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Ostensibly private companies — SenseTime, CloudWalk, WeChat, Alibaba, Baidu, and Tencent, to name a few — and their products proliferate globally. They receive funds from Beijing. Party members sit on their boards. SenseTime’s operations rely on hefty investments not just from Beijing’s tech giants but also from state-owned enterprises and arms of the PRC’s sovereign wealth fund: China Merchants Group, China International Capital Corporation, and by extension the China Investment Corporation. Speaking alongside Xi at the Politburo’s October 31 study session, SenseTime’s founder Tang Xiao’ou advocated closer ties between private companies and state-owned enterprises. (He is also working with Beijing's Ministry of Public Security to develop a “citizen network identity infrastructure.”)

China’s centralization means that a Beijing-dominated IoT has radical implications. China aggregates networks so that their data flow into a fused, heterogeneous trove. CAS calls the goal “universal, ubiquitous information.” As a 2018 book from China’s top IT publishing house puts it, “these IoT devices not only collect personal information about the user and the user’s phone number, but also monitor everything in his home and what he eats for lunch.” China’s system combines data from surveillance cameras with data from GPS tracking with data from communications and payments, all of it tagged with electronic IDs.

That integration element is critical. Google might have access to your Gmail and Uber your travel data. But China’s approach combines all of those along with biometrics, communications, financial information, and speech and writing patterns. In the information era, that degree of control is self-funding. Consolidation makes China’s networks uniquely competitive. They benefit from scale and from integration, and the more users and data they have, the more valuable and difficult to supplant or fragment they become.

Beijing has selected an approach that plays to its strengths: scope, size, centralization, fusion of state and non-state entities and actors. The IoT strategy defends against its weaknesses, too, while exposing American ones. The race is for application, not innovation. There, Chinese strategists boast of a “comparative advantage.”

They will not “catch up with the West” in basic technology. But they do not have to. The U.S., effectively, invests in R&D for them.

At low cost and with low risk, China siphons the fruits of this investment — both through conventional espionage and through pervasive footholds in the information architectures of an open, globalized system — and deploys them. “Innovation is time-consuming, laborious, and risky,” wrote a scholar at the eminent China Academy of Social Sciences in 2011. “But when it comes to applying technology, the opportunity cost to leap ahead is low, the chances of success high. The path for China’s IoT industry lies in the application field.”

The U.S. is the perfect target. It is transparent, fragmented, and short-termist, and its tech community is built on a fundamental faith in the open exchange of information. Where Xi Jinping has made “military-civilian fusion” a national strategy, Washington’s complex bureaucracy cannot connect security to economic to technological concerns. More broadly, the U.S. finance, tech, commercial, and government sectors exist in largely separate silos. And those silos put their immediate, obvious interests before any larger national interest.

In other words, American tech companies hand over their R&D for the sake of quarterly returns. Google continues to barter with Beijing, apparently convinced that it, not state champion Baidu, will one day claim the Chinese market.

Washington’s response has been clumsy and sluggish. No shock there: our bureaucracy is designed for direct, traditional threats — not today’s incremental, cross-domain, techno-economic contest. Our disadvantages are not, however, insurmountable. Beijing has an inherent demographic advantage in scale and an inherent institutional advantage in pace. But U.S. alliances can match that scale. And though the liberal U.S. system may never move with as unified a force as China can, it can still slow, distract, and deter its rival.

It should do so by matching enduring U.S. strengths to PRC vulnerabilities and by leveraging advantages in the military and diplomatic domains, as well as the innovative capabilities on which China relies. But this has to be done right: strategically not reactively, surgically not bluntly, and keyed to China’s particular approach. It should also begin with an acknowledgement of the unsavory reality. With its Network Great Power strategy and doctrine of military-civil fusion, Beijing is marshalling whole-of-society resources for a zero-sum contest. This is an existential threat, not a temporary misunderstanding. Beijing won't disengage because we do. They won’t soften because we cooperate.

The U.S. and its allies need to engage together in the network race. Washington should use diplomatic and economic pressure to discourage allies and partners from accepting Beijing-defined networks. At the same time, the U.S. and its allies should cooperate to build alternatives whose scale can rival China’s.

The U.S. can put Beijing on the defensive, too. China uses regulatory arbitrage to monopolize critical goods, then manipulates those monopolies to coerce other states. Rare earths and Japan offer a prime example. When tensions over the Senkaku dispute heightened in 2010, Beijing responded by cutting off Tokyo’s access to rare earth exports — a critical commodity for Japanese manufacturing, and one whose market China dominates. Washington can respond in kind. It can tailor export restrictions to target those foreign supplies most essential to Beijing. The U.S. can also rally allies and partners around preclusive purchasing efforts that would do the same.

Washington should also take advantage of the fact that China’s techno-economic strategy relies on U.S. innovation. Were the U.S. to restrict Beijing’s access to critical innovation, it would stymie the Chinese strategy. That also means credible threats to clamp down will have outsize effect on PRC planners and thinkers.

The present political environment is ripe for doing just that. Beijing’s Made in China 2025 plan sparked a justified alarm; investment and export review processes are being re-examined accordingly. We cannot afford to waste this window of opportunity. Investment review protocols should be defined according to how and where Beijing weaponizes capital. Beijing does not just obtain U.S. technology through direct equity investments. It also employs limited partnership stakes in American funds. Those should be screened, too. And the definition of “emerging and foundational technologies” — the critical technologies that Washington must protect from Beijing’s investment because they can enduringly subvert the entire ecosystem connected to them — must account for the scope of this project. SenseTime’s investments in algorithms should be scrutinized as closely as PRC investments in aerospace. Its camera deployments should effectively be considered almost as military maneuvers.