The United States and China are vying for technological leadership in three crucial areas that have made headlines in recent weeks—and highlight the two nations’ starkly different approaches to innovation.
The three areas: quantum computing, cryptocurrency, and fifth-generation (5G) mobile communications.
In each area, gaining competitive advantage could have fundamental long-run implications for the two nations’ relative growth rates. In some, breakthroughs may have military and strategic implications. In all three, either nation can make a plausible claim to long-term dominance.
But recent developments in each category reflect the two nations’ radically different visions of the role of private firms versus the state in driving innovation.
Consider quantum computing. Researchers at Google said Wednesday they have built a new machine that, by harnessing the properties of quantum physics, can sort through vast possibilities in nearly real time. As the Wall Street Journal explains, Google’s 54-qubit machine, called Sycamore, “generated about 1 million random strings of numbers in roughly three minutes, a task that would have taken the world’s fastest conventional supercomputer 10,000 years.”
IBM disputes that. Even so, Google’s claim to “quantum supremacy” was cheered by U.S. security experts—many of whom have expressed concern that China, where the government has invested billions in quantum computing research, is beginning to pull ahead.
Also on Wednesday, Congress grilled Facebook CEO Mark Zuckerberg on his company’s efforts to create Libra, a global cryptocurrency. The Facebook founder argued that if U.S. lawmakers thwart Libra, China will be quick to step into the void. Libra, Zuckerberg asserted, will “extend America’s financial leadership as well as our democratic values and oversight around the world.” The initiative may well be America’s best chance at creating a globally dominant cryptocurrency. And yet the hearing underscored U.S. lawmakers’ deep suspicion of Facebook, and suggested Zuckerberg’s aspirations for Libra may be doomed.
China’s digital currency initiative, by most accounts, is near fruition. But the driving force is the central bank, not private firms. Bloomberg reports that China’s approach will rely heavily on the nation’s two mobile payments giants, Ant Financial’s Alipay and Tencent Holdings’ WeChatPay, for implementation. But the central bank will take the lead and could end up controlling about a third of industry revenues.
Donald Trump has declared 5G a technology in which the U.S. “must win” against China. For now, though, the reality is no American companies are competitive in building the equipment required for the high-speed networks. Washington has barred Chinese telecom giant Huawei Technologies from the U.S. market and left building the network to private carriers who are introducing the new technology in only a handful of cities.
China, meanwhile, is barreling ahead with plans for a nationwide network. The Wall Street Journal reports: “As it did in constructing its high-speed rail network and Olympic Games infrastructure, the Chinese government has flexed its authoritarian, top-down power to clear red tape for a 5G project that it deems a national priority.”
Which approach will triumph? As former Chinese premier Zhou Enlai famously (though probably apocryphally) declared when asked about the success of the French Revolution, it’s still “too early to tell.” What is clear, however, is that U.S. dominance in these three key areas is not guaranteed.
More China news below.
Clay Chandler
– Clay.Chandler@Fortune.com
Economy and Trade
WTO rules. China appealed to the World Trade Organization to punish the United States with $2.4 billion in retaliatory sanctions, after the WTO ruled that the US did not comply with the body’s July ruling on tariffs imposed Chinese goods. At this point, however, the Trump Administration has little confidence in the international trade body, and seems clearly focused on upcoming trade talks. Reuters
Will this work? China’s leading co-working space, Ucommune, has filed a prospectus with U.S. regulators and is seeking an IPO by the end of the year. Ucommune was founded as UrWork in 2015 but renamed its services three years later following a lawsuit from WeWork. The Chinese start-up must be hoping it has less in common with WeWork than the name suggests, as the IPO attempt of Ucommune’s U.S. counterpart collapsed last month under investor scrutiny. Financial Times
Juicing. The People’s Bank of China (PBoC), China’s central bank, injected $35 billion of liquidity into its banking sector days ahead of an October 24 deadline for companies to pay tax—an event which normally creates a surge in cash demands. China flooded almost twice as much into the banking system over the same period last year. However, the PBoC funnelled a further $28 billion into the system just last week. Bloomberg
Innovation and Tech
Tsk tsk. Short-video app TikTok fired back at senators who allege that the Chinese company of poses a “potential counterintelligence threat.” TikTok denied claims that it censors content and asserted the app, which is owned by China-based Beijing Bytedance, operates independent of Chinese law. Piling on TikTok’s woes, the short-video app’s global user downloads declined for the first time since it launched two years ago this week, prompting speculation that its era of rapid growth is coming to an end. The Verge
Buzz buzz. Tesla began early production at its $2 billion Shanghai Gigafactory on Wednesday, the same day it reported quarterly profit figures that surprised investors and pushed Tesla shares up 20%. Tesla’s Shanghai plant—it’s first in China and the first auto factory to be wholly-owned by a foreign company—was built in just ten months, ahead of schedule. The new Gigafactory’s Model 3 cars are already selling in China but won’t be delivered until next quarter. Fortune
Flip flop. Huawei’s first foldable phone is shipping next month, after a series of delays, at a starting price of $2,400. The 5G-ready Mate X, which houses Huawei’s in-house Kirin 980 processor, has a maximum 8-inch screen size and—unlike Samsung’s Galaxy Fold—folds so that the screen is always on the outside. The company doesn’t have a plan for international release yet but, given the Chinese company is still banned from using Google’s Android services, a global launch of the foldable novelty likely won’t be coming soon. The Verge
In Case You Missed It
For China’s Social Media Giants, It’s a Battle for the Ages by Naomi Xu Elegant
Nike and Adidas Are Caught Between China and the NBA. That’s Fine With Li Ning by Grady McGregor
China’s Silicon Valley Is No Longer Its ‘Best-Performing’ City by Eamon Barrett
China Slams Pence Human Rights Criticism, Saying U.S. Should Fix Its Own Inequality First by Bloomberg
Investors Clobber AB InBev as Its China Business Suddenly Goes Flat by Adrian Croft
President Xi Says China Should ‘Seize Opportunity’ to Adopt Blockchain by Coindesk
Politics and Policy
Pence’s policy bit. On Thursday, Mike Pence affirmed his support for the Hong Kong protests and attacked Nike and the NBA for failing to “stand up for American values” in a policy address that criticized China heavily. The next day, Foreign Ministry spokesperson Hua Chunying blasted Pence’s speech, claiming it was full of “prejudice and lies” and left China feeling “strongly indignant.” Hua suggested the U.S. should focus more on its own problems, such as gun violence, rather than attacking China. Fortune
Solomon shan’t sell. The Solomon Islands central government declared China’s purchase of exclusive land rights to the island of Tulagi “unlawful, unenforceable and must be terminated with immediate effect.” Earlier this month, shortly after the Solomon Islands severed diplomatic ties with Taiwan and established a relationship with Beijing, China signed a deal with the local administration of Tulagi to lease the land for 75-years. Residents weren’t consulted and, evidently, neither were the powers that be. New York Times
Lam duck? Beijing denied a Financial Times report that alleges China has drawn up plans to replace Carrie Lam as Hong Kong’s Chief Executive once the city’s protests die down. In other Hong Kong news: the local legislature officially withdrew the proposed extradition bill that ignited the protest movement; the withdrawal happened to coincide with the day that the release of Chan Tong-kai—a fugitive, wanted for murder in Taiwan, whose case was the catalyst for the extradition bill—was released for a Hong Kong prison where he was serving time for money-laundering. South China Morning Post
This edition of CEO Daily was edited by Eamon Barrett. Find previous editions here, and sign up for other Fortune newsletters here.
