China, export controls, investment, Michael McCaul, monitoring and enforcement, national security, Our So-Called Foreign Policy, Politico, tech, The Wall Street Journal
A key Republican in Congress recently said that the Biden administration is seriously considering a major and long overdue escalation of its efforts to hamstring a Chinese drive to achieve global technology dominance that gravely threatens U.S. national security. And a recent Wall Street Journal investigation has shown exactly why it’s so overdue.
Last week, Michael McCaul, Chair of the House Foreign Affairs Committee, told Politico that (in reporter Gavin Bade’s words) “The White House is considering new action to block U.S. business with entire swaths of the Chinese tech economy — an investment blockade stricter than previously reported.
As McCaul himself put it, based on conversations he says he’s had with U.S. officials, the administration “is talking about a theory where they would stop capital flows into sectors of the economy like AI [artificial intelligence], quantum, cyber, 5G, and, of course, advanced semiconductors — all those things….They actually want to say, right, you can’t invest in any [Chinese] company that does AI. You can’t invest in any company does cyber” or other similar sectors.”
As I’ve repeatedly suggested, such broad brush measures are vital for two main and closely related reasons. First, there are no Chinese entities (even those laughably classified as “private sector”) in any industry, including tech, that aren’t ultimately under the control of the Chinese government.
So it’s been utterly and dangerously foolhardy to believe – as U.S. administrations long have – that not just capital but knowhow and high tech products that Washington permits to be sent to specific Chinese entities aren’t likely to be made available to or used to benefit any other organization in China. And that includes the government and of course the military.
It’s true that Washington’s national security export control system isn’t totally unaware that such leakage may occur. Therefore, for instance, tech and product transfer requests with clear national security implications are typically approved only for customers that supposedly can be trusted to comply. Efforts to verify their trustworthiness are made as well.
But here we come to the second main reason that much more sweeping bans on doing tech business with China are needed: enforcement is excrutiatingly difficult at best. After all, the Chinese tech sector is enormous, which means that the financial and human resources needed for adequate monitoring would be equally enormous. Even worse, the highly secretive Chinese system boasts an impressive arsenal of tactics aimed evading the controls, and the aforementioned Wall Street Journal article indicates how spectacularly they can succeed.
A Journal investigation has found that “China’s top nuclear-weapons research institute has bought sophisticated U.S. computer chips at least a dozen times in the past two and a half years, circumventing decades-old American export restrictions meant to curb such sales.”
Indeed, because of its nuclear weapons-related work, this institute was one of the first such organizations put on U.S. export control blacklists – and that was back in 1997. So it’s clearly long been the subject of great ostensible American concern. Moreover, in 2020, in order to shrink the opportunities for cheating by the lab, the Trump administration added “10 entities owned or operated by the academy as well as 17 aliases it uses to the entity list for procuring U.S.-origin items in support of Chinese nuclear-weapon activities.”
How, then, did it manage to obtain these semiconductors? Because in a system like China’s, which is not only highly secretive but totally lacking in independent regulatory systems and even apolitical rule of law, nothing is easier than concocting endless numbers of “aliases” and shell companies and fake arrangements of all kinds. Good luck to any American inspectors trying to keep up. Which is why total U.S. bans on investing in entire Chinese tech sectors would be so welcome.
At the same time, why stop at investment? Similar bans on broad classes of products and tech licensing deals are essential, too – and for exactly the same reasons. China operates nothing less than a vast, government wide mechanism for obtaining advanced tech capabilities from abroad by hook or by crook. Concentrating U.S. countermeasures on specific institutes or entities that can quickly change their identities is simply a fool’s quest. With the widest possible bans, Washington could reap the gains of an approach that’s the secret of success in much of life both inside and outside policymaking: keeping it simple.