China Seeks Out Unlikely Ally: U.S. Tech Firms
As U.S. readies cybertheft sanctions against China, President Xi to meet with heads of tech firms
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Chinese President Xi Jinping’s visit to the U.S. starts Tuesday with meetings with tech executives in Seattle rather than government officials in Washington, but politics will still be front and center.
Mr. Xi’s goal, according to a number experts on U.S. and China relations, will be to cajole American tech chief executives into helping him persuade the Obama administration not to retaliate against China for years of alleged hacking and theft of intellectual property, which the Chinese government has repeatedly denied.
He will try to accomplish this by convening a private meeting with 15 CEOs from U.S. firms—including Tim Cook, head of Apple Inc., and Satya Nadella, head of Microsoft Corp.—and 15 CEOs from their Chinese counterparts.
What’s at stake is everything from whether or not U.S. companies currently banned from doing business in China will be allowed in, to whether the Obama administration will follow through on its threat of import restrictions against China. Those sanctions are an attempt to stop the theft of an estimated $300 billion a year of intellectual property, much of it accomplished by hacking into the most sensitive systems of U.S. firms, according to a report from Commission on the Theft of American Intellectual Property.
The Chinese Embassy didn’t respond to requests for comment.
Google Inc. CEO Sundar Pichai wasn’t invited, a person familiar with the situation said. Given how much symbols matter in public diplomacy, this is perhaps telling, since in 2010 Google very publicly pulled out of China rather than accede to censorship requirements, and for about the past year has been trying to stealthily get back in.
Facebook Inc. declined to say whether Mark Zuckerberg was invited or is attending, but if he does show up he may be the only CEO present whose company is banned from doing business in China. Along with International Business Machines Corp. CEO Virginia Rometty, who was reportedly invited but whose attendance IBM wouldn’t confirm, Mr. Zuckerberg may be treated to a bit of statecraft that goes something like this.
“The companies who are all there are going to be able to hear from Tim Cook,” says Alec Ross, former technology adviser to Hillary Clinton during her years as secretary of state. “Xi will turn to Tim Cook and say ‘We are so pleased you are doing business in our country.’ And what Apple represents is that American companies can enter the consumer market in China and win.”
Indeed, Mr. Cook said at an Apple event in September that last quarter, growth in sales of iPhones shot up 75% in China from the previous year. In a letter to CNBC host Jim Cramer last month, Mr. Cook said, “I continue to believe that China represents an unprecedented opportunity over the long term.”
Apple didn’t respond to a request for comment.
That’s the kind of opportunity American tech companies would like to take advantage of, especially as they seek growth outside of developed-world markets. There are a number of barriers in the way, including China’s demands that U.S. companies host their data inside the country as well as submit to China’s laws about giving the government unfettered access to that data.
But another barrier looms: The Obama administration is ready to get serious about inflicting economic pain on China if the country doesn’t stop hacking into U.S. companies and stealing all their hard-won secrets—technologically-enabled piracy.
The problem, says Mr. Ross, is that China fundamentally views this kind of hacking as a commercial matter. As such, it’s necessary for the continuing growth and profitability of China’s state-owned and state-affiliated companies, and therefore key to maintaining China’s engine of growth, which the party also views as essential to maintaining order in a country of 1.3 billion people.
The U.S., on the other hand, views it as a matter of national security, Mr. Ross says.
Convening a meeting of technology companies that are both hugely dependent on China for manufacturing—like Apple—and for their future growth—like Apple, Facebook, IBM, Microsoft and Google—is a way to remind the Obama administration that any sanctions or import bans could lead to a loss of opportunity and direct consequences for some of the crown jewels of America’s innovation economy.
“The timing of this meeting is a baller move, the location of it is a baller move—the mere act of convening it was a baller move,” says Peter Singer, a scholar of international relations, describing the meeting as bold almost to the point of arrogance. “Diplomacy is not merely about action, it’s about signaling and creating or disrupting coalitions and alliances.”
In this case, it’s an unlikely alliance between China’s head of state and many of the companies that have been victims of cyberattacks, arrayed against those in Washington who are determined to stop China’s alleged theft of intellectual property.
Not everyone agrees with this assessment of the meeting. One scholar, Kenneth Lieberthal of the Brookings Institution, says it’s the mere continuation of previous meetings of the U.S.-China Internet Industry Forum, and that is exactly how this meeting is being officially billed.
These meetings have always brought together Chinese officials and U.S. tech companies, although never before have they included the premier of China and so many prominent CEOs.
Mr. Lieberthal also believes that the U.S. and China might issue a statement about a joint agreement not to use cyberweapons in ways that would damage critical infrastructure like power plants, although such an agreement wouldn’t address the kinds of hacking for commercial gain that appear to be ongoing.
Whatever China’s delegation intended to signal, it appears that the message that has been received is both exciting and ominous: China is ready to let in more U.S. tech companies—if they are willing to play by China’s rules.
Owing to that symbolism, says Mr. Singer, “this meeting is a success for China before it even happens.”