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Published on Jul 11, 2022
PRC regulators have eased their crackdown as companies are open to advancing PRC objectives abroad.
Reconciliatory dragon: Easing tech crackdown for strategic reasons

The PRC’s recent tech crackdown destroyed capital, business, and industries. Since then, PRC tech companies have been coopted to advance PRC objectives abroad. Recently, PRC regulators announced conciliatory measures. This article analyses the end of the crackdown in light of the strategic role of technology services in the new generation of warfare.

Background

Under “Surveillance Capitalism”, digital technology monitor, analyse, and categorise user behaviour. Technology companies have demonstrated the ability to modify user behaviour to suit commercial objectives. States are not aloof to such developments. PRISM demonstrated voluntary cooperation by the United States (US) technology companies with the National Security Agency (NSA). The programme conducted global mass data surveillance. The PRC also leverages private technology companies to extract massive foreign data. PRC’s technology products feature backdoors. The National Intelligence Law (NIL) obligates companies to assist PRC authorities in foreign intelligence work.

Surveillance capitalism capabilities are critical for the new generation of warfare. “Cognitive Warfare” aims to “twist the subject’s social ideologies, mentality, and the sense of law-and-order through cyber infiltrations and manipulation of mentality and public opinions. “Highly efficient modern computing systems, the internet, and social media” are crucial for this objective.

“Cognitive Warfare” aims to “twist the subject’s social ideologies, mentality, and the sense of law-and-order through cyber infiltrations and manipulation of mentality and public opinions.

Despite collaborations, a fundamental cleavage persists in the “Two-Master Dilemma”. Technology companies serve two co-related, but often contradictory purposes. Technology companies are profit-seeking and responsible to shareholders; at the same time, technology companies are also national security assets. The capabilities of technology companies serve as resources for cognitive warfare.

These twin functions clash. The lure of an adversary’s market or capital leads to this. The US tech giants supporting the development of the PRC surveillance capabilities in pursuit of sustenance or entry/re-entry into the PRC had invited the wrath of the US state. The PRC has in response also enacted similar measures.

The PRC views data as a “basic strategic asset”. Indigenous companies enabled the creation of the PRC’s “global data-collection ecosystem”. Data “stimulate(s) the country’s development and protect national security”. Data surveillance assists the party-state in maintaining “state/political security”. Private companies were crucial in the development of the PRC’s “all-seeing state”. Under “civil-military fusion (军民融合),” issues of “guarding national sovereignty, security, and development interests” are “effectively blended”.

Steering away from mere “passive defence,” the PRC is now undertaking offensive initiatives. The technological capabilities of these firms are instrumental in the PRC’s pursuit of technological superpower status. The PRC’s system of an “Informationised Battlefield,” envisions “Data (数据)” as the “Blood (血液)”. The PRC’s “discourse war” (话语战)” is waged on the backs of private companies.“Exploit(ing)” technology alongside the information gathered by its private companies, the PRC “launch(es) information warfare.” Through the cooption of “Chinese companies’ data-processing capabilities, the US officials say, Beijing’s spy agencies can rapidly sift through massive amounts of information to find key nuggets of intelligence value.”

The PRC’s measures to resolve the dilemma include the NIL and the installing CCP committees inside PRC companies. Despite such endeavours, companies in the PRC were increasingly attracted to foreign capital. PRC companies sought capital from foreign stock markets. Such moves possessed the potential to rebalance the loyalties of PRC companies.

A change in tone

Despite the PRC's attempts to resolve the dilemma, the lure of the US capital eventually triumphed. The primary two quarters of 2021 saw 35 PRC companies listing on the US stock markets, raising US $12.3 billion. PRC authorities feared that the US government would gain access to sensitive information. Under the subsequent tech crackdown “more than US $1 trillion was wiped off the collective market capitalisation of China’s tech giants”. Methods included the imposition of fines; ordering relinquishment of exclusive music rights; blocking mergers; removing apps from respective app marketplaces and suspending registrations, and initiating cybersecurity probes.

Under the subsequent tech crackdown “more than US $1 trillion was wiped off the collective market capitalisation of China’s tech giants”.

PRC regulators had a recent change of tone. The Financial Stability and Development Council (FSDC) argued that it “continues to support various types of companies to list overseas”. The committee called for the resolution of issues surrounding audit requirements imposed by the US on US-listed PRC firms. The PRC is endeavouring to attract foreign firms to list on PRC stock exchanges.

The developments were viewed as an end to the crackdown. The developments were seen to represent the “importance of economic stability for Chinese leader Xi Jinping.” The PRC has announced a “whole nation” (举国, jugum) effort, for the reinvigoration of the PRC’s tech sector. Reasons for the rollback, however, may exceed domestic economic considerations. Security considerations may be driving the alleged end of this crackdown.

Analysis and implications

A state paper had signalled attempts to create a “united front of the private sector and the Party”. The tech crackdown was aimed to resolve the PRC’s two-master dilemma. Private enterprises were instructed to “be further involved in the implementation of the Party’s directives”.

The end of the crackdown may be linked to security considerations. Private PRC tech companies have been known to share foreign user data with the PRC government. TikTok for instance was sharing US user data back with the PRC. It is in the PRC’s interest that technology firms operate beyond their borders, especially in adversarial states. PRC firms acquired state foreign data surveillance contracts even during the crackdown.

The message was “go ahead-earn money in foreign markets, but remember who you truly serve and whose bidding you are expected to do on foreign soil”. The monetary fortunes of the allegedly cracked down upon tech industry surged during the pandemic. Tencent used the pandemic to make foreign purchases and currently sports “a portfolio worth roughly a quarter of a trillion dollars”. A collaboration with the PRC government enabled this. Tencent’s WeChat Health Code app facilitated the PRC’s pandemic data surveillance.

US sanctions compelled a greater alignment of interests between the PRC’s tech firms and the PRC government’s objective of attaining “technological self-sufficiency”.

The riches of the US entity listed also surged during the pandemic. Alibaba is “one of China’s biggest corporate winners of the coronavirus.” This growth was facilitated by the increased PRC government dependence upon Alibaba’s cloud services. Ant group’s Alipay Health Code also facilitated the PRC’s pandemic data surveillance. US sanctions compelled a greater alignment of interests between the PRC’s tech firms and the PRC government’s objective of attaining “technological self-sufficiency”.

General Secretary Xi has revitalised the UFWD: the agency responsible for co-opting foreign and domestic companies and implementing influence operations. “Increasing criticism against the authorities under expectations that the Chinese economy would lose momentum” contributed to UFWD strengthening in the short term. However, the “new type of whole nation system” is an endeavour to “renegotiate the relationship between the government and the market.” The tech crackdown demonstrated that “private tech giants cannot be bigger than the government the country’s largest data processor.”

New Network Security Review and Algorithm regulations epitomise this. The former imposes cybersecurity examination requirements for overseas listing of online platforms/critical information infrastructure operators. Regulations include national security in the examination’s scope. The latter imposes compliance and reporting guidelines on algorithms. Data collection, processing, and disinformation dissemination capabilities of technology firms are firmly aligned with state agendas.

The US–PRC decoupling led the PRC to leverage alternative methods of advancing its interests abroad. The Ukrainian conflict has the US’ attention diverted. The PRC may capitalise on the opportunity to penetrate the Western market once again. Resolving regulatory differences with the US bolsters the PRC’s foreign influence operations. PRC-linked firms have attempted to obtain US infrastructure contracts. With the crisis in Eastern Europe, the PRC’s Cognitive Warfare machinery is advancing its own narratives. The PRC’s technology companies are crucial in advancing the PRC’s tight diplomatic rope balancing act.

The PRC may capitalise on the opportunity to penetrate the Western market once again. Resolving regulatory differences with the US bolsters the PRC’s foreign influence operations.

Before ‘decoupling,’ the PRC wielded influence over the US tech companies. Companies attempted to weaken the US legislation against the PRC. Even now, search engines amplify the PRC’s disinformation efforts. Foreign companies listing in the PRC would inevitably lead to a rebalancing vis-á-vis the two masters that western firms serve. The PRC is increasing control over foreign firms facilitating listings. Fund management companies must now institute internal communist party committees.

Reconciliation with the US regulators ensures unhindered data collection/processing and disinformation dissemination for the PRC. In the US and the West, The United Front Work Department (UFWD)’s work is also set to increase to promote rekindling. Rekindling US–PRC relations, therefore, reflects the PRC’s endeavour to reduce foreign reflexivity, whilst increasing its own cognitive warfare abilities.

The developments follow a larger moment in the PRC’s foreign policy. The China-Pacific Island Countries Common Development (CPICCD) programme represents this desire. CPICCD emphasised cybersecurity and digital infrastructure in its vision. Smart customs, smart borders, and smart connectivity are at the heart of the project. The Micronesian President, David W Panuelo, argued that the CPICCD aims to attain “control (over) and ownership of our (Pacific Islands) communications infrastructure”. This is done to ensure “biodata collection and mass surveillance of those residing in, entering, and leaving our (Pacific) islands.”

The failed pact demonstrated the PRC’s reestablishment of control over its private technology companies. The PRC may confidently leverage them for overseas work. These developments highlight that the PRC is ready to expand its global campaign of technology influence once again. This may constitute a threat for forces attempting to counter the PRC’s influence operations in the Indo-Pacific region.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.

Contributor

Samyak Rai Leekha

Samyak Rai Leekha

Samyak Rai Leekha was a Junior Fellow with the Centre for Security Strategy &amp: Technology at ORF. Mr. Leekhas area of interest is at the ...

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