Technology and innovation: views from East and West

Towards clear-eyed R&I cooperation

Innovation is at the heart of both the European Union and China’s visions for the future.

The EU is now designing an implementation strategy for its Digital Europe and Horizon Europe programmes (the latter worth €80.9bn under the currently negotiated budget proposal), and at the same time striving for an innovation-driven Green Deal. Meanwhile, China is preparing its 14th Five-Year Plan (2021-2025) as well as Medium and Long Term Science & Technology Development Plan for 2021-2035. Additional emphasis on innovation is bound to appear in China as Sino-American rivalry undermines both scientific exchange between the two and high-tech component supply chains.

Notably, China outpaces the EU in terms of percentage of GDP spent on R&D (2.13% and 2.07%, respectively, in 2017) and in terms of world gross expenditure (21% and 20% respectively). In recent years China has also become a leader in the deployment of many emerging technologies – the world’s first large-scale trials of an official digital currency being a noteworthy example.

The EU and China have a track record of working together on innovation.

China has been the EU’s second most important partner within Horizon 2020, with flagship initiatives in the areas of agriculture, biotech, sustainable urbanisation, surface transport, and aviation. For instance, as part of the Marie Skłodowska-Curie Actions (MSCA) grants, over 1,000 Chinese researchers have participated in the programme. Under the €630mn Co-Funding Mechanism established in 2015, Chinese actors have also participated in over 2,000 contracts. Examples of co-funded projects include the URBAN-EU-CHINA project, focused on developing smart cities solutions by bringing together 12 European and Chinese consortium partners, as well as the MycoKey agricultural project, aimed at tackling the presence of mycotoxins in crops and which includes 11 Chinese partner institutions.

But as the EU and China are currently in discussions over a renewed, joint EU-China roadmap for research and innovation (R&I) cooperation, the time is right to re-examine the challenges of this collaboration.

There are serious hurdles to deeper R&I cooperation, including financing, intellectual property (IP) and data protection, operational issues and additional political questions. On the issue of financing commitments, as of April 2020, China had provided its share of funding for only 60% of the EU-China co-financed projects, and Beijing had invested €130mn less than the amount it committed to in 2015.

There are also concerns related to intellectual property rights. According to the European Commission’s “Report on protection and enforcement of intellectual property rights in third countries” released in January 2020, while China’s IP policies have improved in recent years, the country remains the top priority on the Commission’s list of IP concerns. Importantly in this context, 82% of the EU’s exports rely on sectors dependent on IP, and over 80% of counterfeit goods that are seized by EU customs come from China.

Reciprocity in data-sharing and different approaches to data privacy are other challenges, linked to differences between the EU’s privacy-focused General Data Protection Regulation (GDPR) and the Chinese cybersecurity law, which gives high provisions to the national authorities. For example, TikTok – a popular social media application created by the Chinese company Bytedance – currently faces a review by the European Data Protection Board, which set up a dedicated taskforce to investigate the application’s GDPR compliance. On top of these issues come mobility restrictions for scientists and equipment, which may become an even bigger issue in light of the pandemic.

Operational issues aside, a wider problem is the politicisation of tech and R&I. In essence, scientific cooperation has until recently been regarded primarily as a non-political endeavour (although subject to economic interests). However, China’s growth coincided with the beginning of the fourth industrial revolution as well as its transition into a digital economy, and so R&I cooperation has been beset by the geo-economic logic of the global ‘tech race’. Within this logic, economic, security, and political considerations come into the spotlight as global actors compete to set technical standards, to control markets that get created by new technologies, and to achieve comparative advantages in security, which tech primacy can provide. The case of 5G rollout and controversies surrounding Huawei embody this shift to which the EU responded by increasing its defensive measures – for instance by releasing its Toolbox on 5G Cybersecurity earlier this year – and developing policies supporting the bloc’s technological competitiveness.

It is also important to remember that in its 2019 EU-China Strategic Outlook, the EU recognised China as an “economic competitor in the pursuit of technological leadership” and a “systemic rival”. Accordingly, cooperation on innovation and tech has to be considered through the lens of safeguarding the EU’s economic and security interests, as well as the lens of mitigating the proliferation of values contradictory to the EU’s approach.

Questions arise regarding potential military use of technology China can acquire through joint programmes. One example is the deployment of the BeiDou navigation system, developed by China after it acquired the know-how through participation in the EU’s civilian Galileo satellite system project.

The EU should also consider China’s potential use of jointly researched technology in what it considers human rights abuses, such as mass surveillance campaigns. Many of the researched technologies surrounding smart city monitoring, facial recognition, and gene banks have dual-use potential. The Commission already seems to be working on tightening control of exports of such surveillance technology, and the process may be intensified following the controversies surrounding the Hong Kong national security law and new reports on the situation in Xinjiang.

The aforementioned issues need to be addressed to ensure effective, but clear-eyed cooperation on R&I. This does not mean pursuing a wide-scale decoupling in R&I, which could disrupt constructive projects that remain crucial amid the COVID-19 pandemic and the climate crisis.

Instead, the European Commission could build on the experience of setting up a foreign direct investment (FDI) screening mechanism and put in place a similar R&I cooperation screening mechanism. It could also issue clear guidelines and recommendations on cooperation with Chinese entities on R&I to help European actors mitigate adjacent risks. This could address the challenges to the EU’s economic and security interests and ensure that values are taken into consideration when cooperating with China on innovation.

Development of such a mechanism could be paired with doubling down on issues of common importance. For instance, researching a vaccine for COVID-19 and developing green, sustainable solutions for post-corona crisis recovery could feature prominently in the negotiated joint EU-China roadmap for R&I cooperation.

Put simply, the EU’s approach to R&I cooperation with China requires a clear-eyed approach fit for the increasingly realistic outlook of global politics. That means following the line set by the 2019 EU-China Strategic Outlook without shying away from the challenges underlying the cooperation. The current discussions within the EU on rethinking China policy, as well as negotiations on the new joint roadmap for R&I cooperation, provide the circumstances for such a readjustment.

5G roll-out in the EU: national security, technology and public procurement

The characteristics of 5G wireless network architecture and functionalities warrant stringent scrutiny of individual suppliers on the grounds of national security. It is of little surprise that Huawei Technologies, a home-grown Chinese company and presently a leading 5G supplier worldwide, has been at the centre of this exercise as far as 5G roll-out in Europe. However, within the setting of EU-China relations, 5G is more than just a national security issue, it is also about technology and public procurement. 

National security risks: Chinese laws and alleged malpractices 

To some, the likelihood of security breach would be high if Huawei rolls out 5G in the European Union, because it is a supplier from China, a regime not established on the premise of democracy, the rule of law and human rights protection. In essence, the country serves as a “systemic rival promoting alternative models of governance”.

More specifically, Article 77 of China’s National Security Law obliges Chinese citizens and organisations to provide leads and evidence, or to assist the government in order to safeguard national security. Article 7 of China’s National Intelligence Law imposes similar obligations of collaboration. 

Nor do the aforementioned provisions differentiate between state-to-state and state-to-individual monitoring. Whereas the EU has a strong record in protecting individuals’ privacy, including business activities, notably with its General Data Protection Regulation (GDPR).

Additionally, there are allegations that some Chinese companies, and quasi government-affiliated entities, engage in ‘state-sponsored cyber-enabled’ espionage activities targeting the high-tech sector in Europe to appropriate technologies for economic gains. All these allegations have heightened suspicions against Huawei’s involvement in 5G roll-out across the EU.

However, ditching Huawei on such security concerns alone may be ill-advised. Huawei’s partnership on digital transformation with hundreds of global leading multinationals in over 700 cities in the world testifies to the company’s credibility in many aspects. At the same time, the likelihood of a security breach is a risk that every telecom network must deal with. Remaining vigilant is, therefore, imperative as a matter of course.

Technology: Huawei is a world leader

Security risks aside, Huawei is an undeniable global leader of telecom technology, including 5G technology, with a high capacity for innovation, manufacturing and network infrastructure. The company also holds a predominant market share in 5G smartphones. It is also particularly adept at getting its patents adopted by 3GPP and the International Telecommunication Union, two of the major groups that establish international telecom protocols. This quality is essential for 5G roll-out since 5G networks may include legacy networks elements, for example security standards, based on previous generations of mobile and wireless communications technology such as 4G or 3G.

In terms of technology, in 2019 – for the third consecutive year – Huawei was the world’s number one corporate patent applicant under the World Intellectual Property Organisation’s Patent Cooperation Treaty (PCT).

Public procurement: lack of reciprocity in the market in China

Deliberations of 5G roll-out in the EU also reflects the grievances on public procurement shared among EU policymakers and some stakeholders vis-à-vis China. Public procurement markets in the EU are in principle open to Chinese companies, but reciprocity is not granted in reverse. For example, despite the narrative with respect to national security, Huawei has signed more than 46 commercial 5G contracts in Europe. Conversely, despite Ericsson’s active involvement in 5G, it is unclear whether qualified European telecom companies are all provided equal opportunities to tender for 5G roll-out in China. 

Moreover, despite some efforts, China has yet to submit an ambitious offer in order to join the World Trade Organization (WTO) plurilateral Government Procurement Agreement (GPA), which was a commitment pledged at its WTO accession in 2001. 

It is worth highlighting that, though not yet a GPA member, China offers public procurement contracts to foreign companies, but such openness is selective, contingent on whether the expertise matches Chinese authorities’ needs. Ericsson has been providing telecom services to China since the late 1970s. For 5G roll-out, in April 2020 Ericsson was awarded a 5G contract from China Mobile. The new contract will expand Ericsson’s 5G partnership with China Mobile to 17 provinces in China, with the deployment of Ericsson Radio System products and solutions. 

A multi-faceted approach to tackle 5G roll-out in Europe

Since 5G roll-out is a multi-faceted issue, a multi-faceted approach is required in order to contain security risks, exploit Huawei’s advantages in technology and innovation, and establish a reciprocal relationship on public procurement between the EU and China. The specific bilateral dialogue mechanisms could serve this purpose. 

On national security, the EU-China Cyber Taskforce, launched in 2012, can be engaged to discuss the obstacles and threats posed by 5G, and to exchange views on shared risks. Both sides should also observe the international norms of state behaviour, in order to further build up trust on cyber issues by, for example, providing timely responses to requests for information and assistance concerning malicious cyber activities. 

The geography of innovation shows that the generation of scientific knowledge and innovation is both increasingly global and intensely local, concentrating in a few hotspots, such as Shenzhen-Hong Kong, Amsterdam-Rotterdam and Cologne. 

The EU and China should take full advantage of the bilateral High-Level Dialogue on Innovation Cooperation. It provides a platform to identify joint research interests and to pool human and financial resources to fund large-scale complex scientific projects. Together, both parties can push the technology frontier. 

On public procurement, China should honour its WTO commitment to negotiate in earnest an ambitious offer to accede the WTO GPA as soon as possible. Besides policy consultation, the EU-China Regulatory Dialogue on Public Procurement can serve to help enhance China’s technical capacity, especially when more markets at sub-national levels – in second and third-tiered cities and regions in China – are opened to foreign bidders for public procurement contracts. 

Conclusion

In brief, the controversies surrounding the 5G roll-out in the EU attest to a variety of challenges encompassing national security, technology, as well as public procurement. The EU and China should engage the specific dialogue mechanisms to effectively contain security risks, forge and maximise their interests in technology and innovation, and to attain reciprocal treatment in public procurement from China at the benefit of EU businesses and consumers.