On March 4, the US Senate Subcommittee on Crime and Terrorism held a hearing titled, “Dangerous Partners: Big Tech and Beijing”. Chaired by Senator Hawley, the hearing focused on data security threats facing US citizens from Chinese companies like ByteDance’s TikTok. We caught up with two expert witnesses, Derek Scissors and Samm Sacks, to reflect on the hearing and analyze the future of US-China tech relations.
Derek Scissors is a resident scholar at the American Enterprise Institute, where he focuses on the Chinese and Indian economies and on US economic relations with Asia. He is concurrently chief economist of the China Beige Book.
Samm Sacks is a Cybersecurity Policy and China Digital Economy Fellow at New America. She has worked on Chinese technology policy issues for over a decade, both with the U.S. government and in the private sector.
AJ: What was your reaction to Senator Hawley’s ban on TikTok for all federal workers?
Samm Sacks: I think that was actually a very reasonable thing to do. And I am the first one that will say sweeping bans on Chinese companies are not the way to go. I think the way we need to do it is in a targeting way. And you know what, I don’t think federal workers should use TikTok. We don’t know yet the extent to which this data is being sent to Beijing and how it is being used.
I believe that the data that TikTok has isn’t that sensitive. I think that the idea that it could be used to launch a blackmail or a counter intelligence operation is quite farfetched. Like the idea that your 16 year old in 20 years is going to have a national security sensitive position and then this is going to feed into this massive hypothetical data set that the Chinese government is going to use to perform machine learning on. And then all of a sudden they are going to blackmail a future US president? To me that is ridiculous, but that said, if there is an area where we need to be cautious, it is with people that have access to sensitive national security information because there is a lot of uncertainty around it. So to me, bizarrely, when Senator Hawley announced the ban on TikTok, I was like, ‘ok, cool.’
AJ: I want to get your thoughts on the hearing more generally? What do you think are some points that were not emphasized in the hearing that are worth highlighting?
SS: There’re two points that I didn’t really have an opportunity in this format to highlight. First one, is just the reality of how China’s cyber governance system works. The Chinese government does not have unfettered real-time access to data. It is Washington conventional wisdom to say exactly as Senator Hawley said, no data is ever confidential and ever secure in China and that’s just not a reality. These are very complicated laws first of all, in English, in Chinese. If you talk to people that are actually involved with cybersecurity audits in China, it is just not how the system works.
Nuance is completely lost and frankly I think in Washington its almost not seen as something that’s worth their time. It’s true that ‘if they wanted it, they can get it’ but I think it’s really important to understand that the reason that that isn’t how the system necessarily works is because there are competing stakeholders in the system. There is a push and pull. Mixing that reality is potentially dangerous to US interests.
The second one is, if we go down this path of halting data flows between the US and China, nobody is thinking that other governments around the world might turn right back onto the US. Do we really want to go down this path, and even Senator Whitehouse, he said about “let’s put a label on apps” like a surgeon’s general warning. Just imagine if that started happening to US companies. All of these tools can be flipped around in ways that are really damaging.
The third point. There was a lot of talk about the need for the US to maintain its edge in AI. Implicit in all of this is the idea that the US is in an AI competition with China. If that’s the case, if US companies cannot access large international datasets, that is going to severely hinder their abilities to be global leaders in AI. If other governments go down this path of ‘lets not give the US companies access to our data because we are worried about the way in which that data could be used between companies and the US government. This is all happening in a global context of rising data sovereignty and I don’t think the US wants to go down that path. And none of that came up at the hearing today.
AJ: We are seeing more and more competition in emerging markets (India, SE Asia, Latin American between Chinese technology companies and American technology companies? Do data privacy concerns hamper Chinese firms in this competition? Or, conversely, does the lack of data privacy concerns allow the Chinese to build more robust products leveraging data in ways that perhaps US companies would not?
SS: I think Chinese companies have a significant advantage in these markets and here’s why. If you look at, for example companies like Xiaomi. They are willing to localize their data centers and provide local governments with open access to data in a way that US tech companies are not, and that’s the advantage. That’s why I think they are already in SE Asia and India. India particularly is where this is playing out. If they are willing to set up local data centers and give the Indian government full access to that data, that’s a huge advantage.
AJ: Interesting you brought up Xiaomi. They have been advancing their AIoT strategy, with over 200 million connected devices worldwide. Is it only because TikTok is successful in the US that it has drawn the attention of regulators?
SS: Yes, it is a volume issue because of the amount of TikTok’s US users.
AJ: However, Huawei is not big in the US, or is that different?
SS: True, but Huawei is its own beast. Huawei for years and years has been in the crosshairs of the US national security community.
AJ: About TikTok’s absence, if they attended, what possible case they could make to sway the committee?
SS: There would be no point in TikTok or even Apple coming to this kind of hearing. All that would do would be to help Senator Hawley with the show that he was trying to put on. I don’t really see that absence as surpassing and I think they had good reason not to show up.
AJ: Could ByteDance do anything to lessen the pressure from Washington, say perhaps move the HQ outside of mainland China?
SS: I don’t think there is anything they can do to lessen the scrutiny from Washington. The fact is that they are a Chinese company and part of a Chinese political system where the narrative is, they are beholden to the Chinese Communist party. The narrative will follow them wherever they go and wherever they say they are storing their user data and it doesn’t matter whether that data is subject to Chinese law. Nobody will believe them.
AJ: Do you think US policymakers’ issue with TikTok is truly concerned with public data security, digital content censorship, or market competition in social media?
SS: I think there are two distinct concerns. One of them is more legitimate than the other. The first concern is the subject of the hearing today, which was about the risk that US citizen data could be transmitted back to Beijing and used in a number of ways that would be at odds with US interests.
The second concern is about content. The idea that we don’t have any insight into the algorithms that TikTok uses to push certain content or the decision making process around what content might be taken down. I also personally find it troubling that TikTok has a policy of not having political content at all. Because given the reach, we know a lot of US teenagers for example, even just in the US elections, have been forming coalitions and debating and spreading US political information. The idea that this has become so influential in terms of sharing and shaping information, and we just don’t know how the decision making process works around that content is disconcerting.
But I will say, this is not unique to TikTok. This is not a Chinese company problem. This is something that all companies, whether you’re a Chinese company or an American internet platform, it is problematic for both. Right now we are in an environment where there is choice between a Chinese censored internet and a US internet, where Silicon Valley wants to avoid regulation under the guise of free speech, and not be subject to any kind of regulation around hate speech and bullying and the use of these platforms for terrorisms and mass shootings and the like. It is a bad place. The US free speech open internet and the Chinese internet, neither of these are a good thing. All I’m saying is, yes I think the potential for exporting Chinese censorship and disinformation is problematic. But I also think the US internet has its own problems. This is something that internet platforms across the board suffer from.
AJ: First off, what was your reaction to Senator Hawley’s proposal to ban TikTok on government devices?
Derek Scissors: I think that’s appropriate. I don’t have a great sense, a I don’t think anyone else does, what the risk is now. But it’s an evolving risk. Let’s say, right now, someone said, for Pete’s sake, a bunch of government workers, you need to TikTok? What is your problem? What happens if the Chinese either have or gain, and the second part is the crucial part, the ability to focus down on individual workers and and into individual people using TikTok. So it’s not about big data. This is what the US government is doing. Suddenly everyone of the Commerce Department is talking about Huawei. We’re gaining a couple days with it. It’s about actually being identified specific individuals in sensitive positions or going to be in sensitive positions. So things done in government don’t happen that quickly. It’s not like you say we should take care of TikTok on government devices and it’ll happen tomorrow.
I think he’s probably right as a long term threat. Chinese Intelligence will try to gather Information. They’ve been calling me and many other people around for a long time. Maybe they can’t do it now. I don’t see any reason why government device needs TikTok in a big curbing of American freedom or anything like that. And that the current risk may be low, but I think the future risk could be quite considerable.
AJ: In emerging markets where Chinese companies and American companies are competing, in places like Southeast Asia, India and Latin America. Do you think data privacy concerns could hinder Chinese tech companies in international competition?
DS: Not in most places. We care about that. Europeans care about that. Australians care about it. A few countries care about it. In most of the emerging markets, they don’t care. If you can provide a new kind of service at a low price, they are not worrying about data privacy yet. This is like, sorry to stress this, but it’s the parallel to like climate change and building coal plants. We may care about climate change. I think the Chinese shouldn’t be building coal plants, but when some places have no electricity, you want the coal plant, right? The Chinese are providing a valuable service. Not a little luxury, but it’s a service that really can help people in their everyday lives.
They’re not worried about privacy at that point. And to be honest, they shouldn’t. Like if you’re a normal person in an emerging market, who cares? China is not gonna hurt you, you’re not a target of them. You’re not the US government worker. So, there are a handful of countries where this matters. It certainly does in the European Union and the US. In Europe, we are not even on the same page on this, but privacy matters in both cases. I think in emerging markets, it’s not going to matter. And it’s going to be about quality of service, which maybe the US has an edge on, but of course the Chinese have become very competitive on it, right?
AJ: So kinda follow up on that, do you think that the lack of concern about data privacy could give the Chinese a competitive advantage? i.e. better products, stronger recommendation algorithms due to more/different inputs?
DS: I don’t know why when people talk about big data, they say China has lots of consumers. That’s actually very vague and not a helpful way of looking at things. You need differentiated data to understand the new market. In other words, let’s say the only market the Chinese had is China, and they’re trying to use that to get into the Brazilian market. It’s not gonna help them. Because it’s a completely different market, the size of market is highly distorted. It’s certainly a step in the right direction. And Chinese companies are very well aware of this need to gather information on other markets. That’s why you see Alibaba’s commercially aggressive behavior in southeast Asia.
Now the question is when are we going to get to the point that in undeveloped markets and less developed markets where we don’t have, maybe the people online are richer and you want to sell to a mass market, but the mass market isn’t online yet. Is it really that useful? In other words, I think if you’re looking at a trend where the Chinese are gathering more data in emerging markets and American firms, I think that’s definitely competitive disadvantage in the longer term. I don’t think that’s happening yet. I don’t think you could go to Egypt and gather personal consumer data and like to have a huge competitive advantage in Egypt yet. It’s not a well developed market. That’s the flip side. In the country, they don’t really care about privacy. What they care about is new innovative stuff. This is China. You know, 10 years ago, anything new had a big advantage. That’s the same thing in Egypt. Your technology, the innovation, your price competitiveness is what’s gonna determine your results in emerging markets for at least the next 5 to 10 years. It’s not like gathering Information on consumer behavior, because those markets aren’t integrated enough.
AJ: In your testimony you wrote about semiconductor exports in 2019. What kind of trend do you see in terms of decoupling and what’s the timeframe for potential fallout?
DS: I don’t think we’ve got very much yet. We talked about a lot, but the president just wants to export more to China. On the technology side, we’ve talked, talked, talked, and then nothing. We haven’t done anything to Huawei. So all the talks of decoupling are mostly on the financial side. There’s not a delay, there’s no US action. And I don’t think we’re going to get any action until 2021. However, whoever the president is, whoever is in charge of Congress, that’s the time to launch new initiative.
President Trump’s big initiative was trying to get a phase one deal with China. He could say we’re gonna get more exports and that may happen. But that’s what he was going for. He wasn’t going for decoupling. Congress is currently pressing for a detailed plans, but none of those build the path. So coronavirus can encourage movement supply chains out of China. We’ll see where they’re going to go.
The purpose of the tariffs wasn’t to decouple, but it was for the Chinese to accept more US goods. So we don’t have a goal of decoupling or partial decoupling with that goal. We’re not gonna actually get decoupling.
AJ: How do you view Chinese aspirations for technological self sufficiency in key components like semiconductors, for example?
DS: I don’t think they will generally work. They’re going to have areas of success. But as I said, the Chinese really like control over what they consider to be strategic sectors. So they will try to localize. But local control isn’t compatible with innovation. Of course, they can move up the semiconductor supply chain to some extent. But really what drives innovation is competition, and they don’t want to allow competition. They don’t want for large Chinese private firms to go at each other. They want those firms to be responsible to the Party and they want their actions to be coordinated.
And to me that isn’t going to work. People talk about how much money they’re spending, but they will not be able to catch up because they don’t like competition. Now, there are some people who think that money is more important than competition. And so if you just spend enough money, you get whatever you want. I’m not in that camp. I think competition through open markets is crucial for innovation, and it’s something that Chinese don’t like. So they’re going to be less animated for that reason.
AJ: Are there any significant points from the hearing that caught your attention, that you feel should be focused on?
DS: I wanted to say we need to coerce bad actors, not just defend against them. There’s still this thing, especially in the science community, saying that President Trump is unilateralist and that they fight against the multilateralists. And I understand the reaction to President Trump, but their reaction is still wrong. We have to decide here what we’re going to do, which we have not done. And I brought that point up. We haven’t made a decision. How much do we want to decouple? Do we want to try to make globalization work, and force the Chinese to be a good partner. Or do we want to separate from them? Because they won’t be better partners? We haven’t taken the plunge on what our own policies are yet.
We need to figure out our own positions first. And then we can see whether unilateral or multilateral approach works better.
AJ: If ByteDance considered relocating their headquarters to a place outside the Chinese mainland, like Singapore, for example. Do you think that would do anything to ease US concerns about user data privacy?
DS: I don’t think so. Ultimately this comes down to ByteDance’s decision makers being coerced by the party, right? The physical location of your headquarters is not that interesting. I look at senator Hawley’s general approach to this. He’s saying American firms, American technology firms, are to cooperate with the Chinese because they make a lot of money in China, and they feel like they’re obliged to cooperate with the Chinese to protect the flow of income. Just where you locate your headquarters obviously isn’t important.
Now if they set up up a joint venture where they could still profit financially and get some of the data, like if they sold 51% of their US business to an American firm, and they’re still a 49% partner and so on. That might work. Something that will protect the people making decisions about US data from the party. And we had an example on the hearing where the American executives didn’t want to cooperate with orders from the Huawei parent company. And so they just send Chinese to do it, which senator brought up.
AJ: Is there anything that TikTok could have said today to make a difference?
DS: TikTok is completely different from Huawei. I’ve been dealing with Huawei for 25 years. They’re dishonest, they’re opaque. ByteDance is not acting that way. That’s a step forward. If ByteDance will come forward and say, this is our proposed mitigation. You have these problems. We want to be here in the American market in a big way. This is our proposal for mitigation.
Huawei always say I don’t know what you’re talking about. We’re not a threat. We’re totally private, you can see in our shareholding structure. And we didn’t supply stuff to Iran. But of course , they supplied stuff to Iran. ByteDance should be there telling the truth and offering an olive branch to the Congress, and it might not work, but even if it doesn’t work, ByteDance looks totally different than other Chinese companies by doing that.
They have this idea that they can’t win in these hearings. But you’re not trying to win. You’re trying to build a case that you’re a different kind of company and you will cooperate with Congress and the administration. Up to a point that you’re not gonna do anything they want, you have corporate interests. That’s a very different approach than Huawei or Chinese state-owned enterprises.
So I think if they had come with a proposal in mind that says we understand your concerns. Here’s our offer. If they showed up at the hearing and made a real offer and fell short, but it was real, that would put them on a different path.