Kevin Lamarque / Reuters Chinese President Xi Jinping listens to U.S. President Barack Obama during a joint news conference at the White House, September 25, 2015.

Digital Diplomacy

In China, the Tech Industry Does What Washington Can't

Washington’s reputation for getting things done has suffered so much lately that it seems as though Chinese President Xi Jinping is seeking more efficient but less official channels to make his concerns heard. During his official state visit to the United States late last month, his first stop was not the White House but Seattle. There, he wooed top U.S. technology executives and assured them that China was committed to cybersecurity and to fixing its slowing economy.

The order of Xi’s visits certainly raised eyebrows, but it was not altogether surprising. Between conflicts in the South China Sea, accusations of cyberattacks, and a deep history of differences over human rights, the United States and China have reached an impasse. Although Xi and Obama managed to eke out a cybersecurity pact at the summit’s end (albeit with questionable enforceability), the deal was only considered a great success because expectations for any sort of cooperation were almost nil.

Chinese President Xi Jinping speaks at a U.S.-China business roundtable, comprised of U.S. and Chinese CEOs, in Seattle, Washington September 23, 2015.

In fact, over the last few years, Washington has lost its touch in dealing with China. Instead, the U.S. tech community has come to fill the diplomacy vacuum and has made headway on certain economic and cybersecurity issues. The ability of non-state actors to affect foreign policy is certainly not new—it is a trend that began after World War II—but it does signal important changes in the future of U.S.-Chinese relations.  

“IN CHINA, FOR CHINA”

Multinationals gained unprecedented power during the Cold War, and were even behind the rise and fall of regimes. In the 1950s, United Fruit Company successfully lobbied the U.S. government to overthrow Guatemala’s revolutionary government, which had enacted less favorable policies toward the firm than the previous government. The Iranian coup of 1953 was a joint British and U.S. effort to protect the interests of British Petroleum. In the 1970s, the CIA would use ITT Corporation, a U.S. telecommunications conglomerate, to depose former Chilean President Salvadore Allende.

These are extreme examples of corporate involvement in international affairs. Today, U.S. technology companies have avoided traditional geopolitical issues, such as territorial disputes in the South China Sea, but their actions undeniably affect far more than their own profit margins. They have been instrumental to China as it seeks to advance the country’s technology sector, since China needs the know-how of U.S. companies (and in exchange, gives them access to the lucrative Chinese market). This year in particular has seen a boom in U.S.–China tech partnerships. Baidu, China’s leading search engine, recently inked a deal with Cloudflare, a U.S. Internet security company, to provide its products across 17 of Baidu’s data centers. In order to secure the deal, Cloudflare had to accommodate China’s heightened sensitivity around foreign technology due to national security concerns. Similarly, Dell announced a $125 billion “In China, for China” campaign that will include helping a Chinese state-owned enterprise develop high-performance servers. After a period of plummeting sales in China, IBM announced its “Made with China” initiative, through which it will work with multiple Chinese companies to build the country’s advanced chip industry.

U.S. President Barack Obama and Chinese President Xi Jinping hold a joint news conference at the White House, September 25, 2015.

These compromises have frustrated those in Washington who want to take a harder line on China when it comes to cyberattacks and its increasingly protectionist technology policies, particular after the whistleblower Edward Snowden revealed the extent of U.S. cyberespionage. As a result, U.S. technology companies have been caught in the crossfire of the U.S.–Chinese cyberwar. For example, although these companies have long voiced concerns over China’s lack of intellectual property protections, tensions reached a boiling point this summer when a National Security Agency report confirmed that over the last five years, more than 600 corporate and government entities in the United States had been targets of cyberattacks originating from China. These attacks sought to steal proprietary intellectual property from companies such as Google, Symantec, and Lockheed Martin. According to a report by the nonprofit U.S.–China Business Council, almost 50 percent of companies hold back on investment and research and development in China because of intellectual property concerns. This past June, the U.S. government itself came under attack, and the breach resulted in the theft of personal data pertaining to roughly four million current and former federal employees.

The Chinese government has recognized that such concerns, paired with its general economic slowdown and the difficulty in navigating its regulatory system, make investing and sharing technology in China less enticing. In response, Beijing unveiled an ambitious set of reforms in 2013 to further liberalize markets, which involved streamlining business regulation and lifting some controls on foreign investment, including in the Internet industry. Unsurprisingly, passing these reforms has since stalled over China’s concerns about protecting its native industries and maintaining sovereignty over its domestic policies.

Chinese President Xi Jinping shakes hands with Apple Inc. CEO Tim Cook during a gathering of executives at Microsoft's main campus in Redmond, Washington, September 23, 2015.

The overall uncertainty has resulted in renewed cautiousness about diving headlong into the Chinese market. The U.S.–China Business Council has also found that only 50 percent of U.S. companies plan to increase their China investments in the next year, down from 75 percent three years ago.

INTERNATIONAL RULES OF THE ROAD

It was not surprising, then, that former U.S. Treasury Secretary Henry Paulson, long seen as an intermediary between the U.S. and Chinese business communities, set up the Seattle meeting that included 30 executives, 15 each from top U.S. and Chinese companies, including Apple, IBM, Microsoft, Baidu, Alibaba (a Chinese e-commerce site), and Tencent (a Chinese Internet giant). During the meeting, Xi assured some of the largest players in his country’s economy that China will open up further to outside business. Although none of the executives were willing to discuss the contents of the meeting, an Internet forum later in the day revealed some of the concerns of other U.S. and Chinese tech players. Dean C. Garfield, president of the Information Technology Industry Council, for example, told Lu Wei, head of China’s Internet authority, that the amount of U.S. investment in China, “shouldn’t obscure the fact that there are real challenges in China where the rhetoric and the vision doesn’t meet the reality.”

U.S. President Barack Obama chats with Chinese President Xi Jinping as they walk from the West Wing of the White House to a private dinner across the street at Blair House, in Washington, September 24, 2015.

A few days later, U.S. President Barack Obama echoed those sentiments when he and Xi announced a cybersecurity pact, in which both sides agreed to refrain from cyberattacks aimed at stealing each other’s intellectual property. The United States and China would also work together on, “international rules of the road for appropriate conduct in cyberspace.”

Only time will tell whether China is committed to the pact, but the technology sectors in both countries had much to show for their efforts in Seattle. Soon after the meeting, a number of tech deals were announced that reflected a slight but important shift in focus from one-way technology transfers and joint development toward a more even exchange of access to products and services. For example, Cisco announced that it had formed a joint venture with Inspur, a Chinese server manufacturer, to distribute networking and cloud computing products in China. Didi Kuaidi, Uber’s rival in China, is set to partner with LinkedIn on artificial intelligence, further buttressing LinkedIn’s already successful venture into China. Microsoft was the biggest winner of all, however: making Baidu the default search engine on Windows 10 in China and selling cloud computing services by 21Vianet Group, a Microsoft-backed Chinese company, to state-owned enterprises.

Of course, it would be inaccurate to conclude that a few deals and messages of assurance from Xi signal a new chapter in the private sector’s role in U.S.–Chinese cyber relations. But these technology companies will certainly have a greater impact on cybersecurity than a nonbinding pact. More importantly, the tech sector’s dealings with China reflect the flexibility and cooperation that is sorely needed in U.S.–Chinese diplomacy. In fact, the governments of the two countries are so rife with mistrust that they have ceased to understand each other. That is why policy outsiders, such as the tech industry, who are unhindered by entrenched ideologies and interests, can open up a space for dialogue. Accordingly, Washington should make room for an expanded role of U.S. technology companies, which are increasingly at the front lines of the U.S.–China relationship.

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