After TikTok, scrutiny of these Chinese tech companies could be next

Federal and local U.S. government organizations and officials are pursuing a huge range of restrictions and bans on Chinese companies operating in the U.S.

A slew of recent legislative actions in the U.S. have been taken against Chinese technology companies in particular. Many of these have been explicitly tabled with the aim of banning TikTok, but others such as the RESTRICT Act would give the executive branch the power to ban or outlaw any Chinese technology.

These laws build on the 2018 U.S. Foreign Investment Risk Review Modernization Act (FIRRMA), which mandated the Committee on Foreign Investment in the U.S. (CFIUS) to consider investments on national security grounds. This mechanism was further strengthened in September 2022 by an Executive Order.

Other pieces of legislation include the U.S. Merger Filing Fee Modernization Act of 2022, which requires companies to disclose any subsidies received from foreign entities; the PAID OFF Act, which scrutinizes the extent of foreign firms’ lobbying activities and influence; and the Chips and Science Act has clauses which give the Department of Commerce discretion to limit subsidies going to subsidiaries of Chinese companies in the U.S.

So who might be the next targets of America’s newly empowered regulatory state?

Apps

TikTok has been the focus of much of the ire on Capitol Hill, but recently a number of other mobile apps have begun to attract the scrutiny of lawmakers. One is CapCut, a video editing tool that could be under fire simply for being a product of ByteDance, TikTok’s parent company, and which has been one of the most popular apps on U.S. app stores in recent months.

Lark, an enterprise application, also developed by ByteDance, could be cause for concern for the lawmakers who have targeted TikTok. An enterprise software mostly used by Chinese companies operating overseas or by multinational companies that work with China, Lark could be seen as problematic in terms of how the platform stores data.

The Chinese fast fashion companies Shein and Temu have also been mentioned in conversations concerning the banning of Chinese firms. In March, the website Shut Down Shein was set up by D.C. lobbying firm Actum, which is also engaging with representatives of the new Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party.

There are two main criticisms of these discount ecommerce companies: that they avoid paying the import duties on their shipments (because they are sent in packages valued under $800, which allows them entry with inspection under the U.S. Customs “de minimus” rule), and that their supply chains may involve exploitative practices, including cotton sourced from Xinjiang that may have been produced using forced Uyghur labor. On the former, neither firm is breaking the law as it stands, though this loophole could be closed by lawmakers; the latter is something which deserves more transparency, but also affects many American companies who manufacture clothing in China.

The lack of transparency over the data privacy of American users is another issue. Temu’s parent company, PDD Group, has recently come under fire for its exploitation of user data of its Pinduoduo app in China. A CNN report in April quoted cybersecurity teams from Asia, Europe, and the U.S., as well as former and current employees, to argue that Pinduoduo “has taken violations of privacy and data security to the next level.”

Company employees have stated that the malware that cybersecurity experts found was utilized to spy on users and competitors, allowing Pinduoduo access to users’ locations, contacts, calendars, notifications, and photo albums without their consent, as well as changing system settings and accessing users’ social network accounts and chats. Concerns were first raised by a Chinese firm called Dark Navy in February, which prompted Google to remove the app from its app stores.

There is no evidence that U.S. users were affected, nor are there any insinuations the violations were conducted for anything beyond purely commercial reasons. Nevertheless, such scandals add to a litany of other abuses by Chinese tech companies in recent years, including Zoom’s surveillance of and shutting down of chatrooms in the U.S. back in 2020, and API firm Agora’s potential mishandling of user data for its client, the online chat room platform Clubhouse, in early 2021.

Agora, a Nasdaq-listed tech company, is a real-time communications platform that uses 200 data centers around the world to allow clients to transmit real-time audio and video feeds globally. Concerns in the past have centered around how data is encrypted, and whether data from American users can be transmitted through servers in the P.R.C.

Its main clients are based in mainland China, such as the chat app Momo and social media and ecommerce platform Xiaohongshu, while its U.S. clients include Clubhouse, WordPress, and online therapy service Talkspace.

Green tech

Currently, the U.S. remains dependent on Chinese firms for electric vehicle (EV) batteries and battery materials. The Biden Administration is seeking to wean the U.S. off Chinese suppliers, especially in sectors related to the energy transition.

Following the passing of the Chips Act and the Inflation Reduction Act last October, a significant quantity of subsidies have been made available to support American manufacturing, and consequently hundreds of projects have been announced. Despite clauses in both pieces of legislation which have been formulated with a view to excluding Chinese companies from capitalizing on the subsidies the government is offering, it seems that these firms are still able to participate in building manufacturing bases via joint ventures.

Two projects have been announced in Michigan in the past few months. One is Ford’s $3.5 billion battery plant using technology from CATL, China’s biggest lithium-ion battery manufacturer; the other is a plant being built by a subsidiary of Gotion, China’s fourth-largest EV battery maker by sales volume, to the tune of $2.4 billion. The latter had $175 million in funding from the state government approved on March 15.

Opposition to both of these has been inflammatory: Ford settled on Michigan only after Virginia’s governor Glenn Youngkin dismissed the possibility of hosting the plant in his own state, arguing that it was a “Trojan horse” and would lead to infiltration by the Chinese Communist Party (CCP).

However, Michigan has its own vocal opponents, in spite of the jobs and economic advantages that these new plants would bring. Republican gubernatorial candidate Tudor Dixon argued it would lead to “one square mile of CCP in the center of Michigan.” And fears were further fueled when Senator Lana Theis (R-Mich.) suggested that the firm would be required to have a CCP cell.

Gotion’s vice president responded, disdaining politicians for force-feeding people “a big fear sandwich,” and reiterating that there was no plan to make Big Rapids “a center to spread communism.”

Meanwhile, battery manufacturer CATL is also reportedly involved with Tesla to build another plant, likely in Texas, and also likely with government subsidies. The arrangement would likely involve simply licensing CATL’s technology, with the plant wholly owned and run by Tesla.

Microvast is another firm eager to get a cut. Despite being founded in Texas, the majority of its assets and revenues are in China, which is also the origin of its most advanced battery technology. Microvast’s receipt of a $200 million grant from the Department of Energy to finance a plant in Tennessee has drawn ire from Republicans in Congress. Following the complaints, the plant’s location has now shifted to Kentucky in a partnership with General Motors.

Although battery technology firms have borne the brunt of suspicion so far, other Chinese green technology firms will likely generate heat as they move to manufacturing inside the U.S. In 2020, at the time TikTok was again under the scrutiny of the Trump Administration, Senator Ted Cruz (R-Tx.) alleged that a wind farm built by Blue Hills, an indirect subsidiary of a Chinese company, could become a center for Chinese espionage efforts and be used to hack into the Texas electrical grid. The Chinese backer was eventually forced out.

Espionage has been cited as recently as January to block a corn milling plant in North Dakota. The local council voted to cancel the plans, despite a CFIUS decision from January not to take any action.

Imports of solar technology from China to the U.S. were gridlocked for several months late last year due to sanctions over supply chain issues regarding forced labor practices. However, a report from Caixin in March noted that the world’s largest solar panel manufacturer, Longi, was set to build a manufacturing plant in Ohio in a joint venture with Invenergy.

This followed an announcement in January that JA Solar, another Chinese solar manufacturer, planned to build a plant in Arizona. And a third Chinese firm, Huonen Solar, is set to expand into South Carolina.

Given the difficult optics of operating as a Chinese firm in the U.S. at the moment, these companies have obscured their links to China in their press statements. This has apparently contributed to their avoidance thus far of adverse political attention.

Hardware

Another group of Chinese firms that are likely to be scrutinized by lawmakers are those that are suspected of scrutinizing unwanted information themselves. Hikvision and Dahua, two surveillance camera manufacturers that dominate the global industry, were banned from the U.S. in November 2022, as well as other countries, and have come under further fire in the past week.

An example of a related firm which has stoked similar controversy, albeit on a smaller scale, is Eufy, a subsidiary of Chinese company Anker. In January, it was revealed that Eufy’s security cameras were not end-to-end encrypted, and produced unencrypted video streams for Eufy’s web portal. It had previously lied about its encryption policy, and footage had been used to train facial recognition AI.

However, bans are not always the end of the story. A column written by FCC Commissioner Geoffrey Starks and Senator Gary Peters (D-Mich.) details the costs involved in financing the extrication of Huawei and ZTE technology, which has been banned since 2019, from telecommunications networks across America, as well as their replacement with alternatives.

A final company to mention, involved in an apparently inconclusive FBI probe in 2021, provides over 80% of the global market for ship-to-shore cranes: ZMPC. The products of this Chinese state-owned enterprise are smart devices, increasingly critical in the digital infrastructure of ports. The concern among some officials in the U.S. is that they could be used to collect data on the U.S. military through the tracking of military shipments.

The bottom line

The companies mentioned here are likely candidates for the attention of regulators and lawmakers, especially in light of the recent hawkish turn among a constituency of — predominantly Republican — legislators. Headwinds for Chinese companies are only going to increase in the short term, regardless of the validity of the concerns informing the decisions to restrict or ban them from operating on U.S. soil.

The China General Chamber of Commerce (CGCC), the largest chamber for Chinese companies in the U.S., says its member firms “have cumulatively invested over $135 billion, employ more than 220,000 people, and indirectly support over one million jobs throughout the United States.” Its most recent published report, based on data from 2022, says that “optimism is in decline due to sustained trade disruptions, an increasingly uncertain regulatory environment, difficulty attracting and retaining talent, and a strained U.S.-China relationship.”

The report goes on to say that “The share of global revenues from their U.S. operations declined for the first time since 2018. Parent companies’ commitment to the U.S. declined. Only 52% of respondent companies reinvested its profits into its U.S. operations.”

Companies:

• Bytedance
• Shein
• Pinduoduo
• CATL
• Gotion
• Microvast 微宏动力系统
• Hikvision
• Dahua
• Longi
• JA Solar 晶澳太阳能
• Huonen Solar 浙江昊能光电
• Anker 安克创新
• Huawei
• ZTE
• ZMPC 振华重工
• Momo
• Xiaomi
• Xiaohongshu
• Bilibili

Sources and additional data:

• Activists call for complete ban on Hikvision, Dahua, and other firms that make surveillance tech used in Xinjiang / The China Project
• The RESTRICT Act could unite TikTok, Tucker Carlson, and Shein / The China Project
• PAID OFF: Congress says it’s cracking down on Chinese lobbying. The truth is more complicated / The China Project
• The Growing Popularity of Chinese Social Media Outside China Poses New Risks in the West / Peterson Institute for International Economics
• Running on Ice: China’s Chipmakers in a Post-October 7 World / Rhodium Group
• White House nears unprecedented action on U.S. investment in China / POLITICO
• CCP Inc. The reshaping of China’s state capitalist system / CSIS, Barry Naughton, Briana Boland
• China’s Brute Force Economics: Waking Up from the Dream of a Level Playing Field / Texas National Security Review
• Mission, Vision & Values – China General Chamber of Commerce / CGCCUSA
• The CHIPS and Sciences Act of 2022 – The Impact on China / CGCCUSA
• 2022 Annual Business Survey Report on Chinese Enterprises in the United States / CGCCUSA
• Banned in D.C. – Center for Security and Emerging Technology / Georgetown CSET
• DATA Act / U.S. Congress
• H.R.3919 – 117th Congress (2021-2022): Secure Equipment Act of 2021 / U.S. Congress
• China has equipment that can spy on us in our telecommunications networks. We must remove it now / The Hill
• Open Secrets / C4ADS
• Decoupling / George Magnus
• The end of the system of the world / Noah Smith
• 2023 Edelman Trust Barometer Global Report / Edelman
• ‘Fear’ driving Chinese state to manipulate tech ecosystem and threaten global security, warns Director GCHQ / U.K. government
• The U.S. Wants to Make Sure China Can’t Catch Up on Quantum Computing / Foreign Policy
• Pinduoduo: One of China’s most popular apps has the ability to spy on its users, say experts / CNN Business
• Clubhouse in China: Is the data safe? / Stanford University FSI
• In reversal, Zoom says all users will have access to end-to-end encryption / Cyberscoop
• Eufy’s “No clouds” cameras upload facial thumbnails to AWS / Ars Technica
• Anker finally comes clean about its Eufy security cameras / The Verge
• Unpacking TikTok, Mobile Apps and National Security Risks / Lawfare
• 隆基绿能将首次在美设厂 美加速光伏制造本土化 / Caixin
• U.S. bans new Huawei, ZTE equipment sales, citing national security risk / Reuters
• Hikvision internal review found Xinjiang contracts targeted Uyghurs / Axios
• FCC-22-84A1.pdf / Federal Communications Commission
• Chinese company moves some production abroad to escape geopolitics / Financial Times
• ‘Transformational change’: Biden’s industrial policy begins to bear fruit / Financial Times
• Golden Grip / The Wire China
• China’s Crane Reign / The Wire China
• Playing Both Sides? / The Wire China
• China-linked US$2.3 billion battery factory in Michigan raises community alarm / South China Morning Post
• Opponents of Michigan EV battery plant hone in on Chinese firm’s Communist Party cell / South China Morning Post
• Buying the Heartland / The Wire China
• Secure and Trusted Communications Networks Act of 2019 / U.S. Congress
• The Green Energy Factory Facing a Storm of China Backlash / WSJ
• WORLD’S LARGEST FULLY AUTOMATED TERMINAL OPENS / ZPMC
• Pentagon Sees Giant Cargo Cranes as Possible Chinese Spying Tools / WSJ