SUBSCRIBER+EXCLUSIVE REPORTING — As the new era of fifth generation (5G) mobile communications advances, China remains steadfast on dominating the field. That poses a national security threat for the U.S. and its allies, particularly when it comes to cloud computing.
Cloud technology is critical to operating everything from autonomous vehicles, e-health computerized surgeries and biotechnology to smart learning, artificial intelligence, file storage and water/disaster management.
Despite multifaceted efforts by Washington to curb Chinese companies like Huawei from encroaching on the infrastructure that could leave U.S. data vulnerable, the telecommunications giant seems to have expanded its goals beyond 5G to become a principal cloud services provider (CSP) with a focus on capturing much of the developing global market.
Experts anticipate that in the coming years, more data will funnel through the cloud than through telecom infrastructure, and according to an analysis published in The Hill, China already has cloud computing bases spanning Saudi Arabia, the U.K. Japan, Australia, the Philippines and South Korea.
Chinese CSP’s which include 5G giants like Huawei, Tencent, and Alibaba are expected to more than double their reach from $32 billion in 2021, to $90 billion by 2025. And per China’s 2017 National Intelligence Law, service providers are mandated to comply with all government requests and demands, raising steep concern in the U.S. that trade secrets and sensitive military and intelligence information could be harvested from stored data at any given time.
The Chinese Communist Party is focused on ensuring that Beijing domineers this emerging space by heavily subsidizing companies, making it easier for them to widen their infrastructure by offering governments much cheaper services than their international competitors. In turn, Beijing gets the advantage of commandeering access to critical infrastructure.
“My assessment is that the U.S. is losing this race,” Daniel Rice, a strategic advisor on China for multiple technology and military firms, told The Cipher Brief. “We rely on a handful of domestic and European companies to build the physical infrastructure that supports 5G networks. Companies like Ericsson still have to work through domestic and international trade hurdles to facilitate the development of these systems.”
Looking for a way to get ahead of the week in cyber and tech? Sign up for the Cyber Initiatives Group Sunday newsletter to quickly get up to speed on the biggest cyber and tech headlines and be ready for the week ahead. Sign up today.
The U.S. - China Economic and Security Review Commission’s 2021 Annual Report to Congress also highlighted that Chinese policymakers rely on these extensive subsidies to achieve dominance. It noted that “China’s strategy for cloud computing has had two key components: protection of the domestic market from foreign competition and extensive state support for the buildout of the Chinese cloud computing industry.”
“Industry alliances, standardization efforts, research centers, and government promotion programs at both the central and local levels helped to create a formidable and remarkably closed cloud computing ecosystem in China,” according to the report. “Because cloud computing enables broad and often real-time access to information on a given network, the CCP has a political imperative to control cloud computing access and development and prevent the free flow of information via the cloud.”
Still, the Department of Defense continues to raise concerns that just as the U.S. needs to devote resources to modernizing its military as a deterrent to China, it also needs to make much more significant inroads in the future telecommunications and wireless network sphere.
“What the People’s Republic of China is doing looks like investment, but really, I call it extraction,” Army Gen. Laura Richardson, the leader of U.S. Southern Command, said at the Center for Strategic and International Studies (CSIS) in late summer, stressing that China is currently outrunning the United States in the network and 5G sector. “Five countries have the PRC [People’s Republic of China] backbone for 5G. Twenty-four countries have the PRC 3G or 4G backbone. Usually, countries with older technology are offered almost a zero-cost upgrade to the 5G. When you are desperate for help, you will turn to whoever’s there. We need to have alternatives to the PRC, and if we’re not there competing, then they’re going to choose that.”
Richardson lamented that China’s infrastructure in the West is roughly “five to seven years behind the investments China has made in Africa.”
It's not just for the President anymore. Cipher Brief Subscriber+Members have access to their own Open Source Daily Brief, keeping you up to date on global events impacting national security. It pays to be a Subscriber+Member.
Beijing’s edge over the past decade, has been driven largely by its mammoth and highly controversial Belt and Road Initiative (BRI) and its Digital Silk Road Initiative in developing nations, which entails developing new connectivity pathways between Asia and Europe by constructing fiber optic infrastructure and increasing regional connectivity.
From the lens of Karim Hijazi, CEO of leading cyber security platform Vigilocity and the former director of Intelligence for Mandiant, the U.S. isn’t yet “losing” the 5G race – but is facing stiff competition.
“China has garnered tremendous government support and investment, including the ‘Made in China 2025’ initiative. This initiative aims to transform China into a high-tech manufacturing powerhouse, with a focus on key sectors such as information technology, new energy vehicles, and next-generation I.T.,” he said. “China also has a massive domestic market, providing a substantial user base for technology companies.”
Hijazi explained that this large market allows Chinese companies “to scale quickly and generate revenue, which, in turn, can be reinvested in research and development. Chinese companies have actively participated in international collaborations and standard-setting bodies related to 5G technology. This has allowed them to influence global standards and have a say in technology development.”
Experts also anticipate that the global supply chain will serve as a significant combat zone for 5G hegemony over the next few years – yet another area of possible espionage – of which Huawei, often viewed in Washington circles as a commercial appendage of the CCP, remains at the forefront.
“Dependence on a single or limited number of foreign suppliers for critical technology components, such as 5G equipment, can create vulnerabilities,” said Rice. “Disruptions or compromises in the supply chain can have significant consequences for national security, especially if the technology is extensively integrated into critical infrastructure.”
In addition to spying concerns, trade violations and anxieties that Huawei’s equipment has the potential to muddle and disrupt U.S. military communications, U.S. lawmakers also worry that Beijing could use the heavily subsidized company for intellectual property theft.
Given its geographical proximity to the U.S., China’s influence on telecommunications in Latin America is a particular concern. The number of Beijing-backed cloud providers is growing by an estimated 60 percent per year, with data field offices in Mexico, Peru, Chile, Argentina, and Brazil.
“Chinese activity in Latin America is primarily a threat to the United States,” said Rice. “Often in the U.S., and despite the obvious controversy, we regard South and Central America as our ‘backyard’. What this means, according to Rice “is that Chinese 5G activity in Central and South America feels like someone sneaking into your backyard and installing a Ring camera or other monitoring capabilities looking into your house. That is obviously uncomfortable and something that you would ask about in a less polite way. That is the U.S. reason for Chinese activity in that region amplifying the threat.”
China has eclipsed the U.S. as the region’s leading trade partner and a prominent energy provider with investments in infrastructure, space industries, and foreign direct investment – mainly through the BRI as Beijing has broadened its diplomatic and military ties throughout Latin America. Despite the U.S. ringing alarm bells, more countries in the region are turning to Huawei for 5G and cloud computing services.
James Lewis, a senior fellow at the Center for Strategic and International Studies (CSIS), says China is pulling ahead as a telecom supplier in Latin America and is leading overall trade while using subsidies to win customers.
It’s not our backyard anymore,” said Lewis. “The U.S. still leads in technology development and cloud services, but in Africa, Latin America and other regions, it will need to provide development assistance if it wants to compete with the Chinese. The U.S. hasn’t made enough of a change in how it provides aid to be competitive with China- the standard joke is the Americans show up with a lecture, the Chinese show up with money.”
What can Washington do?
Four years ago, the U.S. Federal Communications Commission (FCC) voted to formally designate Huawei and fellow, partially state-owned ZTE as national security threats, prohibiting U.S. internet providers from using federal monies to purchase equipment from these companies.
The following year, Congress gave almost $2 billion to the FCC to dismantle Huawei gadgetry from remaining networks.
In November 2023, the U.S. Commerce Department deployed new measures to curtail China’s cloud-related technological acceleration through export controls in AI chips, supercomputing, and semiconductor manufacturing equipment.
But experts are concerned that the multi-pronged approach isn’t enough.
“To date, there do not appear to be significant policy directives, besides barring competition from Chinese firms, from the U.S. or Europe that enable these kinds of companies to expand their business in Western countries,” said Rice. “Although defensive policy against Chinese companies passively facilitates creating natural monopolies of 5G companies in some Western nations, it does not actively promote the expansion of these companies’ 5G infrastructure building.”
In addition to the BRI, Rice pointed out that Beijing is becoming increasingly interested in mergers and acquisitions of existing, moderately successful enterprises. In the 5G universe, this represents a strategic interest in owning or controlling much of the skeletal structure that underpins our use of information.
“In this sense, due to a Chinese perception of the information domain as one of the primary domains for great power competition, infrastructure that supports Chinese companies, many of which have a state-owned component or the government is a majority shareholder of, building or controlling 5G networking is still a strategic investment interest of China,” said Rice. “As one aspect of China’s success in this regard, the closer unity of effort to compete in this industry has given it a comparative advantage over other countries’ private industry.”
The U.S.-China Economic and Security Review Commission report also stated that while U.S. companies remain the dominant global cloud providers, Chinese companies are gaining ground.
According to global advisory firm Gartner, Alibaba claimed 9.5 percent of the worldwide market share for public cloud services in 2020, compared to 8.8 percent in 2019, while Huawei’s more than doubled from 1.9 percent to 4.2 percent in the same period.”
Better results in cyber require better thinking. Sign up for the Cyber Initiatives Group newsletter for a weekly digest of what cyber leader's are most focused on now.
The Commission recommended that Congress request a report from the Administration regarding data servicing operations owned by Chinese firms, with information that includes whether such firms are operating in the United States, what laws and regulations may apply to such operations and services, and what cloud computing services are offered or provided to U.S. persons.
Among other recommendations, the Commission also stressed that the report should detail whether Chinese cloud computing providers are engaged in any joint ventures or servicing arrangements with U.S. firms and the nature of such operations, where Chinese-owned firms may be providing equipment or services for the provision of cloud computing support in third-country markets and whether the market share of Chinese-owned firms in those markets may limit the ability of U.S.-owned firms to operate independently of such operations; and what support the Chinese government may be providing to cloud computing firms in terms of equipment and services that may act as a subsidy for such operations.
Hijazi believes that the U.S. is doing well in allocating high-band and low-band spectrum for 5G, but it lags in the allocation of mid-band spectrum.
“Telecommunications regulation in the United States is a complex blend of federal and local authorities. The interpretation and implementation of those rules by some local governments has often been inconsistent,” he added. “Cloud computing is a critical component of 5G networks, and the United States is investing heavily in cloud computing infrastructure. The move to 5G New Radio (N.R.) standalone (S.A.) is necessary to support new advanced 5G services. This will require a shift to cloud-native technologies, which require a new cloud-native infrastructure to carry cloud-native functions and applications.”
Read more expert-driven national security insights, perspective and analysis in The Cipher Brief
