In early January, the Treasury-led Committee on Foreign Investment in the United States (CFIUS) rejected the proposed purchase of U.S.-based MoneyGram by Ant Financial, a subsidiary of China’s Alibaba. The decision is an important indication of Washington’s growing recognition that technology, personal data including financial information, and the Chinese government are a tightly woven fabric that it is best not to import to the United States.
The CFIUS decision sheds much needed light at an important time. China’s President Xi Jinping is embarking on his second five-year term as president, and his priorities continue along the same four broad tracks that helped him take control of the party, the country, and Chinese society in his first term. First, he continues to solidify the control of the Communist party over the Chinese state and economy. Second, he continues stoking Chinese nationalism, to lend political legitimacy to his regime. Third, expect ever more relentless but futile attempts to overcome China’s systemic socioeconomic challenges; and, finally, Xi is building up China’s military capabilities for more of the regional military adventurism that has led to territorial disputes with many of China’s neighbors.
Xi and the party will continue to use all the levers they can to execute these priorities, and the four tracks are not independent of one other. China’s bellicose regional military posture during Xi’s tenure reflects his need to appeal to Chinese nationalism. More audacious moves in all four dimensions are likely, to keep this complex balancing act moving ahead against diminishing marginal returns.
It must be acknowledged that Xi has been successful by many measures. He is a serious leader. In his first term, he consolidated the apparatus of both party and government. Certainly, he is the most powerful leader in the People’s Republic of China since Mao. Indeed, on the current trajectory, his influence and tenure may be on par with those of the emperors of China’s historic past. The question remains, though, how much deeper and tighter he can take control. All the political trends in China are in the direction of centralization, not liberalization.
To further solidify his control over the Chinese state, Xi has made extensive use of modern technology to influence and control China’s citizens. Technology is a thread that runs through the fabric of the party’s program: It is employed to keep order and maintain party control; it is used, in pursuit of China nationalism, to keep a watchful eye on potential challenges to the state, with particular coverage of ethnic and religious minorities, including Uyghurs. It also is apparent that much of the technology being used derive from companies under the direct or indirect control of the Chinese government and, in many cases, the Chinese military. Finally, the merchants of the surveillance state are the very tech companies that give China’s economy such dynamism as perceived from the outside. From the relatively mundane use of facial-recognition software, which can provide immediate notification of jaywalking scofflaws, to the use of personal data, social media, and public surveillance to keep the public in check, the central and local governments are establishing a dystopia that depends on those means, and on artificial intelligence, to monitor and control the population to a degree unmatched anywhere in the world.
The growth of China’s digital-surveillance state has proceeded alongside Xi’s own consolidation of power and is indicative of the (primarily economic) challenges that he knows he faces. There may be nothing Xi can do to get China’s economy to grow at the rates it must to improve the lives of most of citizens. The imbalances between a relatively affluent coastal elite and the rural poor in the vast interior of the country are profound. After a burst of easy money to juice economic growth in the run-up to the 19th Party Congress in October, the consensus from the respected China Beige Book and other non-PRC sources is that growth will slow in 2018. Five hundred million Chinese live in largely isolated rural poverty; the remnant economy. Many subsist on $4 a day or less.
As China’s urban population continues to modernize, the inequality gap between the coastal areas and the large, underdeveloped interior of the country grows. The gap is exacerbated by economic and social challenges that include, aside from slowing economic growth, rising household and government debt and an aging population with a tattered social-safety net. A third of China’s total population is destitute. Rural migrants to the cities over the past 15 years number at least 200 million people, poorly educated and ill-equipped for urban life. By the middle of the next decade, that number will be 400 million, according to some estimates.
A third of China’s population is destitute. Rural migrants to the cities over the past 15 years number at least 200 million people, poorly educated and ill-equipped for urban life.
Xi’s ability to create a Chinese economic juggernaut, which is what many in the West incorrectly believe exists now, is not possible given the poor, undereducated state of so many of his countrymen. But his other areas of focus are just as fraught with difficulty. Early in Xi’s first term, he embarked on a highly publicized anti-corruption campaign that removed many potential rivals and put others on notice. Xi now presides over a system that depends on citizens’ informally surveilling one other and on the government’s keeping watch on all. This is the only way he can maintain control and manage social and economic pressures.
The growing intrusion of technology into the daily lives of more than a billion Chinese has been steadily documented in the U.S. press, most consistently in the Wall Street Journal. The pernicious long-term impact of companies that are listed on global stock exchanges and serve as agents of Communist control of the Chinese people is unknowable but cannot be labeled a surprise by some future U.S. administration or company affected by it. (Recall the “surprise” expressed by governments and companies last year when it was learned that popular anti-virus software from Kaspersky Lab, founded by a former Soviet military-intelligence software engineer, may be a tool of Russian intelligence). The China tech giants — Alibaba, Tencent, Baidu, and others — are partners with the government in sharing data, ostensibly in the name of national security. The “political and legal system of the future is inseparable from the internet, inseparable from big data,” Alibaba’s Jack Ma told a party commission last year. Ma and others in China’s tech industry allude to the benefits of technology for stopping bad people from doing bad things. Advocates of this approach often point to what Edward Snowden and others have revealed about the uses of big data by the U.S. government.
But in the U.S., telecom companies provide data, largely anonymized, only as required by statute and after judicial review. Judge for yourself how similar that is to what’s happening in China. Quite apart from identifying potential terror activities or crimes in progress, facial-recognition and related technology is being applied to tracking the private and commercial activities of Muslim minorities and to more-mundane purposes, including, for example, preventing excessive toilet paper from being dispensed to individuals using public toilets.
More comprehensively, though, the government is testing big data to develop a system of “social credits.” As envisioned in the PRC’s five-year plan outlined in 2015, the government seeks to develop a web of networked personal data and other digital information, including online activity, to create a system to assess how individuals and businesses behave, presumably with the intent to create government-directed social pressure to keep them in line. This goes well beyond the virtues of public–private cooperation as described by Alibaba’s Ma and other proponents.
Whether Ma and other tech CEOs are paying close enough attention to the sinister direction in which Chinese technology is headed, the CFIUS decision suggests that the U.S. government may be starting to. Given Ma’s belief in the inseparability of “big data” from “the political . . . system of the future,” the bigger surprise would have been if the U.S. government were comfortable letting him acquire a U.S. financial-services company. According to its website, Alibaba “operate[s] various businesses and also derive[s] support for our ecosystem from the businesses and services of related and affiliated companies.” Regrettably for Ma, evidently CFIUS wasn’t interested in allowing the personal financial data of U.S. citizens into his “ecosystem,” which, he has indicated, includes the Chinese government.
Precautions against Chinese technology are being taken in other areas, too. For instance, last year the Journal reported on the prevalence of Chinese-made security cameras throughout the United States, in use by local jurisdictions and even the U.S. military. Last week, the Army announced the removal from Ft. Leonard Wood, in Missouri, of security cameras produced by the Chinese company Hikvision.
Xi Jinping’s socialist-capitalist model is not some economic third way but rather little more than a powerful autocracy relying on modern technology and the trappings of capitalism
That there is Chinese-government involvement in these technologies cannot be denied. According to the Journal, Hikvision is more than 40 percent owned by the entities that themselves are 100 percent owned by a state-owned military enterprise. Many of these tech companies, even without obvious state ownership, explicitly hew close to the party’s priorities, to avoid running afoul of the government and to gain perceived advantage against competitors in the Chinese economy. Others, including the search and cloud company Baidu, have set up party committees inside the companies themselves.
The CFIUS decision about Ant Financial, the removal of the Hikvision cameras by the Department of Defense, and other indications suggest growing awareness by the U.S. government that explicit PRC participation with these companies is a concern, even if many of the companies trade on global stock exchanges and have significant foreign investors and boards. In its 2017 annual report, the invaluable U.S.–China Economic and Security Review Commission called on Congress to provide more statutory guidance to CFIUS to broaden its jurisdiction and oversight of activities in these areas.
China today, despite the perception of modernity and progress, is merely operating along its historic mean. For centuries, from an insular center, imperial leaders maintained strict control of the rural internal empire. Previously, this effort relied on the Confucian values of ritual, civil society, and respect for elders. Those values formed the core of what has been termed China’s social religion. Much of that was upended during the Maoist era, and all but extinguished during the Cultural Revolution and the Great Leap Forward.
President Xi seems to be seeking to recreate a state-controlled social religion, using social media, public shaming, and other forms of control made possible through technology. Eventually, Western investors and governments will have to acknowledge what they know but wish to avoid: Xi’s socialist-capitalist model is not some economic third way but rather little more than a powerful autocracy relying on modern technology and the trappings of capitalism to mask oppressive curtailment of civil liberty and economic freedom. It should be obvious by now that whatever legacy Xi may be creating for himself, he must be regarded as China’s first Digital Emperor.