Quick Take: Quantum Technology Global Competition

Shivakumar: Welcome the first in a series of Quick Takes, where we draw out the implications of data in a discussion with experts in the field. I am pleased to be joined by Andreas Schumacher, Executive VP-Strategy, Mergers & Acquisitions at Infineon Technologies AG and formerly a Visiting Technology Fellow at CSIS, and Professor Charles Wessner of Georgetown University.

In developing new technologies, resources count. Today’s graph from McKinsey and Company shows comparative global public investments in quantum technology for 2023. It maps announced government investments by China at $15.3 billion, eclipsing U.S. investments of $3.8 billion. To begin with, how seriously should we be taking the aggregated information reported in this graph?

Wessner: These are certainly disturbing figures, but we also need to look at the quality of the data. Take, for example, how we compare the U.S. with other countries on measures of aggregate scientific publications. There are assessments that show that China is doing very well in international publications. But there is also the sociology of publications. If you are told by your leaders to boost publications, then you do what you must do to make the numbers.

Shivakumar: And if the Chinese government announces a target for quantum investments, it might motivate a relabeling of other activities as quantum related to boost the results.

Wessner: Exactly. It's like data on numbers of patents. Patents vary widely in quality. How many of these patents are used? Are they utility patents or are they a part of patent families, or more fundamental? 

Schumacher: When looking at the graph, two aspects immediately come to mind: First, the degree of public versus private investment that is involved in advancing quantum technology at the national level. If investments across these countries were mostly funded through public expenditure, then this graph is, of course, a reflection of that input factor. But if you have an industry—as you do in the U.S.—where corporate funding contributes heavily to innovation in quantum technologies, then this view of funding is less meaningful.

Secondly, it is important to examine what is being added up and whether that mix makes sense. Whenever quantum is brought up in a policy discussion, I find it useful to differentiate the different applications of quantum technologies: quantum computing, quantum sensing, and quantum communication (including post quantum cryptography). I stress this because the degree of public and private involvement in all three areas is different, and they are at different maturity stages. So, an informed response to a data presentation like this must first take this disaggregation into account.

And, lastly, as Charles has already alluded to, there’s a difference between input factors like funding and output factors like scientific publications and patents. 

Shivakumar: Indeed, this leads to another question concerns the general effectiveness of China’s announced government investments. Some experts estimate that it is only some 60 percent effective.

Schumacher: Let's apply this factor of 0.6 to the Chinese government investment of $15.3 billion. Even then, the China total is still above the next group of countries in terms of public investments, which in this case is Germany, U.K., and U.S. But if Germany, the U.K., the U.S., and some other countries here would collaborate, they would collectively exceed the effective aggregate level of China. So, there is a clear case here for international collaboration. And, let’s state the obvious: there are a lot of U.S. allies listed here. By the way, I suspect you would see the same picture if you look at it separately in quantum computing, communication, and sensing applications, even though the weights between the countries shift slightly.

Wessner: I think you raised a very crucial point about the private world, because that is the ace in the American system. At the same time, we need to recognize that U.S. private expenditures tend to be more downstream of public R&D funding, focused on market applications, which is a strength. We do spend more on basic and early-stage R&D proportionally out of our public R&D budgets compared with China. China does the opposite, spending more public funds on applied research. This makes the impact of the funds dramatically different.

Schumacher: In China, the majority of quantum technology investment is currently flowing through state institutions, and even there it is highly concentrated. It has been reported in the Western press that some of the large hyper-scalers (companies like Alibaba, Huawei, Baidu, and Tencent) have scaled back their quantum activities over the last year or so, but even before, their publicly announced investment was a fraction of what has been invested in the U.S. and major allies.

We find that, in the West, a more balanced ecosystem is developing. For example, in the U.K., a RAND report mentions that the development of quantum technologies is almost exclusively carried out by startups. You have a situation in Germany, again, quoting this report, which is more balanced: there we see both large corporations and startups involved in quantum technology innovation. Looking at the U.S. economy, too, we see both large companies like Amazon, Google, Intel and IBM, as well as successful startups in the mix. Again, this might be slightly different for quantum computing, sensing, and communication but should generally be true.

Wessner: I think that's a crucial point that we should underscore in this discussion, namely that there are big differences in the mix of public and private investments between China on one hand the U.S. and Europe on the other, with the latter more focused on applications.

Shivakumar: The other pressing public policy issue concerns U.S. efforts to stop outbound investment and impose export controls. How does that affect this picture? 

Schumacher: This brings a number of important new dimensions. Before I get to this, just a brief reminder that quantum computing, sensing, and communications are different, and we should probably answer your question for each separately. That being said, I can think of at least two aspects which are important for policymakers: First, is there a realistic chance that the U.S. can become self-sufficient when it comes to workforce, intellectual property, and supply chains? If cooperation is desired or required, export controls need to account for that.

The second aspect is whether policymakers can differentiate between the technologies that are critical to national security but have limited commercial potential and the technologies with large commercial potential. The latter require a much more calibrated approach, as we see in the discussion about advanced semiconductor export controls. But this is definitely a pertinent aspect—and one that’s approached multilaterally.

Wessner: That makes sense, but international diplomacy often gives perverse outcomes. I mean, could we achieve an alignment of understanding among the different actors—some proprietary, some less so? You mentioned France, a nation well known for guarding its independence in research. 

Schumacher: Globally, research in quantum technologies is quite the opposite of independent, according to a report by RAND. Because of the early, pre-commercial, diverse state of quantum technologies, collaborations have grown predominantly organically, bottom up. So, I agree with you that it will be challenging for governments to get their hands around it. Colleagues from CSIS have suggested alternatives to the Wassenaar Agreement, but with the new administration coming into place and government changes in other countries, a focus on narrow, bilateral or multilateral agreements seems more promising. There have been statements about quantum technology collaboration as part of the U.S.–EU Transatlantic Technology Council, the Australia-UK-United States (AUKUS) defense technology cooperation agreement and the Quad dialogue of Australia, India, Japan and the United States. The statements are rather high level, but it’s a start.

Shivakumar: Indeed. Unlike the semiconductor industry, where the global value chain has already matured over the past decades, the quantum network is nascent. So, there's more of an opportunity to set up some basic framework for cooperation across allies. However, are the critical global value chains for quantum technologies even known?

Schumacher: That’s a good point. There are many promising technologies, in some cases many years away from a decision point which one will win. To give you an example, some quantum technologies require cooling down to near absolute zero: this requires highly specialized cooling equipment. Others work at room temperature, but operate with specialized lasers. Compared to semiconductors, for quantum, we are still a decade away from large-scale commercialization which also gives commercial interests more time to adjust.

Wessner: Yes, there are grounds for encouragement to proceed in any case. In fact, the thrust of your argument is that, given the nascent level of the industry, this is the time to build the framework for allied cooperation. We also want to establish common technical standards to facilitate cooperation in research, commercialization, and trade.

Schumacher: This emphasis on standards is important, especially when it comes to quantum computing, where there are at least a handful of very different platforms to be determined, and we really don't know yet which technology will win the day. And maybe for a long time we will have different, alternative technologies. Interestingly, these alternatives follow different physical principles from the very ground up. 

But, if the promise of quantum computing to become somewhat ubiquitous holds true, you would expect a certain convergence of technology. Ultimately, it will depend on what the end user, whether it's a government or a commercial organization, cares about—that is, whether the quantum computer can add economic value in solving a certain problem. 

Technology for its own sake is nice, but there needs to be economic value for quantum computing applications, such as in pharmaceuticals and finance. And of course, there are also applications of military, national defense value. And these applications could drive the market.

Wessner: You are entirely correct. Military applications or security applications will without a doubt be a major driver. And U.S. expenditures on security represent a compelling reason for European nations to cooperate more closely with the U.S. We are facing unprecedented common challenges, and we need to address them together. Failing to cooperate means we may well fail.

Shivakumar: While the West must cooperate to achieve scale, the reality is that cooperation can take time. China does not have this problem if one looks at the aggregates in this graph. Plus, it's a much more top-down system. They can prioritize which technologies to shoot for. Can the West overcome this challenge in time? What is the timeframe? 

Schumacher: It depends again on which bucket we're discussing. When you talk about quantum sensing, that's much closer to commercialization. For quantum computing, it will be a more gradual process. I think there we are looking at a five-to-10-year time scale.

But, let’s not forgot the great strength of the U.S. and allied nations: we can cooperate, and have proven this many times. Look at the graph: how many of the countries are strong U.S. allies, and how many are Chinese allies? From this perspective, the graph illustrates a huge asset: allied R&D cooperation.

Shivakumar: China’s announced government investment in quantum technology as of 2023 is $15.3 billion. To put it in perspective, that's about the cost of a U.S. aircraft carrier—not counting aircraft. Given the future national security and future economic security stakes involved in emerging quantum technologies, what should the U.S. prioritize? And are we putting in anywhere near the resources warranted by the opportunity and the risk?

Schumacher: In terms of national priorities, you could argue that investments in basic STEM education—to grow the next cohort of engineers who are able to build electronic systems, hardware, and software—is something which will serve you very well, both for semiconductors and for quantum computers. 

Certainly, you will need a few people who are experts in the intricate quantum science of building a qubit. But make no mistake, the value add of a quantum computer is not only the qubit. You need it, but you also need, for example, electronics which work at low temperatures. You need cooling technologies which currently, I think, are mostly being imported or brought to the table by Finnish, British, and German companies. You need precision lasers from Japan and Germany. Capturing the broad benefits of quantum technologies will depend on growing a broad set of engineering and technical skills, as well as international cooperation. It's not just about the one or two Nobel laureates who you need; it's also about engineers who are not geniuses but are able to diffuse this technology and apply it to broader commercial applications. 

In addition to investing in a quality quantum workforce, we also need to emphasize cooperation across our respective industries and research centers. Interestingly, what large German companies have done is to create an industry consortium (QUTAC) that is specifically focused on application of quantum technologies—that is, not on the technology itself, but applying it towards commercial value creation. It's really a pre-commercial or cooperative approach. And the great thing is that it is self-organized and bottom-up. 

Wessner: This same bottom-up principle can apply to international cooperation. We need to offer financial or fiscal incentives backed by policy encouragement rather than issue directives. This is especially important for corporate cooperation. Providing financial incentives will likely be essential. The same would hold for university and laboratory cooperation with the encouragement of the organizations’ leadership, backed by the funding needed to enable cooperation. Conscious, intentional efforts will provide the basis for mutually beneficial cooperation.

Shivakumar: Clearly, the key take-away is that quantum computing, communications, and sensing offer both a tremendous opportunity and a genuine challenge. We need to recognize that our peer competitor is investing massively in these new technologies and that these investments have the potential to shift both competitive positions and fundamental national security interests in major ways. 

Accordingly, we need to harness the deep intellectual capital of our universities and researchers and then combine them with the resources and unparalleled technical capabilities of leading U.S. and European companies. Doing so will require resources, both for the research itself and for the cooperation that can maximize its benefits. Put simply, quantum is a challenge we cannot refuse and an opportunity we cannot miss.

Sujai Shivakumar is director and senior fellow of Renewing American Innovation at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Charles Wessner is a senior adviser (non-resident) with Renewing American Innovation at CSIS. Andreas Schumacher is a former visiting technology fellow in the Economic Security and Technology Department at CSIS.