How Big Tech Can Work With China But Protect U.S. Security

(Bloomberg Opinion) -- Virtually every major U.S. tech company is doing business in China, collaborating with Chinese researchers or considering doing so. Now, several are also pushing back against proposals to limit the export of critical technologies to the People’s Republic. They ought to rethink, not just for the sake of U.S. national security but also for their bottom lines.

As the U.S. and China enter a period of greater strategic competition, the latter has adopted a robust strategy to overtake America in a number of key technology areas, from artificial intelligence to robotics. This strategy calls for investing in indigenous innovation as well as getting hold of foreign companies’ intellectual property through various means, including cyber-theft, discreet investments in Western technology firms and forcing U.S. firms doing business in China to transfer their IP to local partners.

Moreover, under China’s doctrine of “civil-military fusion,” any technologies held by the private or academic sectors -- whether imported or developed in-house -- must be shared with the Chinese military. Anything with possible military as well as civilian applications is thus virtually guaranteed to end up in the hands of the People’s Liberation Army. Such products could range from biotechnologies that can target individuals based on genetic differences, to AI applications such as computer vision or natural-language processing.

U.S. tech companies are concerned that overly broad and restrictive export controls could both hurt their sales to China and cut off avenues of collaboration that can fuel greater innovation. Those are certainly valid worries that the U.S. government should take into account as it draws up new rules.

At the same time, U.S. firms that disregard the risk of allowing key emerging technologies to leak to the PLA will create other problems for themselves. In particular, they risk ceding a crucial market for their products: the U.S. government. The Pentagon and the U.S. intelligence community are determined to procure technologies that provide an edge over the capabilities of regional competitors such as China and Russia. If a U.S. agency learns that a particularly sensitive technology has already been sold in the Chinese commercial market, and therefore has likely come into the possession of the Chinese military, it isn’t likely to view the supplier as a trusted partner. Contracts will flow to their competitors. 

American companies, however global their scope, also have a vested interest in bolstering their nation’s technological edge, which is critical to preserving U.S. influence in shaping global economic rules and norms. If China bests the U.S. in this strategic competition, Beijing will set the rules for 21st-century commerce. The damage, judging from China’s economic practices over the last two decades, could be great, possibly catastrophic. China would likely seek to exclude non-Chinese companies from markets in which it exercises dominance. Beijing might set standards that deny U.S. technologies interoperability. It would certainly give preference in the vast Chinese market to Chinese enterprises and be free to steal intellectual property with abandon.

Securing the future economic position of the U.S. shouldn’t require U.S. companies to choose between doing business in China and working with the U.S. national security community. Companies can preserve access to both markets by taking a more deliberate, nuanced approach to their internal processes and external communications.

For instance, U.S. companies should be proactive about erecting guardrails on their China business. They should take stock of their offerings, evaluating the potential military applications of key technologies and determining which should not be sold in China and other sensitive markets.

Second, U.S. companies that operate in both markets should develop internal coordination mechanisms between their China and U.S. teams to ensure senior executives have visibility on potentially sensitive sales and to minimize the risk of working at cross-purposes. And finally, U.S. companies should communicate with their customers and other stakeholders in the national-security community to fully understand the U.S. government’s concerns. That would also give them a chance to share details of how they’re managing the risks associated with exporting to China.

For its part, the Pentagon and other elements of the national-security community should limit their expectations of which technologies U.S. firms will abstain from selling to China, focusing on those that in PLA hands would pose a significant threat to U.S. national security. Officials also need to more regularly communicate their evolving list of priority concerns to technology companies.

None of this requires breaking off ties between the U.S. and Chinese commercial sectors. A technological cold war would indeed undermine the ability of U.S. companies to innovate. At the same time, U.S. companies need to strengthen their dialogue with the U.S. national security community. Each side must understand the core challenges the other faces if the U.S. is to continue out-innovating and out-competing the rest of the world.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Michele A. Flournoy is co-founder and managing partner of WestExec Advisors, a strategic advisory firm. She served as undersecretary of defense for policy from 2009 to 2012.

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