China’s surveillance tech suffers international backlash

Hi all — James here in Hong Kong. There is certainly no sign of a summer lull in Asia’s tech scene. A backlash against China’s surveillance tech is starting to reverberate internationally (The Big Story). All eyes are on Japan’s Digital Policy Agency after recent dramatic defects (Our take). Indonesia’s cloud computing boom has propelled the share price of one company to rise 97 times since January (Spotlight). And could Asia’s maximum security biological research labs spark another pandemic (Smart data)? Take good care till next week.

Was this email forwarded to you? If so, you can click here if you would like to receive #techAsia every Wednesday. You can try it for free for 30 days. And we want to hear from you. Send any thoughts to mercedes.ruehl@ft.com or james.kynge@ft.com.

The Big Story — Exclusive

China’s “safe” and “smart” city equipment vendors are encountering an international backlash. The UK is warning city councils across the country that the technology poses security risks, while Taiwan is guarding against “Made in China” equipment. The controversy is building, a Financial Times investigation finds.

The White House this month described the use of Chinese surveillance technology outside China as constituting “unusual and extraordinary threats”. “Safe” and “smart” city technology can allow authorities to surveil citizens on an individual and real-time basis, raising what activists call the spectre of “digital totalitarianism”.

Key developments: New data shown exclusively to the FT revealed the adoption of China’s safe and smart city technology by countries around the world is accelerating.

A study by RWR Advisory, based in Washington, shows that out of a total of 144 safe and smart city contracts involving Chinese vendors signed outside China since 2009, 49 were scheduled for installation in 2018 or later.

The data also showed a clear predominance of illiberal regimes placing orders. The RWR Advisory study found that out of 64 countries that have signed up to install safe and smart city technology from Chinese companies, 41 were ranked “not free” or “partly free” by Freedom House, a US non-governmental organisation. The remaining 23 countries were classified as “free”.

Upshot: The controversy over surveillance technology and data security is building. Trust by citizens toward not only Chinese companies but Big Tech in general is plummeting. Apple recognised this with a series of privacy safeguards this week. In a further sign of stress, Chinese tech workers are being pushed to the limit by surveillance software.

Mercedes’ top 10

1. The US Senate passed legislation providing $250bn to compete against China in areas such as artificial intelligence, quantum computing and semiconductors. (FT)

2. India’s industrial moguls Mukesh Ambani and Gautam Adani have swept past Chinese tech tycoons such as Jack Ma in global wealth rankings. (FT)

3. Here’s why Taiwan’s chip giant TSMC is making a $12bn bet in the Arizona desert. (Nikkei Asia)

4. Exclusive: US chipmaker Nvidia has applied for approval from Chinese regulators for a $40bn takeover of UK chip designer Arm. (FT)

5. China’s Huawei is aiming to install its homegrown smartphone operating system on 200m handsets to replace Google’s Android. (Nikkei Asia)

6. Industry groups from Japan and Finland will try to develop 6G telecoms technology to address Chinese competition. (Nikkei Asia)

7. Germany’s BMW plans to add 360,000 electric vehicle charging points across China to ramp up competition in the world’s largest car market. (Nikkei Asia)

8. Japanese drugmaker Eisai is targeting Asia with its newly approved Alzheimer’s drug as the ageing region faces a rapid rise in dementia patients. (Nikkei Asia)

9. Huawei’s troubles in the US-China tech war are slowing semiconductor sales at Japan’s Sony Group. (Nikkei Asia)

10. High-tech warfare will feature high on the agenda at a summit of Nato allies next week, writes Helen Warrell. (FT)

Our take

The Covid-19 pandemic has revealed dramatic defects in information technology systems used by Japan’s central and local governments. In one example, an Android-based infection tracking app stopped working last September and was dysfunctional for four months. In another, it came to light that online applications for cash assistance were being processed manually by city government officials.

Prime Minister Yoshihide Suga must, therefore, be fully aware that the performance of the newly announced Digital Policy Agency — which seeks to promote digitisation at all levels of government — could cost a lot of political capital as the whole nation watches how it will fare.

One of the root causes of the embarrassing failures is believed to be a severe shortage of human talent who understand how online services should be built and managed. In response, the Suga cabinet has decided to recruit about 100 people from the private sector to staff the agency, which is intended to have a headcount of about 500 at its launch on September 1.

That seems like a good idea. But some observers are already raising alarm. Many job applicants come from IT vendors that have been longstanding government contractors. They have been known not for advising the government on how to adopt better solutions, but for faithfully following bad ideas and requests to their conclusion.

Suga had better make sure job interviews filter out such risk-averse contractors if he wants the new digital headquarters to succeed.

— Ken

Smart data

Asia has a fair sprinkling of maximum security laboratories charged with carrying out the most dangerous biological research, as the map above shows. These have proliferated in the past decade — and scientists have warned that lax controls at some locations could lead to another pandemic.

At least 59 maximum biosafety level 4 labs are planned, under construction or in operation across the world, spanning 23 countries including the UK, US, China, India, Gabon and Ivory Coast. They include the Chinese facility at the Wuhan Institute of Virology, which is at the centre of a renewed US intelligence investigation into whether Covid-19 could have leaked from its lab.

Spotlight

Sometimes it is not the money spent that makes a deal important but the intent revealed. So it was this month when Indonesian tycoon Anthoni Salim, CEO of conglomerate Salim Group, upped his bets on the domestic cloud computing industry.

Salim spent just $71m to increase his stake in DCI Indonesia, a local cloud services operator, from 3 per cent previously to more than 11 per cent. The move shows that Salim Group — one of Indonesia’s largest listed conglomerates, and best known for instant noodles — is making deeper forays into the digital economy.

Salim is not alone. Spurred by a surge in local internet users to 152m in 2019, from 92m in 2015, several companies including China’s Tencent and Alibaba have seized on opportunities to invest in the Indonesian cloud sector. In February, US tech giant Microsoft also reiterated its plan to establish its first data centre in the country.

The shares of DCI Indonesia are reflecting sky-high expectations. The company’s share price has risen 97 times since going public in January.

When sages speak

• Hat tip to Zichen Wang for this handy translation of Xi Jinping’s latest speech on science and technology. It gives a good sense of what Beijing regards as important. Space tech features strongly.

• The Australian Strategic Policy Institute has a trenchant new report on China’s data ecosystem, providing insights into how Beijing’s party-state apparatus collects data around the world.

• There are stark differences between the science disciplines at which the US and China excel. This paper by Autumn Toney and Melissa Flagg for the Center for Security and Emerging Technology reveals crucial data. Taken together, though, the two countries produce almost two-thirds of the world’s research publication output.

Art of the deal

US private equity giant KKR plans to ramp up investment in Japan’s cloud-based software start-ups. The company recently completed raising a $15bn Asia fund.

KKR, whose tech portfolio includes China’s ByteDance, Indonesia’s Gojek and India’s Jio Platforms, plans to make about two investments in Japanese “growth stage” start-ups per year, Tokyo-based partner Eiji Yatagawa said in an interview.

“It is clear that the working population will decrease,” he said. “Using technology to increase productivity is something that has been said for a long time, but every company is finally taking on the task seriously.”