Meinung

Taking Marbles, Going Home

The United States is sounding a lot like China: trade deals didn’t work, call it «national security.» Suddenly, the White House sees everything Chinese as a Trojan horse for dropping government listening devices into American conversations, infiltrating corporate networks, and driving a development agenda based on spying and IP theft.

Anne Stevenson-Yang
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On August 17, the State Department announced a fresh set of sanctions on Huawei, focused on trying to keep the company from getting «off-the-shelf» semiconductor chips from the U.S.

These measures make it crystal clear that the goal is not national security but technological dominance. Threatening to ban the Chinese app TikTok and then warning of expropriation by national champion Microsoft brings the «national security» argument to a new level in two ways, vastly broadening the scope of «national security» and edging close to an unprecedented nationalization of a foreign-invested asset.

Chinese theft of intellectual property, technological nationalism, and promotion of government-sponsored national champions is as old as the «reform» era itself. The multilateral tool kit has been weak in addressing these problems. But this recent «national security» shibboleth in Washington is even weaker.

The U.S. responses misunderstand technology and would actually undermine security. No matter, national security here is a crude club to whack practices that should have been but failed to be negotiated away in trade and investment deals, most recently in the Phase 2 negotiations between the US and China that have not even gotten off the ground.

The U.S. seeks market access in tech, maintaining the U.S. edge in technology, and getting China to stop subsidizing its companies and supporting IP theft. But the ban-then-negotiate strategy pursued by the White House not only has not worked but actually harms all those goals.

No doubt that Huawei is a vehicle of the Chinese government

Take Huawei. There is no doubt that Huawei is a vehicle of the Chinese government. The company was born in 1988 in Shenzhen, then a listening post on Hong Kong and center for development of military technologies. At its inception, Huawei announced it had 10,000 engineers, even as it was unable to conjure up a credible story of financial support for an enterprise of that size.

China’s military procurement system back then suffered from chronic shortages of capital and know-how, and Huawei was designed to address that by helping China gain access to cutting-edge technologies that could not be accessed by a sclerotic, bureaucratic system.

Exactly how public funding flowed into Huawei is not relevant; its obvious mission is. Huawei opened battle fronts on a wide range of commercial technologies, including network systems, smart phones, operating systems, advanced semiconductors, cloud operations, and numerous IOT devices. And Huawei has fought its way into a prominent role in the global tech discussion and investment fest for 5G, claiming leadership in the 5G technologies that many argue will define our future lives.

The intense focus on 5G networks is misplaced, though. 5G has been represented as an almost magical animation of devices from cars to refrigerators, which will enable our doorbells to listen to our conversations, order butter, intelligently select music and reading, and unobtrusively poll our attitudes about almost everything.

The bad news is that we have already been transmitting personal information over public networks for two decades. Only recently, US suppliers of home devices like Amazon's Echo and Google's Home (now Nest) have had to acknowledge the quiet listening capability of their devices and offer consumers an option to opt out.

Huawei is already embedded in those networks. 5G merely steps up the level of connectivity in local and in-home microwave networks. A blanket ban on Huawei carries with it more risks to national security. The U.S. no longer has a one-stop-shop, end-to-end network gear supplier, and a ban will effectively create a duopoly of suppliers: Nokia/Alcatel-Lucent and Ericsson.

Dependence on a small number of foreign companies bears its own risks: They can raise prices, may use shoddy software, and of course the countries that host these companies engage in straight-up spying themselves.

The real problem is unregulated collection of personal data

In any meaningful definition of national security, TikTok is even less relevant than Huawei’s participation in 5G. Yes, companies operating in China are occasionally obliged to hand their user data over to police. Chinese agents also collect data crossing Facebook, Twitter, WeChat, and other platforms for intelligence on what they view as anti-government activities.

The problem here is the unregulated collection and deployment of personal data, not Chinese ownership per se, because it is naïve to think one government, or governments collectively are the primary or sole harvesters of personal information. TikTok under ownership of a US company will likely be at least if not a more aggressive aggregator of personal information, because in their business model the personal behavioral information of their users is their main driver of revenue. If they desist, they won't exist.

Secretary of State Mike Pompeo has made it clear that TikTok is just a first step: «These Chinese software companies doing business in the United States, whether it’s TikTok or WeChat, are feeding data directly to the Chinese Communist party, their national security apparatus,» he said in a recent interview with Fox News.

Focus on these two companies has more to do with U.S. frustration that its trade deal never worked than with a coherent strategy. 5G has emerged as a focal point for think tanks that are seeking an orientation for U.S. trade and investment policy that lies between decoupling and appeasement.

To be fair, trade pacts with China have been a feeble tool for two decades. But now, for many reasons of U.S. domestic politics as well as the slow end to the dream of Chinese growth, the West is reassessing its relationship with China.

The idea of a smooth integration of China was a fantasy

Americans are starting to realize that the hazy idea that China would change with and adapt to the postwar liberal order was just wrong. Instead, China has coupled with international institutions as boxcars couple, with one external joint, without changing its home institutions really at all. And facing key international economic organizations and tenders that China feels are tools dominated by economically advanced democracies, their strategic competitors, China has undertaken to stand up its own: the AIIB, CIP, BRI, CNH, SCO, etc.

But the problems are older than the internet and rooted in the Chinese reform strategy and manufacturing phenomenon. The internet simply super-sized pre-existing problems of Chinese intellectual property theft and industrial espionage. The problem of industrial espionage has been exacerbated and amplified by the advent of surveillance capitalism. Huawei perhaps covertly collects information, but Alibaba, Tencent, Facebook, Google, Instagram, eBay, Amazon, and TikTok all openly collect and exploit personal data on citizens of countries across the world.

Consumer personal information is the gold mined from these platforms that enables the towering valuations of leading Internet companies. But the risks do not stop there. Just as regulations bearing on industry and commerce in major economies are profoundly influenced by financially powerful enterprises, increasingly in political, regulatory, and genuine security matters, nations really have no defenses against influence campaigns using data or IT-enabled espionage. Information privacy regimes are all national in character, while information collection is international. Countries have weak defenses against technical snooping, misinformation campaigns, cybertheft, direct election hacking, and disabling major infrastructure systems.

All of this suggests that the problem is not a technological one nor is it bilateral. Nor are hot technology topics and advances like 5G introducing risks that aren't already evident if not out of control. A multilateral initiative to control and restrict the use of personal data, corporate data, and governmental data must be undertaken. TikTok is only the smallest part of the threat.

The China threat is of a different nature from that of European countries, as it involves a lengthy and well-documented history of technology theft, industrial espionage, hostage diplomacy, and lack of legal independence. These are inseparable components of an economy that is built on a foundation of state-owned enterprises with granular alignment of political leaders, regulators, judiciary, financiers, and enterprise executives.

These are cornerstones of China's unique economic system that made the global fantasy of China's smooth integration into established global organizations and norms unattainable.

It is not 5G. It is not TikTok. It is not the Internet: China's threat was unleashed more than two decades ago. The way to address it is not scattershot bans on particular companies but a broad, multilateral effort to guard personal data, intellectual property, and genuine national secrets.

In other words: Re-join the Trans-Pacific Partnership, strategize smartly on offensive and defensive moves to make, realistically digest the learnings of the last four decades, and start working again on an updated and workable trade and investment system that garners enthusiastic support from the world's developed economies.

Anne Stevenson-Yang

Anne Stevenson-Yang is a co-founder of J Capital Research and is J Capital's Research Director. The firm publishes highly diligenced research reports on publicly traded companies, relying on deep, on-the-ground primary research. Founded late 2010 in China, the company has particular expertise in the Chinese market but looks at overvalued companies throughout the world. Anne was formerly co-founder of a group of online media businesses in China and also founded and operated a CRM software company and a publishing company. Over 25 years in China, Anne has also worked as an industry analyst and trade advocate. She authored the 2013 published Book «China Alone: China's Emergence and Potential Return to Isolation», arguing that China historically repeats a cycle of expansion and retreat.
Anne Stevenson-Yang is a co-founder of J Capital Research and is J Capital's Research Director. The firm publishes highly diligenced research reports on publicly traded companies, relying on deep, on-the-ground primary research. Founded late 2010 in China, the company has particular expertise in the Chinese market but looks at overvalued companies throughout the world. Anne was formerly co-founder of a group of online media businesses in China and also founded and operated a CRM software company and a publishing company. Over 25 years in China, Anne has also worked as an industry analyst and trade advocate. She authored the 2013 published Book «China Alone: China's Emergence and Potential Return to Isolation», arguing that China historically repeats a cycle of expansion and retreat.