As China continues to increase funding for its own domestic innovation, it has become a strong competitor in the technology industry, specifically in artificial intelligence technology, 5G networks, and consumer products. Normally, such competition is healthy for corporations, inventors, and the general population; however, national security has become a focal point in the technology battle between China and the U.S.
The United States’ primary national security concern is the Chinese Communist Party’s access to data on U.S. citizens. The Cybersecurity Law of the People’s Republic of China, effective since 2017, has three articles that could lead to government access to data: Articles 9, 37, and 39. Article 9 vaguely declares that network operators must agree to several things, such as following laws and regulations and accepting supervision from the government. Article 37 requires “critical information network operators” that gather or produce personal information or “important data” within the mainland to store it within the mainland territory. If the data is stored outside the mainland, the government is still able to conduct security assessments. Article 39 requires the state to conduct spot tests of critical information infrastructure security risks. There are no provisions that prevent the state from obtaining data or proprietary information, such as algorithms and personally identifiable information.
These three articles, in combination, could indicate that the government has access to any information that rests on these servers, with or without a warrant. However, under the CLOUD Act, the United States government is able to issue warrants to access data on individuals from U.S.-based companies, regardless of server location. Access to the data can even extend to foreign governments that have an agreement with the U.S. and a warrant or subpoena, if approved by the U.S. Signed in 2018, the CLOUD Act has enabled foreign nations to acquire data on U.S. citizens from private corporations.
Unprecedented attempt to ban apps
On August 6th, President Trump signed Executive Orders 13942 and 13943, which focus on preventing the operation of TikTok (owned by Bytedance) and WeChat (owned by Tencent) in the United States under national security considerations. The executive orders state that within 45 days, to-be-defined transactions by a person or entity subject to the jurisdiction of the U.S. are prohibited. The prohibited transactions were announced September 18th. Among them are prohibitions on the apps being distributed via app stores–including updates for those who have already downloaded them–and the barring of internet service providers from allowing app traffic. This action is the first attempt by any President to ban a specific application from operating in the United States.
Of note, neither ban extended to other products from Bytedance or Tencent. While Bytedance has other products for overseas markets, TikTok has the largest presence in the U.S. versus the company’s other applications. Tencent, however, has over a dozen applications still available in the U.S, including WeCom and QQ social network. The Executive Orders, in specifying TikTok and WeChat, ignore other widely used programs from the apps’ respective parent companies.
Chinese business and government responses to the bans
Bytedance and Tencent responded differently to the Executive Orders. Bytedance sued the government over the move, citing lack of due process. A decision by Judge Carl Nichols on Sept 27th granted Bytedance a stay on TikTok’s ban, temporarily preventing it from taking effect. The company also began negotiations to sell its U.S. operations. While Microsoft’s bid to buy TikTok was unsuccessful, Oracle and Bytedance came to an agreement that gained the support of President Trump. Under the agreement, Oracle and Walmart will own 20% stake in the new TikTok Global company. Bytedance would control 80% of the company until a planned public offering took place. The TikTok algorithm would not be transferred to any outside entity. However, Oracle disputed Bytedance’s characterization of the deal, with a public statement indicating that TikTok Global shares would be immediately transferred to their new owners, a majority of which are U.S. citizens. The Chinese government still needs to approve the deal before it can move forward.
Tencent has responded by reassuring investors that the ban will not affect most of its operations. The U.S. market accounts for less than 2% of Tencent’s total revenue. The company did not follow Bytedance in starting litigation, but in Tencent’s place, the nonprofit U.S. WeChat Users Alliance has sued the government. The WeChat Users Alliance cites similar due process concerns, as well as free speech and equal protection arguments. In a decision released on Sept 20th, Judge Laurel Beeler issued a temporary halt on the ban due to the significant hardship placed on the plaintiffs. The Trump Administration intends to appeal the decision. The Chinese government has issued harsh statements in response to the Executive Order. On September 19th, China launched an “unreliable entity” list, which can prevent certain companies from importing or exporting from China, bar investment in China, and potential punitive measures against company employees. The list is intended to affect companies that endanger China’s sovereignty, national security, or development interests. The government has not announced any companies on the list as of September 28, 2020.
An ineffective effort to protect national security, and possible side effects
The bans have little impact on the distribution of U.S. citizen data to foreign governments, without the United States acting against wide-net data collection by corporations. For example, through its vast network of partners, Facebook collects data on users regardless of if they have a Facebook account. All this data allows the company to build a profile on each person to distribute targeted advertising across the internet. Despite the thought that citizens’ data is safer with U.S. companies, it is freely available to the highest bidder. Those bidders include Chinese government agencies buying ad space.
The ban on transactions with WeChat, an app used primarily by the Chinese American community to maintain contact with their family and friends in the PRC, will not affect many Americans. WeChat has an average of 19 million active users in the U.S., as of August 2020. The ban will harm families as they lose one of the only means to communicate with family members back home. The WeChat ban disproportionately affects Chinese immigrants; aside from China-owned apps, their overseas families lack other means of communication with relatives abroad.
The WeChat ban also threatens U.S. business operations with China. WeChat is one of the most widely-used digital payment systems in China. If businesses lose access to WeChat, they will not be able to accept payments, even if the business is conducted in China. The Chinese consumer market, the largest in the world, would be near-impossible to operate in. U.S. companies, with such a large disadvantage, would lose out to China’s domestic competition and other foreign competitors.
Should U.S. firms end up on China’s unreliable entity list, the WeChat and TikTok bans would be the least of their concerns. Reasons for ending up on the list are incredibly broad. The ensuing process includes an investigation, with public announcements of issues. Companies will have the ability to make rectifications, but what these may entail remains unclear. The list can lead to the turnover of proprietary information, copying of personnel data, and other regulatory actions detrimental to U.S. business interests. While tech companies are potentially a major target, retailers and manufacturers need to be concerned as well.
Despite these potential concerns, other experts believe the unreliable entity list is more bark than bite. I agree with this line of thinking. China wants and needs foreign investment. Widespread use of the list against U.S. companies would be a cause for alarm among banks and major corporations operating in China, especially after the Hong Kong National Security Law passed earlier this year. The regulations published for the list add fuel to the uncertainty in China’s regulatory market. Businesses prefer predictability and stability in their operations, making China a less-than-desirable place to invest and develop.
Overall, the TikTok and WeChat bans do not accomplish the intended goal of protecting national security, let alone preventing data from being sent to or purchased by the Chinese government. The bans harm communication between regular citizens, their families in China, and their families in the U.S. They add obstacles to U.S. businesses’ ability to operate in China. In response, China could enact new regulations to halt the operation of U.S. firms altogether. Banning TikTok and WeChat only pays lip service to national security concerns in a rapidly escalating tit for tat between the U.S. and China, where the U.S. stands to lose the most.
(Image Source: Kevin Frayer/Getty Images)
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