SinoTech

U.S. Courts Halt Bans on Chinese Apps

By Abby Lemert, Eleanor Runde
Wednesday, October 7, 2020, 5:04 PM

Federal courts have stayed President Trump’s August orders for nationwide bans on two Chinese-owned apps—WeChat, the multipurpose app with more than a billion users worldwide, and TikTok, the video-sharing app that has gone viral among young Americans—moves that set the stage for protracted litigation.

On Sept. 19, Magistrate Judge Laurel Beeler of the U.S. District Court for the Northern District of California issued a preliminary injunction halting the Trump administration’s proposal to ban U.S. app stores and internet services from distributing or hosting WeChat (a move that would have made the app unusable). Beeler found that the government’s policy was not narrowly tailored to its stated purposes: “[T]he prohibited transactions burden substantially more speech than is necessary to serve the government’s significant interest in national security, especially given the lack of substitute channels of communication [for Chinese communities in the United States].” On Oct. 2, the government appealed Beeler’s decision in the U.S. Court of Appeals for the Ninth Circuit.

While WeChat is an all-purpose app inside China, Chinese expats and Chinese Americans in the United States use it primarily as a way to communicate with and send money to family and friends. As noted in Beeler’s order, the Chinese community in the United States has limited options to communicate with family and friends in China; Western platforms like Facebook are banned there, and no other Chinese-language platforms can match WeChat’s market presence in the United States. Therefore, a ban on the WeChat app would have significant ramifications for the social connections between residents of China and the Chinese diaspora in the United States.

Tencent, the internet and entertainment conglomerate that owns WeChat, has been attempting to work around the ban since President Trump announced it on Aug. 6. Trump’s executive order promised to prohibit all U.S. transactions related to WeChat, effective Sept. 20.

A few days after Trump’s executive order, Tencent rebranded WeChat Work—an office communications product within WeChat—as a separate app called WeCom. As WeChat users scrambled for an alternative ahead of the ban’s implementation, WeCom downloads spiked to nearly two hundred times what they were over the same two-day period the week prior. Tencent claims that WeCom falls outside the purview of the Trump administration’s proposed ban. But the administration’s legal strategies are likely to expand if, as some analysts assert, Tencent itself is Trump’s real target.

On Sept. 27, Judge Carl Nichols of the U.S. District Court for the District of Columbia granted a preliminary injunction against the Trump administration’s order to ban TikTok from U.S. app stores. The International Emergency Economic Powers Act (IEEPA), which was cited as the authority for Trump’s executive orders, gives the president broad powers during declared national emergencies to regulate and block private international transactions of currency, credit or property. But Nichols found that the videos and messages shared by TikTok users on the app fall under IEEPA’s “informational materials” exception, which reads:

The authority granted to the President by this section does not include the authority to regulate or prohibit, directly or indirectly … any postal, telegraphic, telephonic, or other personal communication … [or] the importation from any country, or the exportation to any country, whether commercial or otherwise, regardless of format or medium of transmission, of any information or informational materials, including but not limited to, publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and news wire feeds.

The Department of Commerce planned to implement Trump’s order on TikTok with two separate regulations. The first, which would have gone into effect on Sept. 18, prevented new downloads of TikTok from domestic app stores. Nichols’s ruling blocks this action for now. The second Department of Commerce action would subject TikTok to the same domestic service restrictions that would have been imposed on WeChat in September, rendering the TikTok app useless. Nichols has not passed judgment on this second action, but he has instructed ByteDance that the deadline to file a temporary injunction in regard to service provider restrictions is Oct. 14. TikTok and the government are likely to address this issue in court during the first week of November. If upheld, the domestic service restrictions would go into effect on Nov. 12.

Negotiations over a partial sale of TikTok—which has been hailed as a solution to the shutdown for the app’s U.S. users—are likely to remain in limbo until these legal issues are resolved. Recent reporting indicates that ByteDance, TikTok’s parent company, is set to create a new company, TikTok Global, for the app’s U.S. operations. ByteDance would retain an 80 percent stake while the other 20 percent would be split between Walmart and Oracle, which would house TikTok Global’s U.S. user data. (The meaningful division of combined ownership, according to Ben Thompson of Stratechery, will depend on how shares of TikTok Global are distributed, since ByteDance, Walmart and Oracle each have both U.S. and non-U.S. investors.)

However, the proposed deal has faced scrutiny from both the U.S. and Chinese governments. Though initially opposed, President Trump more recently appeared amenable to the deal. But Beijing has its reservations. State media outlets have called the deal “a dirty and underhanded trick” governed by “hooligan logic.” Beijing has also issued export restrictions that might prohibit transfer of the TikTok algorithm. Last week, ByteDance submitted its proposal to commercial authorities in Beijing; approval is expected to be complicated by ongoing political uncertainty inside China.

Neither battle will end before the U.S. general elections in November. At a Sept. 19 campaign stop, Democratic presidential candidate Joe Biden called TikTok’s U.S. operations “a matter of genuine concern” and promised to review the app for security issues if elected.

China Launches International Data Security Initiative in Response to U.S.

On Sept. 9, China announced that it would launch an international data security plan, the “Global Initiative on Data Security,” in an effort to counter the United States’s recent moves against Chinese tech firms.

At the recent International Seminar on Global Digital Governance in Beijing, Chinese Foreign Minister Wang Yi announced the new initiative, which comes as a response to the U.S. Clean Network program, a government effort launched in April 2020 to keep Chinese companies out of critical segments of the global internet. “I hope the Chinese initiative will serve as a basis for international rules-making on data security,” Wang said, calling on other governments and international organizations to take up China’s data security proposals.

Amid increasing concerns of an emerging U.S.-China “Splinternet,” China has offered the world an alternative set of data security norms and practices, one with a greater emphasis on “mutual trust” and “cyber sovereignty.” In proposing the Global Initiative on Data Security, Wang said countries should oppose the use of information technology to damage other nations’ critical infrastructure or steal important data. The proposal also calls on states to desist in their “coercive” data localization requirements, an implicit critique of U.S. claims regarding TikTok’s U.S. user data.

Washington’s Clean Network program was launched in April 2020 and expanded in August 2020, drawing on earlier joint statements of 5G network security principles such as the Prague Proposals and the EU 5G security “toolbox.” Citing the U.S. program, several countries and more than 30 large telecoms have signaled support for the pledge to keep networks free from ties to “untrusted” vendors.

This multilateral support for Washington policy makes more plausible the possibility that a large swath of the global internet could be walled off from “untrusted” Chinese actors. In practice, the United States assesses “clean” networks as those free from Chinese state influence. The implication of “uncleanliness” may be particularly offensive in China, where hygiene standards have a particular historical (and newly relevant) salience.

This latest skirmish between the U.S. and China over norm-setting in data security mirrors the two countries’ jockeying in other international arenas, including at the United Nations, the Third Generation Partnership Project (3GPP), and the International Telecommunications Union (ITU). Chinese diplomats have begun to target nations by individually calling for the countries to join their initiative, with early examples including South Korea and Estonia. The two U.S. allies have remained noncommittal.

Other countries, however, have readily joined the Chinese bloc. Syria signed on to the Global Initiative on Data Security enthusiastically. The Philippines, although leading an ASEAN alternative for data governance, also voiced support for the new Chinese proposal at the annual China-ASEAN foreign ministers’ meeting on Sept. 11. At this conference, Philippine Foreign Secretary Teodoro Locsin expressed a desire to work with China on global digital governance and cybersecurity.

The Global Initiative on Data Security contrasts U.S. hawkishness with more relaxed language promoting “multilateralism” and “mutually beneficial cooperation” in line with Beijing’s vision of internet sovereignty. The Chinese proposal calls for data security standards that “reflect the will and respect the interests of all countries” and “provide an open, fair and non-discriminatory environment for all businesses.” Meanwhile, Beijing has denounced U.S. diplomatic tactics in the Clean Network program as “protectionism,” “politicization of security issues, double standards and slandering.”

Chinese companies at multiple layers of the technology stack, including Huawei, WeChat and TikTok, as well as lesser known players, will be negatively impacted by the Clean Network program. The U.S. State Department believes the global tide is turning in America’s favor on the issue of “trusted” 5G providers, as even the cautious German chancellor, Angela Merkel, has been forced to tighten restrictions on Huawei under significant domestic pressure.

But despite a significant hardening in Western European attitudes toward Huawei over the past year, it remains unclear how the rest of the world would align if forced to choose between the U.S. and Chinese approaches to internet and data governance.

Other News

U.S. Department of Commerce Restricts Exports to SMIC

On Sept. 26, the U.S. Department of Commerce tightened restrictions on U.S. exports to China’s biggest computer chip maker, Semiconductor Manufacturing International Corporation (SMIC), on grounds of suspected ties to the Chinese military. Huawei is SMIC’s biggest client, accounting for about 20 percent of the chipmaker’s sales. The rules, communicated in a letter to America’s biggest computer chip manufacturers, require American companies to obtain a license before exporting certain products to SMIC.

The ultimate impacts of the Commerce Department’s application of the “military end user” designation to SMIC remain unknown. U.S. manufacturers of testing equipment for semiconductors are expected to be hit hard by the regulation. Supply chain independence for the production of semiconductors was a goal included in China’s Made in China 2025 initiative. More complete control over the production of semiconductors has been a long-standing goal for Beijing and may gain momentum due to the U.S. Commerce Department’s new regulations.

In the short term, China is likely to turn to other domestic chipmakers, in addition to Dutch and Japanese suppliers, to make up for SMIC’s losses. SMIC is estimated to lag about three to four years behind market leader Taiwan Semiconductor Manufacturing Company (TSMC) in chip efficiency, which is a measure of performance based on the chip’s size and energy usage. In May, TSMC announced the construction of a new fabrication plant in Arizona to be opened in 2024. The semiconductor industry is a growing and critical front in the emerging tech cold war.

People’s Bank of China Announces Preparation of State-Backed Digital Currency

On Sept. 24, the People’s Bank of China announced that it is ready to launch a state-backed digital currency. This electronic currency would be the first of its kind in the world if implemented. While analysts believe the new currency is unlikely to cause a surge in the popularity of the renminbi as a world currency, the launch would mark a major step in China’s digital finance efforts. President Xi Jinping last year exhorted Chinese Communist Party officials to accelerate progress on a digital currency as well as blockchain technologies. If adopted widely, a digital currency would strengthen the Chinese government’s capability to oversee financial transactions, but some analysts worry that it would also compromise user privacy.

EU Tightens Oversight of State Backing in Foreign Investments

On Oct. 11, the European Union is set to enact foreign investment regulations that scrutinize private entities with state backing. These rules are likely to encompass more than half of all Chinese companies that operate in Europe.

The new regulations come as European leaders have begun to take a harder line on China. The mid-September EU-China summit, which was meant in part to accelerate negotiations on a long-touted EU-China bilateral investment treaty, failed to make notable progress. Ursula von der Leyen, the current president of the EU Commission, described the talks as “frank.” And many Central and Eastern European countries appear to be increasingly skeptical of Chinese influence; as reported by MERICS fellow Grzegorz Stec, the Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovenia have all signed on to the United States’s anti-Huawei 5G policy. In July, Britain banned Huawei, while France gradually restricted the 5G company’s operations over the course of the summer. Britain has created an expedited visa offer for Hong Kong residents. France summitted recently with India and Australia to discuss a joint Indo-Pacific strategy. EU Commission President von der Leyen has proposed a European Magnitsky Act for sanctions on individuals involved in human rights abuses, which she indicated could impact Chinese officials.

Even Germany has begun to align its China policy more closely with that of its European neighbors. Despite Germany’s recent history of close economic ties to China—on Oct. 6, Axios reported the existence of a 2018 internal German intelligence memo detailing Chinese influence within the German government—domestic pressures have changed the dynamic. As German manufacturing loses out to Chinese competition and some German newspapers call on China to compensate Germany for the impacts of the coronavirus, the German government has adopted a newly confrontational stance. In early September, German Foreign Minister Heiko Maas unveiled a new strategy for the Indo-Pacific, deepening ties with Japan and South Korea as part of a balancing act in Asia. On Sept. 29, Chancellor Merkel criticized Beijing’s approach to dissent in Hong Kong and treatment of Uighurs in Xinjiang. On Sept. 30, German media reported a barrage of government restrictions on data providers, which will make it nearly impossible for Huawei to continue operating in Germany. And in an Oct. 6 speech to the United Nations, the German ambassador to the UN called for countries around the world to observe non-refoulement (the practice of not returning refugees and asylum-seekers to the place of persecution) with respect to Uighurs from Xinjiang.

Commentary

Following publication of the House Intelligence Committee’s “China Deep Dive” report, Committee Chairman Rep. Adam Schiff writes in Foreign Affairs that the U.S. intelligence services are not prepared to confront the multifaceted challenge that China presents. Tia Sewell summarizes the committee’s report for Lawfare.

On Sept. 18 and 19, Chinese combat aircraft repeatedly breached the median line of the Taiwan Strait. Retired U.S. Navy Capt. Raul Pedrozo puts the violations in context for Lawfare.

Robert Knake argues for the Council on Foreign Relations that the Clean Network program should be modified to prioritize tech norms and to allow partial Chinese inclusion.

MERICS points out that China’s Global Data Security Initiative privacy regulations are closely modeled off Europe’s General Data Protection Regulation, a hint that the initiative may be targeted specifically at Europe.

Ben Thompson of Stratechery argues that the potential for censorship and propaganda via TikTok’s algorithm is the real threat to American interests—not TikTok’s control over user data.

Bobby Chesney and Steve Vladeck break down the recent TikTok and WeChat decisions on the National Security Law Podcast.

Chinese Communist Party leadership has not yet decided if or when to release a list of blacklisted U.S. companies. Analysts predict that Cisco Systems is one of the entities most likely to be included on such a list.

Taiwan’s digital minister, Audrey Tang, has become an unlikely celebrity in the coronavirus era. In recent weeks, she has been lauded for her successful tech- and trust-based approach to curbing the virus’s spread. She has also been profiled as Taiwan’s youngest-ever cabinet minister, a computing prodigy and an advocate for transgender rights.

Andrei Lungu writes for Foreign Policy that the United States needs to define its endgame with respect to China.

Paul Rosenzweig and Claire Vishik publish in Lawfare an annotated bibliography on trustworthiness in information and communications systems.

For Lawfare, Monica Ruiz, Jacquelyn Schneider and Eli Sugarman write on the necessity of Defense Department engagement with the academic community on cyber.

For Brookings, Bruce Jones warns of the potential for U.S.-China tech competition to impede development efforts in the Global South.

A new book by Jonathan E. Hillman of the Center for Strategic & International Studies explores the grand vision of the Belt and Road Initiative, the implications for the U.S. if it succeeds, and the potential ramifications for China if it falls flat.

In a blog post for the Center for Strategic & International Studies, Laren Maranto explains the difficult decisions facing U.S. social media companies in responding to Hong Kong’s new National Security Law.

David P. Fidler, writing for the Council on Foreign Relations’s Net Politics blog, highlights the rise in cyber espionage accompanying the race for a coronavirus vaccine. In another blog post, Michael Garcia predicts the increasing importance of the “Clean Cloud” prong of the Clean Network program.

The Hoover Institution co-hosted an online conference addressing “The Rise of Digital Authoritarianism: China, AI, & Human Rights” with recordings available here.

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