Divorcing China: The West’s Return To Ideology And Its Impact On Global Business

Privacy, freedom of expression and transparency are becoming essential currencies in international business. These values are reshaping the global trade landscape into distinct ideological blocks that will dictate corporate behavior—as well as accelerate the West’s decoupling from China.

Nowhere is this more apparent than in the tech-sector, where the tensions between socio-political values and the application of leading-edge technologies have become entangled.

This outcome has fueled a specific aspect of techno-nationalism, from a Western societal perspective, which seeks to prevent the use of technology to suppress people’s right to privacy and freedom of expression.  This has resulted in an increasing number of laws that block the sale of products and technology to autocratic governments, if these technologies would enhance their surveillance and censorship capabilities.

For international business, this cuts three ways: more backlash and barriers to transactions between Western and Chinese entities; more ideologically-driven standards in international frameworks; and, higher corporate governance standards regarding transparency.

On its 75th anniversary, the United Nations needed a global videoconferencing  platform to broadcast and capture millions of conversations for an initiative called “What the World Should Look Like in 25 Years.” The agency chose to partner with China’s Tencent, the digital giant that owns WeChat, the social media app with some 1 billion users.  

But this decision produced an immediate backlash from Western governments and human rights groups, on the grounds that the UN was effectively validating the Chinese Communist Party’s state surveillance and censorship apparatus.

Tencent has been a key player in Beijing’s digital surveillance systems. And like all Chinese tech companies, Tencent must turn over data to the central government under the country’s Cyber Security Law, if asked to do so.

Ironically, the UN chose the WeChat platform because it was the only one that would enable communication behind China’s internet firewall, which has kept Western companies like Facebook locked out because of the CCP’s strict censorship practices.

Facing intense ideological backlash from both state and non-state actors, the UN promptly backed out of its partnership with Tencent.

Another example of techno-ideological backlash involves Zoom, the American video-conferencing app, which has seen its value skyrocket during the coronavirus pandemic. It was revealed that Zoom had been transmitting the keys for encryption and decryption of data from its virtual meetings through its servers in China, where the company maintains an R&D operation of 700 people.

Unencrypted data sent to China came from, among others, global meetings involving NASA, SpaceX and the government of Taiwan, which subsequently banned the use of Zoom for all Taiwanese businesses. Many other organizations have since dropped Zoom as a service provider.

Technology and human rights

Ideological backlash in the form of public condemnation and shaming is one thing, but passing laws prohibiting technology transfer, based on human-rights criteria, is an entirely different matter.

In October of 2019, the United States placed 28 Chinese entities on a blacklist for enabling the surveillance and electronic monitoring of Uighurs, Kazakhs and other Muslim minority groups in the Xinjiang autonomous region of China’s far West.

Chinese tech firms on the list included HikVision—42% owned by the Chinese state— and Dahua Technology, which are the world’s two largest makers of video surveillance and facial recognition technology. Also included were SenseTime and Megvii, two massive Chinese AI companies immersed in surveillance-tech.

U.S. technology restrictions, however, affect a much broader range of companies: HikVision’s suppliers of microchips and other core technology, for example, include U.S. companies such as Intel, Nvidia, Western Digital and Seagate, all of which must get special permission from the U.S. government to continue selling to restricted Chinese companies.

For Amazon, the American tech giant, these technology controls present a dilemma. Because of the coronavirus pandemic, Amazon desperately needed to temperature-screen its employees, but had no other alternative than to turn to Dahua Technology— which dominates the thermal imaging niche—and purchase $10 million worth of thermal imaging technology. Dahua, of course, is now a U.S. restricted entity.

Amazon’s predicament will serve to further galvanize political efforts in the U.S. to re-shore the manufacturing of strategic technologies—from civilian drones to pharma. Meanwhile, Chinese companies have already been de-Americanizing their supply chains and accelerating de-coupling to avoid exposure to further American export controls.

Ideological frameworks and corporate governance

Differing ideologies are shaping the emergence of global trade blocks with uniquely Western rules and standards. These are increasingly manifest in free trade agreements.

Various tones of the European Union’s privacy standards, for example, embodied in the General Data Protection Regulations (GDPR) are baked into the EU’s free trade agreements with the likes of Singapore, Japan and Vietnam. Similarly, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP), originally led by the U.S., was designed not only to protect data privacy but had transparency standards baked in to alienate the behavior of Chinese state-owned enterprises. 

All of this raises the bar for corporate governance. From a transparency angle, organizations will need to have much more sophisticated processes to be able to peer into extended value chains and assess the behavior of suppliers, customers and product end-users.

Are a company’s partners selling or buying technology that is enabling censorship and loss of privacy? The costs of ascertaining this will be high, but the reward will be come in the form of less uncertainty and a stamp of approval from partners adhering to these standards.

These questions will be playing out even as China and the West undergo a more fundamental and irreversible decoupling.

Alex Capri


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