On February 7 the leaders of the US and China had their first telephone conversation since the coronavirus outbreak, with Xi Jinping asking that the US act “reasonably” in response to the outbreak.

　　　　　On January 30 the US government banned Americans from traveling to China, following up with an announcement the next day that it would also deny entry to all foreign nationals who had visited China in the past two weeks. China attributes the harsh reaction to the epidemic from the international community to America having allegedly created and spread globally what Beijing views as an undue fear of the new virus.

　　　　　While praising Xi for his response to the ongoing crisis, Trump did not consent to his request to ease travel restrictions to China. The crisis originating in Wuhan has brought to light the peculiar characteristics of the one-party rule of the Chinese Communist Party (CCP). The Trump administration has been sounding the alarm that this ugly system is driving China to pursue hegemony rather than coprosperity, luring the world into a perilous situation.

　　　　　On February 6 US Attorney General William Barr candidly discussed the sense of crisis the Trump Administration has about America’s position vis-à-vis China in the keynote address at the CSIS (Center for Strategic and International Studies) in Washington. Noting that Russia once attempted to “conquer the world,” Barr said China is more difficult to deal with, as it “wants to own the world.”

　　　　　Barr, whose original career goal was to go into the CIA as a China specialist, said success for China is a zero-sum game. Unlike Japan, the US, or members of the EU which aim for a win-win situation, China conspires to realize “the eventual demise of capitalism,” he observed.

　　　　　A similar comment was made by Secretary of State Mike Pompeo on January 30 when he referred to the CCP as “the central threat of our times.” I feel that these harsh views of China by two influential members of the Trump administration can be construed as Trump’s true feelings behind his cursory praise of Xi.

　　　　　Barr went on to describe the “two aspects of the challenge we face”: 1) how to stop China’s intellectual property theft which slants economic and technological development overwhelmingly in Beijing’s favor; and 2) how the US and its allies should cope with China’s fierce efforts to establish hegemony in the area of 5G technology.

China Accounts for 40% Share of World’s 5G Market

　　　　　Allow me to bypass 1) in order to discuss the more serious concern Barr expressed in 2). His concern makes it mandatory for Japanese government and industry to precisely understand what America’s true intentions are regarding China’s resolve to dominate 5G technology.

　　　　　To use a biological analogy, 5G technology is like the human trunk together with the entire nerve system and brain that support it. When Internet based on 5G technology is introduced, it will become the backbone of all global communications networks. All industries will have no choice but to rely on 5G networks as the industrial base of the next generation.

　　　　　In just five years—2025, to be exact—5G networks are expected to generate US$23 trillion. The nation that manages to build 5G networks the fastest will win the race. China, which has built up a lead in 5G, already has captured 40% of the global infrastructure market.

　　　　　The evolution from 3G to 4G has accelerated telecommunications from 1M bit to 20M bits per second. The US, which has led the world in 4G, has benefited from huge profits generated by its 4G technology. For the first time in modern history, however, America is lagging behind in the next crucial technology, 5G.

　　　　　The ongoing US-China trade war is proof of America’s strong sense of crisis. The Americans have launched a resolute counteroffensive in order to not be crushed by China.

　　　　　5G technology requires semiconductors, fiber optics, and rare earth minerals. To protect its national interests, the US has prohibited the export of semiconductors. A shocked China responded with a vigorous campaign to boost the production of semiconductors on its own. Barr pointed out:

　　　　　“China has already started to replace US semiconductors with its own. It consumes about half the world’s semiconductors. Its scale in this field will permit it to make the investments needed to close the current quality gap.”

　　　　　Meanwhile, China has been forging ahead with efforts to expand its 5G market share. The total world market for 5G infrastructure is estimated at US$76 billion and to increase its share China is offering US$100 billion in incentives to finance customer purchases of its equipment. That means that the Chinese government stands ready to offer all countries and industries interested in building 5G technology everything that is necessary, from base stations to infrastructure, enabling them to implement the technology for no money down.

　　　　　China is ready to offer more, having worked out a system making it possible to dispatch technicians numbering a total of 50,000 anywhere in the world at government expense. This scheme calls for huge initial outlays but installing 5G infrastructure will be tantamount to securing China’s predominance in this market in the long haul, enabling China to control a world it would “own.” Given this scenario, the US$100 billion wouldn’t be too high a price to pay.

“Some Japanese Corporations Are Aiding China”

　　　　　The battle will be long and hard, admitted Barr, noting: “Within the next five years, 5G global territory and application dominance will be determined. The question is whether, within this window, the US and our allies can mount sufficient competition…to sustain the kind of long-term and robust competitive position necessary to avoid surrendering dominance to China.”

　　　　　The US is faced with a harsh reality. While China has already installed an estimated 100,000 5G base stations, the US is still stuck in discussions concerning a diversion of the mid-band spectrum called C-band, with its installation of base stations still limited to 70,000 to 80,000.

　　　　　More unfortunately, the US does not have the technologies to supersede Huawei’s. Barr came up with a stunning proposal for a possible tie-up with two international corporations that can confront Huawei on equal footing: Nokia of Finland and Ericsson of Sweden, with 17% and 13% share of the world market, respectively.

　　　　　Both are trustworthy corporations but have neither Huawei’s scale nor the backing of a large domestic market like China. Barr proposed that the US align itself with Nokia and/or Ericsson through American ownership of a controlling stake in order to gather strength to confront China. The proposal shows how deep America’s sense of crisis is about China’s 5G offensive.

　　　　　What should Japan do under the circumstances? Amid the epidemic crisis in China, more than 500 Japanese have so far been evacuated from Wuhan, a hub for automobile manufacturers. But Wuhan is also a major center for semiconductor manufacturers, where several hundred engineers from leading Japanese high-tech corporations were known to be posted before the epidemic. Masahiko Hosokawa, a former trade ministry bureaucrat who now serves as a professor of economics at Chubu University, Aichi Prefecture, pointed out:

　　　　　“China is staking its future on its drive to build 5G infrastructure globally without US technology, redoubling its efforts to manufacture the coveted semiconductors entirely on its own. But the important thing to bear in mind is that Japanese corporations are effectively backing the Chinese effort, as is shown by the fact that nearly half the evacuees are engineers. Can US-Japan relations be expected to remain intact despite this fact?”

　　　　　I’m afraid the answer is no. The battle between the US and China will continue on. While economic interchange with China is important, aiding China to the detriment of the US interests is clearly a poor strategy that runs counter to our own national interests. I wish to urge the business world and the powerful Federation of Economic Organizations (Keidanren) to take a fresh look at Japan’s position from a long-term perspective. (The End)

(Translated from “Renaissance Japan” column no. 889 in the February 13, 2020 issue of The Weekly Shincho)