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U.S. needs to have more allies to bypass Huawei



Michael Chertoff is co-founder of consulting firm Chertoff Group and formerly served as the Secretary of the Department of Homeland Security. Mike McConnell is vice chairman of Booz Allen Hamilton and formerly served as director of the National Security Agency.

On Wednesday, the FCC opened additional mid-band spectrum to support 5G mobile communications in the U.S., reducing reliance on short-range microwave spectrum that comes with high deployment costs. This move will help to ensure the U.S. doesn’t fall further behind other countries in the adoption of 5G, which is expected to spark $12 trillion in new economic activity by 2035, especially in enabling the internet of things.

Perhaps more importantly, this proposal demonstrates one way the U.S. can reinforce elements of what the government calls the “national technology and industrial base” (NTIB), the collection of companies who design, build and supply the U.S. with vital national-security related technologies. These technologies, which now include 5G wireless networks, increasingly underpin everything from the financial sector to the supply chains that deliver our food.

Government support for portions of the NTIB is nothing new. World War II prompted the government to foster the “defense industrial base,” ensuring that American forces had the tanks, aircraft and ships needed to win the war. The Defense Production Act formalized this system at the dawn of the Cold War, granting the President broad authorities to ensure a reliable, domestic supply of vital national security goods. While some defense goods have collateral, non-military uses, others, such as tanks and fighter jets, do not. When the military is the only customer for a good it must place regular orders, or offer other forms of support, in order to guarantee its continued supply.

Yet this system’s limitations are beginning to show. The rapid technological rise of China, and its intellectual property theft, have eroded America’s advantages, while globalization has made it prohibitively expensive to manufacture certain technologies in the U.S. For example, the government’s secure computer chip program has long faced challenges that have severely limited the number of trusted suppliers, driven up costs, and limited the availability of U.S.-made versions of some chips.

Similarly, the economies of scale required to bring advanced technologies to market limit the number of companies that can compete in any given segment. For example, while U.S. vendors still exist, just four companies — Ericsson, Nokia, Huawei and ZTE — account for two-thirds of the global telecommunications equipment market. Some market segments, such as 5G base stations, have no U.S. competitors. Worse, China’s Huawei focuses on low and mid-band base stations that increase their range and reduce costs, making them appealing to much of the world.

As such, we must reexamine how we think about the NTIB, expanding its scope beyond DoD and military operations technologies, and better leverage it to protect our cyber industrial base. Our entire society, not just the military, has become highly technologically dependent. Citizens rely on the same GPS systems, 5G base stations and cloud server technologies used by the military. These technologies power Netflix, the electrical grid, Waze, nuclear submarines and the global financial system. Such dual-use technologies are just as, if not more, important to our national security as any tank, aircraft or ship.

In this environment we must bolster our ability to protect the cyber industrial base of the U.S. and our allies. Fortunately, some pieces for such a move are already in place. Congress has already allowed the Defense Production Act to include dual-use technologies and for coordination with Canada, the U.K., and Australia on securing and protecting our shared industrial bases. However, we must do more.

First, support for our cyber industrial base must grow — the government must take an active role in the roll-out of vital technologies.

In the case of 5G, the U.S. should follow the lead of other countries, freeing vital spectrum and easing the deployment of new base stations. The U.S. must also go further to support key suppliers, either American or allied. In some instances this may require the U.S. government to purchase a certain volume of a technology to ensure the viability of the supplier, as the military does today for naval vessels, or for the government to invest in a key factory, as the Army has at the Joint Systems Manufacturing Center in Ohio.

Second, we must expand our cooperation beyond four allies. Key technology companies, such as Ericsson, Samsung, Nokia and Siemens, are based in other allied countries, such as Sweden, South Korea, Finland and Germany. The U.S. can benefit greatly from enhanced coordination with its allies, leveraging their innovations to address our own technological and manufacturing gaps. Coordination can come in varying forms, including multi-lateral purchase arrangements, like those for the F-35, or by purchasing 5G technologies from Sweden’s Ericsson rather than China’s Huawei.

Now is the time for the U.S. to expand its work to safeguard and grow our cyber industrial base. In an environment of rapid technological change and globalization it is imperative that we take the actions necessary to ensure we continue to have access to secure forms of the advanced technologies that underlie both our economy and military. Without such action we could end up with little choice but to buy from the likes of Huawei — and be forced to accept the security risks that come with it.

Follow @CNBCtech on Twitter for the latest tech industry news.

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Analysts on Shanghai’s new Nasdaq-style STAR tech board



People take pictures during an opening ceremony of the Shanghai Stock Exchange’s Sci-Tech Innovation Board in Shanghai on July 22, 2019.

STR | AFP | Getty Images

The first tranche of companies on China’s new Nasdaq-style tech board started trading on Monday, with all the stocks seeing gains on their public debut.

Still, some are cautioning against jumping quickly into the action.

“I think this market, it needs to … basically take a little bit of patience to develop,” Eugene Qian, president of UBS Securities, told CNBC’s “Squawk Box” on Monday.

“For anything new in China, there is a tendency for retail-oriented markets like China to overly speculate,” Qian said, adding that this would contribute to a “short-term bubble” that may not be sustainable.

The new technology board — the Science and Technology Innovation Board, or “STAR Market,” which is operated by the Shanghai Stock Exchange — comes as China attempts to address investor concerns about market volatility and the lack of governance.

It’s easier for firms to go public in the new STAR Market tech board, compared to listing on the Shanghai A-share market, as companies need to go through a registration instead of waiting for regulatory approval which could take longer.

“I think a lot of people are going to really be behind this,” Gareth Nicholson, head of fixed income at Bank of Singapore, told CNBC on Monday. “This is gonna be pretty wild.”

‘Focus on individual companies’

Prior to their public debut, initial public offerings on the STAR Market saw an average over-subscription of about 1,700 times among retail investors, Reuters reported. In the first five days of a company’s listing, no daily price limits will be placed. But after that period, a stock will be allowed to trade within a 20% range.

In comparison, listings elsewhere in China are subjected to a gain cap of 44% on their debut and limited to a 10% gain or loss thereafter.

J.P. Morgan’s Chief China Economist and Head of China Equity Strategy, Haibin Zhu, urged investors to “focus on individual companies.”

“You need to focus on the sector and the company itself, and make sure that they have decent or stable earnings outlook,” Zhu told CNBC’s “Street Signs” on Monday.

With the new stock board primarily aimed at domestic investors, opportunities for foreign participation will be minimal for now.

UBS Securities’ Qian said foreign investors are likely to watch “with a lot of interest” but will likely “wait a little bit out.”

Many of the stocks listed on the new tech board are similar to those on the Chinext in Shenzhen, which is already included by MSCI in its indexes, Qian said.

“I think there will be opportunities for long-term, value-driven … international investors later on,” he said.

Looking ahead, the Shanghai Stock Exchange said an index tracking the STAR Market will be launched on the 11th trading day following the debut of the 30th company on the board.

— CNBC’s Evelyn Cheng, Yen Nee Lee and Reuters contributed to this report.

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Australia grounds Mahindra’s GA8 planes after Swedish crash



The Airvan 8 utility aircraft manufactured by Mahindra Aerospace stands on display in front of the company’s booth in Geelong, Australia, on Tuesday, Feb. 24, 2015.

Mark Dadswell | Bloomberg | Getty Images

Australia’s air safety regulator has grounded operations of a small aircraft manufactured by Mahindra Aerospace for up to 15 days following a crash in Sweden that killed nine people earlier this month.

The Civil Aviation Safety Authority (CASA) said it had suspended operations of all GippsAero GA8 planes in Australia and all Australian-registered GA8 planes flying overseas from July 20 through Aug 3.

The GA8 single-engine aircraft, built in Australia by GippsAero, is typically used for skydiving, tourism, air patrols, medical evacuations and humanitarian missions in remote locations, according to Mahindra Aerospace’s website.

There are 228 GA8 planes worldwide, 63 of which are registered in Australia, CASA said.

Mahindra Aerospace, a unit of India’s Mahindra and Mahindra Ltd, said CASA’s move was precautionary during the preliminary investigation in Sweden, with which GippsAero was cooperating.

“The preliminary investigation has not identified the root cause of the incident,” GippsAero Chief Executive Keith Douglas said in an emailed statement.

Nine Swedes were killed when a GA8, dubbed the Airvan 8, crashed during a skydiving trip near Umea in northern Sweden on July 14.

CASA said it has been working closely with Swedish authorities and the European Union Aviation Safety Agency (EASA), which has also issued an emergency directive to European GA8 aircraft owners and operators to suspend operations except for ferry flights.

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Cambodia denies deal to allow armed Chinese forces at its naval base



China’s Defence Minister Wei Fenghe (right) shakes hands with Cambodia’s Defence Minister Tea Banh during a visit to a military exhibition in Phnom Penh on June 19, 2018.

Tang Chhin Sothy | AFP | Getty Images

China will be able to place armed forces at a Cambodian naval base under a secret agreement the two nations have reached, the Wall Street Journal reported on Sunday, although Cambodian officials denied such a deal had been struck.

The agreement, reached this spring but not made public, gives China exclusive access to part of Cambodia’s Ream Naval Base on the Gulf of Thailand, the Journal reported, citing U.S. and allied officials familiar with the matter.

Such an arrangement would give China an enhanced ability to assert contested territorial claims and economic interests in the South China Sea, challenging U.S. allies in Southeast Asia. Chinese and Cambodian officials denied such an agreement existed, according to the Journal.

“This is the worst-ever made up news against Cambodia,” Cambodian Prime Minister Hun Sen told the pro-government news site Fresh News on Monday.

“No such thing could happen because hosting foreign military bases is against the Cambodian constitution,” he said.

Cambodian defense ministry spokesman Chhum Socheat told Reuters the report was “made up and baseless”.

China, Hun Sen’s strongest regional ally, has poured billions of dollars in development assistance and loans into Cambodia through bilateral frameworks and China’s Belt and Road initiative.

The initiative, unveiled by Chinese President Xi Jinping in 2013, aims to bolster a sprawling network of land and sea links with Southeast Asia, Central Asia, the Middle East, Europe and Africa.

It has attracted a flood of Chinese commercial ventures in Cambodia, including casinos and special economic zones.

The U.S. Defense Department suggested earlier this month China may be attempting to gain a military foothold in Cambodia in a letter to Cambodia asking why the nation had turned down an offer to repair a naval base.

The State Department urged Cambodia in a statement to reject such an arrangement, saying the nation had a “constitutional commitment to its people to pursue an independent foreign policy.”

“We are concerned that any steps by the Cambodian government to invite a foreign military presence in Cambodia would threaten the coherence and centrality of the Association of Southeast Asian Nations (ASEAN) in coordinating regional developments, and disturb peace and stability in Southeast Asia,” the statement said.

Cambodia denied reports last November that Beijing had been lobbying the Southeast Asian country since 2017 for a naval base that could host frigates, destroyers and other vessels of China’s People’s Liberation Army Navy.

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