Welcome to the very first China Report newsletter! I’m Zeyi Yang, and every Tuesday I’ll bring you news about China’s technology industry. This week, let’s unpack recent actions on China from the Biden administration.
Lately, President Biden has been getting busy with executive orders that are, without naming China, very related to China. In the past three weeks, there have been at least three orders, but you’re not alone if you’ve found them hard to follow.
On August 25, he signed EO 14080 to boost the domestic semiconductor industry; last Monday, he signed EO 14081 to build a strong domestic biotechnology industry and reduce reliance on foreign countries; then there’s EO 14083, which was officially published in full today. This last one clarifies the scope of the work of the Committee on Foreign Investments in the United States (CFIUS), a body that has existed for over four decades. There are also reports about more orders on the way. While none of these orders are explicitly about China, they are about countering foreign regimes that are both technological competitors and national security threats to the US. There aren’t many that fit the bill.
The most interesting one: The CFIUS order is probably the hardest to understand if you haven’t been following this space closely. To catch you up, CFIUS is an interagency committee spanning 16 federal departments, including Treasury and Defense—and it’s one of the major weapons the federal government has long wielded to stop Chinese companies from acquiring US companies and technologies. If you want to know more, here’s a short explainer on CFIUS.
Its stated goal has been to protect national security interests from all sources of foreign investment. It has stopped Chinese buyers from acquiring (or forced Chinese owners to sell) Grindr, MoneyGram, hard drive maker Western Digital, and several semiconductor companies. Under the Trump administration, it famously almost forced ByteDance to sell off TikTok in 2019.
The new EO, though, doesn’t really change any of that. Honestly, it’s unclear if it will significantly change how CFIUS works. Instead, it will clarify a mission that has long been frustratingly vague.
Previously, CFIUS cast a long and undefined shadow on any business acquisition activities between the US and China. No one knew for sure what sectors CFIUS was most interested in screening; the deals it has blocked have been all over the place. (My favorite odd example is from 2018, when the committee asked HNA, the Chinese conglomerate behind an aviation group of the same name, to sell a building in Manhattan. Why? CFIUS didn’t clarify, but the building is a) located blocks away from Trump Tower and b) home to a police precinct in charge of the security work for Trump Tower. I’ll let you draw your own conclusions.)
The new order, though, gets specific. It lists a few industries that CFIUS should prioritize—microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy, and climate adaptation technologies—and also singles out threats to personal data protection, provisions the committee could use to justify blocking deals in consumer tech that aren’t traditionally seen as a national security risk.
To be fair, the new “focused scope” of CFIUS still reads as incredibly broad and can likely be used however the federal government wants. But, speaking as a journalist, isn’t more transparency better? It will arguably help the agency use its resources more efficiently and effectively, and also help stakeholders know what to expect.
The others: Okay, they may seem a little boring now that we’ve heard so much about supply chain problems over the past few years. But at their heart, the other two orders—which are about the semiconductor supply chain and the biotech supply chain—focus on making sure technological advancement and economic activities happen on US soil.
The TL;DR here: The US and China used to trust each other in industrial cooperation and trade, despite ideological differences. But now, I think both sides will agree, that kind of trust doesn’t seem realistic anymore. These orders aim to move industries that emigrated from the US back stateside. (You can read more here about how the pandemic highlighted this issue.)
Despite that growing distrust, these new policies follow the same playbook that China has used for decades: generous industry subsidies, government funding for academic institutions, and entry barriers for foreign competitors to protect domestic companies. And it just might work! After all, it’s precisely the success of the Chinese government at growing key technology sectors in short periods of time that pushed the US to act in the first place.
Whether the administration admits it or not, I think these moves to build up domestic industries are a form of protectionism. It reminds me of the term “economic nationalism,” which the New Yorker writer E. Tammy Kim used to describe how both parties’ candidates in Ohio’s Senate race have promised to bring back manufacturing jobs from China. I don’t think the government stepping in to help a domestic industry is itself bad. But economic nationalism comes with problems, too: unfair competition, corruption, xenophobia, turning away trade allies, etc. Biden will surely be challenged from both sides on these issues.
I find it ironic that after years of criticizing the Chinese approach of developing domestic tech industries, the US—under both Trump and Biden—is also learning from China. But to be fair, the best way to produce tech advancement is likely halfway between overreaching government interventions and an unregulated free market. It will be interesting to see how the US handles that balance as compared with its rival.
Catch up with China
1. A car crash in Guizhou killed 27 people being transported to a covid quarantine facility. It sparked widespread outrage online about China’s ongoing zero-covid policy. (CNN)
2. Even though individual Chinese users have been blocked from Twitter, local governments are paying for tourism ads there—and they have become a fast-growing source of revenue for the platform. (Reuters $)
3. Brick-and-mortar store owners in Mexico are reselling the Shein clothes they bought online and making a fortune. (Rest of World)
4. 3,470 Chinese chip companies shut down in 2021, more than in any other year. (South China Morning Post $)
- Callback to my story from August: The era of unlimited semiconductor subsidies, which gave rise to corruption and unprofitable businesses, could soon end in China. (MIT Technology Review)
5. There’s an incredibly detailed, eye-popping story about a Chinese spy who tried to steal trade secrets from GE. The details come partly from the spy’s own diary that he backed up in iCloud. 🤦♂️ (Bloomberg $)
6. China is revising its 2017 cybersecurity law; changes include a tenfold increase to some financial penalties for service providers that fail to take adequate security measures. (Reuters $)
7. Chinese police in the Tibet Autonomous Region have collected millions of DNA samples over the past six years. (Citizen Lab)
- The police department bought DNA sequencer equipment from the Massachusetts-based company Thermo Fisher. (The Intercept)
Lost in Translation
There are great works of journalism in Chinese-language media that often don’t reach readers outside China. Each week, I’ll bring you one such story.
Recently 八点健闻, a Chinese-language health news publication, reported on the crunch in getting a 9-valent HPV vaccine in China. The only such vaccine currently in use around the world is Gardasil 9, which was approved in 2014 in the US but not until 2018 in China. There’s been a supply bottleneck since. In order to secure a Gardasil 9 shot, patients have been traveling to Hong Kong, where it’s more accessible, or looking for alternative options like local-government-run vaccine lotteries or expensive private health services. Still, there’s a widespread feeling of anxiety about getting the most powerful HPV vaccine before it’s too late. The rush was exacerbated last month, when Gardasil 9 expanded its eligibility age range in China from 16–26 to 9–45.
One More Thing
Have you ever wanted a party game that tests your knowledge of Chinese politics and the ruling party? Just me? Well, there’s now a board game for that. You win by earning scores—“幸福指数/Happiness points”—by paying the in-game currency “正能量/positive energy” and answering trivia questions about China’s party and state history. There goes my Friday night.
Happy birthday to me 🥳 Husband and I first became interested in the current trend for PRC environmental NGOs to use board games to advocate.
Who knew, the Party’s getting in on the action. This 强国梦 文创桌游 is a board game to test your Party knowledge. pic.twitter.com/LRPDm9IIo6
— Holly Snape (@HollySnapeWang) September 15, 2022
