In 2017, Silicon Valley Got Cozier with China. In 2018, Washington Will Get Frostier

Beijing, China

Beijing, China junrong/Shutterstock.com

Here are some of the most significant moves by U.S. tech firms and Washington over the past year.

Over the past year, as the Chinese government continued to police the domestic internet and tech industry with its signature mix of protectionism and censorship, Silicon Valley and Washington responded differently.

In 2017, Silicon Valley’s major technology companies continued to look to China for growth and partnerships, arguing continued engagement is better than withdrawal. As the country’s cyber authorities suppressed discussion over thorny societal issues with shocking efficiency, foreign companies adapted to China’s cyber regime by investing, and complying with censorship demands. Washington, meanwhile, is sounding the alarm, with Donald Trump torpedoing the acquisition of a U.S. semiconductor firm by a China government-linked fund.

Here are some of the most significant moves by U.S. tech firms and Washington over the past year, and signs that their divergence of approach to China will continue to deepen.

Complying with Censorship

One of the largest concessions in the year was perceived to come from Apple, when it removed VPNs from its China-facing app store in July. The software is necessary for most Chinese internet users to jump the country’s Great Firewall, which restricts access to foreign websites like Google, Facebook, and GitHub, and the decision was met with dismay from human rights advocates and U.S. politicians.

During an earnings call, Apple CEO Tim Cook defended the decision by saying the company was merely following the law in China. And at an event in Guangzhou, after attending China’s World Internet Conference in Wuzhen—an event that heralded the virtues of an open internet in a year that saw China’s become more closed than ever—he said he believed the apps would likely return someday. He urged companies(paywall) in Apple’s position to participate in China’s tech world rather than “stand on the sidelines and yell at how things should be.”

Meanwhile, starting around July, authorities steadily cut access to WhatsApp from within China—first by barring images and videos, and later texts as well (paywall). Vaughan Smith, vice president of parent company Facebook, still spoke at the Wuzhen conference this month.

Tailored Products

Microsoft, which powers nearly every PC in China with its Windows software (either through legal purchases or pirated software), launched a version of its operating system tailored specifically for the Chinese government. Titled “Windows 10 China Government Edition” and created in partnership with state-owned enterprise China Electronics Technology Group, Microsoft said that the software will let the government manage all updates and telemetry—which loosely refers to the information collected about how a system is running—without elaborating further.

Microsoft announced the new product just weeks before the formal implementation of China’s new Cybersecurity Law—which had already caused great consternation (paywall) among tech companies when it was still in draft mode. Among other things, the law requires foreign companies to store data from China within the country’s borders. To ensure systems are secure, the law also says companies must undergo periodic reviews and authorities can request source code (paywall). These requirements mean greater expenses as companies put in place special China-specific arrangements.

Investing in Surveillance—and Other Stuff

Qualcomm, the San Diego-based chipmaker, went all-in on China this year. Most notably, the company invested in SenseTime, a Hong Kong company specializing in facial-recognition software that has aided public surveillance efforts in China.

The chipmaker also inked a number of partnerships with high-profile Chinese consumer tech companies. While the US president was on a state visit to Beijing in November, Qualcomm announced it signed a non-binding memorandum of understanding with Chinese phone brands Xiaomi, Oppo, and Vivo to supply $12 billion in components to them. It also invested in bike-sharing company Mobike, and signed a strategic collaboration with search giant Baidu.

Earlier in the year, Qualcomm put millions more into what is now a more than $400 million joint-venture formed with the local government of Guizhou province to make chips for servers in China. Chipmakers Hewlett-Packard Enterprise and AMD have similar joint ventures in China. These ventures line up with a 2014 policy directive from Beijing calling for China to become a global leader in semiconductors by 2030. Apple is opening a data center (paywall) in the same region, an announcement it made in July, soon after the implementation of the new cybersecurity law.

Even Google, which has mostly been absent in China since shutting down its local search engine in 2010, made deeper inroads back into the country. Earlier this month it announced it plans to establish an R&D center in Beijing for AI. While the center won’t be used to develop consumer-facing products, it will nevertheless help Google tap China’s vast pool of talent specializing in AI research. The company also revamped its Translate service for mobile in China this year.

A Coming Freeze

For all of Silicon Valley’s coziness with Beijing, the business ties between U.S. and Chinese companies will grow more complicated as relations between Beijing and Washington become tenser, spurred by China’s trade practices as well as general anxiety about China’s global economic reach and use of surveillance.

Beijing has stated it intends to wean itself off of foreign technology, and become a world leader in AI by 2030, and some of its investments overseas are going to go toward supporting that. One key use of AI in China involves collecting and analyzing as much data as possible from its own citizens, using technology that would make privacy advocates quiver. As Chinese companies continue to invest in and buy U.S. companies, albeit in a less flashy way than in years past, some might fear that data and technology originating in the U.S. could be used to bolster China’s surveillance state.

In March, the Pentagon issued a report (paywall) about China’s growing investment in U.S. startups specializing in AI and other data-rich industries, warning that in some instances cutting-edge technology with military applications could be involved.

A big red signal in the past year on Chinese investment in U.S. tech came in September, when the Trump administration blocked a planned acquisition of California-based chipmaker Lattice Semiconductor over concerns the deal might “impair the national security of the United States.” While Lattice does not sell to the military, its rivals do, which caused some U.S. lawmakers to speak out against the proposed deal soon after it was first reported.

The veto marks a rare instance in which the White House directly barred a pending acquisition. Often, an acquisition effort ends once the inter-agency Committee on Foreign Investment in the United States, which is chaired by the Treasury Department and vets major deals for their impact on national security, has signaled it is against the deal.

On Nov. 8, a bipartisan group of lawmakers introduced a bill (pdf) to widen the scope of CFIUS. The bill’s leading sponsor in the Senate, Republican John Cornyn of Texas, said in a statement at the time that because of gaps in the existing review process “potential adversaries, such as China, have been effectively degrading our country’s military technological edge by acquiring, and otherwise investing in, U.S. companies.”

According to a report this month from Philadelphia-based law firm Dechert, the bill, if passed, would significantly raise the number of reviews CFIUS conducts over investment, from around 200 in 2017 to almost 1,000 each year (pdf, p. 7). These additional reviews are likely to slow the pace of Chinese investments into the U.S. The Dechert report says Congress is expected to hold hearings in the next few months and that the law could pass as soon as early 2018 because it enjoys strong bipartisan support.

One deal to watch in the coming year is the hoped-for acquisition of U.S.-based remittance company MoneyGram by Ant Financial Services, China’s biggest e-payments firm, controlled by Jack Ma, the founder of e-commerce giant Alibaba. The deal was first announced in January, and Ant Financial later agreed to increase the offer to $1.2 billion. But the acquisition has yet to be completed—again, it appears, due to the CFIUS review, although this takeover appears to have little connection to national security.

A larger freeze on Chinese investment into U.S. tech companies could see a backlash against foreign tech firms that are already in China. Apple might face more pressure to censor content. For Qualcomm and other U.S.-based chipmakers, their joint-ventures might get jeopardized.

But in the coming years, concerns about how China’s tech ambitions will hinder the U.S. economy—and perhaps national security toolook set to trump concerns about how U.S. companies can make money inside China.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.