Proponents of the view that the U.S. is being economically victimized by China often complain that our market is open and theirs is not. John Lash, an analyst with Dark Horse, writes, “The conventional wisdom is that there is a substantial imbalance in the relationship between the United States and China across a number of critical market sectors, and that the U.S. should insist on reciprocity in the relationship to promote openness in the markets.”
Lash has released a short paper on the topic, called, “Reciprocity in US-China Relations for Foreign Direct Investment (FDI).” It conducts a simple thought experiment based on the question, Would U.S. companies, and the U.S. government, be willing to accept the same national security investment review conditions from China that the U.S. government, via CFIUS, is applying to Chinese companies trying to enter the U.S.?
Both the U.S. and China conduct national security reviews of foreign investments. In the U.S., the Committee on Foreign Investment in the United States (CFIUS) must review and approve foreign investments that raise national security questions; in China the same function is performed by the Foreign Investment Security Review Measures (NSR), which took effect in 2021.
Using TikTok’s treatment by CFIUS as a basis for comparison, Dr Lash asks whether the U.S. government would permit, or a U.S.-based social media company would agree to, the same conditions, oversight, and costs that the Chinese company has been required to meet to protect its market access.
Project Texas is the product of TikTok’s attempt to comply with CFIUS-imposed concerns about Chinese influence operations and access to user data. As a result of CFIUS review, TikTok created a subsidiary called U.S. Data Security (USDS) that houses the functions of TikTok’s business that are most likely to give rise to national security concerns, such as access to U.S. citizen data, and decisions on content moderation. Oracle Cloud hosts the TikTok platform in the U.S., including the algorithm and content moderation functions.
So let’s talk reciprocity. Would a U.S. social media company that wanted to operate in China agree to:
- Establish a new operating subsidiary, with an independent board of directors approved by the Chinese government and reporting directly to the Chinese government?
- Agree to let all content moderation be handled in China by local entities?
- Agree to house all data and source code with a Chinese tech company; e.g., Huawei Cloud?
- Agree to permit that Chinese tech company to review and monitor all data flows?
- Agree to place the key intellectual property – the application algorithm – with a Chinese tech company (i.e., Tencent, Huawei, Alibaba) – and permit that company to inspect and monitor the code (with a Chinese government-approved third-party inspector)?
- Spend $1.5 billion to make all this happen?
It seems unlikely that U.S. companies would accept these conditions. It also seems likely that if they did, U.S. politicians would complain that such conditions constituted a terrible abuse of power by the Chinese Communist Party. It all goes to underscore a point we have been making for some time: in its reaction to the alleged threats of Chinese companies, the U.S. risks becoming as bad as Chinese in its restrictive approach to ICT controls.
Of course, the US does not (yet) reciprocate Chinese blocking of foreign websites and applications, but there are politicians here who want to do that.
