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Why China Is Taking Over the Internet of Things

China’s SenseTime, the most valuable AI start-up in the world, plans to raise over $2 billion in 2019. Its “Viper” project collects, connects, and analyzes information from security surveillance, live camera feeds embedded in ATMs, traffic cameras, and office face scanners. And the firm’s presence extends well beyond China. SenseTime is rapidly building a network of international offices, partnerships, and R&D hubs, including several in the U.S. SenseTime explicitly aims to be “the global dominant force in facial recognition.”

The company’s pervasive presence is the fruit of a decade of meticulous Chinese Communist Party (CCP) planning and provisioning — and its aim is to undergird every layer of the burgeoning Internet of Things (IoT).

The catch-all term “Internet of Things” refers to the interconnected devices you use every day, their industrial analogs, as well as the networks, data, and computational processing supporting them. For Beijing, that means more than phone-controlled thermostats. The CCP is transforming the IoT into one of the most potent strategic weapons of the contemporary world — into a form of self-fueling power projection; self-enforcing international rule-setting; and silent, secured global conquest.

Then-premier Wen Jiabao institutionalized this IoT strategy in 2009, when he announced the launch of “Perceive China.” A network of sensors — including but not limited to surveillance cameras, car navigation systems, and smart electricity monitors — would be placed throughout the country, sending information to the China Academy of Science (CAS). The PRC calls this the “Internet of Things with Chinese characteristics.” CAS explains that the system is a “test zone for a global network.”

Wen’s move preceded the Made in China 2025 initiative by six years, the AI National Plan by eight, and concerns over Huawei by a decade. But it represents the core of those later frameworks and of Beijing’s techno-economic strategy, what President Xi Jinping now calls the “network great power strategy.”

The concept is bold and simple. China seeks a world-wide, integrated system of information collection and dissemination. Universal sensors gather data, PRC-penetrated or -owned networks carry it, and Beijing-controlled hubs aggregate, analyze, and store it. The overall goal is to “predict, develop, and control” the world, per CAS.

Global resources — physical and virtual — are increasingly exchanged along information networks. If China succeeds in its effort, it will be able to hold military, diplomatic, and economic transactions hostage. It will decide the media that global information networks disseminate. Beijing will set standards that reward domestic champions over foreign competitors. It will shape personal, commercial, and government incentives to serve its interests.

Imagine a high-tech Bretton Woods, unilaterally decided and designed to distort rather than to balance.

“In the face of international competition,” Wen declared in 2009, “we must plan the future earlier and apply the core technology first.” The emerging IoT meant a wholly “new, integrated information system.” The Party saw what it called a “rare strategic opportunity.” In a power vacuum, it recognized that it could leapfrog its global competitors. If Beijing claimed the IoT, it could subvert the traditional internet and the American monopoly over it. “Whoever masters the IoT will master the commanding heights in the world’s new round of scientific and technological revolution,” declared a 2010 National People’s Congress delegate.

This competition is nothing like the Cold War. The struggles of that period were over material objects: troops, armaments, territory, tangible goods. China’s chosen battlefield is largely virtual. The world will remain integrated. Beijing’s goal is to structure that integration asymmetrically in China’s favor. Rather than seizing physical space, China seeks to influence space. And global leverage comes not from owning the most resources but from controlling the infrastructures of their exchange. With that comes the power to claim, to distribute, or to restrict those resources. Such control also grants access to data on every exchange. Beijing’s network thus acquires returns, and outsize ones: it becomes a positive, recurring feedback loop. And the PRC’s position is secure. The world system relies on global exchange. Global exchange relies on Beijing. China becomes indispensable.

The U.S., its allies, and its partners are increasingly aware of China’s broader competitive threat and specifically of its information technology dimensions. The White House warns of a new type of arms race, featuring commercial technology. The U.S., Japan, and Australia have all discussed banning Huawei products. Yet the nature, scope, and implications of China’s techno-economic threat remain poorly understood. Washington focuses on trap doors and IP theft. The United Kingdom and Germany have spoken in the same, limited terms, rejecting U.S. pressure to ban Huawei from their networks on the grounds that they can mitigate the espionage risk.

To focus on espionage is to miss the point. The Party’s ultimate vision is far larger.

Beijing is not wielding innovation, force, or even wealth in the traditional sense. It is applying borrowed technology to build a new global structure rigged in its own favor.

Domestically, Beijing’s IoT strategy manifests today in the “social credit system.” The Party uses its ubiquitous information collection to generate a score for every citizen. Bad driving might mean demerits. So might playing too many video games or taking too much toilet paper from a public restroom — or speaking ill of the government. Poor scores bear consequences. The Party can use them to limit travel, job eligibility, internet speeds, and even animal ownership.

Xi’s Network Great Power Strategy aspires to translate that domestic stranglehold into a geopolitical one — less explicit a grip but more existential a danger. Beijing fiercely exports its network, standards, and sensors worldwide. At home the Party decides who can own a labradoodle. Internationally it intends to determine where the U.S. military can operate, which phone company can be compatible with 5G standards, which fintech transaction goes through, what story the newspaper tells.

Beijing is already well on its way to doing this, albeit surreptitiously and in ways that the U.S. struggles to discern. China’s technological and commercial sectors focus on developing and exporting IoT architectures. This encompasses not only Huawei and 5G; it encompasses Beidou, China’s military and commercial space giant, and its next generation internet protocols (IPv6). It encompasses the systems that dock into those architectures, too — the “things” that comprise the Internet of Things. Think car navigation platforms, bike and scooter shares, online financial transactions, wearable health monitors, commercial drones, and electricity monitors.

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.

In 2017, the director of Peking University’s School of Communications called for an end to China’s peaceful strategy. “If the tiger does not bite, he is inevitably treated as a sick cat. China can remain passive no longer.” Neither can the U.S.