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The Jamestown Foundation

The Jamestown Foundation

Founded in 1984, The Jamestown Foundation is an independent, non-partisan research institution dedicated to providing timely information concerning critical political and strategic developments in China,…

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Tech Tensions Heat Up Between China And The U.S.

  • U.S. and China are experiencing worsening bilateral relations, leading to intense competition over data and information sectors.
  • China has been cracking down on foreign firms, targeting accounting and information-related companies, and investigating leading American chip maker Micron Technology.
  • In response to concerns over data leakage, China established a National Data Bureau to collect and protect data, including information from multinational IT firms.
Technology

U.S.-China relations appear headed for further deterioration despite the People’s Republic of China’s (PRC) efforts to lure back American multinationals and Beijing’s relatively limited support for Russia in its war with Ukraine. Washington has characterized the “existential competition” with the Chinese Communist Party (CCP) as an entrenched struggle on all fronts, but the data and information sectors have recently become areas of particularly intense contention.

The Xi Jinping leadership has sternly retaliated against purported efforts by the U.S. and its allies to choke off the PRC’s high-tech development pathways. Recent moves targeting American and other foreign firms are also closely linked to General Secretary Xi Jinping’s obsession with cybersecurity and control of data. Last weekend, the Cyberspace Administration of China (CAC), the administrative arm of the policy-setting Central Cyberspace Affairs Commission (CCAC) that Xi chairs, announced an investigation into the operations of leading American memory-chip maker Micron Technology. The CAC cited the need to safeguard the supply chains of Chinese IT and data companies. Regardless, Micron, whose China operations account for 11 percent of worldwide sales, has insisted that it “stands by the security of our products” (Straits Times, April 1; South China Morning Post [SCMP], March 31).

Foreign Firms Under Pressure

The Xi administration’s crackdown on foreign data, accounting and information-related firms began in March, when the Mintz Group and the Chinese branches of the Big Four accountancy firms were compelled to begin winding up their Chinese operations due to Xi’s concerns over the possible leakage of business and political information to foreign rivals (Radio French International, March 27; BBC Chinese, February 24). On March 20, five Chinese employees of the Beijing office of the Mintz Group, an international business intelligence and due diligence company with branches in 18 cities worldwide, were arrested by state-security agents with no advanced notice. The firm’s Beijing office was then closed. The Chinese government has not responded to inquiries from the New York-based conglomerate. Moreover, a Japanese national was arrested by state security for alleged espionage, a possible reference to the theft of sensitive economic and technological data (Radio French International, March 27; Netease, March 18).

Earlier this year, the Chinese government ordered state-owned enterprises (SOE) and several semi-private conglomerates to phase out the Big Four accounting and auditing firms: PricewaterhouseCoopers LLP, Ernst & Young, KPMG and Deloitte & Touche LLP (The Standard, February 22). This directive comes despite Beijing’s compromise with American securities regulatory agencies that the books of Chinese companies listed on the New York Stock Exchange could be vetted by American-appointed auditors based in Hong Kong (BBC Chinese, February 24; Finance.sina.com, February 9).

All Data to the CCP?

Since essentially obtaining leader for life” status at the 20th Party Congress last October, General Secretary Xi has sought to bolster China’s “information security.” At the National People’s Congress (NPC) early last month, a National Data Bureau (NDB; ?????), which has the same status as a department in the central CCP hierarchy, was established. The NDB will assume responsibility for the protection and collection of data, which reportedly includes information gleaned from multinational IT firms close to the government such as Alibaba, Ant Group, Tencent, and Didi Chuxing (Finance.sina.com, March 15; China.com.cn, March 11). Despite the absence of clear-cut laws or regulations, government units such as the NDB, as well as police and state-security departments, can always oblige private concerns to provide all of their users’ business and personal information. The NDB reports directly to the CCAC, China’s highest cyber- and data-related decision-making body.

Moreover, despite reassurances by Xi and new Premier Li Qiang regarding extra data protection for non-state enterprises, more IT conglomerates, particularly those that own the data of millions upon millions of Chinese and foreigners, have been placed under tighter party-state control. Soon after the founder of the e-commerce giant Alibaba Jack Ma’s return to China last month, it was announced that the conglomerate would be broken down into six separate entities (The Paper, March 30). Three of the six entities, namely Cloud Intelligence Group, Global Digital Business Group and Digital Media and Entertainment Group, will handle the data of companies and consumers that are clients of Alibaba and Taobao, the lucrative sales arm of the e-commerce behemoth (Wall Street Journal Chinese, March 30; New York Times Chinese Edition, March 29).

Partly due to repeated reports in the U.S., Canadian and Australian media concerning CCP interference in the internal affairs of these countries, Washington and its allies are doubling down on closing loopholes, whereby the data of Western corporations and individuals could be “leaked” to the PRC (VOA Chinese, March 3). This underpins the serious debate underway in Washington and several other Western capitals over whether to ban TikTok, or, at the very least, severely restrict the popular app. American China hawks such as Florida Senator Marco Rubio have claimed that TikTok could be used as a vehicle for the CCP to help achieve its quest for “national reunification with Taiwan. Specifically, Rubio expressed concern that Chinese intelligence organs could use their access to TikTok to run algorithms to promote dubious narratives to international audiences, including portraying the PLA’s strength as irresistible and falsely framing the Taiwanese population as ready to “return to motherland” (Marco Rubio Twitter, March 24). As the recent congressional testimony by CEO Shou Zi Chew appeared to be largely fruitless in resolving the impasse over TikTok, the way is now clear for the U.S. to either ban the company altogether or ratchet up pressure on its Chinese parent, Bytedance, to sell it to an American company (Nikkei.com, March 24; Guancha, March 24).

A new report by the American cybersecurity firm Mandiant, which is owned by Google, noted the increasing sophistication of the PRC’s cyber capabilities. A cybersecurity researcher was quoted by the American media as saying that “given how incredibly difficult they [Chinese hackers] are to find, most organizations cannot identify them on their own.” “It’s not uncommon for Chinese campaigns to end up as multi-year intrusions,” the researcher added (VOA Chinese, March 30; Axios, March 17). The assessment by Mandiant meshes with public statements from U.S. intelligence  leaders that the cyber threat from the PRC has never been so far-reaching (C-SPAN, March 8). Moreover, in the wake of efforts by various Chinese IT and data companies, including Huawei, to get around sanctions imposed by the U.S. and its allies, American-originated boycotts on both U.S. capital going into China and foreign-made tech components being stealthily rerouted to PRC factories are expected to be enhanced.

21st Century Struggle

The determination by America’s two major political parties to crack down on Chinese tech firms could also be heightened by the increasingly fierce geopolitical contests between the U.S. and the PRC. Take, for example, President Xi’s recent visit to Moscow. While Xi claimed “neutrality” in the Ukraine crisis, the fact that the two quasi-allies signed numerous agreements on boosting energy, trade and other kinds of cooperation has reinforced the impression in the West of China being a tacit supporter of President Vladimir Putin’s aggression against Kyiv (Radio French International, March 22; Deutsche Welle Chinese, March 17). The Biden administration is also disturbed by evidence that the Chinese have apparently sold munitions and hardware components, including computer chips, to the Russian military (Radio Free Asia, February 6). After Xi’s recent tête-à-tête with Putin, a PRC Ministry of Defense spokesperson said both nations would persevere in “strengthening strategic communication and coordination” (Xinhuanet, March 30). Xi seems to be taking an equally assertive approach toward Taiwan. At the twin meetings of the NPC and the Chinese People’s Political Consultative Conference last month, the supreme leader made four references to the PLA’s “readiness for war,” an indication that Beijing was considering using force against Taiwan (Gov.cn, March 8). [1] The Xi leadership is also expected to flex its military muscle during Taiwan President Tsai Ing-wen’s “transit” through California and meeting with House Speaker Kevin McCarthy this week (CGTN, April 4). Perhaps even more than the Ukraine issue, the Taiwan question has heightened tension between the PRC and the U.S.

The intensification of “data warfare” between China and the U.S. will likely lead to more Chinese tech firms, particularly those suspected of aiding alleged Chinese hacking into U.S. firms, pilfering intellectual property and intelligence from American corporations and government agencies. The U.S. Congress is also readying an array of legislation that would include forbidding American venture capital firms to invest in Chinese companies with ties to the military and intelligence establishment. Such sanctions will likely be adopted by American allies in both the EU and Asia (U.S. Treasury Department, March 30; ChinaUSfocus.com, March 24). Only last week, the Japanese government ruled that 23 types of chip-making technology and machinery could only be exported to a set number of countries, excluding China (Nikkei.com, March 31; Japan Times, March 31).

Apart from imposing sanctions on each other’s tech and data-related firms, a growing number of signals suggest that the U.S. and China are waging information-based warfare across multiple dimensions. The incident of the “off course” PRC surveillance balloon, which overflew North America in early February has intensified efforts by the U.S. and its allies to boost intelligence-gathering and defense measures to guard against what is perceived as a growing threat from Xi’s China (China Brief, February 13). During his visit to Canada last month, President Joe Biden pressed Ottawa to boost defense spending and to take a more active role in U.S.-led coalitions aimed at countering China (Radio-Canada.ca, March 24; Netease, March 20).

Due to the CCP’s authoritarian nature, the Chinese side appears to have more ways and means to safeguard technological secrets and data related to national security and stability. The newly installed Minister of Public Security Wang Xiaohong recently pledged that China would push through the “one police, one village; one police; one urban grid” program. This entails the assignment of at least one law enforcement officer to manage security issues in a rural village or section of an urban street (People’s Daily, March 30; Gov.cn, March 29). The duties of these “super cops” will include monitoring residents’ internet use and filing reports on local IT personnel, who are friendly with foreign experts and overseas Chinese businesspeople. The public security personnel are also responsible for ensuring that practically every inhabitant within their jurisdiction is aware of the implications of the cyber struggle between the U.S. and China.

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Conclusion

In a recent speech on U.S.-China relations, American National Security Council Coordinator for Indo-Pacific Affairs Kurt Campbell said both sides must “build guardrails” to prevent bilateral relations from “moving into destabilizing [realms]” (East Asia Forum, March 11). Given the importance of the semiconductor and data-related industries in determining national strength, the ferocious contention between the two major powers on this front is likely to only intensify. Moreover, China’s cyber capacity and its artful use of data to influence public opinion are set to play a major role in President Xi’s strategy for absorbing Taiwan. In light of these disturbing developments in the domestic and geopolitical arenas, the zero-sum rivalry between China and the U.S. is tipped to intensify in the information and technology fields, as well as other areas.

By the Jamestown Foundation

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