-Vincent Gave’s recently published book Clash of Empires: Currencies and Power in a Multipolar World. The French-born Gave is a clearheaded analyst who, in 1999, founded GaveKal Research with his father Charles Gave, then working at Alliance Capital, and Anatole Kaletsky, an economic journalist. Clearly, GaveKal clients appreciate the firm’s provocative views: Today, they include 800 financial institutions, asset managers, corporations, and government agencies.

    We recently checked in with Gave about the U.S.-China trade war and his new book; an edited version of our conversation follows.

    Barron’s: The Trump administration just called off a tariff threat against Mexico. Will a Chinese deal follow soon?

    Louis-Vincent Gave: We’ve argued for the past year that people were looking at the trade war completely wrong. Most people see this as Donald Trump being obsessed with tariffs. He pressured Canada, Mexico. Nobody in the U.S. wants to hurt Canada, or France, or Mexico. China is different. A broad spectrum of the U.S. political establishment sees the rise of China as potentially deeply destabilizing for the U.S. position in the world. Until Xi Jinping became leader in 2012, China was an inward-looking empire that had too many problems at home and wasn’t looking to go abroad. Now they’re talking about One Belt, One Road; they’re going to fund the Silk Road Fund, the Asian Infrastructure Investment Bank, copy-and-paste the institutions that the U.S. built post—World War II, and build themselves their own empire out here in Asia.

    The blowup in the past month is that both the U.S. and China thought they had pretty strong hands and could go all in. Now China is in full-on nationalist mode, talking about unequal treaties back to the Opium War. How do you walk yourself back from that unless the U.S. gives in massively? And if you’re Trump, at this point, what do you gain by compromising with China?

    What happens at the G-20 meeting this month?

    For Xi Jinping, it would be politically hard to compromise very much. If he signs off on an unequal treaty, then he’s the Qin emperor, the guy who sold China down the river. I think it’s 85% odds you don’t get a deal. If in a year, because of the massive disruptions in the supply line and so on, we end up with a big recession, then the U.S. and China will have to compromise.

    Your new book is about the paradigm shift in the global order.

    Until the 2008 crisis, China was very happy to do all its trading in dollars, which it earned by selling stuff to the U.S., then used to fund trade with Indonesia, Korea, wherever else. In 2008, the American banks blew themselves up and Asian trade collapsed because there were no more banks to fund it. In 2009, 2010, China started telling Indonesia, Korea, et cetera, that trading in dollars makes them dependent on the willingness and ability of American banks to fund their trade. Instead of a committed relationship, it was a ménage à trois. And in a ménage à trois, there’s always one guy too many. So China said, “Let’s do more trading in renminbi.”

    Read more: What the U.S. Gets Wrong About China—and Why That Spells Trouble

    To do that, China needed to start liberalizing its currency market and open its bond market to foreigners. The past 10 years have been a story of the internalization of the renminbi. The aim is pretty simple: to gradually but surely replace the U.S. dollar, first as Asia’s trade currency, and down the road as an important commodity currency. One of the most important events of 2018 was the launch in March of the RMB oil futures contract. From a standing start, 12% to 13% of oil futures are now traded in renminbi in Shanghai. Now you have the opening of the gold window in RMB in Shanghai. If you’re Russia, you can sell oil to China for RMB, and then exchange the RMB for gold, and bring the gold back to Russia. It’s a very important change in the global financial architecture.

    You write about the weaponization of the dollar.

    The U.S. is using the dollar as an instrument of foreign policy. A defining moment was in 2014 when the U.S. imposed a massive fine on BNP Paribas [ticker: BNP.France] for making U.S.-dollar loans in Sudan. There were no laws in France against dealing with Sudan. The U.S. said that if you do dollar business, the U.S. Treasury can look at any deal you do. It’s extra regulations, extra cost, extra lawyers. You’re in a ménage à trois once again.

    Another example is the sanctions against Iran. Under the Obama administration, Iran came in from the cold, [French oil-and-gas company] Total [TOT] goes back in and invests $1 billion, and then the new administration says you can’t do business in Iran—Total has to get rid of this investment. If you’re China, what you take from this trade war is: The less you do in U.S. dollars in coming years, the better.

    What does the new world order look like? Will the dollar be invited?

    It’s the world’s main reserve currency and will remain so for a long time. But if your biggest client tells you they want to trade in renminbi, it’s hard to say no. The world will have three empires: the U.S. empire, the Chinese empire, the European empire. Let’s start with China, which tends to say what they’ll do and do what they say. Xi Jinping has an imperial goal—building all these roads, and ports, and pipelines across Asia and everything leading back to Beijing. The vision of the U.S. empire is to contain China.

    What is Europe’s role?

    Europe just wants to survive, not only over the next 30 years, but until the end of next week. The biggest advantage of building an empire is your currency gets adopted in more and more places, so you have bigger seigniorage, which is the money you make by printing money. Europe tried to keep growing into Ukraine, into Georgia, and Russia put its foot down.

    Every stalling empire confronts the problem of keeping a diverse population happy while maintaining a certain level of centralization. One of the biggest anomalies in the markets is that the five-year German government bond is yielding minus 50 basis points, and the Swiss is yielding minus 90. Having negative interest rates is crazy because the market is telling you it knows more about the future than the present. Is the German yield telling you the euro can’t survive, or the whole system will blow out? In the next 10 years, this will blow up.

    The current U.S./China clash is about telecom supremacy.

    The U.S. has decided that it needs to contain China, and its great comparative advantage is technology. They’re going to take Huawei down. That could really turn around and—excuse my French—bite you in the ass. If Apple can’t produce in China, or can’t sell what it produces in China back to the U.S., or if China starts blockading its product, you’ve destroyed one of your biggest companies. Samsung Electronics [005930.Korea] will pick up the pieces. Technology is one of the biggest parts of the U.S. stock market. U.S. investors are as exposed to U.S. stocks as they were in 1999. The big difference between then and today is that the average U.S. investor is much older. When you’re 30 years old, a bear market gives you the opportunity to buy more stocks cheaply. When you’re 65, it is more problematic. There will be casualties in tech at a time when you can’t really afford a bear market. I like to make the comparison with the Battle of Agincourt, where the French had five times as many troops as the English and were so sure of our superiority, and the English slaughtered us.

    What is the next battlefield?

    Potentially energy. If the price goes up, whether from enforcing a blockade against Iran or Venezuela, it leads to a rapid deterioration in China’s current account. In December, China’s year-over-year oil import growth was 21%, the highest in 10 years for an economy that’s been slowing. China is stockpiling energy like crazy. The card China can play now, to get Trump back at the table, is to create disruptions in the U.S. markets. One way is to tank the oil price, as we saw in 2016.

    How should people be positioned?

    We’re moving from a world that was constantly globalizing to one breaking up into three different empires, each with their own currency, reference bond market, supply chains. There are massive investment implications. So if the U.S. and China are now going to try to trip each other up, it’s a bit like when two big dogs fight—you want to stay away.

    In any market, there are two guys that matter: the rentier and the entrepreneur. Historically in the U.S., the entrepreneur always does better than the rentier. In the U.S., I see no reason to own U.S. Treasuries. Policy makers are telling you they want inflation to accelerate, and your bonds will be worth nothing over time. In China, policy makers are saying they want to internationalize the renminbi, but being a rentier has been much better than being an entrepreneur. So buy your bonds in China and your equities in the U.S.

    U.S. tech is no longer as entrepreneurial as it used to be, and the U.S. government is undermining it. So I wouldn’t put so much in tech. The U.S. has a very dynamic energy sector that isn’t replicated anywhere, which is beaten up and cheap. The U.S. also has a consumer that never gives up. Today, real estate is perhaps the most interesting way to play it.

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