Is China ready for what US could unleash in trade war?

As rumblings of a trade war between Washington and Beijing grow louder, the Trump administration appears to be gearing up for renewed confrontation with China.

The signs have been clear. Last month, Donald Trump’s move to slap punitive tariffs on solar panels and washing machines, mostly on imports from China, was an opening salvo, while the “renegotiation” of the Nafta and Korea-US (KORUS) free trade agreements has drawn the most attention.

It’s a matter of time before Trump and China embrace the TPP

But these moves are just a small part of the policy arsenal Washington could unleash under the banner of “national security interests” to monitor, control and block commercial activities between Chinese and American entities.

Watch: Trump’s new tariffs spark outcry in Asia

This month Wendy Cutler, a former US government trade official, made an ominous warning towards China, saying the tariffs were “just the beginning of a series of announcements that will be coming”.

There are a variety of show-stopping actions the administration could take, with little or no warning, including: blocking foreign acquisitions or deals with firms and industries Washington considers “nationally sensitive”; new or increased sanctions against individuals, companies and countries; and introducing new export licensing requirements for seemingly benign materials and components – causing rapid disruption to global supply chains.

Locked and loaded, China and the US are heading into a trade war

These scenarios fall under the lengthening shadow of what are known as strategic industries and economic security, through which more than a dozen US federal agencies enforce hundreds of regulations and restrictions.

Any enterprise that fails to realise the gravity of these measures will have calamity visited upon it. Take the example of Chinese telecoms firm ZTE, which recently paid out US$892.4 million in penalties to US government agencies. ZTE violated export controls and sanctions regulations on shipments of US origin materials to Iran and North Korea.

Despite being major trading partners – with all of the benefits this brings to both sides – Beijing and Washington are both pursuing increasingly self-serving agendas based on national security, and that seems destined to intensify.

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Important technology sectors have been pulled into the fray and the rivalry has spilled over into cyber warfare, espionage and the militarisation of space.

The consequences of this growing power rivalry are deadly serious. Recent reports of a supposed spy-killing campaign in China, reportedly instigated by Jerry Chun Shing Lee, a CIA-agent-turned mole – are a sobering reminder of this reality.

In the latest round of blocked Chinese business ventures, the US Federal Communications Commission (FCC) last month forced AT&T to back out of a major deal with the Chinese smartphone maker Huawei.

The deal would have made Huawei, the world’s largest maker of telecommunications equipment, a major supplier of phones to AT&T’s customers. However, the firm has long been suspected by US lawmakers of links to Beijing’s economic and political policy apparatus. Huawei’s founder, Ren Zhengfei, was an officer in the Chinese military.

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Although Huawei is a private company, most US authorities are convinced that virtually all big Chinese companies have murky ties to Beijing’s power circle. The thought of millions of American consumers using Chinese-made phones with secret “back doors” and data-tracking features written into the operating systems was enough to kill the deal.

Since 2012, Huawei had been blocked from selling network equipment to US telecommunications carriers, so the latest rebuff on telephone sales has dealt a major blow to the company, essentially locking it out of the world’s largest economy.

Another recent deal blocked on similar grounds saw Ant Financial, the fintech arm of Chinese internet giant Alibaba, which also owns the South China Morning Post, being barred from purchasing Moneygram, the US money-transfer company. The deal, worth US$1.2 billion, was killed by the Committee of Foreign Investments in the US, on the grounds that Chinese interests would have access to the private data of millions of Americans.

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In the current climate in Washington, espionage and sabotage are on equal footing with the fear of losing competitive advantage in critical sectors, particularly in semi-conductors, artificial intelligence and robotics.

In September, the Trump administration took its first major action when it blocked Canyon Bridge Fund – owned by Chinese state-backed entities – from buying Lattice Semiconductor Corporation, a cutting edge American tech company. This trend will continue into 2018, and probably intensify, as Chinese firms increasingly target hi-tech acquisitions.

Watch: China-US relations in Trump era

Beijing, of course, is no stranger to blocking foreign companies from operating in its markets. Google, Facebook and Twitter have all been blocked from providing services in rulings motivated as much by security concerns as they were designed to protect local Chinese firms.

The only game in town? Why China will keep buying US Treasury debt

The Chinese are also said to have reacted to Edward Snowden’s divulgence of the NSA’s surveillance activities in China by excluding US vendors Cisco and Apple from approved government supplier lists.

How far will this all go? And will claims of national security serve as instruments of trade protectionism? No doubt, they will.

International businesses should get ready for a bumpy ride ahead.

Alex Capri is a visiting fellow at the Department of Analytics & Operations at National University of Singapore Business School


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Huawei and ZTE come under fire from FBI, CIA, NSA

It isn’t exactly a secret that the US government has a certain hesitancy when it comes to phones made by Chinese companies, but today, we’re seeing some top security official state that apprehensiveness outright. Many top security officials have come out and recommended that Americans avoid buying phones made by Huawei and ZTE. Such a recommendation won’t really come as much of a shock, and may even do something to solidify some recent rumors we’ve been hearing.

According to CNBC, six of the country’s top intelligence chiefs have advised the Senate Intelligence Committee that Americans shouldn’t buy phones made by Huawei or ZTE. That roster of intellgence chiefs includes some high profile people, including the heads of the FBI, CIA, NSA, and the US director of national intelligence. While these recommendations have existed in the past for those who work for the government, this is the first time that the agencies have advised private citizens on the matter.

By using these phones, FBI director Chris Wray argues, it opens up the potential for “foreign governments that don’t share our values to gain positions of power inside our telecommunications networks.” Some of the downsides Wray covers are things like undetected espionage, or the capacity to “exert pressure or control over our telecommunications infrastructure.”

Huawei, for its part, tells CNBC that it “poses no greater cybersecurity risk than any ICT vendor.” The company also noted that it is “trusted by governments and customers in 170 countries worldwide,” suggesting that this worry is unique to the US.

Huawei has been having a tough time trying to break into the US, and recent rumors claim that the US government is at least partly to blame. Last month, AT&T abruptly called off a deal to carry Huawei phones in its stores, and later reports stated this was due to pressure from the US government. We also recently heard that Verizon had dropped a similar deal, leaving Huawei to sell phones unlocked in the US.

Whether or not Huawei and ZTE deserve this apprehension is up for debate, but for now, it seems the US government isn’t interested in the perceived risks associated with having those companies gain a foothold in the market. We’ll see if that changes anytime soon, but given the looming threat of cyberwarfare, US security agencies are likely to stay the course for now. Stay tuned.


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China’s Fourth Industrial Revolution: Artificial Intelligence

Bottom Line:China’s nationwide pursuit to become the world leader in artificial intelligence (AI) is an attempt to not only match U.S. economic power, but to bypass it geo-strategically. While Beijing’s involvement is spurred by economic ambitions, it has made it clear that the development of AI will simultaneously be for military applications that could change the character of warfare and place the U.S. geopolitical disadvantage.

Background: China has quickly spurred its innovation engines into action, seeking to leapfrog U.S. military and technological supremacy by becoming the world leader in AI development. Their unique brand of capitalism and government control has enabled bottom-up innovation that is broadly guided by the hand of the Chinese Community Party. China’s whole-of-nation approach means the U.S. has found itself in a race against a strategic competitor to harness the power of machine learning and artificial intelligence.

Ambassador Joseph DeTrani, former Director for East Asia Operations, CIA

“The future of A.I., for commercial and security application, appears unlimited; China will pursue this new technology with speed and significant state and private resources.”

  • China’s national push toward development in AI can be seen just in the sheer number of recent Chinese academic publications on the subject. Since 2014, China has surpassed the U.S. in number of published papers on deep learning and continued to increase its output by nearly 20 percent in 2016. While increases in the quantity of AI publications do not necessarily correspond with advances in quality, it is clear that China is seeking to advance its AI development significantly.
  • In March 2017, China established its National Engineering Laboratory of Deep Learning Technology under the leadership of Baidu. The purpose of the new research center involved exploring image and voice recognition, biometric identification, and new forms of human-machine interaction.
  • In July 2017, Beijing’s State Council released the New Generation AI Development Plan, laying out the nation’s strategy to lead the world in AI development by 2030. Broadly modeled off of the Obama administration’s 2016 push for a revolution in artificial intelligence, Beijing’s initiative includes building out indigenous capacity to create a $150 billion Chinese AI industry – led by tech giants Baidu, Alibaba and Tencent – as well as through foreign mergers and acquisitions, equity investments, venture capital and the establishment of research and development centers abroad.
  • There are a number of societal and organization characteristics that China possesses that might put it at an advantage in the development of advanced AI. The first is China’s particular brand of socialist market economy affords the government a significant amount of control and involvement in market forces. Not only does this mean Beijing can push for over-the-horizon innovation where market forces would typically fail, but it also has created a unique level of cooperation between Chinese tech companies and the government. This gives Beijing significant economic leverage to expand its political clout around the world, including through its One Belt, One Road initiative.
  • Perhaps most notably is the Chinese government’s nearly complete access to consumer data – the lifeblood of machine learning and artificial intelligence – with little to no privacy protections. The Chinese startup Yitu Tech, which maintains a close relationship with state security, shares access to the biometric data of 1.8 billion Chinese that it feeds into its facial recognition software. But while the Chinese government continues to maintain complete access to the data of its citizens – and shares it with industry partners – there does seem to be a recent effort to create data privacy protections among industry similar to the EU’S General Data Protection Regulation (GDPR), which could have long-term implications for Chinese AI development.

Ambassador Joseph DeTrani, former Director for East Asia Operations, CIA

“China is dedicating significant resources to research and development on all types of artificial intelligence, with commercial, security and military application. China’s recent five-year plan reportedly committed well-over one hundred billion dollars to AI, indicative of the leadership’s keen interest in eventually becoming the world’s leader in AI. As China moves forward with its One Belt One Road Initiative and the Asia Infrastructure Investment Bank, projects that reach out to more than eighty countries, AI will become an integral part of these international infrastructure projects. It will permit China to apply and further develop their AI capabilities, eventually securing their leadership role with this new multifunctional technology.”

William Carter, Deputy Director, Technology Policy Program, CSIS

“From China’s perspective, AI will be like mobile and desktop computing before that. It will be an economic revolution that creates and entire new generation of digital capabilities in physical systems that they can sell and embed around the world. So they see the development of AI as an opportunity to develop a presence and set the baseline for how other countries around the world, particularly in the developing world, interact with technology and data.”

Issue: China’s pursuit of AI extends to the People’s Liberation Army (PLA) through a national strategy of military-civil fusion. This militarization of AI has far-reaching implications for how China will hold political sway abroad and conduct itself militarily – a strategy referred to as “intelligentized” warfare, according to a November 2017 report by the Center for New American Security. Broadly speaking, advancements in Chinese AI have the capacity to support military command and control, intelligence deduction, advance combat training and military readiness, tailor and scale cyber and information operations against opponents and create counterintelligence vulnerabilities.

Elsa Kania, Adjunct Fellow, Technology and National Security Program, CNAS

“Notably, China’s New Generation AI Development Plan explicitly highlights an approach of military-civil fusion to ensure that advances in AI can be readily leveraged for national defense. To actualize this objective, China will continue to establish and normalize mechanisms for coordination and collaboration among scientific research institutes, universities, enterprises and military industry units, while seeking to ensure that military and civilian innovation resources will be ‘constructed together and shared.’ This strategy is advanced through CCP’s Military-Civil Fusion Development Commission, established in early 2017 under the leadership of Xi Jinping himself. Consequently, the boundaries between military and civilian advances will remain highly blurred in AI.”

Ambassador Joseph DeTrani, former Director for East Asia Operations, CIA

“Given China’s ambitious military modernization program, and its focus on the space and cyber domains, it’s fair to assume that AI will be incorporated into China’s C4ISR – Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance. Its immediate application to China’s activities in the South China Sea and pursuit of an anti-access/area denial is obvious.”

  • Much like the Pentagon’s Third Offset strategy, Beijing is seeking to embed increasingly sophisticated AI into robotics for autonomous operating guidance and control systems. Automation is already being incorporated in the China’s unmanned aerial, ground and maritime vehicles. Manned-unmanned teaming operations, such as those involving the Caihong-5 (CH-5) aerial drone or the D3000 stealthy maritime combat drone, could be particularly useful in controlling the airspace and waters beyond the Chinese mainland.
  • Should Chinese drones be linked through neural networks to create swarms as part of China’s anti-access area denial (A2/AD) strategy in the South China Sea, Beijing could hinderS. freedom of navigation in the region. In December 2017, at the Guangzhau Airshow, the Chinese demonstrated the largest swarm to date, flying over 1,000 small drones in formation. This was following a display of 119 fixed-wing drones flying in formation in June.
  • Aside from pursing autonomy within military robotics, China seeks to leverage AI as an enabler of enhanced decision-making and intelligence analysis. Advances in the automation for aggregating different sensors and processing that information – such as for satellite imagery – shorten the decision-making time for strategic advantage, perhaps even predicting military maneuvers of opponents in advance. China already plans on equipping its nuclear submarines with AI capable of filtering through large quantities of data to support commanders’ decision-making.
  • There is a discussion however that with the advent of advanced AI and machine learning, the tempo of decision-making could surpass human cognitive ability; meaning humans could eventually be removed from the decision loop over military command and control.
  • The more data fed into AI systems to assist in decision-making, the more likely these systems will also be useful in virtual war gaming. Given the PLA’s actual lack of combat experience, such data-informed war gaming could help better train a Chinese military for a confrontation with a capable opponent such as the United States.
  • Perhaps the most likely medium where there is strong utility for advances in AI is in psychological warfare and cyber operations. Automation allows scale, while machine learning facilitates tailored messaging and attacks. China could leverage AI to profile targets through their social media and customize attacks to shape and amplify Chinese companies such as iFlyTek are already capable of spoofing video and audio recordings, a potentially disruptive tool for psychological operations. Chinese hackers equipped with advanced AI could similar customize attacks or overwhelm network defenders with hoards of autonomous hacking bots engaged in highly tailored spear-phishing campaigns at scale.
  • China’s development of AI to better enable its internal surveillance and censorship regime also has implications for counterintelligence. The ubiquity of closed-circuit cameras and invasive monitoring of online communications in China – along with the advent of biometric data-crunching AI – mean that maintaining secrecy of U.S. intelligence operatives in the country will become more and more difficult. China will also be able to filter through U.S. data – such as the over 20 million profiles of U.S. federal employees stolen from the Office of Personnel Management (OPM) discovered in June 2015 – and create a profile of potential targets for their own intelligence collection.

Ambassador Joseph DeTrani, former Director for East Asia Operations, CIA

“Currently, China’s success in the utilization of AI for internal security purposes (like facial recognition), as a complement to the work they’re doing on bio-metrics, are tools available to the Ministry of Public Security for monitoring and surveillance purposes.”

William Carter, Deputy Director, Technology Policy Program, CSIS

“Where I am really concerned, and where I think they are making a lot of progress, is in counterintelligence. The Chinese are collecting a huge amount of data on their own people. They are collecting as much data as they can on foreigners. They collect the fingerprints and huge amount of data on every individual that enters China and they are feeding all of this into databases that are supported by machine learning and artificial intelligence to identify potential security threats to the Chinese government – potential foreign operatives who are actually coming to China to recruit people to try to extract classified information. They are also using to identify Chinese who could be coopted by foreign governments and foreign intelligence services. That is a huge issue for us.”

Elsa Kania, Adjunct Fellow, Technology and National Security Program, CNAS

“Consistent with its asymmetric approach to military modernization, the PLA could leverage AI to target perceived weaknesses in U.S. ways of warfare. For instance, the PLA has concentrated on advancing integrated network-electronic warfare to target U.S. battle networks, and the capability to leverage AI, whether in enabling cognitive electronic warfare or autonomous cyber operations, could further enhance these capabilities. The PLA recognizes the potential advantages of swarms to saturate the defenses of high-value U.S. weapons platforms, such as fighter jets or aircraft carriers, even depicting such a scenario in its Military Museum in Beijing. To offset current U.S. dominance in the undersea domain, the PLA is also developing autonomous underwater vehicles and reportedly planning to introduce ‘AI-augmented brainpower’ into its nuclear submarines to achieve an advantage. At present, the PLA’s capabilities for information support remain a limitation on its capacity to project power. However, the introduction of AI to enhance intelligence, surveillance and reconnaissance (ISR) could increase the efficiency of these capabilities. In addition, the PLA appears to be incorporating AI technologies into its next-generation missiles and likely also missile defenses, seeking to enhance their precision and lethality. It remains to be seen whether the PLA may incorporate AI in support of its nuclear systems, which would raise questions about the potential impact on nuclear and strategic stability.”

Response:Since 2014, the U.S. military has already begun its Third Offset strategy by seeking to work more closely with U.S. tech giants in Silicon Valley and elsewhere, and to quickly acquire cutting-edge technology for military and intelligence purposes. And while China may have certain societal and organization advantages to their quick development of AI, it is possible these could leave them open to countermeasures in the long-term.

  • One of the potential organizational inhibitions of the U.S. incorporating advanced AI into its own military and intelligence systems surround requirements of justifying actions – particularly lethal action – within a democracy. For most AI and machine learning systems, how they come to the conclusions that they do remains a “black box” and therefore developing “explainable” AI so that decision-making can trust and are held accountable for the outputs of AI systems is important. China is not necessarily held back by the same constraints to justify their actions.
  • In the long-term, however, this could open China up to countermeasures against their AI such as data manipulation or corruption or the modification of its protocols. Without the societal incentive to peer into AI decision-making to justify its conclusions, it would be difficult to detection when the U.S. might be employing these countermeasures that could lead Chinese military commanders and systems astray.

Elsa Kania, Adjunct Fellow, Technology and National Security Program, CNAS

“The U.S. military must recognize the PLA’s emergence as a true peer competitor and reevaluate the nature of U.S.-China military and technological competition. As China seeks to become a scientific superpower to rival the U.S., this race to innovate is emerging as a new frontier of strategic competition. In recent history, the U.S. has possessed clear, often uncontested military-technical advantage, but it may not be feasible to achieve a similar edge in AI, given China’s rise and the rapid diffusion of these technologies. Consequently, U.S. military advantage might be best assured through leveraging perhaps more enduring advances in the human and organizational dimensions of innovation in which the Chinese military may struggle.”

Anticipation: The strategic race for AI dominance between the U.S. and China is only beginning and it remains uncertain who will lead the world in this new technology. U.S. tech giants such as Alphabet, Apple, Google, Amazon, Facebook, and Microsoft have remained at the forefront AI development, despite Chinese advancements, and will continue to innovate using their unique multinational positions. But China will took expand its industry to facilitate AI innovation along its One Belt, One Road trade initiative.

William Carter, Deputy Director, Technology Policy Program, CSIS

“If you are talking about access to data, U.S. companies are in a better position than China’s because of their global footprint and also as a result of that global footprint, they have information on a wider and more diverse array of people. And ultimately it is studying the similiarities and differences across heterogenous groups in a large dataset where you can get the most value for AI. Chinese companies have data on Chinese people. They do not have a large international footprint, they do not have a lot of foreign customers. U.S. companies have massive datasets on billions of users around the world. That is a strength.”

Elsa Kania, Adjunct Fellow, Technology and National Security Program, CNAS

“As AI catalyzes a fourth industrial revolution, China intends to lead it, leveraging AI to enhance its economic dynamism and military capabilities alike. As China builds a vibrant digital economy, the commercial applications of AI and big data could transform the Chinese economy and society, from healthcare to self-driving cars. Pursuant to the One Belt, One Road strategy, there is a new focus on the digital Silk Road, through which China will seek to leverage the advantages of sharing big data and enhancing digital connectivity, while advancing international scientific cooperation in AI. As an AI power and first mover, China also intends to lead in the formulation of technical standards and mechanisms for global governance of AI, perhaps reinforcing its own interests and advantages in the process.”

Levi Maxey is a cyber and technology analyst at The Cipher Brief. Follow him on Twitter @lemax13.


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China’s Search Engine Giant Baidu Launches New CryptoKitties-like Pet Project

Baidu, China’s search engine giant, has launched a CryptoKitties-like service called “Leci Gou” (similar to “Let’s Go”). This project is a part of its wider work with Blockchain technology.

CryptoKitties was the first game based on the blockchain. This game allows users to collect and breed digital cats which belong to the individual owners and can’t be cloned by other users. A cat owner can breed his/her cat by changing its features, adding colors and make their cats distinguish from other pets present in the marketplace. Once the owner has done with the breeding of the cat, it can be sold to other users.

The popularity of CryptoKitties has encouraged to create other games based on the similar concept and news games, such as Fishbank. Games like CryptoPets and CryptoPuppies are to be released very soon.

“Leci Gou”, like CryptoKitties, allows players to collect, buy and sell virtual breedable pets. However, in a new service not cats, but dogs live on the blockchain. The service was developed by Baidu’s in-house blockchain team, which is also a member of the Linux Foundation-led Hyperledger consortium.

The website lists various digital puppies with different designs and prices. Each of them is ranked by their scarcity. Each of the cryptodoggies has a unique set of “genes” and their purchase is recorded on the blockchain. The cryptodoggies have eight special attributes, a combination of which will make each virtual dog unique. These attributes include ordinary, unusual, remarkable, epic, mythological, and legendary.

The cryptodoggies can be purchased with special credit points received from Baidu and not through money transfers. Users who have Baidu accounts can adopt one crypto-dog and receive 1000 points for free on the marketplace. Also points can be given for using Baidu’s products. Users can spend them through their Baidu wallet. These points can be further used to trade with other “owners” and serve no other function.

According to Baidu, the project is available for public use but is still being tested and further developed. It is still unlear if Baidu will use an internal or a public network for handling the new project.

This new game is a part of Baidu’s initiatives related to the work on the Blockchain. In October 2017, Baidu joined Hyperledger’s global alliance for developing blockchain. In January this year, the giant launched its own blockchain-as-a-service (BaaS) platform.


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Will China Weaponize Social Media?

ATLANTA – Ever since the 2016 US presidential election, with its revelations about Russian meddling, European officials have been on the lookout for similar attacks. But Europeans aren’t the only ones paying attention. So, too, are China’s leaders, who are considering what they might learn from the Kremlin’s successes.

For Chinese President Xi Jinping, maintaining domestic stability is a top priority, a point underscored by China’s annual budget for internal security. At well over $100 billion, the official number is low. Like defense outlays, the real number is much higher, owing to hidden spending, including on research and development.

For example, China is exploring how artificial intelligence (AI) and big data can be used to monitor everything from social media to credit-card spending, and it plans to assign all citizens a social-reliability rating to weed out potential troublemakers. The regime’s Orwellian strategy is focused squarely on social media and controlling not just what is said, but also how information flows into and around the country.

Moreover, the authorities are bringing technology companies into line with tough new laws and cyber-security investigations. For Xi, the ease with which the Kremlin has manipulated Facebook and Twitter demonstrates the need for a tighter grip on China’s own social-media platforms. The Chinese government is now requesting seats on the boards of companies such as WeChat, Weibo, and Tencent, and demanding access to their users’ personal data.

Chinese cyber spies are also studying Russia’s success. To be sure, Chinese hackers do not lack technical savvy. They have launched cyberattacks against US presidential campaigns, expatriate Tibetan movements, and Uighur activists. They have burrowed into Western think tanks and universities that study China. They have even hacked into Western news outlets that published embarrassing stories about Chinese leaders’ wealth. Still, the Chinese may have something to learn from Russia’s well-choreographed online army of trolls and bots.

Similarly, strategists at the People’s Liberation Army (PLA) are likely poring over the Kremlin’s handiwork to inform their own cyber-war tactics. Chinese strategic thinking about “political warfare” holds that an adversary’s political, social, and economic institutions – particularly the media – should be targeted before a shooting war ever begins. To that end, Russia’s diffusion of bogus news and conspiracy theories through its state-funded media outlets RT and Sputnik could prove instructive.

In addition to expanding China’s cyber capabilities, Xi has also been developing China’s soft power through economic, social, cultural, and media initiatives. And although he has not yet coupled these programs with China’s clandestine forces to launch the kind of audacious attack that roiled the 2016 presidential election, he clearly is establishing the means to do so. Recently, it was revealed that China has been conducting wide-ranging influence operations in Australia, using official campus organizations to monitor Chinese college students, business associations to tout Chinese interests, and diplomats to police local Chinese-language media. Late last year, an Australian senator was forced to resign over his alleged ties to a Chinese billionaire.

China is also expanding its global media presence. By some estimates, the government is sinking some $7 billion into new media and broadcast outlets abroad every year. Its official news agency, Xinhua, has more than 170 bureaus around the world and publishes in eight languages. China Central Television (CCTV) has more than 70 foreign bureaus and broadcasts to 171 countries in six languages. China Radio International is the world’s second-largest radio broadcaster after the BBC, broadcasting in 64 languages from 32 foreign bureaus to 90 radio stations worldwide.

None of these organizations has yet to distinguish itself as a go-to international news source. But they have become a significant source of information for people in underserved regions such as the Middle East and Africa, where they purvey China’s views and are building sympathetic audiences.

At the same time, China is purchasing “native advertising” in Australian, American, and European newspapers. This allows China to place officially authored content about controversial issues – such as its militarized island-building in the South China Sea – next to those publications’ editorial offerings.

Xi is also playing the long game, by approving investments in movies and other forms of mass entertainment to influence how global popular culture treats all things Chinese. Despite the Chinese government’s recent clampdown on outbound capital flows, Chinese companies are still adding to their major stakes in Hollywood properties. The Chinese conglomerate Dalien Wanda alone has some $10 billion in entertainment assets in the United States, Europe, and Australia. And other Chinese Internet and financial giants such as Alibaba, Tencent, and Hony Capital, as well as state-owned companies such as the China Film Group, have invested tens of billions of dollars in US film ventures.

With these financial stakes, the Chinese government has leverage that goes beyond old-fashioned censorship. Hollywood studio bosses with an eye on China’s massive domestic market will be tempted to kowtow to the government’s “creative” requests when it comes to scripts, casting decisions, and so forth. At $8.6 billion in 2017, Chinese box-office receipts are second only to North America’s. Yet China allows only 38 foreign films into the country each year, inducing filmmakers to bend over backward to please the censors.

Of course, Hollywood executives aren’t the only Westerners helping Xi’s realize his agenda. Between Apple’s recent decision to relinquish its Chinese user data storage to a Chinese partner and Google’s announcement that it will site a new AI research center in China, US technology giants are not just making deals to benefit their “stakeholders.” They are also handing Xi and his cyber operatives proprietary technologies and know-how, and even potential access to US targets.

This raises an obvious question: If Russia could roil a US presidential election without such intimate business relationships, what will China be able to do in the years ahead? To think that China’s only interest is making money, one Hollywood executive recently acknowledged, would be “very naive and dangerous” indeed.


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Verizon Kills Plans For Selling Huawei Phones Following US Government Pressure

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Huawei has just experienced another setback in its efforts to partners with a major U.S. wireless carrier to sell its smartphones. Verizon was in discussions to sell smartphones from the Chinese OEM, but those talks have hit a brick wall. Huawei ran into similar trouble with AT&T earlier this year.

According to a new report from Bloomberg, U.S. lawmakers put pressure on both AT&T and Verizon to scrap any plans to sell Huawei smartphones to Americans. According to the government officials, there are serious concerns regarding Chinese spying and the possibility that backdoors could be installed on devices.

For its part, Huawei officials acknowledge that breaking into the U.S. market is a bit harder than previously expected. “The U.S. market presents unique challenges for Huawei, and while the Huawei Mate 10 Pro will not be sold by U.S. carriers, we remain committed to this market now and in the future,” said the company in a statement earlier this year following AT&T’s decision for to pull out of a deal.

At CES 2018, Huawei CEO Richard Yu reflected on his company’s troubles with U.S. wireless carriers. “Everybody knows that in the US market that over 90 percent of smartphones are sold by carrier channels,” said Yu. “It’s a big loss for us, and also for carriers, but the bigger loss is for consumers, because consumers don’t have the best choice.”

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Yu went on to explain that Huawei has had to prove itself time and time again since its inception. “We win the trust of the Chinese carriers, we win the trust of the emerging markets,” said Yu. “And also we win the trust of the global carriers, all the European and Japanese carriers.” Unfortunately for Huawei, the U.S. government isn’t receptive to its advances.

Despite striking out with America’s two largest wireless carriers, the company is not completely out of the game. Major U.S. retailers including Best Buy, Amazon, Microsoft, Newegg, and B&H will sell the Mate 10 Pro starting on February 18th. Pre-orders for the smartphone will kick off on February 4th.

Back in 2012, both Huawei and ZTE were labeled as security threats to the U.S. by the House Intelligence Committee. “Neither company was willing to provide sufficient evidence to ameliorate the Committee’s concerns. Neither company was forthcoming with detailed information about its formal relationships or regulatory interaction with Chinese authorities,” wrote the congressional panel at the time.

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“Huawei, in particular, failed to provide thorough information about its corporate structure, history, ownership, operations, financial arrangements, or management. Most importantly, neither company provided sufficient internal documentation or other evidence to support the limited answers they did provide to Committee investigators.”

More recently, the Trump administration has reportedly tossed around the idea of a nationalized 5G wireless network. The reason for such a network would be to fend off threats from countries like China and Russia. Cyberwarfare and cyberespionage are increasingly becoming problems in our always-connected world, and countries are looking for additional ways to fortify their defenses.


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China And The Global Race For Knowledge

The National Science Foundation and the National Science Board have just released their biennial “Science & Engineering Indicators,” a voluminous document describing the state of American technology. There are facts and figures on research and development, innovation and engineers. But the report’s main conclusion lies elsewhere: China has become — or is on the verge of becoming — a scientific and technical superpower.

XWe should have expected nothing less. After all, science and technology constitute the knowledge base for economically advanced societies and military powers, and China aspires to become the world leader in both. Still, the actual numbers are breathtaking for the speed with which they’ve occurred.

Remember that a quarter-century ago, China’s economy was tiny and its high-tech sector barely existed. Since then, here’s what’s happened, according to the “Indicators” report:

  • China has become the second largest R&D spender, accounting for 21% of the world total of nearly $2 trillion in 2015. Only the United States at 26% ranks higher, but if present growth rates continue, China will soon become the biggest spender. From 2000 to 2015, Chinese R&D outlays grew an average of 18%t annually, more than four times faster than the U.S. rate of 4%.
  • There has been an explosion of technical papers by Chinese teams. Although the United States and the European Union each produce more studies on biomedical subjects, China leads in engineering studies. American papers tend to be cited more often than the Chinese, suggesting that they involve more fundamental research questions, but China is catching up.
  • China has dramatically expanded its technical work force. From 2000 to 2014, the annual number of science and engineering bachelor’s degree graduates went from about 359,000 to 1.65 million. Over the same period, the comparable number of U.S. graduates went from about 483,000 to 742,000.

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Not only has Chinese technology expanded. It’s also gotten more ambitious. Much of China’s high-tech production once consisted of assembling sophisticated components made elsewhere. Now, says the report, it’s venturing into demanding areas “such as supercomputers and smaller jet liners.”

Of course, there are qualifications. China still lags in patents received. Over the last decade, American firms and inventors account for about half the U.S. patents annually, and most of the rest go to Europeans and Japanese. Recall also that China’s population of 1.4 billion is more than four times ours; not surprisingly, it needs more scientists, engineers and technicians.

In a sane world — shorn of nationalistic, economic, racial and ethnic conflicts — none of this would be particularly alarming. Technology is mobile, and gains made in China could be enjoyed elsewhere, and vice versa. But in our contentious world, China’s technological prowess is potentially threatening, as the U.S.-China Economic and Security Review Commission, a congressional watchdog group, has often pointed out.

One danger is military. If China makes a breakthrough in a crucial technology — satellites, missiles, cyberwarfare, artificial intelligence, electromagnetic weapons — the result could be a major shift in the strategic balance and, possibly, war.

Even if this doesn’t happen, warns the commission, China’s determination to dominate new industries such as artificial intelligence, telecommunications and computers could lead to economic warfare if China maintains subsidies and discriminatory policies to sustain its firms’ competitive advantage.

“Industries like computing, robotics, and biotechnology are pillars of U.S. economic competitiveness, sustaining and creating millions of high-paying jobs and high-value-added exports,” the commission said in its latest annual report. “The loss of global leadership in these future drivers of global growth” would weaken the American economy. Chinese theft of U.S. industrial trade secrets compounds the danger.

The best response to this technological competition is to reinvigorate America’s own technological base. For example: Overhaul immigration to favor high-skilled newcomers, not relatives of previous immigrants; raise defense spending on new technologies to counter China; increase other federal spending on “basic research” (government provides most of the money for this research, which is the quest for knowledge for its own sake, and amazingly has cut spending in recent years).

“We are involved in a global race for knowledge,” said France Cordova, head of the NSF. “We may be the innovation leader today, but other countries are rapidly gaining ground.”

It is hardly surprising that China has hitched its economic wagon to advanced technologies. What is less clear and more momentous is our willingness and ability to recognize this and do something about it.

  • Samuelson has written about business and economic issues for the Washington Post since 1977.

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Lawmakers Urge AT&T to Cut Ties with Huawei, Citing National Security Concerns


The Chinese phone manufacturer Huawei is bidding to snap up market share in the United States, but lawmakers in Congress are urging AT&T to cut its ties to the phone manufacturer and work with other companies. It’s not the first time Huawei’s government ties have caused heartburn on Capitol Hill, and it comes just a week after Huawei’s US launch of the Mate 10 was reportedly scrubbed at the last second.

These new allegations are from Reuters, which reports US lawmakers also oppose plans from the Chinese telecom China Mobile Ltd to enter the US market. Issues identified by the regulators as problematic also include an AT&T-Huawei collaboration over the emerging 5G standard and AT&T subsidiary Cricket selling Huawei phones as well. Apparently the problems are serious enough that lawmakers have been warning corporations that deploy Huawei hardware that they may not be eligible to work on government contracts.

Huawei’s global market share has risen sharply over the past few years, including strong gains in a matter of months.

If you’re thinking this all sounds rather familiar, well, you’d be right. Both the Trump and Obama Administrations have sounded similar warnings on Huawei over the years. The result is a US smartphone market that’s somewhat different from the globe as a whole. Samsung and Apple are still the top two device manufacturers worldwide, but from there the list diverges. Globally, Huawei, Oppo, and Vivo round out the top five (Others claims a 41.7 percent share of the market). In the United States, LG, Motorola, and HTC round out the top five, or did as of a year ago.

In 2012, both Huawei and ZTE were the subject of a US government investigation into whether their networking equipment and mobile phones offered loopholes or backdoors that could be exploited by actors working for the Chinese government. The government found neither company’s responses sufficient, but hammered Huawei in particular for failures in transparency. Huawei refused to explain aspects of its corporate structure, its ties to the Communist Party, the results of a 1999 tax fraud audit, the situation in which that audit was dropped, or any financial documents that would support Huawei’s claim to operate as a completely independent entity from its parent organization.

While none of Huawei’s potential US partners have said much about the report, Huawei and ZTE handsets remain rarities in the US market. And in a way, that’s a shame. The US market could benefit from better competition in handsets, particularly at the lower end where low-cost Android devices now offer surprisingly good performance for your dollar. Unfortunately, the past few years has also emphasized both the pervasive security problems posed by mobile devices (including the IoT) and the degree to which cyberwarfare has decidedly real-world consequences. From disinformation campaigns to attacks levied at specific sites or companies, things have gotten more heated. The last thing we need is to deliberately invite such problems to take root.


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Huawei Marine Networks cable project raises concerns in Australia

A planned Huawei Marine Networks submarine cable between Solomon Islands and Sydney could be canceled by the Australian government due to security fears.

The government might fund the AU$100 million (US$78m) project itself, rather than see the cable deployed by HMN, a joint venture between China’s Huawei and Britain’s Global Marine Systems.

Not in my back ocean

Honiara, Solomon Islands

Honiara Solomon Islands

Source: Wikimedia Commons/Friars Balsam

A Solomon Islands spokesperson told the Financial Times that an Australian scoping team had recently visited the island nation, which was showing “great interest” in the offer to use development aid to co-finance the cable. “Naturally, if the Solomon Islands government accepts the offer from Australia then no doubt the Huawei deal will have to be canceled,” he said.

The publication added that Australia had already signaled privately that it would not grant landing rights for Huawei Marine Network’s cable, originally announced last year.

“The Huawei deal was red-flagged by the Australian intelligence service,” Jonathan Pryke, analyst at the Lowy Institute think tank told the FT. “The new national security imperative has clearly jolted Australia into action.”

Robert ‘Jake’ Bebber, an information warfare officer at US Cyber Command, added: “Ownership in the undersea cable system, as well as leverage over its installation and maintenance, presents significant strategic opportunities for the People’s Republic of China.”

Having control over the cable would allow China to access communications traffic, including that of the US military, as well as allow it to disrupt communications if it wanted to, he continued.

Reasons for caution

Australia has banned Huawei from taking part in certain national infrastructure projects, including the AU$37.4 billion ($29.2bn) National Broadband Network initiative – the largest infrastructure project in the country’s history.

The company was banned after security concerns were raised in the US, with a 2012 US House of Representatives report claiming Huawei posed a “national security threat” to America.

Authors also claimed they received “internal Huawei documentation from former Huawei employees showing that Huawei provides special network services to an entity the employee believes to be an elite cyber-warfare unit within the [People’s Liberation Army].

“The documents appear authentic and official Huawei material, and the former employee stated that he received the material as a Huawei employee. These documents suggest once again that Huawei officials may not have been forthcoming when describing the company’s R&D or other activities on behalf of the PLA.”

Not long after the US banned Huawei and ZTE from national infrastructure projects, Australia said that it too would restrict activities of the company.

Huawei has repeatedly denied any untoward relationships with the Chinese state. At the time of Australia’s move to restrict Huawei, company spokesperson Jeremy Mitchell said: “If we were found to do one thing wrong, to have one backdoor in any of our equipment, our company would fold overnight and correctly it would be.

“So there’s no way in the world that we would ever risk that. And to be honest I think anyone who would argue that the Chinese government would ask us to do that I think shows a bit of a lack of understanding of modern China.”

In his youth, Ren Zhengfei, the founder and president of Huawei, served as a People’s Liberation Army IT research unit officer, and his ex-wife was the daughter of a the deputy Governor of Sichuan Province. At the World Economic Forum in Davos in 2015, Ren said that “we have never been asked by our government to spy.”

Huawei has also faced accusations of making a SI$40m (US$5m) political donation to the party of then Solomon Islands prime minister Manasseh Sogavare, revealed in a report by the Solomon Islands parliamentary accounts committee. It called for a police inquiry, while Huawei strongly denied the allegations.

The public accounts committee cited rumors that “Huawei Technologies … had promised the Prime Minister a political donation of $40 million for the award of the contract. If true, this is a corrupt and criminal offense and the committee calls on the [Royal Solomon Islands Police] to conduct an urgent investigation into this.

“The committee is of the view that this is the main reason for the government to bypass procurement requirements in favor of the company Huawei.”

A company spokesperson said: “These allegations have no basis in fact. Huawei has never given, implied, nor promised any political donations in relation to this project.”

Sogavare, who left office on 15 November 2017, also denied the claims when they were made public in August, adding: “The security concerns of Australia are also the concerns of Solomon Islands and parties are exploring all options to have the matter resolved amicably.”

The decision to use Huawei Marine Networks was previously criticized by the Asian Development Bank, which pulled $US18m in funding for the project, claiming a lack of transparency around Huawei’s selection. “The Huawei contract was developed outside of ADB procurements processes,” a spokesperson told Fairfax Media.

Despite this potential setback, Huawei Marine Networks remains active in the Pacific ocean, linking Changi in Singapore to Batam in Indonesia in one project, and laying a 5,457km cable to connect Papua New Guinea in another.

Meanwhile, Sino-Australian tensions show no signs of easing.

In a major foreign policy white paper released in November, the Australian government said China had caused “tension” in the South China Sea, adding: “Australia is particularly concerned by the unprecedented pace and scale of China’s activities,” which include building islands and military bases in the disputed territories.

But the foreign policy paper, the first from Australia in 13 years, earned a swift rebuke from Beijing. Chinese foreign ministry spokesperson Lu Kang said: “Australia is not a party directly concerned in the South China Sea issue, and it has made clear many times that it does not take sides. We hope the Australian side will honor its commitment and stop making irresponsible remarks.”


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