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Editor’s note: This post is the first of a three part series based on a paper examining Chinese use of cellular technologies (including the threat to US interests) by Charlie Parton. For the full paper see: Cellular IoT Modules- Supply Chain Security -bg
Free and open nations have woken up to the threat posed by Chinese involvement in their 5G telecommunications and to the importance of maintaining the lead in semiconductors. There is less awareness of the risks incurred by using Chinese cellular IoT technology. In the longer term the risk posed by the pervasive presence of Chinese cellular IoT modules in our systems and processes poses a greater threat than does relying upon Chinese companies for 5G.
Three Chinese companies already have over 50% of the international market for cellular IoT modules (since that includes the large Chinese domestic market, the percentage, while worrying, do not represent a lost cause). Their products are found in a huge range of applications. CCP policy documents show the strategic importance of IoT technology to the Party. In line with CCP industrial policy to promote global champions in new industries, IoT companies have benefited from the creation of a domestic market which excludes international competition, sets preferential pricing regimes, and provides access to subsidies and centralised funding.
The risk is that, if Chinese companies continue to increase global market share and to edge out foreign companies, free and open countries will become dependent upon China for cellular IoT modules. Given the immense importance of these modules to modern industry and life, this would make other countries highly vulnerable to a threat to withhold supplies. Dependency is dangerous when it is in the hands of the CCP, a potential, if not actual, hostile power.
More specifically the threat revolves around four areas: national security, economic prosperity, privacy, and values and human rights. Concerns include:
This vulnerability and threat are real and current. In January 2023, the UK media reported that a surreptitious Chinese cellular IoT module had been discovered in UK government cars, including those used by senior government minsters. The module, which was described as a “tracking device” was reportedly identified after officials had dismantled the British Government vehicles and swept them deliberately for what it referred to as Chinese “tracking” devices. Quoting serving intelligence sources, the media reported that the devices had been concealed inside sealed parts from suppliers in China.
WHAT IS THE SOLUTION?
The longer the delay in limiting Chinese IoT modules, the more difficult and expensive it becomes to phase them out. Absence of action will lead to a dangerous dependency on the CCP, which will be able to put pressure on foreign policy makers by threatening supplies.
As ever, science moves with lightning speed, governments more glacially. Nevertheless, it is time to wake up. In one sense, recommendations can be reduced to one simple imperative: Free and open countries should ban Chinese manufactured IoT modules from their supply chains as soon as possible
More realistically, they should:
THE INTERNET OF THINGS (IoT) AND CELLULAR MODULES – THE NEW SECURITY AND COMMERCIAL FRONTIER
The Internet of Things (IoT) is fast becoming the central nervous system of the global economy.
The IoT spans energy, supply chains, manufacturing, agriculture, transport, urban planning, security, domestic applications, and increasingly all aspects of the human-to-machine and machine-to-machine interface.
The embedded sensors, software, processors, communication hardware and other technologies collect, send and act on data they acquire from their environments. They connect and exchange data with other devices and systems over the internet without human intervention, forming an IoT ecosystem. This data is collated and transferred to back-end systems for analysis and action. Using artificial intelligence (AI) and machine learning can make data collecting and processing easier and more dynamic. IoT modules are used in environments ranging from ordinary household objects to sophisticated industrial tools and processes.
This enabling technology serves as a foundation for a wide number of downstream capabilities across an array of cutting edge and emerging technologies including artificial intelligence, machine learning and analytics, green energy, space, and robotics. IoT devices feature in manufacturing, logistics and utility organisations, as well as in defence, security, agriculture, infrastructure, home automation, amongst many other applications.
The Internet of Things (IoT) encompasses a wide range of products and dependent services which increasingly play a prominent role in key industrial sectors, infrastructure projects, and in the day-to-day lives of people all over the world. Common IoT devices, which might be seen in businesses and homes, include smart speakers, smart thermostats, smart security systems, mobile point of sale devices, medical monitoring devices, watches and other wearable devices, to name just a handful. An IoT network describes smart environments, like a “smart home”, “smart industry” or “smart city”. IoT applications in business includes things like supply chain management, and in government includes the provision of streamlined public services.
Most IoT device users only see a product’s user interface. A simple example of an IoT device many people may have come across personally is a smart light bulb, like the Philips Hue. Instead of being controlled by a light switch, they can be controlled by mobile application, like the Phillips Hue app or by voice through another commonly used IoT device, a smart speaker, like Amazon Alexa or Google Home. A smart lightbulb combines energy-efficient LED technology (i.e. light-emitting diodes, a semiconductor device[1]) and a physical module that enables its communication with the applications and devices used to control it.[2] The images in Figure 1 are of what a module on printed circuit board in an IoT Device looks like in the example of a smart lightbulb.
Figure 1: What Makes a Device “Smart”?
Source: “Teardown: Hive Smart Bulb”, All About Circuits, online (left) and “Smart Light Device”, Code: Internet of Things, online (right).
IoT modules run their own operating system to interface with the host machine or appliance. The physical module is the key component of all IoT devices, it is typically assembled on a printed circuit board (PCB). There are several types of wireless technology used in an IoT module. IoT modules range in complexity from early-technology 2G and WiFi modules through to more advanced standards, such as 5G, 4G and LTE.[3] In the smart lightbulb example above, the module is relatively simple – depending on type and how it runs, it will use Z-Wave, Zigbee, Wifi and/or Bluetooth capabilities to communicate.[4]
Cellular IoT modules fulfill a critical role as part of IoT systems or products in serving as the gateway for data transfer through 5G, 4G, and LTE. They are responsible for ensuring the connectivity of the devices to which they are attached. They enable IoT devices to connect to each other within an internal network, and to connect externally with services, devices, or systems outside the network in which they are physically present. Their use is predominantly found in settings where other forms of connectivity are unsuitable, or where loss of connectivity would result in critical failure of systems. They also serve as back-up in systems which cannot afford to lose connectivity. They are often deployed in industrial settings that are part of critical national infrastructure including energy, transportation, communications, and finance.
Cellular IoT modules therefore often act as a single point of entry and exit for vital flows of data for the monitoring or control of systems that are critically important for the social, economic, and physical wellbeing of individuals, companies, and nation states.
Figure 2: Cellular IoT Module.
Source: Quectel Narrowband-IoT module, Quectel, online.
Cellular IoT modules combine radio transceiver, antennae, satellite positioning, baseband, applications processor and PMU, all integrated onto a printed circuit board less than 5×5 centimetres in size. This created microprocessor is always connected to the internet. These devices will be capable of constructing their own “mesh network” (that is a network of IoT devices or ‘nodes’, where each node is connected to all other nodes in the network). A mesh network acts as an independent component capable of collecting, processing, sending, and receiving data
Figure 3: Traditional WLAN versus Wireless Mesh Network
Source: Marius Portmann, ‘Wireless Mesh Networks for Public Safety and Disaster Recovery Applications’, Scientific Figure on ResearchGate. Available online.
These modules will form the backbone of future mesh networking technology where devices form an overlapping and non-hierarchical connectivity. Such an arrangement is more resilient and offers far greater coverage than alternatives. Cellular IoT modules are increasingly commonplace within large scale infrastructure projects and critical national infrastructure. These devices harvest and transfer vast amounts of data in their day-to-day operation. Should this data be misused it could provide a highly detailed picture of the systems in which they operate, the individuals which come into contact with them, and the services that they support. Misuse of this data and the ‘pattern of life’ analysis which could be created from it, for example drawing on ‘smart’ cities and connected industries, could harm national security and individual safety.
WHY THE CCP WISHES TO DOMINATE THE MARKET FOR CELLULAR IoT MODULES
The Chinese Communist Party’s long-term strategy is set out in its ‘Two Centenary Goals ’(两个一百年). The first was to reach a “moderately prosperous society”, whose achievement Xi Jinping declared in 2021, marking the 100th year since the founding of the Chinese Communist Party.[5] The second, the “Chinese Dream” (中国梦) of the “great national rejuvenation of the Chinese nation” (中华民族的伟大复兴) is due by 2049 – the year of the 100th anniversary of the establishment of the People’s Republic of China (PRC).[6]
The language of national rejuvenation centres on making China a ‘strong, democratic, civilized, harmonious, and modern socialist country’. This requires more than domestically-oriented success. It creates considerable challenges for China’s strategic competitors, because ultimately its achievement translates into an intention on the part of the CCP to supplant the United States as the world’s leading superpower, and to re-align the existing global order in such a way that it buttresses the interests and values of the CCP’s system of authoritarian governance.[7]
New and emerging technology is central to the CCP’s ability to achieve these goals. This is not just a question of possessing technical capabilities which promote economic development or military might, nor of spreading globally the surveillance and other illiberal applications of technology which the Party has implemented domestically. The most game-changing advantage of technology is that it enables the accumulation of massive amounts of data. The CCP views data as a strategic resource.[8] When processed and aggregated, data can support its interests across military, economic, political, cultural and other domains.
Internet of Things technology, or IoT technology, is a specific sector of concern. [9] IoT describes physical objects “embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the internet.”[10] The specific technology enabling IoT, and the focus of this report, are IoT modules, especially the 5G related Narrowband IoT (NB-IoT) modules, a cellular radio access technology.[11] IoT modules are the mechanism by which data is transmitted and received by an IoT device, so they are the key component that make devices ‘smart’. As a topic for policy discussion, IoT modules probably go under the radar because it is it is an internal component part which users do not tend to see when interacting with an IoT device.
China’s domination of the global IoT market creates an opportunity for significant data collection and sharing. The risks China creates in the IoT sector are vast. As pointed out in a 2021 report by the highly respected Australian Strategic Policy Institute (ASPI) entitled Mapping China’s Technology Giants: Supply Chains and the Global Data Ecosystem[12], suppliers to the companies which provide IoT devices can obtain downstream data access, and, regardless of a device’s end-use, process that data for other uses. In the case where Chinese companies are the suppliers, this might undermine the interests of the individuals whose data has been collected. It could also be deleterious to the interests of nations in a strategic competition with China. Likewise, its 2019 report Engineering Global Consent described a specific case study relating to smart cities where IoT technology, among other things, was facilitating data collection which supported China’s state security efforts, including in the fields of propaganda and intelligence.[13]
State support for IoT[14] and cellular IoT module development in China has been significant. Specific to IoT modules, in 2017, the MIIT issued a Notice on Comprehensively Advancing NB-IoT Development, calling for the expansion of NB-IoT use in smart cities and industry, and in the home. It also called for support of companies producing NB-IoT modules and an acceleration of R&D related to NB-IoT modules.[15] Chinese companies now account for over 50% of global shipments of IoT modules,[16] and as of late 2020, accounted for 75 percent of cellular IoT connections worldwide. Quectel and Fibocom are the two largest players in the Global IoT market, accounting for just under 47 percent of market share in terms of IoT module shipments. By 2023 they may lead in 5G connections.
The implications of China’s dominance of the global cellular IoT market have not yet been widely recognised.[17] At the very least, risk emanates from China’s state security laws and the realities of everyday existence, all Chinese companies, whatever their ownership structure, have no choice but to heed the orders of the CCP. And as General Secretary Xi Jinping assures us, the CCP “leads everything”. If the CCP wishes these companies to exploit these devices to interrupt or degrade critical infrastructure systems, or to hand over vast quantities of personal, industrial data, and national security data, they have no choice but to obey.[18]
In the CCP’s quest to achieve national rejuvenation – or to speak bluntly, to become the number one superpower – given its ever increasing and extensive presence throughout industry and people’s personal lives, cellular IoT modules could play an important role. Free and open countries need to recognise this challenge and must raise their defences accordingly.
HOW THE CCP SUPPORTS THE CHINESE CELLULAR IoT MODULE SECTOR
In the IoT sector, the party-state ensures that IoT companies receive favourable regulatory treatment, finance at preferential rates through central and regional banking institutions, access to key materials and products (such as semiconductors) at below cost, and other state support. These measures create a favourable and interconnected ecosystem for technology companies working on these strategic technologies.[19]
This matches CCP efforts seen in other sectors, such as telecoms, solar photovoltaic (PV) manufacturing, and high-speed rail. Using massive industrial subsidies, restricted government procurement policies, land grants at very low cost, IP theft and other levers, the CCP has built up new industries and pushed foreign competitors out of its markets – and often into bankruptcy. The next step has been to overwhelm competitors in the global market by subsidising expansion, giving cheap loans to customers (often tied to buying Chinese equipment and services)[20]. Nortel, once the global leader in telecoms, is the most egregious case of a foreign company being destroyed by ruthless Chinese competition and espionage.[21]
The impetus comes from the CCP’s assessment of what is needed in order for China to achieve national rejuvenation, both offensively and defensively. Responding to calls from within the US and Europe for states to “reindustrialise” as a means of breaking perceived dependency on China, the “Made in China 2025” policy identified a range of critical technology groups. The aim has been to develop and maintain a controlling market share by a 2025 deadline. This industrial policy has been further reinforced by the “Dual Circulation” strategy, whose essence can be characterised as relying upon domestic Chinese efforts and market first, and on foreign suppliers only if necessary. The corollary of these policies is that the technologies developed domestically will be aggressively pushed abroad.
A further – and most important factor – is the Military-Civil Fusion (MCF) strategy. As the name suggests, MCF seeks to drive technological innovation which would both provide market advantage and help the modernisation of the People’s Liberation Army (PLA). It draws together the innovation engines of universities, military affiliated organisations, and tech companies. It also benefits from the collection of science and technology developments abroad by China’s students and academics, as well as by the intelligence services. MCF represents an important factor in fulfilling Five Year Plans, Made in China 2025, and attaining the Ministry of Industry and Information Technology’s goal of gaining the “strategic high ground” (see below).
The next in this series will examine realities of this situation using examples of two companies.
Related Reading
About the Author
Charlie Parton spent 22 years of his 37 year diplomatic career working in or on China, Hong Kong and Taiwan. In his final posting he was seconded to the EU Delegation in Beijing, where, as First Counsellor until late 2016, he focussed on Chinese politics and internal developments, and advised the EU and Member States on how China’s politics might affect their interests. He has also worked in Afghanistan, Cyprus, Libya and Mali. In 2017 he set up his own consultancy, China Ink, and was chosen as the UK Parliament’s Foreign Affairs Committee Special Adviser on China; he returned to Beijing for 4 months as Adviser to the British Embassy to cover the Communist Party’s 19th Congress.
Informing your decisions with actionable intelligence
Informing your decisions with actionable intelligence