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The following paper was written as a writing assingment for the seminar "United States of Google" at KIT, about both the intellectual bedrock and growing global influence of the tech sector. The seminar focused on Silicon Valley, but also touched upon the EU and indeed China at points. I very much enjoyed both the discussions in the seminar and the research and writing for this paper, so I figured I'd publish it on my blog as well, maybe somebody finds it interesting. Also, I've linked some of the more interesting freely available online sources, these make good further reading if this subject matter interests you. 1 Introduction China’s technology sector has rapidly expanded and grown in recent years, both domestically and across the world. As this growth and indeed every action these companies take are inextricably linked to the Chinese regime and system of government, it is important for Western observers to understand their inner workings to be able to respond to these developments. Unfortunately the actions of both the Chinese government and companies operating under its rule are commonly either misunderstood or not given much thought at all, which leads to both missed opportunities and potentially overlooked risks. In this paper, I intend to summarise the history of how China’s tech sector came to be in the form it exists today, the way it is interlinked with the Communist Party, comment on two major projects currently being advanced by the Party and their potential consequences, and draw my own conclusions on how the rest of the world should respond. 2 History To understand China’s tech sector today, and its possible future direction, it is helpful to look to its past first. The three companies dominating it today, commonly referred to as BAT as the equivalent to the US’s GAFA/GAFAM/FAANG, were all founded relatively recently and close together, around the turn of the millennium. Due to China’s digital isolationism, they were able to capture basically the entire domestic Chinese market for themselves, as the party is quite willing to tolerate monopolistic tendencies domestically if it believes that will improve the competitiveness of Chinese companies, and by extension the Chinese state, internationally. Additionally, their late entry allowed them to (to put it charitably) learn a lot from other companies that had come before them, and also jump over a lot of "intermediate technologies", for example mobile devices have displaced desktops in China far more than most Western countries, and similarly mobile payment is far more ubiquitous than elsewhere. In part, the sector’s growth was fed by direct political support, as the Party has in recent decades extensively pushed ahead the integration of information technology into every aspect of life, and structured a lot of its broader political goals around that, and in another part by transnational capital, which the Party is surprisingly tolerant of, and which has sought to capitalise on this potential new market [17]. 2.1 Companies under the Chinese regime The relationship between the Chinese Communist Party and system of government and companies existing under it is often misunderstood by casual observers. One might assume that being an authoritarian regime, companies commonly get direct orders from the government about current international policy and internal rules; however such requests are in fact relatively rare. While police can and do use their extensive powers to access user data, and there is of course an administrative authority in charge of what content precisely gets censored or allowed, at a larger level the Party’s control over private companies is far more implicit by expectation than explicitly executed by traditional government powers. Party leaders need not send companies specific directions on things like political positions to take, countries to avoid, or foreign companies to do business with, as businesses are expected to and commonly will act in concert with the state of their own accord. Repressive measures are of course possible, and if corporations or individuals fail to play along, public examples are occasionally made (one need only think of the immediate and swift retribution against Jack Ma and his Ant Group, see 3.2.1 but usually they are not necessary. This sort of implicit cooperation is required of any company who wishes to exist in the Chinese market, enforced on foreign companies by requiring them to form a joint venture majority owned by a Chinese company and enforced on local companies directly against both the company and its officers. On the positive side for both the regime and the companies, it allows them to act basically as one especially where foreign policy is concerned, as whenever Party leaders make public political declarations they can expect their entire economy to immediately follow along, and in return Chinese companies can receive a surprising amount of freedom from regulation and backing by the government against international competitors. As touched upon earlier, the Party tolerates a fairly strong oligopoly of just three companies taking over vast swathes of the tech sector, as well as industrial espionage, and in more physical sectors like mining and manufacturing environmental damage and bad work conditions are similarly considered acceptable in the name of strengthening China’s economic position. 3 Present Today, three companies dominate the Chinese tech sector. I will superficially go into the activities of each, however I recommend the interested reader look at the references for further details, as each of these three companies is functionally a conglomerate active in a huge number of sectors. 3.1 Baidu Baidu, founded in 2000, is a fairly close equivalent to Alphabet née Google. Its core product is the eponymous search engine, which has a market share of over 80%, but like Google they expanded into adjacent sectors. Today they have expanded into news, maps, translation, online advertising, and cloud storage [2]. Additionally, Baidu has a relatively large AI research division, running the platform Baidu Brain to offer those capabilities to outside developers. As the registrant on over 9,000 AI-related patent applications, Baidu is the largest driver of AI research and development in the entirety of China [3]. 3.2 Alibaba Alibaba primarily deals in e-commerce, operating the largest B2B, C2C, and B2C marketplaces in the world with Alibaba.com, Taobao, and Tmall respectively. Like their mirror in the US, Amazon, Alibaba has also dealt in cloud computing since 2009, being China’s largest provider of public cloud services [1]. 3.2.1 Ant Financial Ant Financial, now known as Ant Group, is a spin-off of Alibaba handling its payment services business, primarily Alipay, one half of the duopoly in the Chinese mobile payment market. It was expected to make a record-setting IPO in 2021, when it unexpectedly got pulled at the last second over supposed regulatory concerns. This happened shortly after Jack Ma, the founder of the Alibaba group and currently the richest man in China, publicly made some criticisms of Chinese financial regulators, in an obvious act of retaliation that is rumoured to have been ordered by Chairman Xi Jinping personally. Afterwards, Ma was not seen for months, and has only made two appearances in total since [12]. This particular event mirrors a larger trend that has intensified under Xi’s tenure, that while allowing businesses a lot of freedom in how they conduct themselves also demands absolute loyalty to the Party, with occasional examples that no one, not even the richest man in the country, is above the Party’s control. 3.3 Tencent Tencent is one of very few modern-day companies that can accurately be described as a tech conglomerate. Its divisions cover vast and disparate parts of the tech sector, and the companies it owns outright or has a stake in span the globe. As an example, its computer games division owns, among others, all of Riot Games and a minority stake in Epic Games, and the revenue of that division alone substantially exceeds that of US competitor Valve (who runs the Steam platform) [10]. Similar comparisons apply to its payment services division, which runs WeChat Pay and through it holds the second largest share in the Chinese mobile payments market. [21] Additionally, its core messenger product, WeChat not only forms a huge part of social media use in China, it serves multiple important functions beyond that: Firstly, it serves as a "super-app", providing its own internal app store and effectively acting as a gatekeeper to the Chinese mobile app market. This allows apps to bypass the rules and scrutiny of Google and Apple’s stores, a fact which both of those companies turn a blind eye to, and lets WeChat functionally act as the main means by which China’s users access services on their phone. The average user spends over 4 hours a day in WeChat, easily beating the equivalent figure for all social media apps combined in the US. [7] Secondly, as Chinese citizens abroad commonly rely on WeChat both to keep in touch with relatives and read news from their home country, it provides a useful way for the party to both keep their citizens abroad exposed to their propaganda and keep them from assimilating into the foreign country’s culture too much, as well as ensure they remain accessible to government surveillance even when largely out of direct reach. [23] 4 Future projects In the following section, I will attempt to provide a brief but hopefully still quite informative glance at two of the most high-profile current Party projects, how they’ve been portrayed by (largely US-centric) western media outlets, and try to provide a more accurate image of those projects and their true impact. 4.1 Social Credit The social credit system is perhaps western media’s favourite shorthand for technology being used by a dystopian surveillance state. However, the portrayal of this system, or rather, these systems, as it exists in the media today is often at the very least ill-informed if not actively misleading. Generally, it is shown as an all-encompassing system, assigning each citizen a numeric score (somewhat similar to a credit rating or SCHUFA score), considering everything from helping elderly people cross the road to making politically unacceptable statements on social media. Every move, the story goes, is evaluated and recorded, every second of a Chinese citizen’s life recorded and evaluated using sophisticated surveillance technology and algorithms. However, this is very much in contrast with the actual reality today. Originally conceived in 2014 as an extension of a data system planned and used since 1999 for purely economic data [11], it did not even mention an actual score value, and most systems under the "social credit" umbrella do not in fact use numeric score values. Additionally, there is a huge amount of fragmentation between systems - most of the systems that exist today are not at the level of the central government, but either pilot projects run by individual cities or regions, or run by private companies. Many of these systems are also (as of 2021) voluntary and do not carry the kind of global consequences imagined by typical portrayals. [26] Beyond that, a lot of the national system is not used as a punishment or regulatory measure in its own right, but as additional punishment for acts that are already being prosecuted, like tax evasion, theft, or riding public transit without a ticket. [9]. Some observers have also pointed out that there is a substantial cultural difference in what is expected of the state, and this may be part of why Chinese citizens do not find the idea of moral expectations (like helping the elderly and not making public statements causing political dissent) being enforced by the state to be as offensive. This combined with the fact that there is genuinely a substantial problem with both various kinds of fraud and specifically tax evasion in current day China is important context in understanding both the political motivation of these systems and the reaction to them. [18] At the same time, we must be aware that by focusing on China as a supposed "worst case" example of technological surveillance, we risk missing concerning developments in our own region, like plain old credit rating agencies (e.g. SCHUFA) growing increasingly data hungry (for example, considering residence address as a predictor for trustworthiness), and governments (like Denmark and the Netherlands) using algorithms for decisions in concerning ways, in everything from policing to social services. 4.2 Digital Yuan The digital yuan, also referred to as the digital renminbi or e-CNY, officially Digital Currency Electronic Payment, is one of the more interesting initiatives by the Party in recent years. It is a central bank digital currency, that is to say, it is not a cryptocurrency and largely retains the properties of conventional central bank currencies (full control over money printing by a single institution, trust in central institutions managing the currency). In practical everyday use, the digital yuan is a payment app installed on mobile phones that functions as a wallet, allowing payment in stores using a QR code at no fee, and allowing users to send money to each other instantly. To a western observer (particularly in countries that are cash-heavy and have traditionally slow banking systems where wire transfers are associated with high fees and take multiple days like in the US), this may appear to be a revolutionary leap forward in being able to conveniently handle monetary transactions; however, to a Chinese citizen none of these features are particularly remarkable. Mobile payments using the privately run WeChat Pay and Alipay already make up the vast majority of payments, and they similarly allow for instant transfers between users and convenient payment using a QR code. They do impose a fee, commonly around 0.6%, on every merchant transaction, but even that seems laughably low compared to merchant fees commonly imposed on credit cards in other countries, which average between 2% and 4%. The core goal, then, isn’t to revolutionise how Chinese consumers pay for things, so much as to take control of a trend that has been putting massive amounts of data and control in the hands of private companies. The regime may well be able to exert pressure on these companies, subpoena data on its users, and even demand direct action against specific transactions, but none of that compares to the ability to have access to every transaction passing through the network in real time, apply whatever rules may be deemed necessary, and react based on a comprehensive knowledge of the entire economy [15]. Viewed in isolation from the Chinese government’s authoritarian nature, this is not even necessarily a bad thing - this kind of insight enables entirely new approaches to economic policy, as well as more direct, decisive action against fraud, tax evasion, and corruption, presuming the digital currency meaningfully displaces its physical equivalent. Indeed, this is part of the reason more democratic countries are very much interested in considering similar digital currency initiatives [6]. All these concerns and opportunities for domestic users aside, for obvious reasons most western observers have focused on the potential impact the digital yuan could have internationally, some going so far as suggesting this is a direct threat to the global dominance of the US dollar and the power the US wields by weaponising that same dominance [8]. However, as has been pointed out by others, the US dollar is not the global reserve currency for any reason related to its technical abilities, but the political and economic power of the United States, and making it digital does nothing to fundamentally alter the renminbi’s international position, particularly since it is still subject to strong capital controls and traded at a fixed exchange rate pegged to a currency basket [13]. Not technically part of the digital yuan initiative, but certainly closely related to it, is the Cross-Border Interbank Payment System (CIPS), which may well be far more relevant for future international relations. CIPS is China’s competitor to SWIFT, the payment network used near universally for transacting international bank transfers outside domestic networks like the US ACH network and Europe’s SEPA. SWIFT isn’t itself a financial institution, but it is a secure communications standard providing a standardised interface for banks to exchange messages about transactions which can then be settled periodically between said banks. CIPS uses the same formats as SWIFT, but all transactions are settled in RMB and the system is backed by the People’s Bank of China [19]. The obvious risk is that if China pressures its allies and particularly countries owing it large debts to transact their business through CIPS, it would dramatically diminish the US’s ability to globally enforce sanctions, which it can do currently because a large percentage of SWIFT transactions are in US dollars. Additionally, if China can establish a large global network of institutions utilising CIPS, it could also be used to circumvent those same US sanctions. As of June 2022, CIPS has 1341 participants [5]; the degree of international adoption since CIPS’s launch in 2015 is in fact said to have been a major factor in the renminbi’s addition to the IMF’s SDR currency equivalents. 5 Recent developments In recent years, starting with a crackdown beginning in 2020 but escalating to the degree of some of the most obvious changes happening during the writing of this paper, a lot of the behaviour of the Chinese Communist Party has been shifting rapidly. The action against Ant Financial was one of the first actions in an escalating series of regulatory crackdowns on the tech sector that would eventually wipe at least 1.5 trillion US dollars off the market capitalisation of China’s largest technology companies [24]. This crackdown has included both a complete change in policy on anti-monopoly action, with Alibaba being forced to pay a record-breaking $2.8 billion fine [25], and the introduction of new regulation on entire industries. This includes, but is not limited to, new rules on video games (addiction to which is considered a serious concern) [14], as well as a fairly strict data privacy law modelled on GDPR [4]. These changes, combined with the initiatives outlined in the prior section, show an increasingly clear trend of the Chinese government (and by extension, the Communist Party) shifting to once again more actively involve itself in the economy, as well as its citizens life as the country grows more authoritarian under the new chairman Xi Jinping. From an outside perspective this would surely be the most dramatic shift in policy since Deng Xiaoping opened the country’s markets up to the world in 1978. However, there is some potential for misunderstanding here - in some aspects China may have become almost terminally capitalist over the last decades, to the point that political positions were sold for cash [16], but out of hand though it might have gotten, capitalism and open markets were always meant to be an intermediate stage, to, as Deng Xiaoping put it, "let some people get rich first" [22] along the way to the ultimate goal of a communist nation. Since his rise to power, Xi Jinping has certainly rung in a new era in Chinese politics, but his actions could be considered to very much be in the same spirit and towards the same goal as those who came before him. [20] 6 Conclusion China, by its very nature of being an authoritarian country with an ultimately fairly direct ability of a small leadership being able to exert its will upon the economy, has a very different set of tools at its disposal to react to the risks and opportunities the rise of big technology companies is providing. As evidenced by the regulatory crackdown over the last two years, the Party is easily able to implement what in other countries might equate two decades worth of tech regulation nearly instantaneously, however the lack of direct accountability means not only can this power be abused for political means, there is also not much of a path for corrective feedback, as shown by the extreme regulation of video games that international experts are widely considering to be misguided. Regardless, there are lessons to be learned for other countries, not just as a warning how technology can be abused, but also in how some regulation can be used for more positive ends. References [1] Our Businesses - Alibaba Group (https://www.alibabagroup.com/en/about/businesses). [2] Product | Baidu Inc.(https://ir.baidu.com/product/). [3] Baidu leads China in artificial intelligence patents, is poised to bring about intelligent transformation (https://www.prnewswire.com/news-releases/baidu-leads-china-in-artificial-intelligence-patents-is-poised-to-bring-about-intelligent-transformation-301182591.html). Cision PR Newswire, 2020. [4] China’s new national privacy law: The PIPL (https://www.cooley.com/news/insight/2021/2021-11-30-china-new-national-privacy-law). Cooley LLP, 2021. [5] CIPS Participants Announcement No. 78 (https://www.cips.com.cn/en/participants/participants_announcement/58049/index.html). CIPS, 2022. [6] The digital euro and the importance of central bank money (https://www.ecb.europa.eu/ecb/educational/explainers/html/digital_euro_central_bank_money.en.html). European Central Bank, 2022. [7] The rise of super apps: a win-win or winner takes all phenomenon? Bitrise.io, 2022. [8] J. T. Areddy. China creates its own digital currency, a first for major economy. Wall Street Journal, 2021. [9] J. Brühl. China, Orwell und die Angst des Westens (https://www.sueddeutsche.de/digital/china-kredit-sesame-sozialkredit-ueberwachung-1.4442172). Süddeutsche Zeitung, 2019. [10] K. H. Chan. A closer look at Tencent, the world’s biggest game company (https://www.polygon.com/22949530/tencent-the-worlds-biggest-video-game-company). Polygon, 2022. [11] E. Cho. The Social Credit System: Not just another Chinese idiosyncrasy. Journal of Public and International Affairs, Princeton, 2020. [12] R. Davies and H. Davidson. The strange case of Alibaba’s Jack Ma and his three-month vanishing act. Guardian, 2021. [13] M. Hui. The same problems plaguing the yuan will plague China’s digital currency. Quartz, 2020. [14] J. Letzing. What’s behind China’s video game restrictions? (https://www.weforum.org/agenda/2021/09/what-s-behind-china-s-video-game-restrictions/). World Economic Forum, 2021. [15] D. Lilkov. China’s digital currency: Mao would be proud. Martens Centre, 2021. [16] L. Lim. From police chief to political office, jobs are for sale in China (https://www.npr.org/2013/03/15/174350779/from-police-chief-to-political-office-jobs-are-for-sale-in-china). NPR - All Things Considered, 2013. [17] H. Shen. China’s tech giants: Baidu, Alibaba, Tencent. Panorama – Insights into Asian and European Affairs, 2019. [18] B. Song. Opinion | The West may be wrong about China’s social credit system. Washington Post, 2018. [19] F. Tang. What is China’s Swift equivalent and could it help Beijing reduce reliance on the US dollar? South China Morning Post, 2022. [20] F. Tang. Xi Jinping looks to take China beyond Deng Xiaoping’s ‘get rich’ era with historic third term. South China Morning Post, 2022. [21] J. Toplin. WeChat Pay hits a hurdle. Business Insider, 2017. [22] T. Walker. ‘to get rich is glorious’: how Deng Xiaoping set China on a path to rule the world (https://theconversation.com/to-get-rich-is-glorious-how-deng-xiaoping-set-china-on-a-path-to-rule-the-world-156836). The Conversation, 2013. [23] Y. Wang. WeChat is a trap for China’s diaspora (https://www.hrw.org/news/2020/08/14/wechat-trap-chinas-diaspora). Human Rights Watch, 2020. [24] J. Yu. China’s new crackdown shows $1.5 trillion tech rout not over yet (https://finance.yahoo.com/news/china-crackdown-shows-1-5-000000766.html). Bloomberg, 2022. [25] R. Zhong. China fines Alibaba $2.8 billion in landmark antitrust case. New York Times, 2021. [26] V. Zhou. People don’t understand China’s social credit, and these memes are proof. VICE, 2021.
23.10.2022 00:00United States of Google - China's Way to Digital TotalitarianismI've been meaning to actually use the “blog” section of this site, and I guess now is as good a time as ever. 2022 by most accounts would seem to be at least a decade too late to start a blog but bear with me for a bit here. Over the past few months, for various reasons, I’ve started thinking more about the fundamental assumptions we make when discussing social media. In retrospect it is suddenly very noticeable which things we consider open for debate and improvement, and which we consider the bedrock of the entire thing and don't even view as claims to interrogate, just as almost self-evident truths. In more technologically and/or politically active circles, we constantly discuss what we'd want to change about the way social media companies as they exist today operate, often by means of regulation, but we rarely question why we're tolerating their monopoly as a whole and the fact that the internet for most people now just consists of a handful of walled gardens. To be blunt, we bemoan Twitter being bought out by a person we (probably justifiably) ascribe bad intentions to, but we don't stop to question why so much online activism and politics and public discourse happen on a single site that can be bought. One of the major reasons that initially got me more interested in the entire subject matter was that after the first discussions around Elon Musk buying a stake in Twitter, I dusted off my Mastodon instance. I’d had it since 2018, but was never all that active on it, and I figured going over and seeing how much of my extended online bubble was there was a way to hedge my bets a bit. What I experienced over there surprised me in two ways: firstly, it was a profoundly different culture, a lot of it reminding me of the “nicer” times on social media around a decade ago, before it got quite as violently polarised as it is now (though some of that may be rose tinted memories), and secondly, it was active way beyond what I had expected. For all I’d experimented before, in 2018 the fediverse seemed to me like a rather empty space except for a few geeks who also didn’t use their accounts all that much. It reinforced my belief at the time that for all we’d wish there were alternatives, the network effects are just too strong, and they’d always be but a digital ghost town. Now I was looking around and the place was definitely alive, and not just with people who’d also ran from Twitter, but people who’d been active, quietly building this place for themselves for years, a living, breathing example that maybe there are alternatives, and the big monoliths aren’t quite as unavoidable as I’d thought. The other thing that motivated me to question dominant narratives around tech companies is the current meltdown around cryptocurrencies and blockchain technology (which is its own can of worms, but others have made any point I possibly could far better than I can). Within that realm, a popular phrase which sort of gets thrown around is “code is law”, which of course implies that the code they’ve written in some way pre-empts the existing social constructs by which we govern ourselves, because code can do it more efficiently, more fairly, more transparently, or is in some other way superior, and because of its unchangeable nature it provides a convenient way to avoid human liability or consequences because “the code did it”, and anyway, there’s no possible remedy to whatever harm was supposedly caused because the code cannot be altered. Starting from that stance, I then started to spot that exact argument pattern all the time in dominant narratives surrounding Silicon Valley, to the point where “disruption” and “innovation” commonly get equated to natural law. The only way is forward, somebody somewhere would have made the same “innovation”, and that is then used to absolve the person or company who did from any consequences that technology causes in the real world. What I found striking is how often we just take tech companies at their word when they use arguments like this, and then have all subsequent discussion of the merits of their products and the potential negative consequences of it on that premise. Additionally, those same narratives about “disruption” are then used to synthesise the belief that this new thing is so fundamentally new and different that existing logic and reasoning do not apply to it, even when it is outwardly not substantially different from existing things except for the addition of “algorithms” in a largely techno-fetishist capacity with no clear explanation why they add anything even close to the value that is then ascribed to the company. Two major examples of this in recent years are the “disruption” of the taxi industry by Uber and Lyft, and the current troubles of WeWork. Another, less obvious example that even more critical observers regularly fall prey to is what Cory Doctorow described as ”criti-hype” - that the way concern about algorithms manipulating politics is commonly discussed gives way more credit to those algorithms than they really deserve. From the way they get discussed, you’d assume Facebook and Google’s targeted advertising are continuously offering the fate of countries up to the highest bidder, and voters at large have long since lost any agency in actually making their choices and are in fact all victims of successful digital mind control, when in fact, there is very little evidence these techniques are nearly as effective as they are portrayed to be. In this way, even criticism is made on the premise that their product actually works, implicitly advertising to the world that there’s reason to be afraid and if you wish to manipulate a large group of people, giving money to Facebook or Google is in fact a viable means of doing so. Noticing these things has sort of reshaped the way I view online meta discourse a fair bit, and I feel it’s certainly something we need to be aware of if we wish to actually have constructive discussions on related policy. If we let corporations shape the very language we use to discuss them, it gives them an immense amount of power over our public discourse, and at the end of the day means even if we attempt to criticise them, we’re still ultimately doing that in the way they want us to – this is almost reminiscent of state propaganda to a degree, and I find it deeply concerning. I don’t really have a neat conclusion or all of the answers here, I just felt the need to attempt to somewhat coherently write out my thoughts of the last few weeks. I’m still very much new to the format, too, so I’d love to hear feedback of any kind, both on the structure and the contents – this is a static site with no comments section, but feel free to write me an e-mail, hit me up on Matrix, or find me on the fediverse :P
9.5.2022 00:00Ex nihilo⬆️
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