Posts tagged: Hillary Clinton

But if not the Chinese Media Reciprocity Act, Then What?

By , July 18, 2012

Part 3 of a three part series on the Chinese Media Reciprocity Act & foreign journalists in China
(Click here for Part 1; click here for Part 2)

There is a chance that passage of the Chinese Media Reciprocity Act could result in China granting visas to U.S. government journalist, but that possibility is slim.  The effects of passage of the Act mentioned in Part 1 – the eradication of the Chinese press in the U.S., an all out visa war, and greater suppression of freedom of the press – are much more likely and not positive.  But the U.S. does not have to sit back and just watch the Chinese government harass and censor their journalists.  Below are some less extreme alternatives that the U.S. government can conduct to express its displeasure with the Chinese government and perhaps change the current situation.

Alternative #1: Raise the Issue When it Happens

The U.S government’s tepid response to Melissa Chan’s unlawful expulsion was a missed opportunity to underscore the U.S.’ commitment to freedom of the press to the Chinese government.  The Chinese Media Reciprocity Act is not necessary if the U.S. government publicly stresses that this is an important issue.  While some may argue that private diplomacy and comments work better with China, the current Administration has publicly censure China when its behavior bucks international human right standards.  As recently as last Tuesday, while on a trip to Mongolia, Secretary of State Hillary Clinton publicly criticized China for its lack of freedom for its own people.

Similarly, if freedom of the press means something, after Melissa Chan’s expulsion, the U.S. State Department should have issued an official statement from a high ranking official reprimanding China for unlawfully using the visa process to censor foreign journalist coverage.  Perhaps such a statement would have given Beijing pause and might cause it to change from its current course of conduct.  But a mere statement of “disappoint” permits Beijing to continue harassing foreign journalists and interfering with their coverage by threatening to deny visa renewals.  Rhetoric can make a difference or at the very least serve as a signaling device to Beijing that this is an important issue that the U.S. government is not going to take lightly.

Alternative #2: List the Harassment of U.S. Journalists on its Website

The Foreign Correspondent Club of China (“FCCC”) previously posted their members’ incidents reports and the yearly surveys on their website.  But since February 2011, the FCCC is no longer posting the reports or the surveys because of increasing pressure from the Chinese government.  As Peter Ford, president of the FCCC, told China Law & Policy, the FCCC removed mention of the incident reports because “the [Chinese] Foreign Ministry threatened the FCCC president and other officers with unspecified ‘serious consequences’ if the club continued to make public statements that the government regarded as political. To ensure the club’s continued existence we have since limited our public statements to particularly egregious violations of our journalistic rights and freedoms, such as physical injuries sustained by foreign reporters at police hands and Melissa Chan’s expulsion.”

Ambassador to China Gary Locke - can he help protect US journalists?

The public availability of the incident reports provided an important look into the treatment of foreign journalists in China, including their visa issues.  But with the Chinese government’s censorship of the FCCC, that important information is no longer available and it becomes difficult to know the current situation in Beijing.

But the U.S. Embassy in Beijing can serve this function by posting U.S. journalists’ incident reports.  At the very least, they can list the issues that U.S. journalists are having with the visa process serving two purposes: informing its citizens about the j-visa process and highlighting to the Chinese government that this is a serious matter that the Embassy plans to monitor.  The U.S. Embassy in Beijing does something similar for air pollution; the Embassy has a page dedicated to listing air quality reports every hour.  This webpage has  irked the Chinese government since the Chinese Ministry of Environmental Protection hosts a similar webpage but usually with more positive air quality numbers, making apparent that someone is not telling the truth.  There is no reason why the same can’t be done with U.S. journalists in China.

Alternative #3: Deny a Visa

But another reason why the Chinese Media Reciprocity Act is not necessary – and another tool that can be used to protect our journalists in Beijing – is that the U.S. can deny visas under current law.  The Immigration and Nationality Act provides the executive branch with a list of circumstances, which at times are very vague, where the government can deny a visa.  Section 212(a)(3)(C) allows the State Department to deny a visa if there are adverse foreign policy concerns: “An alien whose entry or proposed activities in the United States the Secretary of State has reasonable ground to believe would have potentially serious adverse foreign policy consequences for the United States is inadmissible.”  Within the courts, the executive branch is given almost exclusive deference in immigration and visa decisions.  See Kleindienst v. Mandel, 408 U.S. 753 (1972).

If rhetoric does not work with the Chinese government, the U.S. government can threaten to deny a visa to a single Chinese reporter.  This might do the trick without damaging freedom of the press too much.  In “The Visa Dimension of Diplomacy,” Prof. Kevin D. Stringer analyzed the use of visas as a diplomatic tool.  Although Stringer is not keen on the denial of a visa as a sanctioning tool, he does note that on occasion it has produced positive results.  After India unexpectedly conducted nuclear tests in 1998, the U.S. denied a visa to Dr. R. Chidambaram, the Chairman of the Indian Atomic Energy Commission, who had come to the U.S. multiple times before.

The denial was symbolic but had a larger psychological impact on Indians on work visas or those who wanted to send their children to a U.S. college.; would their visas be denied as well?  How far would the U.S. go?

Similarly, the U.S. government could threaten to deny – or just not process – a visa to a key Chinese reporter.  In February 2012, to much fanfare in China, the Chinese government launched CCTV America, based in Washington, D.C.  A threat to deny a visa to one of their top reporters or directors could put the Chinese on notice that the U.S. is not going to stand for the harassment of U.S. reporters abroad.  Similar to the 1998 India situation, given the large number of political elites’ children who attend college in America, a single visa denial could have a similar psychological impact on influential elites in China.

The U.S. does not have to pass the Chinese Media Reciprocity Act, but it does need to communicate its displeasure with the way foreign correspondents are treated in China.  There are other avenues to do that but one thing is clear, the U.S. government must start raising this issue otherwise things will only continue to deteriorate as it has for the past three years.

To see Part 1, click here; to see Part 2, click here

What is Up with Chen Guangcheng?

Chen Guangcheng, entering a Beijing Hospital with US Ambassaor Gary Locke and State Dep't Legal Advisor Harold Koh

More often than not, I am my friends’ go-to China person; something in the news pops up with China, I get the questions.  So I wasn’t surprised on Saturday when over some carrot cake at the Chelsea Market a friend of mine had questions about Chen Guangcheng: if he cared so much about human rights in China, why would he leave?  What is up with the Chinese government, keeping a blind man trapped in his own home?  How did things get so messy between the U.S. government and Chen?

It’s been almost a month since Chen fled the home that illegally became his prison. So what exactly is up with Chen’s escape and to answer some questions – what does it all mean?

Chen’s Escape Has Propelled Human Rights to the Top of the US-China Agenda

My friend’s question on Saturday caught me off guard – does Chen really care about human rights in China if he fled to the protection of the U.S. Embassy, ostensibly to seek asylum and leave China.

To ask a man with a wife and two children to be a martyr for his cause is asking too much.  As this blog has recounted previously, since Chen’s release from prison (oddly convicted of a traffic disturbance) did not result in freedom.  Instead, for the past year and a half, Chen and his family have been subjected to illegal house arrest and at times, physical torture by his captures.

It is true that by departing China, Chen’s ability to change China’s current system will be much reduced if not extinguished.  But his heroic flight has perhaps done more to highlight the Chinese government’s recent illegal oppression of dissent than anything else.  Over the past year and a half, this blog has increasingly written about the Chinese government’s crackdown on China’s nascent rights defending (weiquan) lawyers. Aside from people already interested in the issues, these posts – and the acts of repression which they have focused on – have received little attention.

Chen’s escape and his subsequent stay at the U.S. Embassy  altered this focus. With Hillary Clinton arriving for the Strategic and Economic

Inspiring Architecture? The US Embassy in Beijing

Dialogue (S&ED), the focus of U.S.-China relations shifted to human rights.  For one week, as the world watched, the U.S. and China’s relationship was thrown back to a 1980s-Cold War paradigm, when ideology played a more governing role.  For one week, the Western media’s attention finally focused on the repression of rights defending lawyers, and the lip service the Chinese government gives “rule of law” when it comes to civil rights and civil liberties.

It is amazing that a single man’s act, that one blind man’s heroic act, can still change the dialogue in U.S.-China relations.  It is a hopeful reminder that in this globalized world, individuals still matter; that one man’s quest for freedom is still “news.”  And don’t think Chen’s act was not a heroic one.  Not only was a blind man able to find his way to Beijing, but imagine if he wasn’t; imagine if he was caught.  Likely his fate would match that of Gao Zhisheng, a rights defending lawyer who, while in government custody, remains missing.

The U.S. Government’s Actions Supported Human Rights

Some have criticized the U.S. government – or more aptly, the Obama Administration – for its dealings with the Chinese government over Chen.  Initially, the U.S. Embassy worked out a deal with the Chinese government whereby Chen would stay in China, study law at a university in a coastal city away from the thugs of his hometown, and be left alone with his family.  This was what Chen initially wanted.

But once he left the safety of the embassy for a Beijing hospital, Chen began to reconsider his options.  As Prof. Jerome A. Cohen recounted to CNN, the promised U.S. Embassy official was unable to stay with Chen at the hospital and once he began speaking other rights defending lawyers – friends he hadn’t been able to speak to for a year – he began to more clearly understand the increased oppression of rights defending lawyers in China.  Chen was scared; Chen realized that without full information, he misjudged the situation.  That’s when he vocally requested that he be able to leave China for the United States.

Were some in the U.S. Embassy a touch too naive to rely on the Chinese government’s promises?  Most likely.  But being naive is not the same as turning one’s back to human rights.  It was Secretary of State Hillary Clinton’s decision to allow Chen into the U.S. Embassy in the first place.  Chinese citizens cannot just willy-nilly enter the U.S. Embassy; even American citizens are allowed limited access to their embassy (which resembles a high-security prison).  As the N.Y. Times has recounted, embassy officials were notified of Chen’s flight to Beijing and on April 25, Secretary Clinton gave the authorization to sneak Chen into the embassy compound.  Secretary Clinton knew full well that by providing that approval, a throw-down with the Chinese government on the issue of human rights was certain and the ultimate outcome unclear. It is unfortunate – although not all together shocking given the current acrimonious status of politics – that Washington D.C. cannot view this moment as a proud one for America and its ideals; that the web of support that both parties have built for a human rights network in China over the years enabled Chen to come to our door.   Instead, it appears that what could otherwise be a proud moment for Americans, is becoming a political tug-of-war.

Who is Driving the Bus? The Chinese Central Government’s Lack of Control

Beep Beep! Who drives this bus??

What is perhaps the most shocking of all from this whole situation is the Chinese central government’s lack of control of local governments. Chen’s persecution has largely been conducted by the local government in his hometown, with local government officials still seething after his attempt to bring a lawsuit against them for forced abortions.  But even when Chen fled to Beijing, his safety could not be guaranteed, hence his changed desire to leave for the United States.  Many of his relatives left in their villages are being persecuted by local officials.  It makes one wonder – who really drives the bus in China?

Imagine a United States where Governor George Wallace could ignore federal law, have his way and continue segregation in his home state of Alabama.  Likely you can’t.  It’s unfathomable to think that a national government is unable to enforce its own laws, and in the case of China, that a supposed authoritarian dictatorship cannot control lower level party members.

Chen’s case reflects a center weaker than anyone previously thought.  And that is what is most frightening and should give people pause.  Does China really have the power to become a rising superpower or will it revert to its warlord past, where each city is governed by its own power broker and the central government remains impotent?

While China’s weakness appears to manifest itself often in human rights issues, it should not be just a concern for human rights advocates.  Anyone working in or with China – business people, government officials – should be troubled.  A weak center, especially as China undergoes an important leadership transition this year, does not bode well for China.

Prof. Jerome Cohen – The Fixer

On a final note, I want to focus on Prof. Jerome Cohen and his role in all of this.  As a research fellow for two years, I had the privilege of working

Prof. Jerome A. Cohen

with Prof. Cohen at NYU’s U.S.-Asia Law Institute.  In that time, I got to know a kind, brilliant man who never ceased to amaze me.  It was Prof. Cohen who first identified the ingenuity and necessity of Chen’s unschooled, “barefoot lawyer” approach in 2003 and deservedly catapulted him to the world stage.

While my two years with Prof. Cohen were filled with inspiring moments, I have never been more proud of him than I was with his handling of the Chen Guangcheng situation.  While this is all purely based on hearsay, it appears that it was Prof.  Cohen who got the U.S. and China out of what was becoming a crisis situation.  Prof. Cohen’s lifetime of experience with China, including high-level delegations soon after Nixon’s visit to China in 1972, allowed him to realize that all that was needed was a practical solution where everyone could save face: a scholarship for Chen to study law at NYU’s U.S.-Asia Law Institute and invitation for his wife and children to join him.

Now we wait and see.  The United States has approved Chen’s visa application and just yesterday he applied for his Chinese passport.  Although the Chinese government could renege on the deal, that looks increasingly less likely and ultimately not in their best interest.  It’s never a satisfying moment when one of your citizens essentially seeks protection from a foreign government for human rights abuses, but on some level, the Chinese government is likely happy that Chen, who has long been a rabble rouser and a cause célèbre for other Chinese rights defenders and foreign friends, is leaving the country.  Unfortunately for Chen and his family, he will likely never be able to return to his home country.

A Jersey Shore Analysis of the Hu Jintao State Visit

By , January 23, 2011

Welcome to the Jersey Shore!

State visits never produced tangible results, and last Wednesday’s visit of President Hu Jintao to Washington, D.C. was no exception.  True a series of business contracts  and joint ventures were announced, but not much else.  Really though, that’s not why we watch state visits – especially ones involving leaders of the two largest economies in the world.

We watch them more because they are a reality show of sorts – watching two world leaders from vastly different cultures walk the fine line between appearing strong for one’s own country’s interests but at the same time, not completely trampling the other country’s interests.  But unlike the Jersey Shore where one might just be sent home from the beach for misbehaving (think Angelina Season 1 AND Season 2), the consequences are much more serious when you are dealing with two countries whose future relationship can easily determine the fate of the world.

Fortunately, this State visit proved a lot more peaceful and face-saving than anything being shown on the Jersey Shore these days.  While there were some surprises, especially on the Chinese side, there were no fist-a-cuffs.  Overall, the visit seemed to show an improved relationship, at least rhetoric-wise, between the United States and China.

But this is a Jersey Shore analysis so enough of the feel goodness; the question still remains – who won?  Below is a point-by-point analysis of President Hu Jinato’s State visit.

Point for China – Hu Finally Gets a State Visit

The fact that there was a State visit at all was a huge point for China.  It’s been 13 years since a sitting Chinese president

Ceremony on the South Lawn, Jan. 19, 2011

was invited for a State visit and President Hu’s last visit to Washington in 2006 consisted of a lunch with President George W. Bush.  Could anything be more embarrassing for a world leader than to just be offered the lunch menu at the White House?

Unfortunately, yes.  Hu’s 2006 “official” (not state) visit was marred with embarrassing moments for the Chinese.  First, China was introduced as the Republic of China – the official name for Taiwan – sort of a huge gaffe in U.S.-China relations.  Second, a Falun Gong practitioner, a religious order that the Chinese government considers a threat to its rule, was able to obtain press credentials for Hu’s 2006 visit and protest at the event.

But for this visit, the Obama Administration pulled out all of the stops, making it a State visit to outdo all other State visits.  President Hu was greeted at the airport by Vice President Joe Biden and quickly ushered to the White House for an intimate dinner with President Obama.  At all times, China was introduced by its correct name and there were no protests on the South Lawn.

Michelle Obama at the State Dinner for President Hu Jintao

Culminating the event was Wednesday night’s State dinner, perhaps the most anticipated affair this winter.  In addition to a fun and interesting guest list, Michelle Obama chose an amazing dress in homage to one of fashion’s favorite designers – the late Alexander McQueen – making the event the talk of the town of both politicos and fashionistas.

Point for the U.S. – China Gets (a little bit) Tougher on North Korea

North Korea is proving to be a particularly troubling aspect of U.S.-China relations.  No one – including China – particularly cares for North Korea and its saber-rattling as Kim Jung-il’s son takes the rein of perhaps the world’s worst dictatorship.  North Korea’s bellicose activities interfere with China’s economic relations with its Asian neighbors.  But China has yet to take a strong stance against North Korea’s actions even though such actions upset the stability that China needs to continue its rise.  China’s hesitance comes from the fact that it fears a collapsed North Korea; not only would there be the demise of another communist ally, but a collapsed North Korea would mean an influx of starving Korean refugees into China as well as sharing a border with the democratic and U.S.-military-backed South Korea.

For its part, the United States has begun to see North Korea as an increasingly real threat against its allies and itself.  As a result, at Tuesday night’s intimate dinner between the two leaders, President Obama explained to President Hu that unless China takes a stronger stance against North Korea, the U.S. will be left with no choice but to rebuild a stronger military presence on the Korean peninsula.

That argument eventually carried the day.  In the Joint Statement issued on Wednesday, China, for the first time,

Kim Jong-il, Beijing's friend or foe?

“expressed concern” regarding North Korea’s nuclear build-up.  Additionally, while China has urged the resumption of “six party talks” with North Korea, the U.S. has hesitated, seeing it as a reward for North Korea’s bad behavior.  Evidently China and the U.S. were able to reach a compromise: before any six-party talks resume, the two Koreas must first resume their dialogue (see paragraph 18 of the Joint Statement).  On Thursday, South Korea agreed to low-level talks with the North.

Half a Point for the U.S. –Human Rights Makes the Agenda but an Odd Assortment of “Human Rights Advocates” Advise President Obama

Human rights loomed large during Hu’s State visit.  After meekly raising the issue during his State visit to China in November 2009, President Obama was having no criticism of his commitment to human rights.  Secretary of State Hillary Clinton made that apparent in her speech on January 14, 2011 when she not just raised the issue of human rights but also mentioned specific human rights advocates that the U.S. believed were been unlawfully detained.

President Obama continued to publicly press the issue of human rights.  President Obama publicly declared the universality of certain human rights as well as the need for the Chinese leadership to meet with the Dalai Lama.  Perhaps the most surprising of all was when President Hu admitted that China still had a ways to go in better protecting human rights (see the Q&A portion of the Joint Press Conference).

Normally, this should receive a full point.  But the U.S. loses a half a point because of form.  Prior to President’s Hu’s visit, President Obama met with five China human rights advocates.  These “advocates” included Prof. Andrew Nathan of Columbia University; Prof. Paul Gewirtz of the Yale China Law Center; author Zha Jianying; the wife of former Ambassador Winston Lord, Bette Bao Lord; and research scholar at the University of Maryland, Li Xiaorong.

While these five are likely well-informed on issues of human rights, there seems to be some missing names from the list of “human rights advocates.”  Sharon Hom of Human Rights in China has dedicated her life – and at times has risked her safety – to advocate for greater human rights protection; one can’t think of anyone else more qualified.  And if one wants to stick with academics (three of the five study human rights), it is questionable why Prof. Jerome Cohen of NYU School of Law was not in attendance.  Prof. Cohen continues to lambast China on its human rights record on an almost bi-weekly basis in his South China Morning Post articles and actively supports many human rights attorneys in China.

But most of all, why weren’t the Chinese human rights activists themselves invited?  Currently, the wife of missing human rights lawyer Gao Zhisheng is in the United States as is the wife of imprisoned human rights lawyer Guo Feixiong.  Why not invite either of them to speak with the President of the current human rights situation in China?  Or exiled dissident Yang Jianli currently residing in the U.S.?  Or better yet – why not have a Skype chat with any of the human rights lawyers presently in China (Teng Biao, Mo Shaoping, Tang Jitian, Liu Wei)?  The latter might be a bit too much to ask, but the list of human rights advocates invited to speak with President Obama should have been longer.

Point for China – U.S. Promises to Rein in Spending

As the largest holder of U.S. debt, China is very concerned about the U.S.’ spending habits.  The Federal Reserve’s announcement of injecting more cash into the U.S. economy through “quantitative easing” only worsened China’s fear that its U.S. dollar reserves would lessen in value.  So when President Obama, in response to a reporter’s question during the joint press conference, stated that the U.S. must take greater responsibility in saving and cutting the U.S. deficit, China was very happy.

Half a Point for the U.S. – Government Procurement

China’s closed government procurement market and its indigenous innovation policy has been a issue for U.S. businesses.  China is not a member of the WTO’s Government Procurement Agreement (“GPA”) and as a result is not required to have an “open” government procurement market.  China has submitted two bids in the past few years to be a member of the GPA, most recently this past summer.  However, both applications have fallen far short and as a result, China remains outside of the GPA.

But surprisingly, in the U.S.-China Joint Statement (paragraph 27), China agreed to resubmit an application to the GPA by the end of 2011 and include sub-central government entities as subject to its proposal.  Such an agreement was unexpected and likely a welcome development to the U.S. business community.

So why half the point?  Seeing is believing in this case.  It’s not completely in China’s self-interest to be a member of the GPA at this stage so anticipate that its renewed application will still fall short of GPA requirements.  And even if it becomes a member, it’s questionable if China will enforce laws to promote an equitable government procurement market.

Point for U.S., Point for China – 100,000 Strong Initiative Articulated

Study Abroad in China!

During President Hu’s visit, Michelle Obama, in a speech before a thousand DC-area students, reaffirmed the Administrations’ commitment to sending 100,000 U.S. students to China on various study abroad programs (the “100,000 Strong Initiative”).  In 2008, less than 15,000 U.S. students (on both the college and high school levels) studied abroad in China. The U.S. has a long way to go before we reach 100,000 students but its commitment to achieving that goal is a win-win for both China and the U.S.

Americans’ knowledge of China is abysmally low; as China rises, our lack of our understanding its history, culture or language becomes dangerous.  Study abroad programs can help bridge that gap.  While very few U.S. students will continue on their China path after their study abroad program, just being exposed to the culture and the difficulties that the nation faces is important.  But there will also be some students that will continue on that path, providing an invaluable resource to the American government as China continues its rise as a global power.

The “strong” in the 100,000 Strong Initiative is more about strengthening the cultural ties and understanding between our two nations.  While China sends 10 times the number of students to the Untied States, it is important that U.S. students go to China for those Chinese who will never come to America.  What’s even more important is that the 100,000 Strong Initiative reaches out to community colleges and historically black colleges and universities, both of which have been underrepresented in China study abroad programs.  It is important that the students the U.S. sends to China reflect our great diversity.

Sec. Gates, not a happy camper on US-China military ties

No Points for Anyone – Military-to-Military Ties Remain the Same

There doesn’t seem to be a change in military-to-military ties.  After the U.S. sold arms to Taiwan last January, China broke off military ties and the relationship has barely warmed.  When Secretary of Defense Robert Gates visited Beijing a few weeks ago, a stealth jet fighter was flown unbeknown to even President Hu Jintao.

The Joint Statement (paragraph 9) includes language on improving and deepening communication between the two militaries.  But it appears to be boilerplate language similar to the language found in the Joint Statement issued after President Obama’s visit to China in November 2009.  The fact that China’s military remains non-transparent, secretive and slightly threatening is a serious issue.  The fact that President Hu did not seem to have control of the military, even though he is the nominal Chairman of the Central Military Commission, is even more troubling, for both the U.S. and China.

The U.S. military is stationed through out China and patrols many international waters.  The Chinese military is becoming increasingly assertive at times.  Small incidents have occurred in the past.  But without good communications between the two militaries, it is easy for any small incident to become an international one that could upset the stability in the Pacific.  Hopefully the promised high-level military visits between the two countries will soon produce results.  Then both the Chinese and American people will find it easier to sleep at night.

Winner?

It’s a tie. As far as State visits go, this was a pretty good one.  Everyone got something they wanted and can bring back positive results to their respective people.  Aside from military relations, U.S.-China rhetoric seems to be improving.  Hopefully this trend can continue.

Clinton on U.S-China Relations – A Changed Approach

By , January 17, 2011

Secretary of State Hillary Clinton delivers the Richard Holbrooke Inaugural Lecture

The Obama Administration has a new China policy, or at the very least has gotten better at articulating it. In preparation for President Hu Jintao’s January 19 State visit, key officials in the Obama Administration outlined their goals for the U.S.-China relationship through a series of speeches last week. 

While Secretaries Tim Geithner and Gary Locke each focused on specifics (currency, market access, intellectual property), Secretary of State Hilary Clinton’s speech on Friday (click here for speech transcript) provided a new framework by which to view the U.S.-China relationship. Rest assured this isn’t the same soft China policy that accompanied President Obama on his visit to China in November 2009. 

In her speech, Clinton acknowledged the importance of the U.S.-China relationship to each country and the world at large. But while it values its relationship with China, the United States still has choices and the U.S. would “firmly and decisively” address its differences with China. Friday’s speech, which was also the inaugural Richard C. Holbrooke Annual Lecture, in honor of former State Department official and an important peace envoy (key player in the Dayton Peace Accords and envoy to Afghanistan), has already received criticism from China’s leadership.  

Clinton Announces a New Paradigm By Which to View China’s Rise

Perhaps the greatest obstacles in the relationship – at least for the U.S. – have been China’s currency manipulation and China’s protection of domestic industries at the expense of international trade rules and norms.  What the U.S. asks of China – to stop pegging its currency to the U.S. dollar and to open its markets to foreign competition in accordance with international standards – inevitably means that in the short-term, Chinese domestic companies will suffer.  By allowing its currency to float, Chinese exports will become more expensive, hurting the manufacturing backbone of its economy.  Opening its markets to more competition from foreign companies and products – particularly the government procurement market – could impair the development of many of China’s nascent industries. 

Needless to say, it has been difficult to find a convincing argument to make Chian’s leaders willing suffer short-term hurt. In the past, U.S. officials have repeatedly discussed how in the long-run these changes will eventually better promote China’s economic growth and power. But this appear disingenuous since in the short-term, it is the U.S. that will most greatly benefit from changes to Beijing’s current policies.  Additionally, telling Beijing what’s good for it in the long-run is sort of like parents telling their kids what is best. 

But Clinton’s speech took on a decidedly different approach and offers a more convincing, even slightly threatening argument.  Clinton did not bother with a “what is best for China” argument to try to convince the Chinese government; instead Clinton provided an entire new way by which to view China’s rise.  Clinton acknowledged the hard work of China’s people and the far-sightedness of its leaders in creating the world’s second largest economy in just over 30 years.  But Clinton also stressed the important role the United States played in China’s rise; without the United States, which guaranteed military security in Asia and equitable rules to govern the global economy, China’s current success would have been impossible.  

By tying China’s rise to the stability the United States provided in the region for the past 30 years, Clinton makes a much stronger argument as to why China’s leaders should make some changes on currency and market access – basically, these are the rules of the game that allowed you to succeed and now you think you can just change them? 

No rest for Robert Gates

The United States Will Remain a Pacific Power

But if logic isn’t enough to better protect U.S.’ interests, Clinton put China on warning that it is not the only fish in the sea.  Repudiating any notion of a G-2 relationship, Clinton gave a shout out to the other countries in the region, stating that the United States intends to remain a Pacific military power, strengthen its bonds with its allies in the region (e.g. Japan, South Korea, Philippines) and deepen its ties with developing Asian countries (e.g. India, Vietnam, Indonesia).

On some level, this should not come as a surprise to China.  This past summer, the United States involved itself in a long-running dispute between China and Vietnam over the control of a group of rock islands, stating that the U.S. has a national interest in mediating the dispute.  Additionally, recent bellicose developments on the Korean peninsula and China’s ambivalent response to the North’s unprovoked attack on South Korea, makes it apparent that the United States must maintain a strong military presence in the region.  China’s response shows that it is not yet ready to take on the responsibility of maintaining peace in the Pacific region since its loyalties to North Korea still dominate. 

Finally, Clinton noted that China’s non-transparent military build-up leaves one wondering what exactly are China’s intentions.  Military-to-military ties between the

China launches its Stealth fighter jet during Robert Gates visit to Beijing

 United States and China are at all-time low, mostly at the fault of China.  China’s military continues to shroud itself in secrecy and the recent visit of Secretary Robert Gates to China was a complete debacle.  While Gates visited with President Hu Jintao in Beijing, the People’s Liberation Army (PLA) tested – in a very public way – its own stealth fighter jet.  Hu’s admission that he was unaware of the PLA’s planned test fight, is not particularly reassuring.  Not only does the PLA continue its secrative military build-up, but it’s even a secret to China’s own President, making one wonder, what power does Hu still have?  If history is a guide, whoever is in charge of the Chinese military is in charge of China.  If not Hu, then who?

Getting Serious About Human Rights

Clinton was surprisingly blunt when it came to China’s human rights record and didn’t just portray human rights as a peculiar aspect of the American culture (see President Obama’s talk to Shanghai students in November 2009 for this approach).  Instead, Clinton emphasized the universality of certain human rights and highlighted the fact that China is a signatory to many United Nations human rights treaties.  The United States is not interfering with China’s domestic politics; instead the United States is merely requesting that China fulfill its human rights obligations, obligations it voluntary agreed to. 

But Clinton went further and mentioned specific dissidents, including the recent Nobel Peace Prize winner, Liu Xiaobo who is currently languishing in a Chinese prison; rights defending attorney Chen Guangcheng who since his release from prison has been subject to repeat police harassment; and missing rights defending attorney Gao Zhisheng.   Clinton stressed that as long as people like these three continue to advocate peacefully within the confines of the law, China should not persecute them.  Clinton poetically commented that the empty seat for Liu Xiaobo at last month’s Nobel Peace Prize ceremony symbolizes China’s unrealized potential.  Clinton stressed that these human rights are necessary to China’s success; freedom of speech is essential to fostering free thought that leads to technological and scientific advancement and a vibrant civil society addresses social-economic problems that are currently one the regime’s biggest fears. 

The Obama Administration has a new policy on China – it’s tougher, more logical and stresses the importance of human rights.  The Chinese government has already responded.  President Hu Jintao, in an interview with the Washington Post, commented that the United States should not interfere with the internal affairs of China. 

Wednesday’s meeting between Presidents Hu and Obama should prove to be perhaps some of the most important conversations in the U.S.-China relationship since Kissinger secretly visited Beijing in 1971 in preparation for President Nixon’s visit.

What’s the Big Deal About a Pile of Rocks? The Diaoyu Island Incident

By , October 7, 2010

This past September, the world watched as the centuries-old feud between China and Japan reached epic proportions over a little-known chain of uninhabited islands in the East China Sea.  Known as the Diaoyu Islands in Chinese, the Senkaku Islands in Japanese, both China and Japan claim them as their own and each seeks control of the oil-rich seabed that potentially lies beneath. 

 As Marcy Nicks Moody writes in Foreign Policy Digest (reprinted below), at stake with these islands is more than just a pile of rocks. 

Speak Softly and Carry a Big Wallet: China Flexes Economic Muscle in Regional Disputes
By Marcy Nicks Moody
Originally Printed in Foreign Policy Digest

DEVELOPMENTS
Last month, a Chinese fishing boat collided with two Japanese coastguard patrol ships off the coast of a small chain of uninhabited islands in the East China Sea.  Japanese authorities took the boat’s crew into custody, and prosecutors debated whether to press charges against the boat’s captain for obstruction of justice.  Demanding the captain’s release, Beijing made strenuous arguments invoking Chinese sovereignty and human rights.  Chinese Premier Wen Jiabao refused to meet with Japanese Prime Minister Naoto Kan during a recent United Nations Summit meeting in New York and insisted that the conflict be resolved through diplomatic channels, while simultaneously suspending all mid- and high-level political contact between the two countries.  When the fishing boat captain was released, Beijing responded by insisting that Japan issue a formal apology and provide financial compensation.   Japan, in turn, argued that China should compensate Japan for the damage done to its naval ships.  Whether the collision was intentional is unclear, and it is unlikely that further light will be shed on the subject.

BACKGROUND

If the scale and particularly bitter nature of the diplomatic denouement following this small maritime accident strikes readers as odd, it should.   These events put into sharp relief the changing security landscape that both Asia and the United States face today in the Asian maritime.  They may also provide some insight into how China intends to conduct its increasingly forward facing maritime and energy security policy.

The islands near which the collision occurred are a matter of ongoing dispute between China and Japan that dates back for at least 40 years. Although the Senkaku Islands (called the Diaoyu Islands, in Chinese) are effectively a pile of uninhabitable rocks, it became known in the 1970s as an area potentially rich in oil and gas deposits in the surrounding waters, control of which could improve either country’s energy security dramatically. At present, the islands are controlled by Japan, but claimed by China. Although both have legitimate grounds for their claims, there is no foreseeable end to the dispute in sight. As Japanese authorities held the Chinese fishing boat captain on the basis that they might charge him with a violation of Japanese law, they were implying that these waters are, indeed, Japanese. For this reason, it is not entirely surprising that China would respond with such vociferous complaints as it did. What was surprising were the unannounced measures that China also took.

In addition to arresting four Japanese citizens in China for spying, which may have been coincidental, China appears to have suspended the export of rare earth minerals to Japan. Rare earths are elements in the Earth’s crust. Although they exist in miniscule concentrations, they are crucial to a range of modern technologies, including car batteries, wind turbines, and many other electronics. China mines approximately 97 percent of the world’s rare earths and, given the relative importance of electronics manufacturing to the Japanese economy, this move has the potential to be extremely damaging to Japan. No one from the Chinese government announced the suspension, and officials from the Chinese Ministry of Commerce (MOFCOM) have denied any sort of embargo. Chinese officials have, however, made public that they are contemplating fining Toyota Motor Company’s Chinese operations for various violations, including illegal rebates to Chinese car dealerships. While it is possible that the dispute with the trawler captain, the suspension of rare earths exports, the arrests, and the Toyota fines are all coincidental, it seems more likely that China is manipulating its economic and commercial relationship to gain leverage in its dispute with Japan over the Diaoyu/Senkaku Islands.

China has similar ongoing disputes over other chains of islands in the South China Sea with its Southeast Asian neighbors—in particular, Vietnam. Like the Senkaku/Diaoyu Islands, the waters surrounding the Spratly and Paracel Islands are believed to be rich in oil and natural gas, in addition to their valuable proximity to busy shipping lanes. The U.S. government inserted itself into the dispute in July, when Secretary of State Hillary Clinton announced that the United States would be willing to facilitate multilateral talks on the issue. She insisted upon U.S. neutrality, but argued that the United States has a strong interest in preserving free shipping in the region. Not surprisingly, a number of Southeast Asian countries welcomed the announcement, while China, caught off-guard by the announcement, maintained that the talks should be undertaken in a bilateral format.

ANALYSIS

China has not been the positive, productive, and cooperative international partner that the Obama administration seems to have been expecting two years ago. On the security side, cooperation on the North Korean question has disintegrated; Beijing has refused to move forward on sanctions against Iran; and U.S.-China military-to-military relations are increasingly strained. On the economic side, meanwhile, China has not allowed its currency to appreciate materially; it has recently placed steep tariffs on some U.S. exports, and the business environment is widely acknowledged to have become increasingly hostile to non-Chinese enterprises. If nothing else, Secretary Clinton’s July announcement is a mechanism for registering U.S. frustration with the current trajectory. Like China, Washington is also willing to play the zero-sum game.

The disputes over the Senkaku/Diaoyu, Spratly, and Paracel Islands are all based, at least in part, in China’s quest for greater energy security. At the same time, Beijing has taken an increasingly aggressive stance in a range of its foreign policy dealings, both with the United States and with its Asian partners. Given the trend of global economic interdependence that relies more and more heavily on China’s mammoth economy, Beijing’s recent behavior could forecast some serious struggles in the future, as China manipulates its growing commercial influence to leverage its position in the Asian security landscape.

Marcy Nicks Moody writes about China. In 2007-08, she was a Fulbright Scholar in China, where she was also a Research Fellow with the U.S.-Asia Law Institute. She received an M.A. in East Asian Studies from Columbia University and graduated from Brown University.

Pencils, Staplers & Pens, Oh My! China Submits Government Procurement Bid to WTO Body

By , August 2, 2010

As promised, on July 9, 2010, China submitted its proposal to join the World Trade Organization’s (WTO) Agreement on Government Procurement (GPA).  China’s government procurement market – in which the government purchases supplies and services to keep it running –is larger than the GDP of many small nations, accounting for $500 billion by some estimates, a size that makes many western companies salivate.  But China has no legal obligation to open its government procurement market to global competition.

Needless to say, the inability for foreign companies to access such a huge market has been a sticking point for many foreign governments in its dealings with China.  During May’s Strategic & Economic Dialogue (S&ED), Secretary of State Hillary Clinton raised the government procurement issue often.  By the end of the S&ED, China promised to submit an application to the GPA in July, its first submission since 2007 when China’s application was resoundingly rejected by other GPA member nations for being over-protectionist.  But the U.S. is not the only country with issues concerning government procurement.  German Chancellor Angela Merkel visited China in the beginning of July and market access was number one on her list of discussion topics with the Chinese leadership.  Even the U.S. Congress is threatening action, proposing the adoption of the “China Fair Trade Act of 2010” if China does not open its government procurement market.

So with all that pressure, will China’s 2010 revised offer to join the GPA open its markets to foreign corporations?

Don’t hold your breath.  While China responded to some of the criticism lodged against its 2007 application – it shortened the implementation period from 15 years to 5 and significantly lowered the monetary values of the projects and purchases covered to be more in line with other member states – its 2010 application does little to actually open its government procurement market.

In Annex I of China’s 2010 application, a larger number of central government agencies are covered compared to China’s previous application – 61 to be exact.  But the largest market – namely government procurement on the local level – is completely absent.  Annex II, which is to list those sub-central government agencies covered by the agreement, is left blank.  Additionally, China’s state-owned enterprises (SOEs) are also not covered by the GPA

More high rise aparment buildings in Shanghai

application.  Although a hybrid between a government-run organization and a private corporation, SOEs maintain good ties with the government, especially on the local level.  As Monday’s New York Times pointed out, many SOEs whose businesses are completely unrelated to housing development, such as the Anhui Salt Industry Corporation, have been the biggest players in China’s real estate construction boom.  This is largely due to the SOEs huge amounts of cash and their ability to endless borrow from government-run banks.   But under China’s 2010 GPA application, these SOEs would be allowed to ignore competitive bids from foreign companies.

Although this is a disappointment for foreign corporations looking to crack into China’s government procurement market, China’s current 2010 GPA application is at least honest in admitting to the fact that the central government might have a lot less control over the provinces than many thought.

This is especially true if central policies seek to disrupt the symbiotic relationship that exists between local governments and local SOEs.  As Reuters notes in its report on China’s GPA application, China’s provinces have had a long history of preferential treatment of local provincial industries, even at the expense of Chinese corporations from other provinces.  These local SOEs – like the Anhui Salt Company – employ hundreds if not thousands of local workers, and local SOEs are often more willing to partake in a “I-scratch-your-back-you-scratch-mine” economy.  Take for example the real estate auction mentioned in the New York Times article.  At a government-run public auction, Anhui Salt put in an offer that far surpassed other offers, unnecessarily bidding up the price that it would eventually pay for the land.  But that inflated price goes directly to the coffers of the local government.  And in some provinces, where the government’s balance sheets are more of charade than actual accounting, this extra income is important.  Needless to say, provincial governments are inherently protectionist of its local industries and the system the two have created.

While many believe that the Chinese central government, with it authoritarian rule, can force provincial level governments to act a certain way, China’s 2010 GPA application reflects that there are actually limits.  It also hints that China might be more of a federalist system than originally thought.  Although the U.S. is a member nation of the GPA, because the federal government cannot mandate state government behavior when it comes to government procurement, states have to affirmatively agree to the join the GPA.  In the U.S., only 37 states are signatories to the GPA; the federal government can’t force states to comply with the GPA.  Similarly, China’s 2010 application and the fact that the central government apparently cannot force provinces to sign on to the GPA, raises the question if China is in fact a de facto federalist system.

At any rate, given the absence of SOEs and local governments from China’s GPA application, expect the 2010 offer to be rejected again.  What will be interesting is how loudly the U.S. will object when 13 states have yet to sign on to the GPA.

China’s Government Procurement Policies – Fair or Discriminatory? An Expert Weighs In

Last month’s Strategic and Economic Dialogue (S&ED) featured many thorny issues that have been plaguing U.S.-China relations for the past few months: North Korea, currency manipulation, Iran….and government procurement?  Yes, Brett Gersongovernment procurement. Not what one would think of as a controversial topic worthy of a major dialogue between two of the world’s leading powers.  So to help us understand the addition of government procurement to the S&ED agenda is Brett Gerson, an associate in the international trade and public procurement practices at Reed Smith and co-author of the recent article “Can China’s Government Procurement Market be Cracked?” in this month’s The China Business Review.

Click here to listen to the interview with Brett Gerson or read below for the entire transcript.
Length: 19 minutes (audio will open in another browser)

In the interview, Brett mentions three laws and regulations pertaining to government procurement in China. They can be found through these links:

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Potentially a $90 billion Procurement Shopping Spree

Potentially a $90 billion Procurement Shopping Spree

ELJust to begin, what exactly is meant by government procurement and how does this involve U.S.-China relations?

BG:  Well, essentially government procurement is the process whereby governments or government ministries or agencies can purchase goods or services at a large-scale to provide for use in the carrying out of government processes.  So for example, this could, as an example of goods, a government agency could purchase in bulk a large number of, let’s say, printers or staplers or another good.  It could also be services.  The government could enter into an agreement with an IT company to provide some type of computer services or internet maintenance or something like that.

It’s becoming a very big issue between the U.S. and China because like many other areas of China’s market, there is immense potential for companies – both Chinese and foreign – to get into China’s procurement market.  Obviously the Chinese government is huge, they have a wide array of ministries and agencies both at a, sort of, federal level coming from Beijing, and at a provincial level.

EL: And how big is this market, this potential market, in U.S. dollars?

BG:  It’s hard to say exactly.  Most estimates hover around $90 billion which is really huge.  But it is tough because it is hard to say exactly which entities are state-owned enterprises, so which are entirely private and which are sort of public in nature.  But most estimates hover around $90 billion and I have seen a couple where in 2010 that’s expected to reach $100 billion.

EL: Currently, does China have any policy or laws in regards to government procurement of foreign companies’ goods or services?

BG: Yeah.  In 2002, China promulgated the Government Procurement Law.  It’s somewhat controversial in nature but it basically just states that Chinese government agencies and entities must purchase domestic goods, works or services except where those goods, works or services can’t be obtained within China under reasonable commercial terms.  Those reasonable commercial terms are defined as 20 percent more than imports.  Now, the problem with the Government Procurement Law is that it never defined what is “domestic.”  So companies, particularly foreign companies, had a hard time cracking that market because it was so easy for the Chinese government and Chinese government agencies and entities to just simply purchase products – goods or services – from Chinese companies.

Since 2002, there has been a lot of international pressure on China to better define what is domestic.  They finally did this in January 2010, just about six months ago, the Chinese government issued what’s called the Implementing Regulations.  These aren’t exactly law, but they define how the Chinese government is suppose to carry out the Government Procurement Law.  The Implementing Regulations set forth that….it better defined domestic.  It says that essentially domestic manufacturing costs that exceed a certain threshold, those products will be defined as domestic.  Now in the implementing regulations, they didn’t actually set the threshold.  We were able to look at some other guidance that the Chinese government issued recently and we were able to guess that they probably meant 50 percent.  Now, just a few weeks ago, right before the high-level meetings in China that you discussed, the Chinese government again issued another sort of policy guidance paper that did clarify that the threshold for a product to be considered domestic is 50 percent of domestic production costs.

ELSo if they have clarified this recently and this law has been in place since 2002, why is this now becoming such

China's Government Procurement Laws - Trade Protectionism?

China's Government Procurement Laws - Trade Protectionism?

an issue? What has caused government procurement to become almost the centerpiece of the Strategic and Economic Dialogue last month?

BG:  There’s two main reasons and they sort of come together.  The first is that in the World Trade Organization, there is an agreement called the Government Procurement Agreement [GPA].  It’s a plurilateral agreement meaning that some but not all of the World Trade Organization members are a part of this agreement.  It basically just states that if you’re a party to this agreement, you cannot favor products or services from your country against those from a foreign country.  China, when they first came on to the World Trade Organization in 2001, they promised that they would join the Government Procurement Agreement as soon as possible.  Now, they have submitted a proposal before, back in 2007, but it didn’t quite come to the level of international best practices.  The member countries essentially rejected it.  Since that point, the United States as well as major European countries and other members to the GPA, have pressured China to resubmit a proposal that do come up to the standard that the member countries expect.  Finally, China agreed just recently at the high-level discussions in China that they were going to submit a new proposal in July of this year.  Right before the time the World Trade Organization Government Procurement Committee meets.  So I think that is one of the issues that is really bringing it to the forefront, is that there is a lot of pressure on China to join the GPA agreement.

The other issue, and this was also discussed and mentioned by Hillary Clinton and Timothy Geithner, is China has set forth a very controversial policy called indigenous innovation policies.  And basically these are policies that direct provincial governments and agencies and ministries to buy only from certain product catalogs.  These catalogs are primarily made up of high-tech and IT goods and traditionally it’s been extremely hard for foreign companies to get their products onto these catalogs.  For example, and I mention this in the article, out of the Shanghai-based catalog, there are over 500 products that are listed on this catalog, and foreign products make up only two of these products.  Of those two, they are not entirely foreign entities, they’re joint ventures between a foreign company and a local Chinese company.

So I think those two issues, one that China has been slow to join the World Trade Organization Government Procurement Agreement and two, these indigenous innovation polices that make it very difficult for foreign companies to get their high-tech products listed on these procurement catalogs.

ELBut in terms of China favoring its domestic products over foreign products, is China really acting any differently than from any other countries in terms of government procurement?  Doesn’t in the U.S., isn’t the U.S. government required to purchase U.S. products?  How is China any different from that?

buy_americanBG:  Well there’s a couple of differences.  The U.S. and other countries that are members of the GPA do have policies that direct or allow their own domestic government entities to purchase only domestic products.

There’s a couple of differences.  One, here in the U.S. we have what is called the Buy American Act.  The Buy American Act essentially says that federal agencies can only procure unmanufactured articles that have been mined or produced in the U.S. or manufactured articles that were made substantially of articles or materials mined or produced in the U.S.  But there are several exceptions.  One is you can waive that if it would be consistent with public interest or if observing that preference would be inconsistent with the public interest.  Second, where the cost of buying the U.S. good is, sort of, unreasonably higher than would you purchase them from a foreign entity.  The third exception is where the products in question are in too short of a supply in the U.S. to make that purchase feasible.

In addition to that, government agencies may purchase foreign-made information technology equipment.  So that’s sort of a big issue and that sort of touches upon the China indigenous innovation policies – there is sort of a cut-out for U.S. government agencies to waive the Buy American requirements for sort of high-tech, IT goods.

Also, the Buy American Act doesn’t include services which the Chinese government procurement policies will.  As you know, services is a huge sector for foreign companies in China: legal services, accounting services, IT services, things of this nature.

In addition to the Buy American Act, we also have the Trade Agreements Act and this is a pretty big issue because the Buy American Act will be waived where we have a trade agreement act, an agreement with another country.  These include all the countries that are signatories of the WTO Government Procurement Agreement that we mentioned before that China is not a signatory to; these also include all countries that we have free trade agreements with ; all these developed countries and also the Caribbean basin countries.

You are right in that the U.S. does have certain policies like the Buy American Act that on their face appear somewhat discriminatory.  But I think that the differences between China’s policies and the U.S. policies is that we have so many carve-outs for our Buy American Act: exceptions and instances where the Buy American Act requirements will be waived where we have agreements in place with other countries.  China is not one of them.

ELJust to go back to the indigenous innovation policy of China, because that was something that Secretary of State Clinton did mention specifically as a problem.  I guess just examining the equities of it.  Given that the U.S. and other countries were largely able to develop their technology sector before our current global trade system, and before there was competition from other countries, shouldn’t China also be permitted this luxury?  Don’t they have an opportunity to catch up?  Isn’t China’s indigenous innovation policy just a way to allow its small but growing technology sector to really flourish?

BG:  There is no question that China should be allowed to sort of foster the growth of their high-tech services but I

Investing in R&D in China might bring more benefit than an indigenous innovation policy

Investing in R&D in China might bring more benefit than an indigenous innovation policy

think, and Secretary Clinton and Secretary Geithner both mentioned this, that there’s ways to do this that are less discriminatory for foreign firms.  Rather than link the indigenous innovation policies to government procurement – which they are trying to do – we think that there are other ways such as using tax incentives or research and development support programs that can sort of achieve the same goals without the discriminatory effect.  We think that generally China grow this area by including foreign firms rather than excluding them.  Like I said, there are certainly sort of high-tech tax status programs that they can enter into and R&D programs.

One of the big ways that their policies discriminate against foreign firms is, initially when they released the indigenous innovation policies, they required that to get on these catalogues that I mentioned before, the company has to…the trademark of the product has to be owned by a Chinese company and they also had to have full ownership of the products IP [intellectual property] in China.  This was really stringent, this was tough.  Thankfully, just a couple of months ago in April actually, the Chinese government again released sort of guiding, implementing regulations memo.  Now, this doesn’t have the force of law but they’re proposing to relax these requirements by saying that instead of having full ownership of the trademark in China, the company need only have exclusive rights to the product’s trademark in China.  Instead of having complete ownership of the intellectual property in China, you only have to have a license to use the intellectual property in China.

So this is definitely a step in the right direction.  But ultimately, I think ideally foreign companies, U.S. companies, would want to de-link the indigenous innovation policies from government procurement.

ELJust getting back to the Strategic and Economic Dialogue, do you know what it was that the U.S. side was seeking to achieve in terms of government procurement and indigenous innovation policy.  I know that you had mentioned a little bit before but can you just summarize that the U.S. wanted out of it?

BG:  Sure.  I think the first thing they wanted is to urge China to submit an additional proposal, a new proposal, to the World Trade Organization Government Procurement Agreement, which they have agreed to do by mid-July so that’s definitely is a step in the right direction.  We don’t know exactly what that is going to say but we are think that it is going to be a step closer to international best practices and the other proposals that the member countries have agreed to.

Second, I think that, the U.S. delegates really wanted the Chinese government to relax the indigenous innovation policies and de-link them from the government procurement policies.  As it stands right now in the Implementing Regulations, Article 9 says that Chinese government entities and agencies should favor indigenous innovation products which are only listed on these catalogues like I mentioned.  So I think what the U.S. government would like to see is getting rid of the indigenous innovation article from the Government Procurement Law.  It is unclear that the Chinese government is going to do that.

ELEven though it seems like there was some progress at the Strategic and Economic Dialogue and that China has agreed to submit a new proposal, do you really see though China, I guess, even if it submits a new proposal, do you see that proposal to the WTO to join the Government Procurement portion of the WTO, do you see that as actually being something that other member countries would agree to?  Do you see China acquiescing to a lot of the foreign pressure and is it really in China’s self-interest to do that at this stage in its development?

WTO-Logo3403BG:  It’s hard to say at this point.  I think we’ve seen that, in other areas, in strategic and economic areas, China has certainly refused to acquiesce to international pressure to do certain things or not to do certain things.  So it is hard to say without seeing their proposal.  I think that the GPA member countries would reject a proposal that is not up to standard.  They’ve done it before and I think they might do it again.  And I’m not sure that would be in China’s interest.  I think China at this point would have to understand what the member countries expect, what the parameters would be.  And it’s unclear to me that they would submit something that would be any less than that.  So it’s hard to say.  I don’t know.

Generally it seems that China doesn’t acquiesce.  However if the international community is successful in persuading them that it is in their best interest, to relax their indigenous innovation policies and to de-link them from government procurement, then I think they will go ahead and submit a proposal that’s up to par, that’s in line with international best practices.

Over the last several months, in January, since they issued their Implementing Regulations, there has been significant international backlash and they have sort of watered down some of the more strict discriminatory provisions in the Implementing Regulations.  So there’s been progress.  I suppose they only have another six, seven weeks before they’re going to submit their proposal to the Government Procurement Committee so it is unclear how much further they are going to go in watering those items down.

ELWell I guess only time will tell what happens in July.   Thank you.

BG:  It will be interesting; hopefully we can follow up and discuss what happened.

ELThat would be great.  Thank you so much for your time.

BG:  Thank you.

U.S.-China Strategic & Economic Dialogue Will Be Anything Less than Dull

Only a handful of the 200 U..S. officials at today's Strategic & Economic Dialogue in Beijing

Only a handful of the 200 U..S. officials at today's Strategic & Economic Dialogue in Beijing

The second U.S-China Strategic & Economic Dialogue (S&ED) is off to an interesting start in Beijing.  The U.S.’ agenda for the talks – agreement on Iran sanctions, change in China’s currency policy, and greater openness of China’s procurement market for foreign companies – was largely overshadowed this morning by South Korea’s announcement that it will hold North Korea responsible for the torpedo attack on a South Korean war ship, the Cheonan, in March 2010 which resulted in the death of 46 sailors.

As the S&ED was set to open in Beijing, South Korea’s president, Lee

Chinese President Hu Jintao greets U.S. Secretary of State Hillary Clinton at Monday's opening of the S&ED

Chinese President Hu Jintao greets U.S. Secretary of State Hillary Clinton at Monday's opening of the S&ED

Myung-Bok, issued the strongest statement against North Korea in decades and announced that all trade between the Koreas would be suspended, investment would be stopped, and North Koreans would not be permitted to visit South Korea.  Additionally, South Korea will also reinstall megaphones at the border between the two countries and resume anti-North Korean broadcasting, a practiced it stopped in 2004 when tensions were easing between the two Koreas.  Previously, North Korea stated that any retaliation by South Korea in response to the Cheonam incident would be seen as an act of war; today it announced planned attacks on any South Korean megaphones at the border.

In her remarks during the S&ED’s opening ceremony, Secretary of State Hillary Clinton, who is accompanied by 200 U.S. officials on this trip, brought up the issue of North Korea’s increasing “belligerent” actions and the need for the U.S. and China to work together in regards to North Korea.  Chinese President Hu Jintao did not mention North Korea in his speech.

But President Hu did bring up the currency issue in his remarks, to the surprise of most.  In his speech, President Hu promised that China would continue to reform its currency policy, but noted it would be on China’s terms and such reform would be gradual.

With the delay of the Treasury Department’s report on China’s currency policy and recent op-eds in the state-controlled Chinese press regarding the need to give more flexibility to China’s currency — the yuan — it appeared that China would make some sort of concession on the currency issue.  However, the recent crisis in Greece and the European Union, which has resulted in a 20% drop in the value of the Euro against the dollar, changed that opinion.  By effectively tying the yuan to the dollar, as the dollar gets stronger against the Euro, Chinese goods become more expensive in the European Union, China’s largest export market.  So President Hu’s promise to do something about China’s currency policy was a bit of a surprise.  And the public nature of the comment was even more surprising since the revaluation of the yuan is a hot-button issue for the Chinese domestically: Beijing does not want to appear to be placating to U.S. demands.

But what remains to be seen is when: when will China adjust its currency policy.  Don’t expect that question to be answered at the S&ED which concludes Tuesday afternoon.

Adam Segal Discusses U.S.-China Relations in a Cyber World

By , April 14, 2010

World leaders met this week in Washington, DC to discuss the danger of nuclear war.  But as the world becomes increasingly reliant on the internet and increasingly connected through it, another threat is beginning to loom large – cyberwar.  When noted technology giant Google is susceptible to cyber-attacks, that does not bode well for the rest of us.  How safe is the U.S. from a large-scale cyber-attack?  Today Chinese hackers attack Google’s servers, but what about tomorrow?  Will the next attack be on something more critical, like a U.S. power grid?

Dr. Adam Segal, Ira A. Lipman Senior Fellow, Council on Foreign Relations

Dr. Adam Segal, Ira A. Lipman Senior Fellow, Council on Foreign Relations

To understand the complex issues underlying the world of hacking and cyber-espionage, and how it relates to U.S.-China relations, China Law & Policy sat down with a noted expert on both China and cyber-security, Dr. Adam Segal, the Ira A. Lipman Senior Fellow at the Council on Foreign Relations.   In this exclusive interview, Dr. Segal discusses the nature of the attacks on Google, the involvement of the Chinese government in the hacking world and the danger China poses to the U.S.’ cyber-security.  But as Dr. Segal makes clear, it is not a one-sided affair; the U.S. also plays a very active role in hacking and cyber-espionage, making it difficult to challenge China when something like the Google incident arises.  Dr. Segal also explores the need for international cooperation on these issues and the role that international law can play in containing the threat.  Unfortunately, as he points out, the world community is far from reaching any sort of agreement, leaving all nations susceptible.

Click here to listen to the interview with Dr. Adam Segal (read below for transcript)

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ELCan you just give our listeners a little bit of background on the hacking which lead to Google’s announcement in January that it was looking to leave China?  How widespread and sophisticated was the attack and what was the theft that Google referenced in its press release if you know at all?

AS: Google announced that it was going to be shutting down its business in China.  And what they said drove them to that decision was a hacking incident which seems to have two main components.  The first was, as you said, a kind of attack on Google’s intellectual property, its corporate knowledge and corporate property.  And the second was attacks on the G-mail accounts of human rights dissents.  Google said it traced those attacks back to China; it didn’t implicate the Chinese government.  Others, like the New York Times have traced it back to Shanghai Jiaotong University and a computer training institute but the source of it still remains a bit of a mystery.

There is some debate about how sophisticated the attacks actually were.  They were referred to as the Aurora attacksHacker hackingGoogle has consistently said that they were extremely sophisticated but a number of other security analysts have said that in fact they were fairly basic, that much of the code used has been floating around for a long time.  What the IPR that the Chinese got or were trying to get is unclear, Google hasn’t specifically said.  Some people seem to believe that it was basically that it was the data and databases that Google collects on its own users.  So basically the kind of core knowledge that Google extracts from what Google users do, how they do it, when they do it, which would be one of the most important kind of assets that Google has.

ELIn tracing back, or Google saying that the attacks were traced back to China, why is that difficult to ascertain?  To what degree…Can you put a percentage on how accurate you can trace back an attack?

AS:  The problem is that you can continually trace back the attacks to certain computers or to certain networks or IP addresses, but often once you get there, some more poking around leads you to another computer behind that.  And the other thing is the hackers themselves can spoof the address that they are using.  I think there becomes a fairly high degree of certainty about where the attack might have come within a national network.  In some cases, even down to specific IP addresses.  But even then you don’t know who the hacker was that was involved and you don’t know the hackers relationship to any state organization or anybody else for that matter.

ELAnd in terms of China specifically, the cyber-hacking, how prevalent is cyber-hacking from China compared to other countries like Russia or even the United States?  Is China being singled out here?

AS:  I think China is being singled out in a sense.  I mean given that it was a high profile attack on a company like Google, but also given the state of U.S.-China relations right now, that it fed into a worsening tenor in the bilateral relationship.  But in raw numbers, for criminal activity, clearly Russia is very high up there and we saw the political uses of cyber-hacking in the case of the Georgian war and Estonia and some other high profile political cases.  And there is a large amount of hacking that comes from the United States and that’s actually one of the big complaints on the Chinese side – is that the Chinese are being scapegoated and they themselves are often victims of attacks and many of those attacks come from servers in the United States.  When you look at the number of bad ISP – Internet Service Providers – that are hosting botnets and other kind of zombies that are attacking, there are a large number of them that are in the United States.  So, China is also a victim.

ELJust focusing on just China and the hacking there, can you explain maybe a little bit more what the hacker community is like in China.  Is it an organized community?  And what motivates the hackers – do they do this just for fun or are they ever “hired” for their skills?  And also how do they determine targets – how was Google determined?  Was that just something for fun or for profit?

hacked-computer-june08AS:  I think the community itself is incredibly hard to characterize.  It’s very diverse, it’s, I think, very decentralized.  The community represents kind of the similar community that there is in the United States and Russia.  There are what they called script-kiddies – people, teenagers who are doing it for fun or to show off or to see what they can actually accomplish.  There are criminals – people that are just hacking for financial gains.  There are what are called patriotic hackers – people that hack websites out of a kind of nationalistic feeling.  Then there are hackers that are probably employed by the Chinese government, probably by the military and the security agencies that are used to attack specific targets for political reasons.  And then there are hackers in the military that are thinking about how cyber would be used in an actual military conflict.

Of course, the important question is the relationship about all of these people and I don’t think we really have a very good idea.  Clearly, there is some blurring of boundaries of patriotic hackers and criminal hackers.  The system itself seems to be in many ways a kind of mirror of the system that has made China such a power in the global manufacturing which is that there are kind of contracts and subcontracts and subcontracts of what people do.  Somebody might be in charge of writing a very low-level code and that code is then packaged up and used by people above them, who may then might contract for a specific project or may sell it on the open market.  Certain things are just put out there on hacker websites and you can just download them and buy them just for your own thing.

Why Google was targeted.  If, as Google says that they were part of an attack that seems to have included at least 30 other technology companies, there does seem to be a push from Chinese intelligence community, from its espionage community, to try and get advanced technology from foreign companies.  So we have seen for at least five years, if not longer, pretty concentrated, focused attacks on defense contractors and other U.S. technology providers.  And then, once you add the attack on the dissidents as well, then that also seems to be one of the interests of the attacks.  But who was, who within the Chinese government organized it or put it in a larger strategy, I think that we really have no idea. 

EL:  I guess that raises kind of the other issue that has been floating around there with the Google incident and cyber-hacking in general, is to what degree is the Chinese government involved in some of these incidences?  I know Northrop Grumman issued a report last year to the US-China Economic and Security Commission analyzing the link between, hacking for military purposes, but this general hacking of corporations, could it be that the Chinese government is behind it?  And also, when you make this distinction of political hackers, would that be motivated by the Chinese government or is it just a by-product of the nationalism that seems very active in China right now?

AS:  I don’t think we know.  I think the most we can say is on the espionage side, it just matches, or it pushes in the OLYMPICS/SECURITY-PLAsame direction of a general concern we know that China has about technological dependence and wanting to gain as much technology from the West as possible.  That strategy I think has been in place for fifteen, twenty years.  That includes perfectly harmless, normal technology policy about how China is going to increase its own technological capabilities, goes from that to espionage and theft.  You would expect that that would include the normal type of espionage or bribing, stealing, theft of secrets from corporations, to now including cyber-espionage and attacks and those things.  So I would say that the government has a role in the sense that it has set this general direction of the policy and these concerns about technology and China’s desire for it.

Clearly the intelligence agencies probably have a sense of specific technology that they are concerned about and want to know more about.  So the hacking of the F-35 and the F-22 and those kind of things, those are clearly probably driven by government agencies who are looking at a potential conflict with the United States and want to know what those capabilities are.

But once you get to the level of Google – is there a government official that says, well if we hack Google, then we can give that information to Baidu [the popular Chinese search engine] and we can have a competitor, I don’t think we can know.  That clearly is a possibility but at this point, it may just be criminal.  It may be a criminal that turns around and says to Baidu – we can sell this to you.

On the dissident side, I think it is probably very similar also.  I think in some cases the security agencies may have….are targeting specific individuals who are using those capabilities.  In other cases criminal hackers go after people and then turn around and say to the intelligence agencies – we’ve got this person so either do something for us or pay us for the information.

ELIn the press it has often been the Chinese government attached to this cyber-hacking, but does the Chinese government ever see this cyber-hacking as a threat to its own rule either from domestic hackers or from hackers in the U.S.?  Are the government agencies ever a victim of the cyber-hacking and cyber-espionage either domestically or from abroad?

national-security-agency-sealAS: Yeah, I would think all of the time. I think, from the international perspective the Chinese basically assume that the United States is engaged in cyber-espionage all of the time.  And that given our capabilities, in particular the capabilities that exist in the NSA – the National Security Agency – that they are….we are probably getting more from them then they are getting from us, in the Chinese perspective, and that we are constantly hacking them.  So they point to that as well as to the discussions in the United States about creating a cyber-command in the military and discussions about controlling the commons and all these other things as kind of a representation of American hypocrisy.  We are talking about militarizing cyber-space while they are being hacked.  So I think yes, that’s clearly and issue from outside of China.

On the domestic front I think yes, that Chinese government agencies and corporations are being hacked.  There’s been a number of prominent cases of Chinese hackers spreading malware to try and steal identity numbers and virtual money from these multiple player games.  Very prominent hackers have been arrested and eventually imprisoned.  So I think that is part of the threat.

The other threat is of course is that, dealing with these patriotic hackers is a double-edged sword for the Chinese government.  There is a fear that while they are focusing externally, U.S. corporations or U.S. government websites, in the case of the Olympics on French websites and things like that.  But if their ire is turned inward then those people could hack Chinese government websites.   I think the Chinese government is very concerned and you can see that in discussions about their own cyber-security but also trying to develop new types of software.  The problem is that the Chinese is hyper-reliant in Microsoft, something like 90% of Chinese government offices use Windows.  A lot of that is pirated which means that it is not updated regularly for security patches.  So there is a lot of vulnerability.

EL:  You make this distinction between patriotic hacking, criminal hacking, commercial hacking, but under Chinese law itself, is hacking in general illegal?

AS:  It is.  There are laws on the books against hacking, criminal hacking, privacy laws.  Those were strengthened in

Cute & Cuddly until he infests your computer

Cute & Cuddly until he infests your computer

December 2008 and then again in February of this year I think.  The Chinese announced that they were going again to try to strengthen anti-hacking laws, in particular the kind of punishment for hackers.  Also on-line privacy issues and some tort issues about privacy and defamation.  Like I said, there are prominent cases of hackers who have been arrested and fined.  This guy who wrote this malware called Panda malware I think it was, and was sentenced to I think 3 years and fined $18,000.  So there are domestic laws against it.

ELAnd do you think the domestic laws are sufficient in dealing with this?  And also how do Chinese laws compare to laws in the United States against hacking?

AS:  I think they’re comparable.  I think the issue is with all laws in China has to do with implementation.  Clearly the issue for the United States or other countries, investigating hacking requires more cooperation from the Chinese about, who’s behind the attacks and actually following up on prosecution.  But I think within China, I suspect the issue is not the law per se but expertise….all the things we have in the United States about how do you prosecute cyber-crimes – expertise at the local level, resources, enough people staffing these kinds of issues.  From the Chinese perspective also, the U.S. hasn’t been all that helpful either.  I have heard a number of cases where the Chinese have turned around to the FBI and said –we think this hacking is coming from the United States.  And the United States has not been all that responsive from what I’ve heard.

EL: I guess cyber-hacking, it’s definitely a crime more without borders.  So how do you see international law or treaties coming into play here to battle the threat of cyber-espionage?

AS:  I don’t think there’s much to be done about espionage.  There’s no international treaties against espionage.  We engage in it, they engage in it, our allies engage in it.  I think that is likely to happen.  I think espionage we have to figure out how we are going to defend ourselves against.  The problem with espionage of course though is that it is hard to differentiate espionage from what could become vandalism or an attack.  So I think what we want to kind of agree on with the Chinese is that we know espionage is going to go on, but things like probing electricity grids, that should not be occurring or other kind of critical infrastructure.  We should be working on how do we declare those off limits.

On the criminal front there is a…the Council on Europe has this convention on cyber-crime.  I can’t remember how treatymany countries have signed it now, it’s about I think 20 or 40, I can’t remember exactly.  But part of the problem is that most of the major players haven’t signed it; the U.S. has signed it, Japan has signed it but Russia hasn’t signed it.  Which goes a long way in defining consistent standards across national borders about what a cyber-crime is, how do you punish hacking, create a deterrent.  The problem with Russia, China things that we see as freedom of speech they see as a cyber-crime so that has been a problem in the case of Russia.  But the Chinese seem to be at least studying the Council on Europe convention which often kind of the first sign that the Chinese are moving toward international standards.  So I think that is a way to move forward.  And within Asia itself, ASEAN has had a couple of discussion about creating a similar kind of convention on cyber-crime in the region.

And then the other issue is this international convention on arms control, on cyber-war.  The United States has entered into discussions with the Russians about it.  That I think is very difficult and I think unlikely to be very useful because in the kind of traditional terms of arms control verification, inspection, those are all impossible with cyber-weapons.  So, that I think is useful just for talking for talking’s sake but will not result in any kind of concrete agreements.

EL: Just to follow-up on the convention on cyber-crime, you said that one of the problems is definition of terms.  Is that the only thing that would hold back a country like China or Russia from signing on to this kind of convention?  Or are there other factors?

AS: I think that’s a big one but I do think also that right now at least China and Russia find it politically and strategically useful to kind of have this arms-length relationship with hackers.  As we talked about earlier, this ties the government’s willingness to directly use or indirectly use hackers for their own political purposes makes it….right now that’s a reason for them not to crackdown too hard on criminal hacking.  So that is I think another reason why it has been hard to create a common ground.

ELDo you think that there is any space for having maybe a bi-lateral agreement between U.S. and China or a tri-lateral agreement between U.S., China and Russia about issues of cyber-espionage like not probing electricity grids or things like that?  Or do you think it would have to be global?

AS:  Well I think any convention would have to be global.  But I think there is a benefit for having these bi-lateral discussions only if because this area is newly emerging and policymakers I don’t think are particularly cognizant of all the risks and problems involved in any of these issues.  So just having a discussion with the Russians and the Chinese and others about what the potential rules of the road might I think are probably pretty useful.

EL: Absent any kind of global agreement, how best should the U.S. government and U.S. corporations deal with this issue of their own?  How can they better prevent it from happening?  Or can they?

Howard Schmidt - Cyber Czar

Howard Schmidt - Cyber Czar

AS: That’s what we are struggling with now.  The United States finally has the cyber-czar in place, Harry Schmidt.  I think one of the big things that is still occurring in the United States is kind of a debate about what the best metaphor for this is, how do you think about this cyber-issue.  You have those like, the op-ed in the Washington Post several weeks ago by the former head of NSA, McConnell, about basically cyber-war and we’re losing it and his response was very much a militarization of cyber-space.  In fact he calls for something like the re-engineering of the internet so we can basically see where any attack is coming from.

And then you have Schmidt at a conference a couple of weeks ago saying – I don’t believe in cyber-war, I don’t think cyber-war is the right metaphor.  And you have those people talking about resilience and more of a public health model for how you respond to these things – you have to defend, you have to respond, you have to quarantine.

So I think we have this broad outline, we have this debate to settle in the States.  But the way we are moving is probably closer to the public health, well actually probably both tracks at the same time.  From the defense side I think you are beginning to see more traction on private-public cooperation, about definitions of standards – what does secure actually mean and how should it be implemented, more spending on R&D for cyber-security, more training of people and that’s a major issue is about getting people trained, more public awareness.  These are all domestic issues.

EL: And just a final question.  Since President Hu Jintao is in the United States, in Washington today, do you think in his side talks with President Obama, the issue of cyber-hacking and cyber-espionage will be coming up?  How important do you think the Administration views this issues especially in light of the fact that Secretary of State Clinton has openly talked about it?

AS:  I suspect it wasn’t brought up in these meetings if only because over the last two and a half weeks it has been a clear effort on both sides to try to get the relationship back on track.  Clearly the Administration’s major strategic concern right now is Iran and then with the currency being the second concern.  So those are the two issues, from what I’ve heard, were discussed in the meeting.  I suspect there were no reasons to bring up the cyber-issues because there are no solutions or discussion that is helpful to both sides at this point.  So other than just poking them in the eye with it, I don’t see why they would bring it up.  So I suspect it was not discussed.

EL: Thank you very much.  This was very interesting and I appreciate your time.

AS:  Thank you.

Google & China: Is it Really About Censorship?

By , March 30, 2010
Is it St. George or Google that Slays the Dragon?

Is it St. George or Google that Slays the Dragon?

Google has become the Western media’s new Saint George.  With its pullout from China last week and its refusal to submit to the Chinese government, Google slew the dragon of censorship, or at least that is the story being marketed by the press.

But if we look back to Google’s announcement from January 12, 2010, the catalyst of Google’s troubles in Beijing had little to do with censorship.  Instead, what initiated Google’s eventual withdrawal from China was the hacking attack of its computer infrastructure and the theft of valuable intellectual property.  Absent this attack, would Google have left China?  How did we go from a cyber-attack to a principled stance on censorship and why?  And is relying on Google to promote human rights a good thing?

Don’t Be Evil….Unless it Doesn’t Correspond with Shareholders’ Interests

Google claims that its informal motto of “don’t be evil” is a central pillar of its corporate core values.  But in reality, its motto can only be applied to the extent that it does not conflict with shareholders’ interest.

Google is a publicly traded company and as such, its primary duty to is to its shareholders, usually achieved through the maximization of profits.  This isn’t just a precept of sound business; it is an actual requirement of the law.  In the U.S., directors and officers of a corporation have certain fiduciary duties toward the corporation’s shareholders; if an officer or director acts in a way that breaches these duties, shareholders may bring an action against the board of directors and the officers.   This is to guarantee that the directors and officers act in good faith toward a corporation’s shareholders and make decisions based upon reasonable business interests and not upon personal ones.

Before Google made its January 12 announcement, rest assured that it probably checked with legal counsel to guarantee that shareholders could not bring a suit against it for violating fiduciary duties.  Most likely someone wrote a memo analyzing the merits of shareholders’ potential claims against Google for pulling out of the largest internet market in the world.

The current China internet market totals around 348 million users, more than the population of the United States but Google profitsless than a third of China’s potential internet population of 1.3 billion people.  With such an untapped potential, even if Google maintained its 33% market share of the Chinese search market, it could potentially reach 429 million people.

Can walking away from a market that potentially could be that big ever be justified to shareholders on the grounds of Google’s censorship?

Likely not.  A rational shareholder purchases shares of Google not because of its founders’ stance on censorship in China but more for high return on its equity investment; in other words, profits through increased share price.

So how does Google get away with avoiding a shareholder lawsuit?

First, Google’s foray into China resulted in marginal benefits for the company.  Google did not enter the Chinese market with its Chinese search engine google.cn until January 2006 (to understand the difference between google.cn and google.com see CL&P’s previous article).  However, prior to 2006, Chinese internet users were able to access the U.S.-based search engine, google.com.  At the end of 2005, just through the use of the U.S.-based google.com, Google already had 27% of the Chinese search engine market.  Fast-forward to 2010, four years after it launched its censored Chinese search engine, Google was only able to raise its market share six percentage points to 33%.  Even with its withdrawal from the Chinese mainland, Chinese internet users will still have access to Google either through its U.S.-based search engine, google.com, or its newly established Hong Kong-based search engine, google.com.hk.  Thus, Google’s market share in China will likely continue to hover around 30%.  So the impact of Google’s withdrawal on its profits is relatively small, staving off a shareholder lawsuit.  If profits in China were higher, would Google still have left?  Maybe not.

Furthermore, the initial reason behind Google’s departure – a cyber-attack – is likely sufficient to justify giving up the domestic China market and the meager increased profits.  Although the cyber-attack has been pushed to the background, it’s actually a pretty big deal.  The attack on Google, which was coordinated with an attack on over 30 other western high tech companies, resulted in the theft of proprietary source code and other intellectual property.  While Google hasn’t openly discussed the extent of the cyber-attack, Adam Segal of the Council on Foreign Relations and an expert on cyber-espionage, hypothesizes that the Chinese hackers made substantial inroads in obtaining some of Google’s core technologies, namely “how it collects information on users and how it uses it to exploit its [Google’s] market advantage.”  This is information that is core to Google’s success and not something that it wants hackers to be able to access.  Any gains from protecting this information far outweighs the losses of shutting down its Chinese search engine.

Cyber-attacking or Playing the Art of Warcraft?

Cyber-attacking or Playing the Art of Warcraft?

Why then the censorship angle?  First, companies don’t really like to announce their vulnerabilities to cyber-attacks.  It’s not surprising that not a single company out of the other 30 that were attacked has stepped forward.  But second, and perhaps slightly cynically, the censorship angle is a marketing bonanza for Google.  Google is the West’s white knight, and although its share price has dropped significantly since it first threatened to leave China, it could have fallen lower absent the positive press surrounding its departure.

And if this was really just about the censorship, why did it take over two months for Google to leave the mainland?  The Chinese government is not about to give up on censorship, as Google executives must be keenly aware of.  So why prolong it?  And if censorship is so abhorrent to Google’s mission, why continue to promote your Android technology on Chinese mobile networks?  Censorship in China is not limited to computers.  A tremendous amount of censorship and surveillance also occurs on mobile devices.

Google’s principle stance against censorship likely has merit and its belief in “don’t be evil” isn’t idle chatter.  But in regards to Google’s withdrawal from China, censorship was neither the only nor the primary reason for its departure.

What’s the Big Deal if Google wants to Say it Left because of the Censorship?

First, by relegating the cyber-attack aspect of the Google-China incident to the background, the press, U.S. government and corporate America avoid confronting what some call the greatest threat to U.S. prosperity.  Adam Segal – in an interview on Digital Age – offered a sobering account of cyber-espionage and the U.S.’ lack of preparation to deal with this increasingly sophisticated threat.  Although previously focused on military secrets, Mr. Segal argued that the threat is increasingly on corporate secrets.  One of the last vestiges of the U.S.’ success lies in its intellectual property.  But cyber-espionage, especially by the Chinese, puts this very much at risk.  Before, companies avoided intellectual property theft by not doing business in China or setting up an office there.  But now, with increasingly sophisticated hacking, companies can no longer avoid the risk that their research and development is vulnerable – the physical location of a company’s R&D does not matter.  According to Rahm Emanuel, “never let a serious crisis go to waste.”  But that is exactly what happened here.  Every discussion about Google – from the press to Capitol Hill to the Administration –  has been about censorship, not about the more serious threat to the U.S.’ national security, cyber-espionage.  Google should certainly be commended for being so open about the Chinese cyber-attack.  Such frankness and cooperation with the U.S. government is important in battling cyber-espionage.  But the U.S. government appears to have largely ignored this opportunity to create a structure or a defense to deal with this issue.

But perhaps more importantly, should we rely on Google, a publicly traded company, to serve as our proxy on issues

Human Rights Attorney, Gao Zhisheng

Human Rights Attorney, Gao Zhisheng

of human rights?  Google was not created to promote human rights; Google’s dual aims are technology innovation and profits.  And there is nothing wrong with that; it’s what corporations do.  But by focusing so much on Google’s decision to leave China and cloaking it in this narrative of a principled stance against censorship, are we excusing our own behavior and inaction?  While the press has focused on Google’s departure from China, a real human rights defender, GAO Zhisheng, has “disappeared” in China.  Detained by the Chinese police last year, Mr. Gao went missing a few months ago with Chinese officials stating that he was “where he should be.”  Only yesterday was he found, alive.  But this story has received little attention from mainstream press and scant consideration from the Administration (the Google incident inspired a speech from the Secretary of State).  What kind of emerging superpower says that one of its citizens is where he belongs?  And what kind of society that is considered a bastion of human rights allows this power to get away with it?

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