SinoTech

U.S. Justice Department Puts an End to Controversial China Initiative

By Raquel Leslie, Brian Liu
Friday, March 4, 2022, 8:01 AM

The Department of Justice announced on Feb. 23 that it will effectively terminate the controversial China Initiative, a program that sought to protect U.S. laboratories and businesses from economic espionage and intellectual property theft. Assistant Attorney General Matthew Olsen stated that the initiative will now be called “A Strategy for Countering Nation-State Threats” in recognition that the previous focus on China was too limited. “We see nations such as China, Russia, Iran and North Korea becoming more aggressive and more capable in their nefarious activity than ever before,” Olsen said in a speech at George Mason University. “Our new strategy is threat-driven.”

The decision comes after a three-month internal review initiated by Olsen in November 2021. President Biden indicated early in his tenure that his administration would reexamine the program in the wake of criticisms that it engaged in blatant racial profiling and created the impression that U.S. officials are biased against Asian Americans and Chinese nationals. 

The China Initiative, established by the Trump administration in November 2018, was the first country-specific initiative in the department’s history. Since its inception, the program has faced intense scrutiny by civil rights groups and members of Congress for straying far from its initial mission. Rather than focusing on economic espionage or trade secret theft—which face a higher burden of proof—the initiative appeared to become an umbrella for cases with some connection to China. Defendants were often charged with lesser infractions like grant fraud, visa fraud, or lying to investigators, but federal prosecutors still painted them as national security threats. At least 20 academic researchers have faced charges under the initiative, including Charles Lieber, a Harvard University professor convicted in December 2021 of lying about his ties to China in connection with federally funded research. 

But several of the department’s cases were dismissed due to flaws in the evidence, bolstering concerns that the investigations were rooted in racial profiling rather than national security. In January, U.S. prosecutors dropped a case against a Massachusetts Institute of Technology professor charged last year with receiving federal grant money but failing to disclose his ties to China. Prosecutors concluded that their evidence against Gang Chen, a U.S. citizen, no longer met the burden of proof at trial. That dismissal came on the heels of the September 2021 acquittal of Anming Hu, a Chinese-born University of Tennessee professor accused of hiding his relationship with a Chinese university while receiving research grants from NASA.

Though Assistant Attorney General Olsen claimed that his department’s months-long review of the China Initiative found no evidence that federal prosecutors engaged in any wrongdoing, he acknowledged that “[a]nything that creates the impression that the Department of Justice applies different standards based on race or ethnicity harms the department and our efforts and it harms the public.” The department’s new strategy will focus on cases in a few core areas: defending the nation from threats of espionage, export control, and sanctions violations; protecting corporate intellectual property, private information about Americans, and supply chains; and defending democracy from rising threats posed by authoritarian regimes. 

Recognizing the chilling atmosphere for scientists and scholars that these prosecutions can create, the department will set a much higher bar and conduct more rigorous supervision before bringing similar future criminal cases against academics. Olsen said the department’s National Security Division will take an “active, supervisory role” in working with U.S. attorney’s offices and FBI agents to make decisions about China-related cases, such as whether to take civil or administrative actions instead of pursuing criminal prosecutions.

The decision to rename the China Initiative and take a broader approach to nation-state threats has received qualified praise from former prosecutors and civil rights groups. David Laufman, former chief of the counterintelligence and export control section of the National Security Division, said that “retiring the name ‘the China Initiative’ is long overdue,” adding that the Justice Department can prioritize countering the persistent and aggressive threat from China “without the need for an inflammatory moniker.”

But some academics worry that the China Initiative has already inflicted lasting damage to U.S. higher education and America’s ability to attract and retain global talent, calling on Congress to hold the department and FBI to account for their harassment of the research community. While the reforms are encouraging, Jenny Lee of the University of Arizona’s Center for Educational Policy Studies and Practice stated that discrimination and antagonistic views of China continue to “extend well beyond the courtroom.”

Wary of appearing weak on China to Republicans, the Biden administration has had to walk a fine line in scrapping the China Initiative. But Olsen reassured leaders of the Senate Intelligence Committee and White House officials that the department’s work will not be disrupted, citing a recent speech by FBI Director Christopher Wray that disclosed that the FBI has more than 2,000 open investigations into Chinese efforts to steal American technology and opens new cases related to Chinese intelligence operations about every 12 hours. Just this week, security researchers from U.S. cybersecurity firm Symantec revealed their discovery of a “highly sophisticated” Chinese hacking tool called “Daxin” that managed to evade public attention for more than a decade. 

Olsen vowed that the Justice Department will continue to relentlessly combat Chinese espionage and cyberthreats, just without the China Initiative banner. He added that the department will not be “taking any tools off the table” when it comes to bringing possible future cases involving researchers, nor will it drop any of its outstanding cases against professors. The department pressed forward this week with its prosecution of Chinese chipmaker Fujian Jinhua Integrated Circuit Co., which faces criminal charges of economic espionage and conspiracy to steal trade secrets from Idaho-based Micron Technology Inc.

Renewed Fears of Regulatory Crackdowns Drive New Tech Rout 

China’s technology stocks fell to their lowest-ever close on Feb. 22 as investors fear another round of regulatory crackdowns from Beijing. The Hang Seng Tech Index, a benchmark stock market index for Hong Kong and Asian markets generally, dropped 1.9 percent on Tuesday. The tech rout occurred shortly after Alibaba published its quarterly numbers revealing the company’s financial struggles under the crackdown over the past year. According to the report, the tech giant’s net profits plummeted by 74 percent in its worst quarterly growth since the company went public in 2014. 

Commentators have debated whether Chinese President Xi Jinping can maintain his regulatory crackdown on tech. In 2021, the Economist estimated that the crackdown wiped more than $1 trillion off the collective market capitalization of China’s largest internet groups. With the slowdown in China’s year-on-year economic growth to 4 percent in 2021, some economists predicted that Chinese tech regulators would face pressure to pull their punches in the interest of preserving economic growth. 

Still, Xi has indicated that he intends to continue bearing the losses. In a speech published Feb. 16 in the Chinese Communist Party’s bimonthly journal, Xi called for China to “accelerate the pace of legislation in the fields of digital economy, internet finance, artificial intelligence, big data, [and] cloud computing.” Food delivery giant Meituan lost $32 billion in stock value last week, after Chinese regulators suggested that online food delivery platforms should cut fees to support struggling businesses. Chinese regulators also renewed their inquiry into Jack Ma’s Ant Group last week, asking China’s state-owned firms and banks to report their financial exposure to Ma’s conglomerate. 

Rather than slow down overall enforcement, it appears that Xi is pivoting toward prioritizing smaller startups instead. China’s Ministry of Industry and Information Technology (MIIT) announced on Monday that it plans to accelerate its “little giants” startup program to spur innovation. The MIIT plans to add 3,000 state-level startups to the list, expanding the group by 60 percent. The designation allows designated startups to enjoy special economic incentives and the imprimatur of official support from Beijing, and is intended to support innovation in strategically important sectors such as robotics and quantum computing. 

Other News

Chinese Social Media Platforms Crack Down on Ukraine Content

As internet users in China take to WeChat, Douyin and other popular apps to discuss Russia’s invasion of Ukraine, Chinese social media platforms say they are clamping down on “misinformation” and other “inappropriate content.” Examples of improper content include false information on WeChat alleging that students can receive course credit for enlisting to fight in Ukraine, hundreds of click-bait posts on Douyin misleading users to believe that typing in “Ukraine” would generate “explosive effects” on the video app, and vulgar and demeaning messages on Weibo expressing excitement that “beautiful Ukrainian women” may flee to China as refugees. 

The war is one of the top trending items on Chinese social media, drawing hundreds of millions of views and generating intense discussion in a country that has fraught relations with the United States and its Western allies. WeChat, Douyin, Bilibili and Weibo have each condemned inflammatory content on their platforms, calling on users to remain “objective and rational” and uphold a “clean and upright atmosphere” when discussing sensitive international events. Douyin revealed on Feb. 27 that it had removed over 3,500 videos and 12,100 comments related to Russia’s invasion of Ukraine that included “vulgarity, content that trivialized the war, incendiary information, and unfriendly comments.” It also imposed punishments, including account suspension, on almost 500 specific accounts that spread misinformation. Likewise, Weibo announced that it had taken down more than 4,000 posts and suspended over 10,000 accounts that mocked the conflict, while Bilibili deleted 1,642 “inappropriate messages” and suspended 57 accounts.

Chinese netizens appear quite divided in their feelings about the conflict despite Beijing’s refusal thus far to call Russia’s attack on Ukraine an “invasion.” Many users have accused the U.S. and its allies of provoking Moscow, repeating Russian President Vladimir Putin’s claim that he wants to “denazify Ukraine.” Others have called for peace and criticized Russia for bullying Ukraine. A joint statement by five professors from top institutions, including Nanjing University and Tsinghua University, stating their opposition to Russia’s actions was later scrubbed from the internet. Some users suggested that Beijing should observe how the West responds to Russia’s attack for indications of a possible Western reaction should China make a move on Taiwan in the future.

Before the invasion began, foreign governments seeking to dissuade Russia from military action took to Weibo themselves to make appeals. On Feb. 22, the Ukrainian Embassy in Beijing posted a Chinese translation of a statement from Kyiv, condemning Putin for declaring Donetsk and Luhansk in eastern Ukraine as “independent states.” British Prime Minister Boris Johnson also attempted to defuse Ukraine tensions with a Weibo post urging Putin to engage in dialogue. Outside of China, U.S. tech giants like Google, Meta, Twitter and Telegram are grappling with how to handle a parallel information war, caught between escalating demands by Ukrainian, Russian, European Union and U.S. officials. Google and Meta have barred Russian state-run media from selling ads on their platforms, while Twitter announced this week that it would label all posts containing links to Russian state-affiliated media outlets. 

China’s Cryptocurrency Ban Increased Global Carbon Emissions, New Report Shows 

China’s crackdown on cryptocurrencies last year has led to an exodus of Bitcoin mining to other countries, according to a new report in the energy journal Joule. After China banned crypto mining in September, some commentators predicted that Beijing’s ban on the energy-intensive practice would help dramatically reduce China’s climate impact. Instead, the report showed the ban may have caused an increase in the carbon footprint of worldwide Bitcoin mining by 17 percent, as miners migrated to neighboring countries like Kazakhstan. 

When China announced its ban of crypto last year, it joined a quickly growing group of nine countries that have fully banned crypto. Many of the bans were likely motivated by a desire to control capital flight and deter fraud and money laundering. But environmentalists have also pushed against cryptocurrencies because their mining operations require huge amounts of power, which is generated predominantly from fossil fuels. One of the co-authors from the Joule paper, Alex de Vries, has also pointed out the impact of information technology equipment waste, as crypto miners rapidly discard and replace older generations of computers. The environmental impact of cryptocurrency mining led the House Energy and Commerce Oversight and Investigations panel to hold a hearing in January examining the issue. 

While the export of Bitcoin mining may have negatively contributed to worldwide carbon output, the ban has helped China meet its own climate commitments—at least on paper. According to one estimate, prior to the ban, China’s cryptocurrency mining was on track to generate more than 130 million metric tons of carbon emissions by 2024, equivalent to the entire carbon output of Venezuela. Two months after the ban, state-run media outlet Xinhua News touted China’s “contribut[ion] to global carbon emissions reduction.” Under President Xi, China has committed to ambitious climate goals, aiming to reach peak carbon dioxide emissions before 2030, and to achieve carbon neutrality before 2060. 

Despite the crypto ban’s environmental effects, China doubled down this week. In a new legal interpretation from China’s Supreme Court, raising funds using cryptocurrency is now deemed a criminal offense. Under the new interpretation, fundraising of at least 25 million yuan or involving more than 5,000 people could result in imprisonment for over 10 years. 

China’s Algorithm Recommendation Regulations Come Into Effect, Expanding Consumer Privacy Rights 

China’s new algorithm regulations came into effect on March 1, expanding consumer privacy rights against Chinese technology companies. The new regulations require technology companies to inform users “in a conspicuous way” if their algorithms are being used to recommend content, control search results or set prices. Companies must also give consumers the option to opt out of certain targeting or have certain content tags removed. 

Some commentators have read the regulations as China’s attempt to exercise greater narrative manipulation and control over technology platforms. One provision prohibits algorithmic recommendation services that provide news information from pushing out “fake news,” a politically charged term that some observers fear could be weaponized against journalists. Another prohibits tech companies from designing models that encourage “excessive spending” or addiction to the platform, a demand that seems to be incongruous with the business models of many social media and e-commerce companies.

According to Shen Lu of Protocol, the rules were inspired by the European Union’s AI Act, as well as from liberal-minded scholars at Tsinghua University and Nankai University who advise regulators to be open minded about emerging artificial intelligence technology. However, while the effect of the EU and Chinese regulations may be similar, the motives differ drastically. While the language of the EU’s privacy regulations are centered around individual and human rights, China’s algorithm regulations are focused on encouraging more collective goals of a “positive online environment” that “promotes socialist values.” 

It is unclear how enforcement of these regulations will work in practice, as regulators and regulated entities are both in uncharted waters. Many tech companies regard their recommendation algorithms as their company’s crown jewels. As Ziyang Fan of the World Economic Forum noted: “[I]n the medium and long term, it’s not impossible that companies could develop work-around solutions to comply with the rules while meeting [adjusted] business objectives.” Regulators themselves may be under equipped to review extensive amounts of highly technical code. 

Commentary

In his State of the Union address, President Biden urges Congress to pass the Bipartisan Innovation Act to “level the playing field with China” and put the U.S. “on a path to win the economic competition of the 21st century.” 

Tim Culpan argues for Bloomberg that weakening consumer growth in China poses a bigger problem for Alibaba than does the government’s tech crackdown. 

Keyu Ju of Channel News Asia cautions that the U.S. campaign to limit Chinese firms’ access to critical technologies is fueling Chinese techno-nationalism.

Weizhen Tan explains for CNBC that large consumer tech platforms like Facebook and Amazon are entering their “sunsetting” phase amid the global transition to third-generation technologies while Chinese tech giants face regulatory scrutiny and strong competition at home. 

Paul Triolo explores in SupChina why a Peking University paper examining the state of advanced technologies like artificial intelligence and semiconductors in China was taken down after less than a day.

Robert Hormats suggests in Barrons that the Beijing Winter Olympics symbolized a key moment in the next phase of the economic, political, technical and security competition between the U.S. and China. 

Paul Haenle and Sam Bresnick of the Carnegie Endowment posit that divergent framings of the bilateral relationship have contributed to the ongoing stalemate in U.S.-China relations three months after the Biden-Xi summit.

Eric Sayers and Ivan Kanapathy analyze Washington’s flurry of new restrictions on China and present five policy areas where further action appears imminent this year. 

In the South China Morning Post, Ralph Jennings assesses China’s expected focus on multilateral agreements and its own high tech development for sustained economic growth in 2022. 

Arjun Kharpal examines what a metaverse with Chinese characteristics might look like in light of government censorship, strict rules on the technology sector and Beijing’s crackdown on cryptocurrencies.

Angela Huyue Zhang opines in Nikkei Asia that Chinese data regulations may harm tech giants’ competitive edge as government officials become de facto product managers. 

An opinion piece published by the Cyberspace Administration of China asserts that Beijing’s mandated cybersecurity review for overseas listings aims to address a perceived danger stemming from U.S. access to “sensitive” data from public Chinese tech firms.

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