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China could use Digital Yuan to swerve Russia-style sanctions

GCHQ spy boss talks up threat of east's tech dominance, says Putin has 'badly misjudged' Ukraine attack

UK intelligence agency GCHQ says China is "learning lessons" from the war in Ukraine and could make use of a centralized digital currency to partly get around the type of sanctions being imposed on Putin's Russia.

The agency's chief, career MI5 officer Jeremy Fleming, is speaking to the Royal United Services Institute (RUSI) think tank later today to spell out what his organization conceives of as a technological threat posed by China.

The spy agency said Fleming, who replaced Robert Hannigan in 2017, would speak about the potential of central bank digital currencies to allow the state to monitor users transactions. He will also warn that China's political leadership was "learning the lessons" from the war in Ukraine and that a centralized digital currency could "enable China to partially evade the sort of international sanctions currently being applied to Putin's regime in Russia."

Today's annual RUSI lecture will also include further warnings on China's proposals around international tech standards, which Fleming says will threaten the freedom of the internet by reducing interoperability and fragmenting systems, and China's BeiDou satellite navigation constellation, which he will say the ruling party has "used every lever to force Chinese citizens and businesses to adopt" and export around the world.

"Many believe that China is building a powerful anti-satellite capability, with a doctrine of denying other nations access to space in the event of a conflict. And there are fears the technology could be used to track individuals."

Fleming's remarks come a month after local Chinese media reports said Huawei would launch a new BeiDou-enabled flagship smartphone – in the form of the Mate 50 – with satellite comms that consumer chief Richard Yu said (on Chinese social media service Weibo) would "pierce the sky."

Chinese press said this meant the Mate flagship could send short messages via BeiDou satellites, though it was not clear if the capability was for emergencies only or run-of-the mill short messages.

The presence of satellite texting would have been a fillip for Huawei's phones, which are currently short of the 5G chips that many next-generation phones sport because of its May 2019 addition to the US Entity List, which prohibits the company from accessing American-made goods and technologies including chipsets. Foreign manufacturers using US tech also need a license to sell semiconductors to Huawei, which meant the Chinese tech giant soon ran out of its own high-end Kirin 5G chips manufactured by TSMC.

Meanwhile, the Financial Times has claimed Huawei has been looking at how it could get around those sanctions with redesigned phones and non-restricted chips.

The spy chief will also warn how China is seeking to create "client economies and governments" by exporting its technology to countries around the world.

Fleming will say these countries risk "mortgaging the future" by buying in Chinese tech with "hidden costs," evoking the specter of Gwyneth Paltrow's late '90s romcom as he calls the situation a "sliding door" moment.

At GCHQ it is our privilege and duty to see the sliding door moments of history. This feels like one of those moments. Our future strategic technology advantage rests on what we as a community do next. I'm confident that together we can tilt that in our collective favor.

Fleming will urge the tech industry to "think beyond the illusion of the inevitable" and "recognize that creating an alternative, competitive and compelling offer for technology is an opportunity for the whole of society we can't afford to miss."

Earlier this year, Fleming warned that Russia and China were working on getting the Chinese Internet protocol known as "New IP" adopted as a global International Telecommunication Union (ITU) standard by attempting to restructure the standards process itself.

As for Putin's war, the spy boss's RUSI speech will also talk about how Russian people have "started to understand... just how badly Putin has misjudged the situation."

"They're fleeing the draft, realizing they can no longer travel. They know their access to modern technologies and external influences will be drastically restricted. And they are feeling the extent of the dreadful human cost of his war of choice."

A blast at the weekend put Russia's only bridge into occupied Crimea – a 19km-long edifice which includes a rail and road crossing – out of action for a time. The bridge, which partially reopened the next day, is an important supply route for Russian military forces fighting in Ukraine.

Meanwhile, he will say that neither China's "success" nor a "Russian military victory" is "inevitable," claiming "desperation" is spreading inside the Russian military and civil society: "We know – and Russian commanders on the ground know – that their supplies and munitions are running out." ®

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