The Microchip War

Issues Details: 
Vol 12 Issue 5. Nov - Dec 2018
Page No.: 
Sub Title: 
Manipulating microchips to degrade adversaries is the new technological battleground
Vijay Sakhuja
Thursday, December 6, 2018

Manipulating microchips that form the very roots of communications and computing technologies, with the objective to first observe and later deny and degrade adversaries is the new technological battleground. The article provides an insight into how China, the major perpetrator on this front, is seeking to leverage and enhance its existing capabilities and why nations across the globe, including India and particularly its Armed Forces must remain wary of the same.

The contemporary discourse identifies several ‘Achille’s heel’ in China’s phenomenal rise such as limited military capability to respond to the US during a war, inadequate naval capability to protect sea lanes through the Indian Ocean impacting security of the islands and features in the South China Sea, environmental and ecological issues at home, Tibet unrest, Uighur problems in Xinjiang, corruption in the Communist Party, etc. Among the above assortment of vulnerabilities, technology, particularly those relating to microchips, is making China nervous.

In April this year, the US Commerce Department banned supply of semiconductors for the next seven years to ZTE, a Chinese telecommunications conglomerate which sources large volumes of its processor requirements from Intel and Qualcomm,  the global leaders in chip making. In June, the US enacted the Foreign Investment Risk Review Modernization Act which became a Law on 13 August 2018 with  focus on a country of “special concern that has a demonstrated or declared strategic goal of acquiring a type of critical technology or critical infrastructure that would affect United States leadership in areas related to national security.” Although the Bill does not call out that or any particular country, it is fair to assume that the move comes in wake of the rivalry between the US and China over geopolitical and geostrategic leadership in Asia, global economic competition, and particularly the ongoing ‘Trade War’.

Perhaps the US security concerns were further accentuated after an article in Bloomberg Business week which claimed that ‘China [had] secretly inserted surveillance microchips into servers used by major technology companies, including Apple and’ and labeled it an ‘audacious military operation’. In a top-secret probe, the investigators found that motherboards of servers had a tiny microchip the size of a rice grain which was not part of the boards’ original design. This discovery rattled the US military which had installed servers in Department of Defence data centers, the CIA’s drone operations, and the on board networks of Navy warships. However, the company supplying chips for the motherboard rejected the allegations.

It is not just the US alone; in August 2018, the Australian government too announced telecommunication security reforms just before rolling out Fifth Generation (5G) mobile technology. It assured the public that  to ‘fully realise 5G’s benefits, Government and industry need to continue to work together to take necessary steps to safeguard the security of Australians’ information and communications at all times, and the integrity and availability of the networks themselves.’ Although the government statement did not mention any particular company, the potential targets were the Chinese Huawei or ZTE. Beijing’s reaction to the Australian announcement was nothing new, and China's foreign ministry observed that it was a ‘wrong decision’ and ‘discriminatory’ in nature. It even warned of “a negative impact on the business interests of China and Australian companies”.

Australia’s concerns about Huawei and ZTE also arise due to US’ national security concerns particularly for the Five Eyes (FVEY), an intelligence sharing alliance among Australia, Canada, New Zealand, the United Kingdom and the United States. Unlike Australia and the US, Canada has decided to continue using Chinese network gear and according to the head of the Canadian Centre for Cyber Security, ‘the country’s facilities for testing Huawei’s equipment and software was superior to Canada’s allies, and should be able to prevent security breaches’.

Germany too has woken up to the Chinese investments and mergers of its technology companies, and Chancellor Angela Merkel’s government vetoed a possible Chinese takeover of a German machine-tool manufacturing company realizing that it has a potentially severe security concern. Earlier, in 2016, the German government blocked, on national security grounds, the sale of Aixtron, a semiconductor equipment maker, to China's Fujian Grand Chip. Further, there has been a gradual decrease in mergers and acquisitions deals in Germany by China and the figures have dropped from 26 in 2017 to 22 in 2018.

The ‘Microchip’ war between the US and China has unfolded and for President Donald Trump, technology proliferation from the US to China is a major concern and must be curtailed to sustain military supremacy. US is particularly concerned about China trying to do a ‘catch up’ with the US particularly in the field of space, cyber, underwater, weapons and sensors, and disruptive technologies which find use in military drones, robots and other lethal ordnance including laser guns. Chinese State controlled entities and business enterprises based in the US are suspected of cyber-economic ‘espionage and sabotage’ including technology transfer through merger with and acquisition of, strategic US companies.

President Xi Jinping’s vision of ‘Made in China 2025’ resonates across the country particularly in the technology domain so that the country can break free from importing critical technologies such as microchips. The focus is on innovation which can potentially lead China into a global high-tech leader. The Chinese government has been supportive of the national development plan to be the world leader in artificial intelligence by 2030. At the domestic level, artificial intelligence is expected to be worth almost US$ 150 billion and China is preparing a multibillion-dollar national investment initiative to support “moonshot” projects, startups and academic research in artificial intelligence.

Perhaps it merits attention that China is investing in artificial intelligence related weaponry that tandem its military strategy. For instance, AI technologies feature in new generation of anti-ship missiles through autonomous targeting capabilities. Similarly, there are notable advancements being made in autonomous drones and robots, and the 98-foot-long stealthy robotic trimaran warship D3000 capable of operating autonomously is a good example. This and such other platforms can potentially help China adapt to a new form of warfare that can be labeled as “remote warfare”.

The US is a recognized powerhouse in the business of semiconductors, and Chinese electronic industry is recognizing the impending impact on its future growth and development which is highly skewed towards import substitution from overseas particularly the US and European markets. It spends nearly US$ 200 billion in annual imports of semiconductors that precludes development of the domestic technology industry.

In India too, participation by Chinese companies in telecom sector has been mired in suspicions. There is a general belief that Chinese companies engage in economic and military espionage and sensitive information meant to be secret is stolen and undermines national security.  Indian defence forces are concerned about Chinese hardware, particularly those in communication devices. For instance, the Indian Air Force directed its personnel and their families “not to use Chinese 'Xiaomi Redmi 1s' phones as it believes these phones could be transferring data to their servers in China and hence be a security risk.’

The Indian Navy is apprehensive of Chinese company’s participation in port development projects, offshore oil exploration and even for weather radars. It has chosen to explore Indian IT market for digital networks and has recently awarded a contract to Vedanta group’s Sterlite Tech, a digital networks and telecom solutions provider, to design, build, operate and maintain Navy Digital Network. According to a company source “The digital network initiative will also position our navy for future-readiness, prepare for network virtualisation, Big Data analytics and customised enterprise applications.” 

On its part, China seems to have realized and understood these concerns as also the need to be self-sufficient in chip manufacture and technology. She has begun to marshal national capacity and China's leading chip maker Tsinghua Unigroup and Sino IC Capital signed a strategic agreement to set up an investment firm, research and development center, and manufacturing base for  integrated circuit (IC) with a registered capital of US 15.8 billion. In the field of robotics, the Chinese government wants to increase the share of Chinese-branded robots in the country’s US$ 11 billion market to more than 50 per cent of total sales volume by 2020 and produce 100,000 robots annually by 2020 compared with 33,000 in 2015.

Likewise, China’s national campaign to become a world leader in quantum information science is noteworthy and is seen as a security and a strategic enabler to bridge the gap between its military capabilities and those of its potential adversaries. The above initiatives should partially address some of the anxieties among Chinese technology leaders such as Jack Ma who cautioned that “Japan, China, any country should have their own technology. A company should take responsibility for its customers, for the global future.”

The ‘Microchip War’ has only commenced.



Military Technology