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A Framework for Supervision of Global Internet Technology: Potential for China-US Collaboration

Thursday, January 21, 2021

The Trump administration’s farewell curbs on Chinese companies – including technology and industrial leaders Xiaomi and Comac – were predictable, writes Chen Xi of Xi’an Jiaotong University and Peking University. Businesses in sectors from materials and electronics to telecoms and optical instruments have been sanctioned. While the geopolitical-technological (geo-tech) competition between the US and China will continue, a new administration in Washington offers the opportunity for the two countries to take a new path and collaborate in setting a framework for the supervision of global internet technology.

A Framework for Supervision of Global Internet Technology: Potential for China-US Collaboration

A selfie with then-candidate Joe Biden, February 2020: The change at the White House could offer an opportunity for the US and China to collaborate on global technology governance (Credit: Andrew Cline / Shutterstock.com)

Over the past three years, persistent attacks by the US on Chinese industries have astonished Beijing. These have included sanctions on telecoms equipment providers Huawei and ZTE. But the restrictions imposed by the administration of President Donald Trump only served to stir pride among Chinese people, who reckoned that those enterprises that have been targeted must be globally competitive industry leaders that are putting up stiff competition for the leading American companies.

The growing rivalry between American and Chinese information and communications technology (ICT) giants has driven what has been shaping up to be a titanic geopolitical-technological (geo-tech) battle between China and the US. Even in its last days, the Trump administration was taking shots at Chinese tech targets. On January 14, six days before the Joe Biden was to become president, the US Department of Defense (DoD) unveiled measures in accordance with Section 1237 of the National Defense Authorization Act that would prohibit American companies from investing in a range of Chinese firms including telecom equipment producer Xiaomi and Commercial Aircraft Corporation, known as Comac.

The following day, the Bureau of Industry and Security (BIS) of the US Commerce Department added China National Offshore Oil Corporation to its “entity list” under the Export Administration Regulations (EAR), arguing that those companies run counter to US national interests. Washington cited the involvement of these companies in dual civilian-military use technology as the reason for the strictures. So far, at least 44 Chinese firms are on this list, covering microchips (Semiconductor Manufacturing International Corporation), telecom equipment providers (Huawei, Inspur, Sugon and Hikvision), information and communications technology or ICT operators (China Mobile, China Unicom and China Telecom), and even some traditional businesses (China National Chemical Engineering Group and China State Construction Group).

By the end of the Trump administration, over 300 Chinese entities had been listed including individuals, companies, universities and institutes. The rules require US and non-US parties to apply to the BIS for permits to export, re-export or make transfers to any concern on the list. The BIS has warned applicants to presume rejection and is therefore unlikely to grant any approvals.

Washington’s sanctions may have the desired effect of slowing down the technological advancement of Chinese companies – but only in the short term. If anything, these punitive restrictions are only spurring Chinese enterprises to invest further in domestic innovation and enhancing their capacity to compete without having to rely on technology from the US and elsewhere. China is accelerating the progress of its Made in China 2025 initiative – the national strategic plan to turbocharge the manufacturing sector – driven by powerful industry clusters from Shenzhen to Shanghai, the growing ranks of local talent, and abundant capital.

This would lead to further erosion of the leading edge of US global tech companies. Indeed, the geo-tech competition poses a dilemma for those dominant incumbents, especially American vendors of ICT components. If these companies follow the US rules, they could be punished by China under the Rules on Counteracting Unjustified Extra-territorial Application of Foreign Legislation and Other Measures, unveiled by Ministry of Commerce on January 9. They would then be ordered to pay the losses incurred by the Chinese companies due to the denial of products or services, or be forced out of the China market.

5G rollout in Chengdu: China is investing heavily in the development of ICT technology, raising concerns in the US about Chinese competitiveness (Credit: B.Zhou / Shutterstock.com)

5G rollout in Chengdu: China is investing heavily in the development of ICT technology, raising concerns in the US about Chinese competitiveness (Credit: B.Zhou / Shutterstock.com)

US companies could also risk missing out on opportunities in China. If American players are somehow sidelined, manufacturing and services companies, as well as financial institutions, from the EU, Japan, South Korea or Singapore will gain ground from the further opening of the Chinese market. Despite concerns expressed by foreign investors in recent years, the Chinese market remains attractive to competitive global companies. Consider the success of Tesla in Shanghai – and notable developments such as the establishment of a services pilot zone in Beijing and the conclusion of negotiations of the China-EU Comprehensive Agreement on Investment (CAI). Also on the horizon: more commercial opportunities from breakthrough innovations that will emerge in the Chinese market including 6G, flexible screens, autonomous intelligent vehicles, and quantum computing.

With a new US president, potential for collaboration 

The incoming US administration of Joe Biden cannot be expected immediately to recast the Trump approach to China. For one thing, Biden will be swamped by urgent domestic challenges, the pandemic of course the most immediate. The new president will also have to focus on profound yet pressing long-term tasks including the need to address social inequality and a gaping political divide.

Yet, the change at the White House could offer the opportunity for the US and China to lower the stress level of their relationship and take a more productive path than the zero-sum sanctions game – and collaborate on the challenge of global technology governance in the same way that, as Biden has stressed, the two countries must cooperate in the fight against climate change.

Indeed, the global geo-tech competition across many fronts could actually turn out to be a vital driver for Beijing and Washington to come together sooner than later. The global internet giants in both the US and China are significant providers of services, products, entertainment and employment to the world. But in recent years, governments notably the European Union have taken steps to regulate them primarily for data ownership and privacy concerns. The debate has widened to include questions about how these tech behemoths may be contributing to the spreading of fake news, false and misleading information, and conspiracy theories that are driving discrimination, hate, racism and extremism including violence such as the insurrectionist infiltration of the US Capitol on January 6 this year.

Online technology firms are also potentially in breach or personal or institutional data privacy laws, which some countries are planning to implement in the wake of the entering into force of the EU’s General Data Protection Regulation (GDPR). There is also the antitrust angle, as companies in which internet giants have invested could benefit from their platforms and, as a result, easily acquire asymmetric advantages that degrade competition and squelch innovation, as well as lead to job losses at smaller companies.

Moreover, the internet giants particularly social media groups have become major factors in politics. The decision by a range of platforms such as Twitter, Facebook and YouTube to suspend Trump’s accounts indefinitely have led to worries about how these private companies may be practicing censorship and curtailing freedom of expression. With his denial of the reality of the US election results and his provoking of the mob in DC via social media, Trump went too far. But where should the internet companies draw the line? And is it even right for them to do so?

Finally, there are concerns about how these tech services may be promoting social inequality, given that the rich have greater access to information or data, thus increasing their wealth exponentially and enlarging the gap between rich and poor. Moreover, the internet giants have flourished because of the development and expansion ICT infrastructure (the rollout of 5G, the latest example), furthering the advantages of rich nations and limiting the capacities of developing countries in their efforts to meet pressing global challenges from poverty to climate change. The impact of this divide will become more pronounced with the rapid emergence of Fourth Industrial Revolution technologies and in the aftermath of the Covid-19 pandemic.

In sum, China and US must work together to regulate the activities of the global internet giants. The first goal should be to narrow the knowledge gaps among people globally. The internet giants have a responsibility to train more people to gain and analyze information and data. Also, more discussion and collaboration are necessary on data exchange and security. In its efforts to protect valuable personal data resources, the EU is imposing stricter regulations on digital businesses including the big US tech companies. China, the US and the EU, as well as the other small and medium-sized countries, should establish an intra-governmental panel to agree on rules and norms for data usage and set the global standards.

The second objective should be to draw red lines which the internet giants cannot cross. Even when their technology has been integrated into every aspect of people’s daily lives, these corporations must maintain neutrality in their business strategy and in their politics. It is vital for the US and China to welcome competition and innovation and to ensure that the global market is as level a playing field as possible. Recent anti-monopoly regulations issued in China, US government litigation against Google and Facebook, and EU legal action on Amazon are designed to prevent the abuse of market dominance aimed at suppressing competition. These rules and enforcement efforts are not meant to limit the scale of internet giants or split them up but to ensure that small and medium-sized enterprises are able to compete. More such protections are needed.

The platform companies grow through the acquisition of people’s data, which they then process for analysis. These companies could be compelled to share some processed data with the public, or at least pay taxes or dividends on the profits and other benefits they accrue from their use. In addition, all countries should work together to establish ground rules for how internet companies participate in or facilitate public discourse on social and political issues and how they ensure or assess the quality of the news and information they disseminate.

The third goal is to make the internet giants realize that a stable and secure social environment is an essential prerequisite for them to turn a profit. Their talent and capital should be focused on addressing pressing global challenges from poverty and inequality to climate change. Governments of China, the US and the EU, among others, should encourage the internet giants to contribute more to global governance. Global digital integration should be put on hold until governments issue prudent and strict principles and rules such as creating a traceable path or log for data from source to final use in a credible and standard way (such as through blockchain technology), and requiring that data stored locally and monitored by appropriate authorities.

The future of internet giants under stricter supervision

Would such a supervisory regime crush the internet giants? The answer is no. The divide between digital behemoths and financial giants is blurring. They are natural allies in ways similar to the interconnections in the military-industrial complex. The personal data acquired by financial companies via internet platforms are being used to mitigate risk in financial services including insurance, securities and banking. Some internet giants also have become financial-sector players through their investment in firms, the accumulation and use of data, and the services they offer. For example, Douyin, TikTok’s equivalent in China, recently activated e-payment application Douyin Pay.

Regulators, policymakers and other authorities have proposed that the internet giants be split up. But such measures may be futile; they would only be replaced by new monsters. Another solution: to install middleware companies between the SMEs and the platform companies to let individual users decide what data they want to share. This arrangement, however, could just produce oligopolies among middleware providers. There is another danger in breaking up the big platforms. Without them, the average citizen would not enjoy high-efficiency public services, including transportation, energy, finance and telecommunications. The fact is that these powerful internet companies have stimulated economic development around the world and across many sectors.

While the geo-tech competition will continue and may even intensify as the Fourth Industrial Revolution ramps up, the compelling logic dictates that governments, particularly the US and China, should collaborate to implement policies that substantively guide the internet giants – current and future – to ensure that internet technology is not just a business tool but also as a crucial social good to help decrease inequality and contribute to better governance. There should also be common measures and safeguards put in place to give SMEs the space and opportunity to be profitable and to provide more jobs. The big internet companies will have to realize that it is essential for them to collaborate with regulators to maintain their neutrality and adhere to responsible principles of global corporate citizenship.

Opinions expressed in articles published by AsiaGlobal Online reflect only those of the authors and do not necessarily represent the views of AsiaGlobal Online or the Asia Global Institute

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