Facebook in the Forbidden City

We all know that if you make decisions based on flawed assumptions, things can easily go wrong. Welcome to the United States’ bilateral relationship with China. The assumption that guided policy until recently was that China was on the path to become a market democracy and that we could make concessions in trade and security because it was on that path (and because we are the greater power in the world, the only remaining superpower, the global font of innovation, et cetera). All this changed with the arrival of President Xi Jinping.

Xi’s plans to move China to center stage (displacing the United States), while preserving one-party rule, are complicated, but China’s rulers are now open about their goals (at least in the Chinese media). The United States is in a confrontation it did not expect. This is not a new Cold War. The U.S. and Chinese economies are so deeply entangled that prying them apart would be difficult, but the United States needs to map new boundaries for what is permissible in the relationship.

This is the context for the revelations that Facebook has data-sharing arrangements with Chinese companies. Five years ago, such arrangements would have raised no objection. What Facebook did is a normal business practice—they and their competitors have similar relationships with other equipment producers—but the difference now is that a normal business practice is not normal when there is a hostile state at the other end. Americans have not reoriented their thinking about doing business in China (and some are resistant to doing this).

The risk from data sharing comes from the control that Beijing exercises over companies in China. Data is highly desirable to intelligence agencies, for the same reasons that big companies collect everything they can about their customers. Data allows you to identify and predict—in this case, to identify and predict intelligence risks and opportunities. The Chinese have had major espionage successes in the last few years, such as the recruitment of a former Central Intelligence Agency employee who revealed assets and facilities in China, a former Defense Intelligence Agency employee who revealed U.S. military planning and Cyber Command facilities, and of course the series of cyber intrusions connected to the theft of personnel data from the Office of Personnel Management (OPM). Correlating data from human sources and from technical collection (like OPM) give better insight and accuracy, something the United States has been doing for a decade. Now the Chinese are doing it as well, and no Chinese company is in a position to refuse to share.

The privacy debate in the United States has always been odd. It focuses on the threat of surveillance by the U.S. government, while blithely ignoring mass collection of personal data by companies. Those masses of data are an attractive target for foreign intelligence agencies. They can simply buy access, or they can acquire the data illicitly. The massive Yahoo breach, for example, with a billion user accounts compromised, was undertaken by Russia’s Federal Security Service (using a cyber criminal as a proxy). Access to Americans’ personal data is becoming as sensitive as access to military secrets or technology. The old laissez-faire approach to data collection and data sharing needs reform as more countries, led by the European Union, question these practices. Most American are fine with giving Facebook their data in exchange for its services, but that does not mean the U.S. government should be fine with Facebook then giving that data to China.

China is not afraid to be coercive. It might prefer to use “soft power,” but that is difficult for a Leninist state. Where China excels is in using access to China’s vast market for coercive effect. China uses the threats to market access to extract advanced technology and concessions from U.S. companies. Legislation before Congress to reform the Committee on Foreign Investment in the United States (CFIUS) process is an effort to solve this problem, but the practice is deeply ingrained in Chinese behavior, and Beijing believes that companies in the United States have no choice but to comply.

U.S. companies know they could be punished if they do not cooperate—they fear being strangled in the Chinese market. Some companies have gone out of their way to curry favor in Beijing in ways they would never do in Washington. Similarly, no Chinese company would refuse to provide data to law enforcement or announce that it will no longer work on military projects because its employees are unhappy; if it did, its chief executive, looking a bit frightened, would quickly apologize for the antisocial behavior. In this environment, the business practices used everywhere else in the world create risk in China, given its unfair industrial practices and hostile foreign policies.

In the competition with China, we should bear in mind is that the United States has spent the last 25 years trying to shrink the federal government, bemused by the Ayn Rand-esque notion that markets and entrepreneurs would fix all problems. It has spent the last 15 years wasting more than a trillion dollars to bring democracy and social equality to Iraq and Afghanistan. Now we face a smart opponent who isn’t afraid to use government as a tool to advance its interests and has spent tens of billions of dollars to improve science, education, industry, and infrastructure. Our inability to use the tools of government effectively gives China an advantage.

China is not invincible. Many Chinese are apprehensive about the tightening social controls and the Mao-like enshrinement of Xi as leader. The long-term prospects for Communist Party rule are uncertain, but the United States cannot continue to do business the old way, based on flawed assumptions about the direction China will take. We cannot unpick the close economic connections (nor is it in either country’s interest to do so), but both existing and new business activities require increased scrutiny for risks to national security. In the future, perhaps, we will be able return to using normal business practices in China. But right now, China is an antagonist, and our practices must change to reflect that.

James Andrew Lewis is a senior vice president at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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James Andrew Lewis
Senior Vice President; Pritzker Chair; and Director, Strategic Technologies Program