Beyond Tech Transfer: The Challenge of Chinese Tech Expanding Abroad
Our article was originally published on The Diplomat.
Over the last two years, Chinese outward investment has been become the subject of much controversy abroad, especially following the country’s buying spree in 2016. This shift has been particularly visible in the tech sector, where developed countries are becoming increasingly concerned by Chinese attitudes toward intellectual property (IP) and the prospect that China may very soon match their technological capabilities.
The most notable in a series of recent moves has been the United States’ probe into China’s policies regarding technology transfer, IP, and innovation under Section 301 of the Trade Act. The results of the controversial probe suggested imposing a 25 percent tariff on around 1,300 industrial technology, medical, and transport products from China. While such probes are often motivated by the risks associated with Chinese firms buying foreign technology, there remains an important discussion to be had on the implications of Chinese tech companies selling their products abroad.
There are a number of recent examples in this regard, and can be seen in line with the goals of China’s digital silk road initiative. For example, in April 2018, Huawei became the first company to successfully receive a licence to sell its 5G technology in the EU. China’s internet giant Tencent has also been expanding its operations abroad; its flagship offering WeChat Pay is expanding across Europe in cooperation with BNP Paribas. Meanwhile, Tencent’s video sharing and live-streaming app Kuaishou is prioritizing its expansion in countries participating in the Belt and Road Initiative (BRI). The app has already seen considerable success in BRI countries, including topping the app stores of Vietnam, Indonesia, Ukraine, Turkey, Russia, Belarus, and South Korea. Chinese smartphone makers including Xiaomi and OnePlus have seen rapid success in Asia, Africa, and even parts of Europe.
The question that must be asked, then, is whether governments should be concerned by the rise of Chinese tech in their home countries. While most of the Chinese tech firms expanding abroad are private firms, and in theory therefore distanced from politics, that has not meant they have escaped the powerful influence of the Chinese Communist Party (CCP) across many businesses. This is highlighted by the challenges they face in the domestic market. Here, Chinese IT companies are entangled in a complex web of corporate interests, governmental restrictions, and powerful public opinion. There have been clear cases of tech firms being constrained by party politics, as well companies succumbing to public pressure.
For instance, in 2017, Tencent openly confirmed that it shares its data with the relevant organs of the CCP, and even stores data users have deleted. When tech companies do not openly agree to cooperate with the government, they have faced significant restrictions or been the subject of intensified crackdowns. Content posted on both Tencent’s applications and one of its competitors, Bytedance, have been subject to increased scrutiny from government censors. Bytedance even had to entirely close its joke-sharing app, Neihan Duanzi. Moreover, Zhang Yiming, the CEO of Toutiao, recently issued an apology stating that the company neglected “core socialist values” and that Toutiao will now proceed to implement the “right values” into its products. The company has been forced to increase the number of human content auditors from 6,000 to 10,000.
Pressure comes not only from government, but also from the nationalistic sentiment in the public. Last week, a controversy erupted over Lenovo’s 2016 decision to back a 5G technology standard proposed by American company Qualcomm as opposed to an alternative proposed by Huawei. Chinese netizens only found out earlier this month and quickly turned to social media to express their discontent. As a result, the top leadership of Lenovo issued a joint statement with Huawei rejecting the “unpatriotic nature” of their vote and accusations of “selling the country out” (卖国). The two companies’ CEOs further stated that “Chinese companies should be united and must not be provoked by outsiders.”
Given these fierce political pressures and a nationalist sentiment brewing at home, there are clearly causes for concern for foreign countries evaluating whether to grant market access to Chinese tech companies. While Western tech firms also have recently come under increased scrutiny in recent times, their questionable usage of data has been largely self-induced. On the contrary, Chinese tech firms must juggle a range of competing interests and priorities. Whilst at this stage, there is no sign that users of Chinese tech abroad will, in turn, be subject to these forces, it is not beyond the range of feasibility. As a result, it would be prudent to conduct more careful examinations of Chinese tech companies and their links to the government before permitting market entry.