Is China developing a culture of espionage?
Question… When you think of China what comes to mind? A trade war, the aggressive expansion of population and city, the flexing of military force, or something else? For me, when I think of China several things come to mind. Each of which I believe fit together as part of a larger economic strategy.
In this point-of-view, I will share a perspective on the Chinese economy and several key trends that I believe will help guide future economic growth, for better or worse. These trends being; first, protectionism for control, second, corporate espionage for accelerated growth, and third, the engagement and monitoring of the population to achieve a desired behavior. This perspective is based on publicly available information that is accessibly by you and your fellow readers, and is combined with the individual business lens in which I view the global economy. In other words, think of this as an interesting conversation. My intention is not to paint China as the enemy of US born corporations, or intellectual property, but to share a potential strategic vein of thought that may be a current and future approach to the growth of China’s economy.
The Chinese Economy
China is a well-known socialist economy, meaning a great deal of power and market ownership is in the hands of the government. Over the past few decades their economy and approach to managing markets has been going through a transformation and adopting a more capitalist approach to the market. Richard Herd and Sean Dougherty state in China’s economy: A remarkable transformation; OECD Observer No 251, September 2005 Observer.org;
“The momentum towards a freer economy has continued this decade with membership of the World Trade Organization leading to the reform of a large number of China’s laws and regulations and the prospect of further tariff reductions. In 2005, regulations that prevented privately-owned companies from entering a number of sectors of the economy, such as infrastructure, public utilities and financial services were abolished. Overall, these changes have permitted the emergence of a powerful private sector in the economy.”
I presume this transformation is largely driven by advancements in technology, a more connected and social global economy, and a goal to achieve market dominance in the global economy — an ambition that is benefited by the innovation and speed of a capitalist market.
This evolution has resulted in a unique approach to markets, one that seems to work towards balance across government ownership, protectionism from non-Chinese corporations, a capitalist market, and an engaged and monitored population of consumers. I will introduce three interwoven trends that support this evolution.
1. Protectionism for control:
China limits access to key markets for products and services to state owned or Chinese grown companies, therefore by proximity, having the ability to exert more power and control over those organization. For example, a state run Telecom Company vs. a company such as Verizon or AT&T.
“… Because learning-by-doing is an irrefutable phenomenon, it is often used to justify the use of import restrictions to induce the establishment of a targeted new industry. Such examples abound in China: China’s ban on Google created Baidu, its ban on Twitter created Weibo, its ban on WhatsApp created WeChat, its ban on PayPal created Taobao and its ban on eBay created Alibaba.” (p649. China’s 40 years of reform and development: 1978–2018; Garnaut, Ross (Ed.); Song, Ligang (Ed.); Fang, Cai (Ed.) https://www.econstor.eu/bitstream/10419/193977/1/978-1-76046-225-3.pdf)
By China limiting access of outside competition, it creates somewhat of an insulated economy that is able to refuel itself and continue a snowballing effect of growth. How does China drive such growth and across industry? Are ethical business practices a priority within a country focused so much on market dominance? There has been much news over the past five years regarding potential cyber attaches on corporations originating out of China? How would China benefit from corporate espionage?
2. Corporate espionage for accelerated growth:
In the excerpt above, Garnaut Et al highlight the value in learning by doing. This approach to growth is extremely relatable and a concept that each of us have likely experienced at one time in our lives. Whether this was playing a sport, or starting a company, there is tremendous value of building the skill set with your own hands. When starting a new venture or developing a new skill, it’s beneficial to start at a point greater than ground zero. In a sport, this may include having a coach. In business, this may be building upon an existing technology or set of information that was recently in market. The acquisition of this existing technology and sets of information have been the topic of much frustration and concern over the past five years. It seems with each passing month another major corporation is being hacked by an ill-intentioned group or foreign government, many times having presumed to be China. If China is successfully obtaining trade secrets from cyber-attacks, or human asset recruiting, this will likely accelerate their ability to bring new products and services to market through close collaboration with Chinese born corporations or state run entities. The question is, how will this impact other nation’s willingness to work with China in the future? Also, how will this impact the perception and behavior of its population?
3. Engagement and monitoring of the population to achieve a desired behavior:
In an apparent effort to obtain trade secrets, commercial and national defense, China has appeared to engage its domestic and traveling population through two unique approaches that encourage a beneficial desired behavior. The first approach has been establishing a system to obtain, what I will refer to as Superficial Intelligence, information that may be valuable but is less intrusive to acquire, e.g. photos vs. cyber intrusion. This is apparently executed by encouraging Chinese nationals to take pictures of many aspects of industry, infrastructure, and security while aboard for education or holiday. See “Chinese Student Sentenced to 1 Year for Taking Photos of Key West Naval Base” https://www.military.com/daily-news/2019/02/06/chinese-student-sentenced-1-year-taking-photos-key-west-naval-base.html The second approach, the development and execution of a Social Trust Score as a way to incentivize or more passively mandate a desired behavior (https://www.wired.com/story/china-social-credit-score-system/). This may include something as structured as paying bills on time, or something more abstract as simply being a helpful neighbor. I am curious if there exists a component of this score that rewards the desired behavior of collection of superficial intelligence while abroad. Is it an unspoken rule or reward system?
I will admit, I do like the idea of a social trust score and there exists a great opportunity to develop a program that rewards and encouraged the general population to act in the best interest of those around them. My concern is if it were managed by a state, would they use this system to pressure or reward a kind of behavior that may not seem controversial on the surface, but at its core is an offense. Global trends in nationalism make me fear that the collection of superficial intelligence will continue to grow and result in distrust among international travelers.
Not too long ago I was on a shuttle vehicle at Dulles Airport traveling between gates. If you’ve flown through Dulles Airport, then you may be aware of these large shuttle vehicles that look to be from a Star Wars film with elevating hydraulics, huge tires, and with a mouth for entry and exit at either end of the vehicle. A foreign national next to me seemed quietly intrigued by the mechanisms and hooking apparatus that connected the opening doors to the shuttle to the exterior of the airport terminal. She stood there quietly a recorded the ride and connection process of the shuttle vehicle. I thought, was this woman an engineer? Does she simply find this technology very impressive? Or, is she collecting intelligence to help accelerate capabilities for another country?
These thoughts circled in my mind as I disembarked the shuttle. Will a country’s engagement of their population to gather and return superficial intelligence put their international standing at risk? Will their nationals lose all trust while traveling abroad? What will a country sacrifice on behalf of their international brand and perception in their quest to advance industry? I believe the next twenty years will provide an interesting and concerning opportunity around the advancement and expansion of artificial intelligence and the concept of privacy.
What do you think? What do you see as the pros and cons of a social trust score?
