The New Code War
Achieving mastery over sensitive technologies has become a key national objective of both the US and China.
The battle for control and mastery of innovative new technologies has become a central pillar of the ever expanding set of disputes between Beijing and Washington. Arguably, the indictment of Meng Wanzhou, Huawei’s CFO was the first serious salvo in this conflict.
She was accused of, among other things, violating US sanctions against Iran by using duplicitous means to sell US technology to Tehran (the US controversially asserts control over its exports internationally, something that is contested by the Chinese). The US also accuses Huawei of, effectively, running a vast program of intellectual property theft, to siphon key US code and other know-how for its own uses.
In its latest salvo, on August 6, President Trump expanded this front by sanctioning Tik Tok, the immensely popular Chinese social media app and WeChat, the ubiquitous payment platform that is used by vast swathes of China.
A more formal vision of Washington’s revised global telecommunications order has also been outlined by the Secretary of State, Mike Pompeo. The Clean Network initiative envisions an alliance of countries that commit to broad principles that would effectively embargo Chinese telecommunications firms from these markets. The US claims 30 states have pledged support for this initiative.
Other US moves, which are slowly replicating across Western states and their allies, include greater interdiction of Chinese investments. CFIUS (the Committee on Foreign Investment in the United States), a US Treasury committee that oversees transactions involving sensitive US technologies and interests has increasingly intervened to quash Chinese acquisitions. CFIUS recently determined that that a Tik Tok acquisition from 2017, constitutes a “national security threat” and must consequently be unwound.
US policy makers have long expressed concern about rapid Chinese advancements in a variety of high tech sectors. Much of this, it is alleged, is due to massive industrial espionage. Until recently, the products of this espionage were inferior copies. China is now catching up. In critical fields such as artificial intelligence, quantum computing and even new weapon systems developments, such as hypersonic missiles, the Chinese are appearing to match and even surpass US capabilities.
This explains the massive legal push back against China’s “state-led, authoritarian capitalism”. Given the size of China’s behemoth companies, many of whom are also being integrated into Beijing’s globe spanning One Belt One Road initiative, more Chinese companies are likely to be subject to Western scrutiny. The result could very well be a decoupling of key technological sectors that the global economy has birthed. The strain on supply chains will be immense.
Acts Reviewed
Executive Order on Addressing the Threat Posed by TikTok
TikTok, a video-sharing mobile application owned by the Chinese company ByteDance Ltd., has reportedly been downloaded over 175 million times in the United States and over one billion times globally. TikTok automatically captures vast swaths of information from its users, including Internet and other network activity information such as location data and browsing and search histories. This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information — potentially allowing China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage.
TikTok also reportedly censors content that the Chinese Communist Party deems politically sensitive, such as content concerning protests in Hong Kong and China’s treatment of Uyghurs and other Muslim minorities. This mobile application may also be used for disinformation campaigns that benefit the Chinese Communist Party, such as when TikTok videos spread debunked conspiracy theories about the origins of the 2019 Novel Coronavirus.
Executive Order on Addressing the Threat Posed by WeChat
WeChat, a messaging, social media, and electronic payment application owned by the Chinese company Tencent Holdings Ltd., reportedly has over one billion users worldwide, including users in the United States. Like TikTok, WeChat automatically captures vast swaths of information from its users. This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information. In addition, the application captures the personal and proprietary information of Chinese nationals visiting the United States, thereby allowing the Chinese Communist Party a mechanism for keeping tabs on Chinese citizens who may be enjoying the benefits of a free society for the first time in their lives. For example, in March 2019, a researcher reportedly discovered a Chinese database containing billions of WeChat messages sent from users in not only China but also the United States, Taiwan, South Korea, and Australia. WeChat, like TikTok, also reportedly censors content that the Chinese Communist Party deems politically sensitive and may also be used for disinformation campaigns that benefit the Chinese Communist Party. These risks have led other countries, including Australia and India, to begin restricting or banning the use of WeChat.
NETWORKS Act
(a) In general on and after the date that is 30 days after the date of the enactment of this Act, the President shall exercise all of the powers granted to the President under the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) to the extent necessary to block and prohibit all significant transactions in property and interests in property of a foreign person described in subsection (b)…
(b) Foreign persons described: A foreign person is described in this subsection if the President determines that the person, on or after the date of the enactment of this Act—(1) produces fifth or future generation telecommunications technology; and (2) engages in—(A) economic or industrial espionage with respect to trade secrets or proprietary information owned by United States persons; or(B) other related illicit activities, including violations of sanctions imposed by the United States.
Comment: This is a proposed bill but would dramatically expand sanctions against companies such as Huawei
Sources and Methods
China’s Social Credit System
After several pilot programs, China began constructing a nationwide social credit system in 2014, guided by a document issued by China’s cabinet, the State Council, Planning Outline for the Construction of a Social Credit System (2014-2020). The plan describes the system as necessary to build “trust” in the marketplace and broader society, and establishes a 2020 implementation deadline. Since the plan was published, the social credit system has developed into two connected but distinct systems: a system for monitoring individual behavior, still in early pilot stages, and a more robust system for monitoring corporate behavior: the Corporate Social Credit System (SCS).
President’s Working Group on Financial Markets - Chinese Corporate Risk
The United States is a premier jurisdiction in the world for raising capital. Investor trust in U.S. capital markets reflects a combination of, among other things, a strong investor protection framework, robust disclosure requirements, clear and effective regulation, fair enforcement, a free market system and confidence in the financial information provided by companies listed on U.S. exchanges. The U.S. government and financial regulators should not compromise on these core principles. The recommendations outlined in the PWG report are designed to address risks to investors posed by NCJs’ failure to uphold transparency and accountability, including NCJs’ refusal to permit companies to comply with U.S. laws. The recommendations would protect investors by ensuring a level playing field for all companies listed on U. S. exchanges.
National Security Implications of Fifth Generation (5G) Mobile Technologies
Telecommunication companies around the world are deploying 5G in different ways. Chinese telecommunications companies are focusing on the less expensive sub-6 approach, while some U.S. telecommunication providers are focused on MMW deployments and others on sub-6.
The Department of Defense (DOD), however, holds large portions of the usable spectrum. Although DOD uses certain MMW frequencies for high-profile military applications such as Advanced Extremely High Frequency satellites that provide assured global communications for U.S. forces, it extensively uses sub-6 frequencies—leaving less sub-6 availability in the United States than in other countries. The Defense Innovation Board (DIB) advised DOD to consider sharing sub-6 spectrum to facilitate the build-out of 5G networks and the development of 5G technologies used in the sub-6 band. While DOD has been moving toward greater spectrum sharing, it has expressed concern that sharing presents operational, interference, and security issues for DOD users. As an alternative to spectrum sharing, some analysts have argued that portions of the sub-6 spectrum should be reserved for commercial use. This would require DOD to relocate certain applications to other parts of the spectrum. The DIB estimates this approach would take around 10 years to complete, as opposed to 5 years for spectrum sharing.
Huawei Indictment
As part of the efforts by the defendant HUAWEI to establish and operate its business, particularly in the United States, the IP Defendants and their agents and representatives made repeated false statements to the U.S. government about their efforts to misappropriate the intellectual property of the Victim Companies, as well as the nature and the scope of HUAWEI’s business activities related to sanctioned countries such as Iran and North Korea, to avoid the economic and regulatory consequences of making truthful statements, including the restriction of HUAWEI from U.S. markets and business opportunities.
US State Department - Clean Network Initiative
The five new lines of effort for the Clean Network are as follows:
Clean Carrier: To ensure untrusted People’s Republic of China (PRC) carriers are not connected with U.S. telecommunications networks. Such companies pose a danger to U.S. national security and should not provide international telecommunications services to and from the United States.
Clean Store: To remove untrusted applications from U.S. mobile app stores. PRC apps threaten our privacy, proliferate viruses, and spread propaganda and disinformation. American’s most sensitive personal and business information must be protected on their mobile phones from exploitation and theft for the CCP’s benefit.
Clean Apps: To prevent untrusted PRC smartphone manufacturers from pre-installing –or otherwise making available for download – trusted apps on their apps store. Huawei, an arm of the PRC surveillance state, is trading on the innovations and reputations of leading U.S. and foreign companies. These companies should remove their apps from Huawei’s app store to ensure they are not partnering with a human rights abuser.
Clean Cloud: To prevent U.S. citizens’ most sensitive personal information and our businesses’ most valuable intellectual property, including COVID-19 vaccine research, from being stored and processed on cloud-based systems accessible to our foreign adversaries through companies such as Alibaba, Baidu, and Tencent.
Clean Cable: To ensure the undersea cables connecting our country to the global internet are not subverted for intelligence gathering by the PRC at hyper scale. We will also work with foreign partners to ensure that undersea cables around the world aren’t similarly subject to compromise.