For the past year, the US and China have been engaged in a wide-ranging trade war. Nominally, the dispute concerns intellectual property violations, forced technology transfers and other unfair practices. In reality, though, this clash is a symptom of a much larger strategic showdown -- one in which Chinese President Xi Jinping seeks “decisive victory.”

Aided by technology, China is embarking on a new kind of geopolitical strategy. As the Chinese Academy of Sciences explained, the goal is to build a “ubiquitous and universally used information network system.”

In doing so, China hopes to bolster its national champions, increase the world’s reliance on Chinese technology and erode US strategic advantages. It also wants to gain control over global data and information exchanges, thereby claiming leverage to advance its interests. America and its allies must recognize this threat and prepare to respond forcefully.

China’s government has long controlled its commercial sector. State-owned companies dominate many industries, while even ostensibly private firms are required to put the government’s interests first. Favored businesses receive state support in a domestic sandbox. Beijing deploys protectionist policies in areas of the economy thought to be strategically valuable.

Increasingly, that means technology. For instance, the oft-cited “Made in China 2025” initiative stresses the need to foster Chinese companies in high-tech fields such as robotics, aerospace and information technology in the hopes of competing with Western tech giants. The subsidies and protectionist measures that support the plan are a major point of contention with the US.

But China’s true ambitions are larger. In the longer term, it seeks an all-encompassing advantage in what it perceives to be a zero-sum race for technological dominance.

Its strategy to achieve this goal is twofold.

First, China is importing ideas and innovation from overseas. Sometimes that means overtly siphoning technology and trade secrets. Sometimes it’s more subtle. For instance, China’s state champions have built corporate research and development hubs in Silicon Valley, hoping to harvest breakthroughs in fields such as self-driving cars, cloud computing and deep learning. The stream of low-cost knowledge that those hubs acquire has been essential to building up China’s domestic tech industry.

Second, China is using the technologies it exports to collect data from abroad. Alipay, Alibaba’s mobile-payments business, is swooping up vast amounts of transaction data as it expands globally. Mobike and Ofo want to dominate data-rich bike-share markets overseas.

Chinese surveillance systems are ubiquitous in Africa, while businesses and hobbyists around the world fly DJI drones -- even though they may be sending sensitive information back home. Soon, your phone might connect to a Chinese 5G network, while your mapping or fitness apps might be sending their data to Beijing.

Collecting data, though, is just the start. China wants to lace all these systems together in what Xi calls the “network great power strategy.” The idea is to make Chinese technology a foundation for the global flow of information and transactions -- and thus to expand the Chinese Communist Party’s leverage, influence and power worldwide.

As the Academy of Sciences put it, China hopes to use this network first to conduct “social experimentation and analysis,” then to “predict, develop, and control real events.” Consider it a global operating system with geopolitical ambitions.

Other countries are aware that they need to counter this potential threat. Several are considering bans on Chinese tech companies such as Huawei and ZTE. Last year, the US blocked Ant Financial from merging with MoneyGram, a tie-up that would’ve given it a foothold in the data-rich US payments market.

But there’s an asymmetry at work: Where China’s approach is deliberate and strategic, the West’s response has been disjointed and reactive. The US and its allies need a more comprehensive response.

For starters, they should develop new investment-screening protocols to protect critical fields. These should be established on the same principles as other export-control mechanisms, such as the Wassenaar Arrangement, but with a mandate broad enough to match China’s ambitions.

For example, they could examine limited-partner stakes in US-based funds as well as direct investments in operating companies. Free trade agreements could institutionalize such a system by incorporating common definitions for covered transactions and rewarding allies and partners that resist China’s attempts at coercion. A provision in President Donald Trump’s renegotiated NAFTA deal -- discouraging participants from signing agreements with “non-market” economies -- offers a good template.

China can claim inherent advantages in this competition, namely scope and scale. And coordination among US allies and partners -- with a range of interests and vulnerabilities -- will not be easy. But cooperating to constrain China’s ambitions, and to protect free competition and open networks, has never been more essential.


Emily de La Bruyere and Nathan Picarsic
Emily de La Bruyere is the director of China research at Long Term Strategy Group. Nathan Picarsic is chief operating officer of Long Term Strategy Group. -- Ed.

(Bloomberg)