
Near-Collapse of ZTE May Be China’s Sputnik Moment - vnellore
https://www.nytimes.com/2018/06/10/technology/china-technology-zte-sputnik-moment.html
======
shasheene
I think history will suggest that the end of Deng Xiaoping's long-term
strategy of "hide our capacities and bide our time" around 2015 was too
premature to meet the government of China's long-term goals. The moderate
amount of international goodwill that existed seems to have completely
evaporated and been replaced with significant amounts of suspicion following
the events of the past few years in the region.

Because of this, China finds it harder than ever to access US semi-conductor
technology through financial means, being blocked from acquiring companies due
to national security concerns. Even deals without any immediately obvious
problems such as Broadcom/Qualcomm are being blocked.

Additionally, the demographics situation is very severe in China, and made
worse by the gender-imbalance among young people caused by the One Child
Policy. While Chinese government debt and household debt rates are relatively
low, company debts are extremely high. Far too high for a nation without a
high per-capita GDP. Interestingly enough, the demographic situation in the US
is highly favorable compared to all other advanced economies (it also has a
debt problem though)

The demographic situation dovetails into this interesting op-ed piece [1]
about offering more green cards to international students -- it argues that
even with the high risks of espionage in certain areas, it's well worthwhile
for the long-term US economic competitiveness. I submitted this article to HN
a few hours ago, but after 10 upvotes it was flagged -- which is unfortunate,
I thought it's a very intellectually stimulating topic of discussion that's
urgently required in our open, inclusive society. I highly recommend people
read the article and think deeply about it.

[1] [https://www.bloomberg.com/view/articles/2018-06-04/trump-
is-...](https://www.bloomberg.com/view/articles/2018-06-04/trump-is-closing-
doors-to-world-s-smartest-people)

~~~
obelix_
Idk I think US has bigger problems than whether it's semiconductor tech gets
stolen. Social media and the news media have created such a dysfunctional
environment that I am finding it increasingly hard to believe constructive
debate/solutions on anything are possible until the underlying environment
producing the dysfunction is cleaned up. If not we are just going to get more
and more leaders from both sides propped up purely for skills to pander.

~~~
endtime
> If not we are just going to get more and more leaders from both sides
> propped up purely for skills to pander.

While I share some of your concerns about the media, isn't this (just an
uncharitable way of stating) the entire purpose of democracy?

~~~
vetinari
Democracy assumes constructive attitude towards debate.

Today we are getting _it 's better to be wrong with our side, than right with
the opponent_ partisanship instead.

~~~
merpnderp
Are you sure you just don't disagree with people and can't imagine that they'd
disagree with you because you're so obviously right, so they must secretly
agree you're correct, but continue with a charade? Otherwise you need to
provide some clear citations to how millions of people could _know_ they are
wrong but continue with their positions out of spite.

~~~
vetinari
It's not only in politics, but also in business, sales, at job, etc. Have you
ever witnessed a bubble in opinions in some company, group, etc? Job's RDF was
a harmless form of this :)

Many have internalized their position and they won't secretly agree. They
won't even realize why they disagree, and won't consider objective facts. Some
tiny minority may be aware of that, but many have economic incentive to
continue their position, that mortgage won't pay itself after all. Thinking
too much about it just makes it harder.

I'm trying to stay in theoretical level and not provide any specific examples
except the RDF, because they could be too political/divisive/controversial,
and I don't want to argue the specific cases or take sides, but point out to
the phenomenon itself.

~~~
merpnderp
Oh, I completely get what you're saying about the irrational obtuseness of our
species. My only point of contention was that it is worse instead of simply
more obvious. And my point was that since it is more obvious, things are very
likely better. And maybe it just feels worse because all of a sudden, all of
our differences are out in the open and we're going through this cathartic
jolt of confronting the faults in our long held opinions in a messy, public
contentious debate. But actually, issues such as racism, bigotry of gay
people, attitudes towards poverty and early access to education, unequal
access to justice, have never been more positive. And they've also never been
this publicly debated by so many.

------
fspeech
While there couldn't be a better case than ZTE for the Chinese government to
muster domestic support for its "Made in China 2025" policy, the Sputnik
analogy is actually wrong for China. Sputnik was a national security matter
and ZTE is a case about commerce.

China can actually supply most what ZTE needs to build functional telecom
products (for example when the Obama administration cut off Intel sales to
Chinese supercomputer projects, China went ahead and built the world's then
fastest supercomputer with domestic chips anyway), it is just that they won't
be competitive enough commercially. If both Huawei and ZTE were denied access
to US products the pair could probably survive nicely in a closed Chinese
market with somewhat inferior but perfectly functional offerings to Chinese
telecoms. As it currently stands ZTE can't survive when its competitors don't
suffer the same disadvantage.

This being a commercial matter means the Chinese effort may very well be
commercially wasteful even if their defense ministry might appreciate the
enhanced capability. Indeed if they could make commercially competitive
products in the area there is no reason why they would not have made them
already.

The right way to deal with this really is to just treat it as a commercial
matter. ZTE would have failed with its resources transferred to a more capable
firm. This still could be the effective outcome -- it is hard to imagine how
telecoms world around can have confidence in ZTE when the supply could be
turned off again over any minor infractions in the next ten years. The fine
may be just the price to pay to buy time for a more orderly re-org.

~~~
gkanai
> Sputnik was a national security matter and ZTE is a case about commerce.

China views not having full control of semiconductors and operating systems
(desktop and smartphone) as a national security matter.

~~~
SilasX
And not unreasonably, given the possibility of putting backdoors into these.

------
Animats
China has an official plan, "Made in China 2025".[1] It's about moving up the
value chain. Key areas are semiconductors, pharmaceuticals, and aircraft
engines.

China is still way behind in wafer fabs, but SIMC is coming along. Wikipedia
says they're at 40nm, which is not close to the state of the art, but is good
enough for much consumer electronics.

[1]
[https://en.wikipedia.org/wiki/Made_in_China_2025](https://en.wikipedia.org/wiki/Made_in_China_2025)

~~~
monocasa
They're at 28nm and building 8 core x86 chips that don't look terrible.

[https://en.wikichip.org/wiki/zhaoxin/microarchitectures/wuda...](https://en.wikichip.org/wiki/zhaoxin/microarchitectures/wudaokou)

~~~
wslh
While the article was insightful we cannot think linearly where two
superpowers clash.

So I think we are lefting out the chance for a breakthrough. I imagine China
could do their own Manhattan project for semiconductors and catch up faster.

~~~
monocasa
I mean, they pretty clearly are doing their own Manhattan project for
semiconductors, and are currently catching up.

------
tabtab
Things move too fast for a country to be fully self-sufficient in ALL
technologies, unless you either accept being behind, and/or be stuck in trade
wars.

Different countries have different "personalities" and thus will shine in some
areas and stink in others. You have to think global to be competitive because
you cannot do everything on your own.

The US is mostly an integrator of hardware and technology made abroad, for
example. US focuses on cutting edge stuff, and "glues together" the parts from
abroad to make it. When a product becomes a commodity, it slips offshore and
the US then jumps into the Next Big Thing.

This model may not work for China. For one, they depend much more on personal
relationships than contracts. Business relationships in the US are more
transnational: easy come, easy go. This is well suited to fast-paced change.
China's relationship model may struggle against this approach. But that
doesn't mean there are not other niches. Germany and Japan do quite well by
focusing on perfecting a niche(s) and less on changing quickly.

------
jphalimi
I'm surprised nothing has been said about Huawei's HiSilicon Kirin ARM chips.
Their latest mobile chips are definitely on par with the best on the market.

Mediatek is also another big player among the chip manufacturer and they make
their own-designed chips as well.

~~~
bjackman
I don't think either of those companies have their own CPU cores though (they
use Cortex).

------
kerng
I found this article pretty educating personally. Somehow, I always
assumed/believed microchip tech is very advanced in China, but apparently its
quite behind. 90% of the chips are imported according to this.

------
chrischen
I think this article paints a picture that somehow China is incapable of
making semiconductor technology, whereas I think the main problem is that they
just focused a bit too much on new technology (internet and software) as
opposed to older stuff like processors. That's understandable when you
consider that it would be grossly inefficient to reinvent the wheel.

~~~
makomk
Their lack of working semiconductor technology is definitely not the result of
any lack of attempts at it on China's part.

------
fulafel
> In return, the company — once a symbol of China’s progress and engineering
> know-how — will be allowed to buy the American-made microchips, software and
> other tools it needs to survive.

Aren't most mobile device SoC/ASICs made by non-US companies like TSMC and
Samsung?

~~~
nrp
The _fabrication_ of SoCs for mobile is mostly at TSMC in Taiwan and Samsung
in Korea, but the ownership of the chips is American. TSMC manufactures the
die, but it's fair to say that Qualcomm is the one "making" it since they own
the IP and do the front and back end design-work. Similarly, you can say Apple
makes the iPhone, even though final assembly is done at Foxconn or Wistron.

~~~
chrisweekly
Complete tangent, but in case someone else gets a chuckle out of it: the word
"fabrication" means "creation"... but also serves as a synonym for
"falsehood", almost an antonym in some contexts. I'm not aware of many words
in English that can mean both a thing and its opposite. "Cleave" means to bind
together, or to completely separate... Any language geeks out there know of
others? Or what such words are called?

~~~
rrmm
auto-antonyms.

~~~
chrisweekly
bingo! thanks :)

------
infinity0
More funding coming this way for RISC-V

~~~
fungi
And [http://en.c-sky.com/](http://en.c-sky.com/)

------
thisisit
Curious how will this workout with Xi's unlimited terms presidency?

~~~
ttflee
This will not work, unless Xi resigns with his staff, replacing them with
actual competent ones. That would be a miracle.

------
mark_l_watson
Good article for information and anecdotes but it also rubbed me wrong:
smacking a bit of American Exceptionalism.

I am so used to hearing what is basically propaganda in our press about how
much better we are than the rest of the world, that now articles like this
inspire scepticism.

Our country (USA) does indeed have a lot of advantages with: technology and
geographic isolation.

But we also have problems in income inequality and increasing corruption in
our political system (Clintons, Trump, etc., etc.)

I really like the ‘Sputnik’ analogy because just as my country had an ‘oh
shit’ moment when we realized we were behind, I expect the Chinese to go
through the expensive and long process of owning the entire stack, micro
chips, and up.

~~~
gkanai
> I expect the Chinese to go through the expensive and long process of owning
> the entire stack, micro chips, and up.

None of America's allies have chosen to "go through the expensive and long
process of owning the entire stack" \- America's allies use Windows, Android,
Qualcomm, Intel, etc.

If China really does want it's own home-built silicon running it's own
written-at-home operating systems, they need decades and they'd just replicate
what Microsoft or Google have done to date (and probably less well.) I don't
doubt that the CCP do want that independence from American technology, but to
truly be independent is really quite an extreme proposition.

~~~
dnomad
There's certainly no need to write custom operating systems. China already
happily customizes Android and Linux extensively across a wide range of
devices. You can see this today just by walking down the street where there
are street lights running linux.

As for silicon China doesn't have much choice in the matter. Their dependence
on American silicon may in fact be their greatest security risk. It's clear
that the US and its allies will weaponize this advantage (see Stuxnet) so
anybody relying on these chips is ultimately at their mercy.

~~~
kinsomo
> Their dependence on American silicon may in fact be their greatest security
> risk. It's clear that the US and its allies will weaponize this advantage
> (see Stuxnet)

Please elaborate on this point, my understanding is Stuxnet relied purely on
software vulnerabilities (to spread and to take control of the centrifuges). I
don't think it used any hardware backdoors or anything. If it did, I'd have
expected the roar to be _enormous_ , probably several times what we just had
with Spectre/Meltdown.

~~~
dnomad
The actual attack vector relies upon drivers signed by Taiwanese chip makers.
(Taiwan happens yup be a country whose continued existence depends entirely
upon the US.) If you depend upon say a Realtek card reader you're vulnerable.

~~~
kinsomo
> The actual attack vector relies upon drivers signed by Taiwanese chip
> makers.

But that's not a hardware attack. IIRC, Stuxnet used driver signing
certificates to bypass some _OS-level_ safeguards. It's quite possible that
the needed certificates were _stolen_ from a manufacturer that poorly
protected them.

When you said:

>> Their dependence on _American silicon_ may in fact be their greatest
security risk. [emphasis mine]

The implication is that American silicon itself is backdoored. That may be
true, but I don't think Stuxnet is in any way an example.

~~~
dnomad
> The implication is that American silicon itself is backdoored.

There was no such implication. Compromising hardware never makes sense unless
you can intercept the hardware en route (something the NSA has been known to
do [1]).

> It's quite possible that the needed certificates were stolen from a
> manufacturer that poorly protected them.

It's also possible that unicorns exist. Considering that certificates have
been "stolen" from Taiwanese firms multiple times [2] I'd say it's not
irrational to consider the possibility that these firms either are directly or
via the Taiwanese government cooperating with US cyberattacks.

All of this indicates that yes, relying on such foreign chipsets is huge
security threat. China imports an incredible $200 billion a year in such chips
so even putting aside the huge technological attack surface associated with
such a dependency the dependency constitutes an immediate economic
vulnerability.

[1] [https://arstechnica.com/tech-policy/2014/05/photos-of-an-
nsa...](https://arstechnica.com/tech-policy/2014/05/photos-of-an-nsa-upgrade-
factory-show-cisco-router-getting-implant/)

[2] [https://www.wired.com/2015/06/foxconn-hack-kaspersky-
duqu-2/](https://www.wired.com/2015/06/foxconn-hack-kaspersky-duqu-2/)

~~~
kinsomo
> I'd say it's not irrational to consider the possibility that these firms
> either are directly or via the Taiwanese government cooperating with US
> cyberattacks.

But to be totally clear: that's no more than speculation.

It's also not irrational to consider the possibility that there's been _no
cooperation_ but that the certificates were _stolen_.

> It's also possible that unicorns exist. Considering that certificates have
> been "stolen" from Taiwanese firms multiple times [2]

Malware that uses stolen certificates is less unique than once thought. If a
group building a bank trojan can steal certs, I'm sure state intelligence
agencies can too.

[https://arstechnica.com/information-
technology/2017/11/evasi...](https://arstechnica.com/information-
technology/2017/11/evasive-code-signed-malware-flourished-before-stuxnet-and-
still-does/)

There is also some reason to think their certificates would be _targeted for
theft_ , because code signed by those firms would be some of the _least
conspicuous_. There are a lot of Taiwanese firms that make a lot of low-
profile specialized support silicon that's literally _everywhere_ (Sound, USB,
Wifi, etc), and a driver signed by one will arouse less suspicion.
Inconspicuousness would be a _high priority_ for a nation-state hacker trying
to avoid detection.

The possibility that the Stuxnet and Duqu certs were stolen is speculation
too, but it's less inflammatory and more likely in my judgement.

It's also worth noting that getting explicit cooperation from a company to use
their certificate would be risky for clandestine nation-state operation, since
the more organizations that know about aspects of it, the more likely it will
fail. If word got out that a particular code signing cert was shared, a rival
actor could focus attention on suspicious code signed by that cert and be more
likely to detect it.

>> The implication is that American silicon itself is backdoored.

> There was no such implication. Compromising hardware never makes sense
> unless you can intercept the hardware en route (something the NSA has been
> known to do [1]).

That's wrong. If the silicon is comprised from the get-go, there's no need for
an interception step.

------
ttflee
The recent rhetoric of NYTimes around a Trump-administration related issue is
always like 'Why A would actually become not-A'.

A professor in physics dept. in University of Science and Technology of China
at Hefei has complained that he could not find any student able to solve
problems in textbooks, e.g. condensed matter physics, for years. Demography
together with education reforms favoring liberal arts has destroyed tomorrow's
engineers in China. Salary gaps from IT and financial sectors prohibited
talents from entering traditional industries. Investment into the new tech
surely helps but is not likely to completely overcome existing shortcomings in
traditional materials and manufacturing industry in China.

------
zeth___
If Chinas leadership was smart they would push for open source commodity ics.

Opensource always wins and they could do a run around the US where old
technologies like x86 die and all the experience built around then becomes
irrelevant.

~~~
analognoise
If it was smart, wouldn't the people who possess the knowledge and talent to
turn sand (silicon) into borderline magic (modern nanometer fab) currently be
doing that?

They aren't. So they are themselves either 'not very smart' or the
contributions from 'open sourcing' is not actually very valuable. I think it's
the latter.

~~~
zeth___
They were the first movers so they cornered the market with an inferior
product. Now that China has no hope of capturing the market to extract rents
the next best alternative is to make extracting rents impossible, destroying
the business model of the US companies who rely on said rents.

In terms of a trade war this has all the downsides of dumping products on the
US firms with none of the downsides to the rest of the economy outside of the
very top end of the supply side.

~~~
analognoise
'Inferior product...rent seekers' \- Yeah, that's why the Soviet Union started
the silicon revolution, and why the Chinese currently lead the field, right?

They open sourced their fabs, and random farmers on collectives would come
home (while starving) and make improvements in fab technology by candlelight.

If only they had you to guide them, with your advanced knowledge of economics,
trade and process technology.

~~~
zeth___
Every communist nation had a much larger high technology sector than similarly
developed capitalist nations.

Unless you want to talk to me about the fabs in Portugal and Mexico in 1990
when compared to the ones in Bulgaria and the USSR you're making my point for
me.

~~~
analognoise
Yeah that's why engineers from Soviet Societies would scale barbed wire fences
at the risk of getting shot to get here!

Communism is great if you like hunger and oppressive stupidity. "But it's
never really been tried!" \- No, it has: it is fundamentally incompatible with
freedom and/or intellect.

Nobody is buying what you're selling, champagne socialist.

~~~
zeth___
Somehow there weren't that many engineers in Guatemala. Plenty of child
prostitutes though. I guess capitalism really gives you want you want.

