Tech Platforms: The New Battleground in the U.S.-China Strategic Competition
Introduction
Tech platforms have emerged as the new battleground in the strategic competition between the United States and China. Even as policy makers in Washington, D.C. intensify efforts to address Beijing’s ambitions, China’s large and growing tech platforms – especially Baidu, Alibaba, and Tencent – pose a serious, yet largely underappreciated, challenge to a critical element of American power. Just as sea power secured commercial primacy in the nineteenth century, and capital-market infrastructure served as the foundation of financial sector dominance in the twentieth century, Internet tech platforms promise to underpin economic power in the twenty-first century.1
Beijing has elevated to a national priority displacing U.S. tech dominance, with far-reaching implications. Tech platforms in China have been leveraged by the central government to assert even greater domestic control and advance the nation’s global ambitions.
China’s approach to dominating tech platforms combines several components widely acknowledged by policy makers and opinion elites. The main elements of China’s policy to undermine U.S. competition in the tech sector include: sharply restricting access to the domestic market; exploiting American universities to develop talent; and stealing and compelling the transfer of intellectual property (IP). Underappreciated, however, is China’s attempt to distract attention from its anticompetitive policies by promising to boost employment in the American industrial Midwest.
Beijing’s sustained effort to displace American leadership of tech platforms represents, therefore, a central arena of competition in the great power struggle of the twenty-first century.
Beijing’s Objective: Block and Displace U.S. Tech Leadership
China today claims nine of the world’s 20 largest tech companies, the majority of which joined U.S. stock exchanges during the past five years.2 Reflecting the market potential of more than 800 million Chinese Internet users, new investment in China’s tech sector has boomed.3 According to Bloomberg, private equity and venture capital investment in the Chinese tech sector grew from $14 billion in 2012 to $120 billion in 2017, while 34 new Chinese startups were valued at over $1 billion last year.4
In addition to supporting traditional state-owned enterprises (SOEs), Beijing uses nominally private-sector tech companies to advance national objectives. Many of China’s large “private sector” tech firms appear to operate in close coordination with the central government.5 For example, China’s Ministry of Science and Tech identified Baidu, Alibaba, and Tencent – collectively valued at over one trillion dollars – as forming the core of a “national team” for AI.6
China’s so-called “private-sector” tech platforms function, in essence, as disguised SOEs. In a recent speech, President Xi Jinping expressed that China’s “private sector” is an “indispensable force” for the country when harnessed by the “strong leadership of the Communist Party of China (CPC), the political advantage of pooling resources to solve major problems, new sources of development from deepening overall reforms, and the continuously growing capabilities of macroeconomic regulation.”7
China’s tech platforms have grown in sophistication by leveraging access to U.S. tech hubs, financial markets, and consumers. Alibaba – reporting more than three times Amazon’s gross merchandise value (GMV) in FY 2017 – trades on the New York Stock Exchange (NYSE) and has established five U.S. offices, including engineering centers in Silicon Valley and Seattle.8 In the autonomous vehicle (AV) sector, China-based corporations have established major R&D facilities in Silicon Valley and received permission to test products on California’s roads.9
In stark contrast, as a central feature of boosting indigenous tech, Beijing forcibly excludes U.S. companies from the Chinese market. Several of America’s preeminent tech firms – including Facebook, Google, and Twitter – currently suffer a near total ban as part of the so-called “Great Firewall.”10 Other significant U.S. companies have confronted formidable obstacles. For example, Visa acknowledged that the approval process to operate in China could “require several years, and there is no guarantee.”11 Other companies express similar pessimism: 63 percent of companies surveyed by the U.S.-China Business Council identified Beijing’s policy and regulatory environment as negatively affecting market prospects in China.12
Beijing deliberately excludes U.S. companies from its domestic market not only as an effective subsidy to local Chinese companies, but also to gain leverage over some of the world’s largest companies. Given the size of China’s market, access to it represents an understandable priority to major corporations competing in a global market. In the words of Senator John Cornyn (R-TX), then-Chair of the Senate Committee on Finance’s Subcommittee on International Trade, Customs, and Global Competitiveness, Beijing uses the lure of market access as a “weapon … coercing U.S. companies to enter into joint ventures and other business arrangements which require a company to hand over key technology and know-how … simply in order to gain market access.”13
Recognizing U.S. Political Priorities, China Targets the American Industrial Sector as a Critical Point of Leverage
Responding to American populism hostile to Beijing and globalism, Chinese tech companies appear to have launched an initiative to exploit America’s bipartisan economic prioritization of job creation in the industrial Midwest.
Shortly after President Donald J. Trump’s inauguration, Alibaba hosted its first signature U.S. event in Detroit, despite the absence of company offices in the region.14 In 2017, the company’s CEO Jack Ma promised to create one million jobs in the United States. Following the announcement, President Trump stated that Ma is “a great, great entrepreneur [who] loves this country, and [who] loves China.”15 Nine months later, Ma retracted his promise.16
Foxconn – an electronics manufacturing company nominally based in Taiwan but anchored to mainland China – has dangled promises of job creation in the industrial Midwest as U.S. policy makers increasingly support imposing tariffs on imports. In October 2017, Foxconn announced a multi-billion-dollar deal, including an incentive package from Wisconsin, to build a major facility in the state projected to create 13,000 jobs.17 Although frequently and publicly critical of Chinese manufacturers, President Trump thanked Foxconn for “investing in the United States” and expressed “a lot of respect for China.”18 Then-Speaker of the House Paul Ryan (R-WI-1) also remarked, “This is a game-changer for Wisconsin, bringing thousands of good jobs and billions of dollars in investment to the Badger State.”19
As the American industrial Midwest occupies a more important position in U.S. electoral politics, Beijing appears intent on distracting attention from the engineered rise of China’s tech giants by promising to bolster U.S. employment.
Challenges in Confronting Beijing’s Tech Giants
Longstanding rifts between American conservatives and tech elites complicate attempts by policy makers to redress the competitive imbalance with China. President Trump captured the prevailing conservative view, “Virtually all [social media] companies are super liberal companies.”20 Leading figures on the populist Left also have sharply criticized the tech sector. Senator Bernie Sanders (I-VT), for instance, asked whether tech giants pose “the greatest threat to our democracy.”21
The great power struggle with China demands that the United States maximize its competitive advantage in tech platforms. Despite the urgent need to forge a unified policy agenda, the conspicuous wealth and globalism of Silicon Valley increasingly alienates the ideological strains that shape the American political system. The antagonism between America’s tech platforms and political leaders risks preventing the national consensus needed to counter Beijing’s effort to dominate the strategic battleground of the twenty-first century.
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Endnotes
1 Barry Buzan and George Lawson, “The global transformation: the nineteenth century and the making of modern international relations,” International Studies Quarterly 57, 2013, 620-634, http://eprints.lse. ac.uk/44894; and Dennis Blair and Robert D. Atkinson, “Overcoming the China Challenge,” The American Interest, September 17, 2018, https://www.the-american-interest.com/2018/09/17/overcoming-the-china-challenge.
2 Sally French, “China has 9 of the world’s 20 biggest tech companies,” MarketWatch, May 31, 2018, https://www.marketwatch.com/story/china-has-9-of-the-worlds-20-biggest-tech-companies-2018-05-31.
3 Niall McCarthy, “China now boasts more than 800 million Internet users and 98 percent of them are mobile,” Forbes, August 23, 2018, https://www.forbes.com/sites/niallmccarthy/2018/08/23/china-now-boasts-more-than-800-million-internet-users-and-98-of-them-are-mobile-infographic/#79da4c8f7092.
4 Christopher Balding, “China is nationalizing its tech sector,” Bloomberg, April 11, 2018, https://www.bloomberg.com/view/articles/2018-04-12/china-is-nationalizing-its-tech-sector.
5 Li Yuan, “Beijing pushes for a direct hand in China’s Big Tech firms,” The Wall Street Journal, October 11, 2017, https://www.wsj.com/articles/beijing-pushes-for-a-direct-hand-in-chinas-big-tech-firms-1507758314.
6 Meng Jing and Sarah Dai, “China recruits Baidu, Alibaba and Tencent to AI ‘national team’,” South China Morning Post, September 25, 2018, https://www.scmp.com/tech/china-tech/article/2120913/china-recruits-baidu-alibaba-and-tencent-ai-national-team.
7 “Xi stresses unswerving support for development of private enterprises,” Xinhua, November 2, 2018, http://www.xinhuanet.com/english/2018-11/02/c_137575231.htm.
8 Press release, “Alibaba Group reports quarterly and FY2017 results,” Alibaba Group, May 18, 2017, https://www.alizila.com/alibaba-quarterly-fy2017-results; Thomas Franck, “Amazon’s U.S. sales to match Walmart’s within three years, JP Morgan predicts,” CNBC, May 15, 2018, https://www.cnbc.com/2018/05/15/amazons-us-sales-to-match-walmarts-within-three-years-jp-morgan-predicts.html; Yue Wang, “Alibaba to open two more offices in the U.S.,” Forbes, November 11, 2015, https://www.forbes.com/sites/ywang/2015/11/11/alibaba-to-open-two-more-offices-in-the-u-s/#389709517967; and Taylor Soper, “Alibaba moves Seattle hub to Bellevue with 40 employees, no plans to grow office,” GeekWire, August 6, 2016, https://www.geekwire.com/2016/alibaba-moves-seattle-hub-bellevue-40-employees-no-plans-grow-office.
9 Joann Muller, “China’s AV ambitions pass through California,” Axios, November 7, 2018, https://www.axios.com/china-autonomous-vehicles-california-driverless-cars-8914676a-a0b4-461b-b96d- 3122cd65d2e9.html.
10 Emily Rauhala and Elizabeth Dwoskin, “U.S. companies want to play China’s game. They just can’t win it,” The Washington Post, December 22, 2016, https://www.washingtonpost.com/world/asia_pacific/ us-companies-want-to-play-chinas-game-they-just-cant-win-it/2016/12/22/0fffa35a-b7f3-11e6-939c-91749443c5e5_story.html.
11 “10-K,” Visa, 2018, http://d18rn0p25nwr6d.cloudfront.net/CIK-0001403161/cd6545c2-6c6e-4ba1-8dcd-52cd1521df3a.pdf.
12 “2018 Member Survey,” U.S.-China Business Council, 2018, https://www.uschina.org/sites/default/files/2018_ucsbc_member_survey_final.pdf.
13 Sen. John Cornyn, “SFC Trade Subcommittee: Market Access Challenges in China Opening Statement,” Senate Committee on Finance Subcommittee on International Trade, Customs, and Global Competitiveness, April 11, 2018, https://www.finance.senate.gov/imo/media/doc/11APR2018CORNYNSTMNT.pdf.
14 Frank Lavin, “What American businesses can expect to gain from Alibaba’s Gateway 17 Summit in Detroit,” Forbes, April 25, 2017, https://www.forbes.com/sites/franklavin/2017/04/25/gateway-17-the-road-to-china-is-through-detroit/#77a3f5c0f3c0; and “Our offices,” Alibaba Group, 2018, https://www.alibabagroup.com/en/contact/offices.
15 “President-elect Trump talks jobs with Alibaba’s Jack Ma,” NBC Los Angeles, January 9, 2017, https://www.nbclosangeles.com/multimedia/Donald-Trump-Jack-Ma-Alibaba-Jobs-410139045.html; and Seth Fiegerman, “Alibaba’s Jack Ma met with Trump to talk jobs,” CNN Business, January 10, 2017, https://money.cnn.com/2017/01/09/technology/trump-alibaba-jack-ma/index.html.
16 Jillian D’Onfro, “Alibaba’s Jack Ma backs down from promise to Trump to bring 1 million jobs to the U.S.,” CNBC, September 19, 2018, https://www.cnbc.com/2018/09/19/jack-ma-alibaba-is-no-longer-planning-to-create-1-million-us-jobs.html.
17 Mark Sommerhauser and Molly Beck, “Assembly lawmakers pass $3 billion tax incentive package for Foxconn,” Wisconsin State Journal, August 18, 2017, https://madison.com/wsj/news/local/govt-and-politics/assembly-lawmakers-pass-billion-tax-incentive-package-for-foxconn/article_40adcade-bb66-509b-98c1-a42a0d4401f7.html.
18 “Remarks by President Trump at Foxconn Facility,” The White House, June 28, 2018, https://www.whitehouse.gov/briefings-statements/remarks-president-trump-foxconn-facility.
19 Press release, “Governor Walker, Foxconn Chairman Gou sign historic agreement to bring $10 billion world-class advanced manufacturing campus,13,000 jobs to Wisconsin,” Office of the Governor, November 10, 2017, https://walker.wi.gov/press-releases/governor-walker-foxconn-chairman-gou-sign-historic-agreement-bring-10-billion-world.
20 Vince Coglianese and Saagar Enjeti, “Full transcript of Trump’s Oval Office interview with The Daily Caller,” The Daily Caller, September 5, 2018, https://dailycaller.com/2018/09/05/full-transcript-trump-daily-caller-interview.
21 Video, “The Bernie Sanders Show: The greatest threat to our democracy?” May 15, 2018, https://www.youtube.com/watch?v=wuCAy10hlHI.