Inside China's Tech Boom

♪ ♪ ♪ ♪ KAISER KUO: Is China becoming the world leader in technology?

KELLY SIMS GALLAGHER: The United States and China are locked in a big power struggle.

Innovation creates global power.

KUO: Over the last 40 years, China has had an unprecedented economic boom.

SILVIA LINDTNER: To understand how China innovates is to rethink what innovation means in the first place.

(man giving order in Chinese) KUO: They became the manufacturer of the world-- tinkering, innovating, and even stealing the lead in some areas.

PAUL SCANLAN: Why was China successful with 5G?

It got the message of what could 5G do, from healthcare, education, manufacturing.

(speaking Mandarin): KUO: With support from the Chinese state, huge corporations like Huawei have spread their wings.

JAMES MULVENON: It was their successes, particularly in 5G technology, that are really leading the way and are causing us to have to play catch-up to them.

KUO: Today, a tech war between China and the West is starting to heat up.

♪ ♪ What does it mean for China and the rest of the world?

"Inside China's Tech Boom," right now, on "NOVA."

♪ ♪ ♪ ♪ KUO: This is the big annual meeting for the builders of the global internet.

Tech companies from all over the world have come here, to Barcelona, Spain.

And the biggest delegation is from the Chinese tech company Huawei.

Everybody in the world is talking about 5G.

KUO: In this room, it feels like Huawei is top dog.

They have the biggest pavilion and the most sales and patents in the next-generation internet tech called 5G.

They're also just one of many Chinese tech giants taking over global industries: solar power, wind power, drones, batteries-- all fields where Chinese companies have taken the lead in innovation.

How is China doing it?

By copying others, or are they finding their own innovation secret sauce?

Could they even surpass the U.S. as the world's leading innovator?

♪ ♪ ("The Internationale" playing with Chinese lyrics) These are questions that I've discussed time and time again.

Welcome to the "Sinica Podcast," a weekly discussion of current affairs in China.

(voiceover): I'm Kaiser Kuo, a journalist and podcaster.

I live in the States, but for 20 years, I lived in China.

I was comms director at one of their biggest tech firms and guitarist in China's first heavy metal band, Tang Dynasty.

("The Internationale" continues) (holding final note) (song fades) Oh!

Hi.

Hey, how are you?

Good to see you.

Welcome, yeah.

It's been a while.

Good to see you.

Yeah, I'm looking forward to this.

KUO: When I interview people for my podcast, I find no shortage of different takes on the rise of Chinese tech.

The entire Chinese tech landscape and business landscape, I think that's actually getting stronger year on year.

A major misunderstanding that Americans might have about China is that it is mostly focused on lower-value work as well as copying.

But China has mostly transcended that.

PAUL TRIOLO: China is really the only peer competitor of the U.S. that has companies competing across the technology sector.

China is beating the United States in tech-heavy industries.

It accounts for a third of global output in knowledge-intensive industries, compared with the United States, which accounts for 20%.

KUO: Today, it might be surprising to think of China as a technology leader.

But for much of history, China was the world leader in science and innovation.

In fact, the shame of losing this position and the dream of regaining it were major motivations for the founders of the Chinese Communist Party.

It all started with a widespread national awakening.

REPORTER: 3,000 students gather in front of Tiananmen on 4 May, shouting, "China is for the Chinese people."

So to many Chinese, they saw science and technology as a way of national rejuvenation and national salvation.

And it became a foundational principle of the modern Chinese state.

KUO: Advancing science and technology truly became a national obsession in 1978, with the rise of the then Chinese leader, Deng Xiaoping.

♪ ♪ REPORTER: A new beginning in U.S.-China relations.

KUO: Deng opened China to the world so it could learn foreign technology.

His market reforms helped lift over 700 million people out of poverty.

That's more than twice the population of the U.S.

But this was only part of Deng's plan.

Another goal was to reclaim China's historical place as world leader in science and technology within a generation.

So, more than four decades later, how is Deng's plan going?

To many Chinese, there is no better example of success than the tech giant Huawei.

But it's also at the center of a storm of accusations of intellectual property theft and ties with the Chinese government.

With all the controversy, it's really easy to overlook something.

This company does innovate, and it does it in a very different way than we do in the West.

WANG WENJUN (speaking Mandarin): ♪ ♪ KUO: The first thing you notice when stepping onto a Huawei campus is its style: Renaissance architecture, marble statues, European luxury.

It's all unmistakably Huawei.

But despite the Disney vibes, it's the perfect place to start exploring how Chinese tech companies innovate.

So, this is our library.

KUO: Paul Scanlan is Huawei's chief technology officer.

He was drawn to China from abroad to work in tech in part because he was impressed by Huawei's massive investment in research and development.

SCANLAN: Why I love the company, it's very simple.

It's a platform that allows me to take a lot of the ideas I have to the world.

The platform is an R&D platform.

We spend more than 22% of our gross revenue on R&D.

KUO: That makes Huawei one of the world's largest corporate spenders on research and development.

They've set more technical standards than any other organization in the world for 5G.

5G is an advanced wireless communication technology.

Because it operates at higher frequencies than 4G, it can be up to 100 times faster and also more reliable.

It also hasn't really been fully deployed yet, but in the small town of Zhenyuan, we can start to see what it can do.

With 4G, our cell phone towers connect mainly to our phones, and there is a limit to how many devices any one tower can handle at a time.

5G is a dramatic improvement that promises to connect all sorts of devices wirelessly to the internet, and in much greater numbers.

In wireless communications, data is transmitted by radio waves.

As you progress from 3G, to 4G, to 5G, the frequency of the radio waves becomes higher and higher.

This allows more data to be carried, enabling faster download and upload speeds.

This is a big deal, because so much of tech depends on internet infrastructure.

As 3G progressed to 4G, increased data loads enabled simple phone calls to progress to ride-hailing apps, food delivery apps, video conferences-- the list is endless.

Increased data loads help build the so-called internet of things, allowing devices to talk to devices, like cars talking to cars, or machines in a factory coordinating to become fully automated.

SCANLAN: Why was China successful with 5G?

It got the message of what could 5G do.

It got the message that, if I can provide connectivity, I can collect data-- information.

Based on information, A.I.

algorithms can do things, from healthcare, education, manufacturing, okay?

Across all of the sectors.

It understood that urgently.

Huawei is a genuinely impressive, state-of-the-art, world-class telecoms equipment manufacturing company.

And it was their successes, particularly in 5G technology, that are really leading the way and are causing us to have to play catch-up to them.

♪ ♪ WENQI FANG (speaking Mandarin): LIPING WEI: ♪ ♪ (translated): What's being installed right now is a new 5G antenna.

It supports a very wide range of frequencies, including our 700-megahertz frequency.

♪ ♪ KUO: China is deploying 5G at a scale greater than any other place in the world.

China's exceptionally good at developing infrastructure, whether it's, you know, 5G infrastructure or electric grid infrastructure, or electric vehicle charging infrastructure.

It has this ability to do good planning and then also to execute.

KUO: Authorities in China are pushing 5G hard, turning difficult-to-connect places like China's mountainous Guizhou province into laboratories for Huawei's 5G applications.

(Yang Chengyu speaking Mandarin) (translated): Out here in the mountains, the internet has always been poor.

A little bit of bad weather, a little bit of wind, no internet.

It was really hard to get a signal.

In remote places, forget about it.

But it has changed recently.

Now, with 5G, we've started doing smart farming.

♪ ♪ KUO: 5G technology is able to make stronger connections and transfer more data to more points.

This enables places like this tea farm to deploy wireless sensors in hard-to-reach places.

(speaking Mandarin) (translated): This tea plantation has really embraced smart farming.

It's been quite useful for our agricultural management.

These sensors all help us predict the humidity, wind conditions, and temperature.

♪ ♪ KUO: More data leads to better modeling and better crop yields.

Processing the information fed to it through 5G, a smart farming system can alert farmers to the optimal times to remove weeds, plant seeds, and harvest crops.

But this is just the beginning of what 5G can do.

What I've seen in China is 5G completely changing the way people live and work, even in seemingly low-tech traditional industries.

Across the country, more than two-and-a-half million people are employed in coal mining.

It's dangerous work, known for frequent accidents and fatalities.

(translated): This is the main shaft of the mine.

It's a dark place with thick air.

It's also the most dangerous place in the mine.

KUO: One of the problems is the inability to control machinery remotely.

It's impractical to connect using wires, meaning workers have needed to be perilously close to their machines at all times.

5G is capable of bringing digital connections into deep underground crevices, such as this one, allowing the facility to become completely automated.

Previous 4G systems beamed data inefficiently, in all directions.

5G is much more precise.

We can make beams simultaneously that can be a little sliver going this way, or we can have a little sliver that way, or we can have multiple ones that way, or multiple ones this way.

And it can extend the distance, or it can provide more capacity, or it can follow somebody or something.

KUO: China says its goal is to ultimately move away from coal and into cleaner forms of energy.

5G is a critical part of this plan, as well.

This is the Dingzhuang floating solar farm.

Across a large swath of sea are endless solar panels, each requiring monitoring.

The plant's expected total output is 550 million kilowatt-hours per year.

That's enough to power 52,000 typical American homes.

SCANLAN: You have tens of thousands of photovoltaic cells, and 5G can monitor information from them more efficiently than anything else can.

(alarm blaring) KUO: China's national 5G infrastructure gives a built-in advantage to this large-scale solar farm.

Solar panel technology is prone to malfunctions, and one problematic panel can shut down an entire grid.

5G enables each panel to constantly send data to a central command station, making inspections more efficient and saving labor costs.

♪ ♪ And a solar farm can scale to a size that wouldn't be possible otherwise.

I can now monitor them to see whether they're failing or when they're going to fail, so I can optimize that prediction of maintenance for these farms.

KUO: And there's another unexpected benefit here.

The shade from the solar farm actually cools the surrounding water, helping create an ideal environment for farming shrimp and other seafood.

But all of this is possible because the Chinese government sees the advantage of creating a web of connectivity across the entire country, and is willing to use its central authority to make it a reality.

5G cellular technology is really sort of a major leap.

And it really is more of the high-tech future that we've seen in the movies and in sci-fi in which we're surrounded all the time by, you know, really high-speed data and the ability to exploit all of that.

And that just basically means 5G will enable much more precision-based applications.

KUO: Driverless cars, automated ports and factories, next-generation A.I.

What all of these things have in common is that they can't fully develop until 5G infrastructure is built.

And, as with most new infrastructure, we don't yet know how it will change society, for better or worse.

(people talking in background, robot whirring) KUO: Why is it that a Chinese company is leading the way in building the next generation of the internet?

♪ ♪ There's no doubt that the Chinese Communist Party uses its central authority to force change in ways that aren't possible in Western democracies.

But another key reason is the intense work culture.

It can be brutal, with six-day weeks and 12-hour days being the norm.

Despite it all, when I worked in Chinese tech, I still found something energizing about it.

(speaking Mandarin) (phone alarm ringing, phone vibrating) KUO: Junior associates Niu Yehan and Long Yin are currently taking part in Huawei's brand of basic training.

Here, all new employees, even office workers, must learn the art of deploying 5G base stations.

NIU (speaking Mandarin): (speaking Mandarin) KUO: They train for a variety of terrain, from urban centers to the kind of remote mountains that Guizhou province is known for and that Huawei specializes in reaching.

WANG WENJUN (speaking Mandarin): NIU (speaking Mandarin): LONG: (both laugh) (murmurs in Mandarin) MAN (speaking Mandarin): KUO: The training we saw is hard to describe.

Western observers often call the Huawei company culture militaristic.

That's probably part of the story.

But there's also something else.

Huawei tries to motivate its employees in ways that probably would not fly in Western industry.

Wang Wenjun leads the training for new recruits.

(translated): This is our training area.

I think it's different than the training facilities in most other companies.

Our facilities are outdoors, on top of a mountain.

♪ ♪ This slogan...

Uh, how would I translate it for foreigners?

"If you want to take more responsibilities, you must work harder in the training."

KUO: I look at these slogans and think about how out of place they would seem at a Western company.

The messages are about enduring hardships and winning battles.

Huawei was founded by Ren Zhengfei, who started his career in the Chinese army.

He then went on to found Huawei, whose name literally means "Chinese achievement."

♪ ♪ What I find interesting is how the posters around campus echo the propaganda style of the Chinese government.

They talk about the importance of sacrifice and hard work in aiding China's technological development.

A lot of what Beijing tries to do is that it's trying to use ideology to corral a lot of the dynamic firms-- and people-- in China to pursue the goals that it really wants to have.

(Wang Wenjun speaking Mandarin) (translated): My job is to train the young people to develop the spirit of bitter struggle, to train everyone to become full with vigor.

Only when you have suffered can you understand the sweet things in life.

People live good lives now.

They never have experienced the struggle.

The point of this place is to give them a taste of that.

XINYAN YU (speaking Mandarin): NIU: YU: MAN: KUO: The people here train to connect not just China, but every corner of the world.

This is in line with Chinese state goals, which seek to export Chinese technology globally.

GALLAGHER: In countries in Africa, you will mostly see Chinese equipment everywhere.

I was recently in Ethiopia, and I was struck, because I kept having this out-of-body experience.

I felt like I was in China.

The subway was constructed by China.

The subway cars have Chinese words in them.

The United States is not visibly present in a lot of developing countries around the world.

KUO: By 2017, Huawei was bringing 5G and its applications to the entire world, and then the U.S. government started to take notice.

♪ ♪ CHUCK SCHUMER: Huawei and ZTE are both state-backed companies.

Their efforts to enter the American market is a great example of how China attempts to steal our private data and intellectual property.

KUO: In 2018, Huawei CFO Meng Wanzhou, the daughter of founder Ren Zhengfei, was apprehended in Canada under suspicion of violating U.S. sanctions.

(Hua Chunying speaking Mandarin) (translated): The whole world sees this for what it is.

America is trying to strangle China's high-tech companies.

KUO: In May 2019, the U.S. government placed Huawei on the so-called Entity List, a register of companies that are effectively banned from doing business in the U.S. James Mulvenon is one of the architects of this policy change.

MULVENON: The day that Huawei and its subsidiaries were placed on the Entity List was frankly a day of real sense of personal accomplishment for me.

I had been writing about Huawei for 25 years and informing the U.S. government about many different features of Huawei's relationship with the Chinese military, with the Chinese government, its activities abroad that I thought were suspicious and questionable.

A country is always going to be extremely protective of its telecommunications infrastructure.

It is the way it maintains control over its territory and connects its leaders, its police forces, its military, and, during the Cold War, was the way in which the United States government maintained command and control over weapons that could have destroyed the world hundreds of times over.

KUO: Mulvenon contends that while there hasn't been any proof-- nothing in public, at least-- of Huawei's spying in the U.S., there is no way of ensuring a Chinese company's independence from Beijing.

To protect against this threat, the U.S. government has mandated Huawei equipment across the country be ripped out and replaced.

In the town of South Canaan, Pennsylvania, local telecom company C.E.O.

Jim Kail is overseeing the removal of Huawei equipment from the internet infrastructure.

But now, he faces a new problem: alternate equipment is three times more expensive than Huawei's.

Without Huawei, there is no cost-effective way to connect this region to the internet.

KAIL: Our allegiance is to our own country here, and that's very important.

I take that very seriously.

And I'm, the rest of us, as rural Americans, we're patriotic.

And yeah, so we, we did think long and hard about that before we made that decision.

Had about 1,300 of these units deployed in customers' homes.

You know, over the course of the last couple of years, in particular, there was the, the push to, to ban the product, and...

Which eventually led to the mandate where we had to rip and replace.

And we're now in the process of doing that.

We're taking, swapping out the Huawei solution with a, with a different solution.

And actually, that, when you think about it, it's actually a windfall for China, right?

So, you're actually taking equipment out there, you're ripping it out, and you're going out and buying new equipment, right?

Buying it from China, right?

I mean, you know, it's, it's the vendors, the vendors we do business with, they're getting their parts from China, and so China is getting a windfall out of this.

KUO: For many observers in America, the most challenging thing about Huawei is that they can make products that no Western firm has been able to replicate, especially when it comes to cost.

And, without Huawei, there is simply no cost-effective way right now to build 5G across much of America.

Something that lawyer Eric Atria discovered when he and his family moved to rural Florida.

We moved out here and found out that there literally wasn't internet out here.

We couldn't get any internet.

And the only place in our yard that we could actually get one bar of service from our cell phone provider is this log.

So, my wife called it "logging on."

And you only get one bar of signal standing here.

So, my wife was out here the other day, holding her phone in the air as a personal hotspot and her laptop in the other hand, so she could do a work meeting.

♪ ♪ Actually not working!

KUO: The United States has only built about 100,000 5G base stations, compared to the over two million in China.

CHILD: Now it's working.

KUO: Why is China so much more successful at creating affordable cutting-edge tech?

SEOW: So, historically, a country's capacity to produce was itself viewed as innovative.

So, in imperial times, China's capacity to produce these, you know, wonderful goods, this porcelain, this silk, was awe-inspiring for those who were able to, to view them, to see them.

And it's only closer to our present where we see this distinction between innovation and production.

DAN WANG: China is a place where R&D and manufacturing are very tightly linked together, where the knowledge can really circulate and be kept alive, it can be practiced, it can be made better.

And that is something where the U.S. has fallen behind pretty substantially over the last five decades.

KUO: Shenzhen is the manufacturing epicenter of China.

It's also the hometown of most of the Chinese tech giants, including Huawei.

♪ ♪ So Shenzhen was declared famously by Deng Xiaoping a special economic zone in the 1980s.

KUO: Before 1979, Shenzhen was a small fishing village of 30,000 people.

Then it was designated China's first special economic zone-- an experiment with capitalism that set it apart from the centrally planned economic model in the rest of the country.

From the beginning, authorities viewed mastery of manufacturing as key to innovation.

Flash-forward to today, Shenzhen is the manufacturing powerhouse of the world.

(Gao Jialin speaking Mandarin) (translated): In 1997, there were many foreign investors here.

It was the peak of the "reform and opening" years.

Lots of foreign capital was flowing into China, and this gave us lots of opportunities to learn and improve ourselves.

A lot of people from all over China, from Europe, from the United States, and from many other parts of the world came to Shenzhen to implement technology production in new ways.

KUO: To walk around Shenzhen is to see a tech hub which is very different from Silicon Valley's software startup culture.

At the center of it all are the factories and the art of making.

Makerspaces are everywhere, where people produce, tinker, hack, and, most famously, copy foreign tech.

DAN WANG: A lot of developing countries got to be richer by copying and, indeed, stealing from advanced countries.

That was the case when the United States was a major I.P.

violator back in the 19th century, mostly from the United Kingdom.

KUO: Zhang Jiuzhou is a product designer in Shenzhen.

He challenges the whole idea of what I.P.

theft means.

(speaking Mandarin) (translated): A lot of people talk about knock-off products in China, like all the fake iPhones made here.

But I see "knock-off" as a neutral word, which means learning and evolving.

Something that's associated with intellectual property, with patents, arguably with a very Western-centric definition of what counts as innovation, which is often rooted in this idea of, that there's an authentic, original, charismatic technology creator who came up with this fantastic, completely novel idea that's revolutionizing a whole industry.

And we don't really think of something like modification or slow-paced change as innovation.

And so what I think is really important for us to understand how China innovates is to rethink what innovation means in the first place.

DAN WANG: There is a more important part of technology, which is something I call process knowledge, which is simply the experience, the tacit knowledge, the understanding of how to make something.

And so, in the kitchen context, if you put someone into a super-fancy kitchen decked out with really fancy gadgets, as well as extremely clear recipes, I think that person would have a hard time doing something as simple as frying an egg if he hasn't had some cooking experience in the past.

KUO: The kitchen analogy seems like a good one to me.

In my years working in tech in China, I saw it become the workshop of the world.

Like a nation of busy chefs, China was making things at turbo speed, building world-class skills.

But then something else started to happen.

They started experimenting in the kitchen.

As there was increasing clustering of manufacturing centers around different industries, a lot of learning occurred.

I remember going through a factory in China, and one of the ways they had been able to cut the cost of the solar panel was to figure out a way to slice the ingot more thinly.

China is masterful at these types of process innovations, and, over time, also began to really gain innovation capabilities.

KUO: The spaces where China has world-leading tech tend to be the places where China holds manufacturing dominance.

Chinese battery companies make 77% of the world's batteries.

China's firms produce 80% of the components in solar panels.

Huawei followed a similar path.

After producing telecom equipment for foreign companies for years, their manufacturing experience helped them develop better and cheaper products.

If China had never become the workshop of the world, I doubt we'd even be talking about Chinese tech giants.

DAN WANG: And a lot of the manufacturing workforce in China has expanded very significantly, in part at the expense of the U.S. As we see from COVID-19, a lot of the U.S. manufacturers in its early days struggled to make something as simple as masks for people, as well as cotton swabs for testing.

The contrast that we see in China is that manufacturers were able to respond really quickly.

KUO: Manufacturing dominance creates spillover advantages for Chinese entrepreneurs, advantages that show up in unexpected places.

KEVIN PAN (translated): In 2014, I built a ten-megawatt Bitcoin mine in the Inner Mongolia province.

At that time, it was one of China's largest facilities.

Now, in 2021, I'm building the same kind of facility here in the desert.

(speaking Mandarin) (translated): Except this time around, it's 60 times larger.

It's like coming full circle, just in a new location.

KUO: Kevin Pan is the C.E.O.

of Poolin, one of the largest Bitcoin mining operations in the world.

A Bitcoin mining facility is similar to a data center.

Powerful computers operate 24/7 to run the Bitcoin network.

For security, the network depends on the participation of computers scattered around the world to collectively keep track of Bitcoin ownership.

The system issues Bitcoins to participants by rewarding those who solve complex cryptographic puzzles, an activity that requires huge amounts of electricity.

Bitcoin mining was once dominated by U.S. miners, but, as so often happens, China was quick to get into the game, and grew to hold as much as a 75% share of the industry.

I'm especially interested in asking Kevin what he thought gave China that edge, in this and in so many other areas.

(Pan speaking Mandarin) (translated): It's almost unfathomable how quick the supply chain is in Shenzhen.

In America, it takes days to receive prototypes for your designs.

In Shenzhen, if you send blueprints to a factory in the morning, they'll deliver a prototype by the afternoon.

It's a paradise for any entrepreneur working with hardware.

In other places, you just can't do this.

Only in Shenzhen.

KUO: Kevin built his massive Bitcoin operation in China.

And then the hammer came down.

China's Central Bank cracked down on cryptocurrencies, calling all crypto-related activities illegal.

It happened around the same time as a wide-ranging tech crackdown that also hit social media companies and online loan providers.

As powerful as the Chinese government is when it comes to rapidly deploying infrastructure like 5G, it can be equally harsh.

And, essentially, with the same stroke of a pen, it banned Kevin's entire industry, citing the environmental consequences of Bitcoin mining.

(Pan speaking Mandarin) (translated): Ever since we got shut down, the company's been in a tough position.

KUO: So, what happened to Kevin?

Turns out he wasn't about to give up so easily.

He just pulled up stakes and started over in a new home.

Where he has been welcomed with open arms.

I love Bitcoin because it's, it's bringing freedom to people.

You can protect your own assets.

And nobody won't... Nobody could, ever, ever could took it from you.

MAN: So, where does it actually exist?

It's on the internet.

(chuckles) KUO: Kevin's not alone in jumping ship.

Many entrepreneurs caught in Chinese tech crackdowns have relocated to America.

They're here because the Chinese government takes an active role in steering innovation.

Policymakers funnel talent and money into industries they view as important.

At the same time, they shut down industries they view as wasteful, risky, or frivolous.

PAN (translated): When China shut us down, we immediately complied with the law.

But in our hearts, we felt hopeless.

We spent so long building so much, and it was all torn down in a single night.

We either had to give up or start from scratch.

KUO: Today, Kevin and his team of Bitcoin miners are meeting with Kenneth Winkles, head of a local economic development organization.

Good to see you again, sir.

How many total megawatts will you be utilizing once you're up and running?

Yeah, this one is about 100 megawatts.

Okay.

WINKLES: I don't believe that what happened in China will happen in the United States, I really don't.

We've got a very stable type of government, whether you're a red or a blue state.

You happen to be in a red state.

Texas is business-friendly, so you're not going to see somebody come in and say, "No, you can't do that in my backyard."

Yeah.

Okay.

KUO: Crypto was banned in China because the Chinese state uses its strong central authority to guide innovation as it sees fit.

But is it just driving out the disruptors and original thinkers needed to foster true innovation?

There's no shortage of strong opinions.

I've seen many times in Chinese bookstores, there are many, many books in those bookstores that say, "Where is China's Steve Jobs?"

And this is a question that China itself is asking.

And so, I do believe ultimately that it's the combination of the American free market with our democratic system that ultimately is best for fostering innovation.

Beijing's vision of the technological future is a little bit different from California's.

In its view, a lot of social media companies are actually creating a lot of social unrest.

And frankly, it doesn't see a great use for crypto currency, which is almost explicitly designed to be out of state control.

There are certainly efforts by the government to redirect talent and capital toward so-called hard tech sectors, such as climate tech, such as electric vehicles, et cetera.

KUO: China's government guides innovation into areas that it deems important.

But can a single institution always choose the right winners?

Either way, it does seem to be working for a number of key industries.

And the Chinese model of a heavier state hand seems to be gaining influence worldwide.

The challenge of competing with China has caused people to reassess whether the market alone can create and mobilize the resources for innovation in the United States.

And the belief, I think, is that it can't, especially when you're competing with a country where the government has been able to mobilize such vast sums of resources in the same areas.

KUO: And so the U.S. government has put its own thumb on the scale with the 2022 passage of the CHIPS and Science Act, injecting public money into the semiconductor industry.

Today's computer chips are easily the most complex devices ever made, and they're also seen now as a critical strategic resource.

Besides trying to jump-start domestic production, the U.S. and the West are also trying to keep the means of production out of China's hands.

DAN WANG: Without advanced semiconductors, there is no way that China can have a thriving technological industry.

China is now out of the starting gate in semiconductors, but in the most rosy view, it is probably at least five to 15 years behind the U.S. in terms of the most crucial semiconductor technologies.

KUO: Computer chips are solid pieces of silicon and metal with literally billions of tiny electronic switches packed into a very small space.

Since the 1970s, the key to increasing the power and speed of computers has been tied directly to the density of those switches.

As they've shrunk down to the atomic scale, the technology required to make them has become increasingly costly and complex.

Pushing the envelope of chip innovation is like building a pyramid.

Everything rests on what came below.

And China's pyramid is really just getting started.

MULVENON: One of the most dramatic consequences of the trade war with China was the exposure of China's dependence on high-quality and high-end semiconductor chips from the United States and Japan and Korea and Taiwan, and I would say right now that catch-up in the semiconductor space is probably the single greatest challenge that the Chinese technology sphere currently faces and the, the highest hill that they have to climb.

KUO: This is a Huawei cell phone factory.

Just a few years ago, Huawei was on track to become the leading maker of mobile phones in the world.

Then the U.S. government cut off their access to advanced semiconductors.

DAN WANG: Huawei has had a lot of different problems with trying to maintain production.

There's simply no way to be a major technology provider if you don't have the most advanced semiconductors in the world, and so at this point, Huawei's revenues have collapsed, mostly because its smartphone business has collapsed.

It was, at, for one period, the second-largest smartphone maker in the world.

Today, it is just barely in the running for being the top tenth largest smartphone makers in the world.

KUO: In Chandler, Arizona, I visit an Intel semiconductor factory, also known as a fab.

Here, Intel is building a new state-of-the art facility.

♪ ♪ If any one place represents the front line of the tech war today, this is it.

HUGH GREEN: Welcome to Fab 42.

You're in one of Intel's most advanced factories.

Very large outfit here that we run with a lot of different people doing various activities.

KUO: Semiconductors process the data that run through digital devices.

GREEN: We start our process with a bare silicon wafer.

It looks like a pizza, 300 millimeters in diameter.

KUO: Digital electronics work by processing our voice, the videos we watch, and the data we collect into a binary code that can be transmitted between us.

This is the language of computers and the internet.

What creates this code are switches called transistors.

At the heart of computers today are tiny wafers of silicon that can hold more than 100 billion transistors in just a few square centimeters.

The switches of today's computers are only a few atoms wide, only visible under an electron microscope.

Arranged by millions of minuscule networks, they look like farmland viewed from 30,000 feet.

The connections between them are just as tiny.

On this package itself, there are 1.1 million interconnects.

And of those interconnects, about 980,000 of those interconnects are at Intel's state of the art.

KUO: The mindbogglingly complex layout of these impossibly small components is printed onto the silicon by lithography, using focused ultraviolet light waves that are just 13-billionths of a meter long.

Atom by atom, different metals are deposited by machines of almost unimaginable precision.

KEYVAN ESFARJANI: Building these chips requires an infrastructure.

It requires factories.

Even though the chips are very, very tiny, the factories that build them are quite, you know, elaborate.

You have clean rooms that are 10,000 times cleaner than where you do heart surgery.

KUO: Each new generation of fabrication machinery is an advance on what came before it.

Starting in the 1970s, Moore's Law predicted that chip technology would improve so rapidly that the number of transistors on a chip would double every 18 months.

This has held mostly true so far, making it almost impossible for newcomers to the game to catch up without relying on equipment produced by just a few standard-setting companies.

ESFARJANI: Imagine you have billions of transistors on a, you know, your fingernail.

If a small defects, and I mean small defects, being, like, like, a size of a, you know, molecule, or even a DNA, the whole thing breaks apart.

KUO: This Intel fab is unique for America.

It's a little bit like the Chinese model, with research and development groups embedded within full-scale manufacturing facilities.

I asked researcher Rahul Manepalli what he thought about the connection between manufacturing and R&D.

MANEPALLI: What is lost when we do not do R&D and manufacturing in-house?

I think that's, it's probably a longer-term view you got to look at.

When you stop doing manufacturing, it's not the immediate generation, but the next generation of products you lose your expertise in, and over time, you can lose expertise in critical skills that are required to advance the technology.

KUO: It's not a stretch to say that here, the U.S. is relearning a lesson that China is already committed to.

It's a reminder of what America may have lost in allowing the decline of its own manufacturing sector.

But it's also a testament to some of America's strengths.

MANEPALLI: We have about 100 PhDs working in this facility, and we, we do care about diversity-- diversity of thought, diversity of opinion, diversity of views.

KUO: As I look around, I see top scientists from many countries working here.

They come from Europe, India, and even China to provide different perspectives on how to solve difficult problems.

This is something that I never really saw in Chinese research labs, and it's one of the many reasons why Chinese companies are having such a difficult time catching up in semiconductors.

In this facility, the most cutting-edge lithography machines are from the Netherlands.

The chip designs are from California.

Minerals for chip making processes come from all over the world.

Producing something as complicated as a semiconductor requires international cooperation.

There isn't a country in the world that can do it alone.

But now, China will have to try.

In late 2022, the U.S. government expanded its tech war on China.

New regulations forced all Americans working in the semiconductor industry in China to resign or renounce their citizenship.

The restrictions are only expanding in scope.

What started as an attempt to choke select companies like Huawei seems to be expanding to the entire Chinese tech sector.

So it was a very comprehensive set of rules designed, really, to, to allow the U.S. to control just exactly what capability China would have across the semiconductor manufacturing space.

And so, China... (chuckles) ...um, faces a really significant problem.

No country has ever attempted to recreate, for example, all the pieces of the semiconductor manufacturing supply chain on its own.

KUO: Back at Huawei, the company is on a war footing.

Cut off from the technology it needs to power their products, they know they need to move fast.

The way the Chinese typically respond to efforts like that is, they redouble their efforts to innovate internally.

(speaking Mandarin) (translated): As you may know, our supply of semiconductors was choked off.

We can't make them.

But I can feel it.

The whole of society is working to find a way out of this problem.

Of course, here in this lab, we are focused on our own problems.

But you could say we're working on the fundamental problem this country faces.

(speaking Mandarin) (translated): How do we get around the pressure that has been put on us?

Is another route possible that doesn't rely on semiconductors?

KUO: In the Huawei R&D labs, researchers study how to use light to process data, rather than using traditional chips.

Losing access to the most cutting-edge chips has slowed down the progress of many of the most prominent Chinese tech giants.

Or has it lit a fire?

In August 2023, Huawei stunned the world by announcing a new phone with a seven-nanometer Chinese-made chip, more advanced than anything anyone thought China could make so quickly.

It was a real morale boost for the Chinese tech sector.

(Gao speaking Mandarin) (translated): China is trying to be held back, but we will innovate ourselves out of the problem.

KUO: The rise of Chinese tech giants has changed the world.

China's model of innovation created world-leading companies.

While many insist that China did not come by these gains honestly, relying on intellectual property theft and predatory pricing, they still did it, and they did it with a different ethos and manufacturing focus that challenges expectations of how innovation happens.

They rose in a time of globalization, but their very ascent triggered a tech war.

SCANLAN: In my personal opinion, it slowed down the world.

Slowed down the world.

We could have been far more advanced in a lot of areas-- in healthcare, education, and a lot of the industrial applications of 5G.

Because we would've had more engagement, more sharing of ideas, rather than, "Not invented here," "That's an Eastern thing, we're a Western."

You know, that sort of mentality?

Unfortunate for the world.

MULVENON: I think the preference is to be able to be, reduce our dependence on the Chinese supply chain.

Hyperglobalization had really gone too far and had not taken sufficiently into account geopolitics.

GALLAGHER: Trying to hamstring China's ability to innovate is really the wrong answer to the question.

And if the question is how can the U.S. become more competitive, it needs to get its own house in order and compete.

♪ ♪ Mom, it's not working!

TRIOLO: The reason you can have that iPhone with so much capability in your hand is the result of globalization.

So, that iPhone represents parts coming from all over the world.

So, what we've seen over the last two years is essentially a reversal of that process.

PODCAST ANNOUNCER: Produced in partnership with the China Project.

KUO: What comes next?

I don't know.

But I believe that Chinese technology will continue to change the world, for better or worse.

♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪ ♪