Blood Money

U.S. Firms Are Helping Build China’s Orwellian State
BY LINDSAY GORMAN, MATT SCHRADER
When a Dutch cybersecurity researcher disclosed last month that Chinese security contractor SenseNets left a massive facial recognition database tracking the movements of over 2.5 million people in China’s East Turkestan colony unsecured on the internet, it briefly shone a spotlight on the alarming scope of the Chinese surveillance state.
But SenseNets is a symptom of a much larger phenomenon: Tech firms in the United States are lending expertise, reputational credence, and technology to Chinese surveillance companies.
The SenseNets database logged exact GPS coordinates on a 24-hour basis and, using facial recognition, associated that data with sensitive personal information, including national ID numbers, home addresses, personal photographs, and places of employment. 
Nearly one-third of the individuals tracked were from the Uighur minority ethnic group.
In a bizarre juxtaposition of surveillance supremacy and security incompetence, SenseNets’ database was left open on the internet for six months before it was reported and, according to the researcher who discovered it, could have been “corrupted by a 12-year-old.”
The discovery suggests SenseNets is one of a number of Chinese companies participating in the construction of a technology-enabled totalitarian police state in East Turkestan, which has seen as many as 2 million Uighurs placed into “re-education camps” since early 2017. 
Eyewitness reports from inside the camps describe harsh living conditions, torture, and constant political indoctrination meant to strip Uighurs of any attachment to their Islamic faith. 
Facial recognition, artificial intelligence, and speech monitoring enable supercharge the Chinese Communist Party’s drive to “standardize” its Uighur population. 
Uighurs can be sent to "re-education" camps for a vast array of trivial offenses, many of which are benign expressions of faith.
The party monitors compliance through unrelenting electronic surveillance of online and physical activities. 
This modern-day panopticon requires enormous amounts of labor, but is serving as a testing ground for new technologies of surveillance that might render this process cheaper and more efficient for the state.
Toward this goal, the party is leveraging China’s vibrant tech ecosystem, inviting Chinese companies to participate through conventional government-procurement tools.
Companies built the "re-education" camps.
Companies supply the software that watches Uighurs online and the cameras that surveil their physical movements.
While based in China, many are deeply embedded in the international tech community, in ways that raise serious questions about the misuse of critical new technologies. 
Foreign firms, eager to access Chinese funding and data, have rushed into partnerships without heed to the ways the technologies they empower are being used in East Turkestan and elsewhere.
In February 2018, the Massachusetts Institute of Technology (MIT) announced a wide-ranging research partnership with Chinese artificial-intelligence giant and global facial-recognition leader SenseTime.
SenseTime then held a 49 percent stake in SenseNets, with robust cross-pollination of technical personnel. 
SenseNets’ parent company Netposa (also Chinese) has offices in Silicon Valley and Boston, received a strategic investment from Intel Capital in 2010, and has invested in U.S. robotics start-ups: Bito—led by researchers at Carnegie Mellon University—and Exyn, a drone software company competing in a Defense Advanced Research Projects Agency (DARPA) artificial-intelligence challenge.
This extensive enmeshing raises both moral and dual-use national-security questions.
Dual-use technology is tech that can be put to both civilian and military uses and as such is subject to tighter controls.
Nuclear power and GPS are classic examples, but new technologies such as facial recognition, augmented reality and virtual reality, 5G, and quantum computing are beginning to raise concerns about their dual applicability.
Beyond SenseNets, Chinese voice-recognition leader iFlytek is also supplying software to monitor electronic communications in East Turkestan.
A 2013 iFlytek patent identified by Human Rights Watch specifically touted its utility in “monitoring public opinion.” 
Nonetheless, like SenseTime, iFlytek recently established a multiyear research partnership with MIT. 
These partnerships lend reputational weight to activities that undermine freedom abroad.
Equally concerning is that the details of technical and research collaborations with Chinese companies can be opaque to international partners, concealing ethically objectionable activities.
When Yale University geneticist Kenneth Kidd shared DNA samples with a scientific colleague from the Chinese Ministry of Public Security’s Institute on Forensic Science, he had no idea they would be used to refine genetic surveillance techniques in East Turkestan.
Massachusetts-based company Thermo Fisher is also implicated: Until it was reported last month, the company sold DNA sequencers directly to authorities in East Turkestan for genetic mapping.
Western companies and institutions must be far more vigilant in scrutinizing how Chinese partners are using their products, especially emerging technologies.
Facial recognition is a good place to start.
The industry needs to establish global standards for appropriate applications—use that respects human rights and the rule of law. 
In the United States, Microsoft has been an industry leader in calling for regulation and has tapped employees, customers, public officials, academics, and civil society groups to develop a set of “principles for facial recognition,” which it plans to launch formally this month.
When it comes to building out regulation, the devil may be in the details.
But the principles—fairness, transparency, accountability, nondiscrimination, notice and consent, and lawful surveillance—are sound.
Surprisingly, SenseNets lists Microsoft itself as a partner on its website, along with American chip manufacturer AMD and high-performance computing provider Amax.
In the case of SenseNets, these partnerships could be false claims by a company looking to boost credibility, unwitting collaboration on the part of U.S. tech firms, or true business relationships.
“We have been able to find no evidence that Microsoft is involved in a partnership with SenseNets,” a spokesperson for Microsoft told the authors, “We will follow up with SenseNets to cease making inaccurate representations about our relationship.”
But if these partnerships are real, they would violate all six of Microsoft’s principles.
California-based Amax, which specializes in high-performance computing for deep-learning applications, touts a partnership with Chinese state-owned Hikvision, the world’s largest supplier of video surveillance products. 
AMD is also involved in a Chinese joint venture supplying proprietary x86 processor technology.
Despite a general awareness of the ways American companies and individuals are abetting surveillance in East Turkestan, U.S. Congress and government officials have yet to call for a review of the extent of U.S. investment and research partnership entanglements. 
The Commerce Department’s proposed rule-making on controls for certain emerging technologies is a start, but its scope remains unclear.
The international tech community can help guide the ethical application of its developments.
After employee protests, Google reportedly suspended plans to launch Dragonfly, a censored version of its search engine custom-built for China, although there are suspicions the project may not be entirely dead. 
Authoritarianism has proven it can use emerging technologies to undermine democratic norms and freedoms.
As such, U.S.-based research-and-development organizations should perform basic due diligence on partnerships to assess their connection to surveillance regimes.
International scientific exchange has yielded awe-inspiring achievements, from the discovery of the Higgs boson to the eradication of smallpox.
And cooperation is growing faster than ever.
But by taking basic steps to understand their partners, investors can mitigate some of the unintended risks of that cooperation.
If they fail to do so, they will end up owning some of the responsibility for human rights abuses in East Turkestan and elsewhere.

U.S. Tech Quislings

How Qualcomm Is Backing China’s Tech Ambitions
By DAVID BARBOZA

As the Chinese government develops drones, the American technology giant Qualcomm is helping. The same goes for artificial intelligence, mobile technology and supercomputers. 

Qualcomm is also working to help Chinese companies like Huawei break into overseas markets in support of China’s “go global” campaign to develop big multinational brands.
Qualcomm is providing money, expertise and engineering for Beijing’s master plan to create its own technology superpowers.
Big American companies fiercely protect their intellectual property and trade secrets, fearful of giving an edge to rivals. 

But they have little choice in China — and Washington is looking on with alarm.
To gain access to the Chinese market, American companies are being forced to transfer technology, create joint ventures, lower prices and aid homegrown players. 

Those efforts form the backbone of Xi Jinping’s ambitious plan to ensure that China’s companies, military and government dominate core areas of technology like artificial intelligence and semiconductors.
As concerns mount about Beijing’s industrial policy, the Trump administration is preparing a broad investigation into potential violations of American intellectual property, according to people with knowledge of the matter. 

Congress is also considering ways to restrict China’s ability to acquire advanced technology by toughening rules to prevent the purchase of American assets and limit technology transfers.

In this arena, America’s economic interests are aligned with its national security needs. 

The worry is that by teaming up with China, American companies could be sowing the seeds of their own destruction, as well as handing over critical technology that the United States relies on for its military, space and defense programs.
Advanced Micro Devices and Hewlett Packard Enterprise are working with Chinese companies to develop server chips, creating rivals to their own product. 

Intel is working with the Chinese to build high-end mobile chips, in competition with Qualcomm. IBM has agreed to transfer valuable technology that could enable China to break into the lucrative mainframe banking business.
“There’s a great deal of unease in Washington,” said James Lewis, an analyst at the Center for Strategic and International Studies, a Washington-based think tank. 

“The defense, intelligence agencies and others are concerned that advanced chip-making capabilities are going to China.”
Qualcomm declined to comment, as did Intel.
Qualcomm is caught in the middle.
The world’s dominant mobile phone chip maker, Qualcomm ran afoul of the Chinese government, getting hit in 2015 with a record $975 million fine for anticompetitive behavior. 

To get back in Beijing’s good graces, the company agreed to lower its prices in China, promised to shift more of its high-end manufacturing to partners in China, and pledged to upgrade the country’s technology capabilities.
The extent of Qualcomm’s involvement with the Chinese government — and the complications for American tech giants — is seen in a low-slung office building in the southwest part of the country. There, a team of engineers is developing leading-edge microchips to compete with the finest made by Intel. 

The chips will help power a huge data and cloud center with the potential to strengthen the country’s computing capabilities. 

No longer content to rely on buying the chips that go into cellphones, computers and cars, China now wants to design and build the brains that drive much of the digital world.
The government is providing land and financing to the start-up formed with Qualcomm, called Huaxintong Semiconductor. 

Qualcomm has provided the technology and about $140 million in initial funding.
“Qualcomm has a balancing act,” said Willy Shih, who teaches at Harvard Business School. 

“Most of the world’s PCs are made in China, and most of the world’s smartphones too, so they have to play along. It’s a fact of life.”
Qualcomm was early to break into China.
In the mid-1990s, as China’s economy began to boom, Bill Clinton pressed the country’s leaders to open to American technology companies.
Members of the Clinton administration, including Charlene Barshefsky, the United States trade representative, and William M. Daley, the secretary of commerce, were dispatched to Beijing to hammer out the details. 

They pushed for one company by name: Qualcomm.
“At the time, they were the only U.S. show in town,” Ms. Barshefsky said.
“Bill Daley and I pushed the Chinese hard on accepting the U.S. standard for wireless technology,” she added, “and that was Qualcomm.”
Mobile phone adoption was taking off globally, largely backed by a European wireless standard called G.S.M., or global system for mobile communications. 

Qualcomm had a competing American standard called C.D.M.A., or Code Division Multiple Access.
Irwin M. Jacobs, a founder of Qualcomm, spearheaded an aggressive lobbying campaign in Washington and Beijing, promoting the technology’s potential to transform wireless communication markets.
“We knew China would be important, and they didn’t have their own system,” said Perry LaForge, a former Qualcomm executive. 

“We also told them this system would give them an opportunity to manufacture their own handsets, and not rely on buying them from other countries.”
When Qualcomm first entered China in the late 1990s, it was slow to gain traction. 

The company struggled to find Chinese partners to produce mobile phones that worked with its network. 

China also tried to develop its own wireless standard.
Qualcomm eventually won out, helping write the standards for next-generation mobile technology, 3G and 4G service. 

The standard championed by European telecom providers faded rapidly. 

And China’s homegrown technology struggled.
By 2013, virtually every wireless device around the world was reliant on either Qualcomm’s chips or its patents — enough to provide some of the technology industry’s fattest profit margins.
With its dominance rising, global brands like Apple and Samsung began complaining to regulators around the world, citing “discriminatory” pricing practices and high royalty fees. 

In China, a trade group made up of the country’s major handset makers complained about patent holders levying “exorbitant licensing fees.”
“These days a smartphone is covered by about 250,000 patents,” said Dieter Ernst, a senior fellow at the East-West Center, a research and educational center based in Honolulu. 

“A Chinese smartphone maker needs to negotiate license agreements with companies like Qualcomm that own the essential patents.”
“The Chinese government was worried about this,” he added. 

“That all these costs could constrain Chinese companies.”
The raids began at dawn, in late November 2013. 

Investigators descended upon Qualcomm’s offices in Beijing and Shanghai, questioning the staff and hauling away laptops and documents.
At the time of the raids, the San Diego-based company’s senior managers were at the Ritz-Carlton Hotel in New York, attending an investor conference. 

The executives were planning to talk about the company’s strategy. 

Instead, they began fielding frantic phone calls from China.
The China business, which accounted for more than half of its global revenue, was in trouble.
A week later, one of the country’s most powerful regulatory agencies, the National Development and Reform Commission (N.D.R.C.), announced that it was looking into whether Qualcomm had abused its power in the sale of mobile phone chips. 

“Qualcomm came to control so much of the chip market in China,” said Louie Ming, a former Qualcomm executive in China. 

“It was clear they were eventually going to run into antitrust problems.”
While Qualcomm agreed to fully cooperate with the investigation, some senior executives appealed to the Obama administration, pressing the White House to raise the issue with China’s senior leaders, according to a former administration official.
Qualcomm’s troubles went beyond China. 

The company was also under scrutiny by antitrust regulators in the European Union and South Korea, as well as by the United States Federal Trade Commission.
China didn’t back down. 

The head of the N.D.R.C. branded Qualcomm a monopoly.
In February 2015, after a 15-month-long investigation, Qualcomm settled allegations in China that it had charged unfairly high prices for its chips and patents. 

The company agreed to pay the $975 million fine — about 8 percent of its annual revenue in China — and to lower the prices for chips sold in the country.
“We are pleased that the resolution has removed the uncertainty surrounding our business in China, and we will now focus our full attention and resources on supporting our customers and partners in China,” said Steve Mollenkopf, the company’s chief executive, said at the time.
Qualcomm then went into business with the Chinese government.
There was a $150 million investment fund to help Chinese start-ups; new research and design facilities set up with Chinese companies such as Huawei and Tencent; and a partnership with a Beijing-based company called Thundersoft to develop drones, virtual reality goggles and internet-connected devices.
Qualcomm is also helping the Chinese government develop supercomputers, a technology the United States government has discouraged American companies from supporting overseas. 

In May, Qualcomm agreed to form a joint venture with other state-backed firms to design and sell mass-market smartphone chips. 

And to help make Chinese chip manufacturing more competitive, Qualcomm has pledged to shift more of its high-end production — long done by outside contractors in Taiwan and South Korea — to China.Continue reading the main story

Continue reading the main story

The Price of Access to a Big Market

Beijing is pressing American technology giants to form joint ventures or partnerships with Chinese companies and transfer advanced technology. The enterprises, in which American companies usually take a minority stake, are backed by the government.

Company	Partner	Date	Product	Investment
AMD	Tianjin Haiguang Advanced Technology Investment Company	2016	Server chips	$293 million
Qualcomm	Guizhou government	2016	High-end server chips	$280 million
Brocade	Guizhou government	2016	Data center networking solutions	unknown
VMWare	Sugon Information	2016	Cloud computing and virtualization software	$50 million
Hewlett Packard Enterprise	Tsinghua Holdings Unisplendour Group	2016	Networking servers and storage systems	$4.5 billion
Microsoft	C.E.T.C. Group	2015	Software	$40 million
Western Digital	Tsinghua Holdings Unisplendour Group	2016	Data center storage systems	$300 million
Cisco Systems	Inspur Group	2016	Networking systems	$100 million
Intel	Spreadtrum/ RDA Microelectronics	2014	Mobile phone chips	$1.5 billion

The investment figure is either the initial investment in the venture or the U.S. company's investment in it. | By THE NEW YORK TIMES

“This is what China does better than anyone else,” said Robert D. Atkinson, president of the Information Technology and Innovation Foundation, a think tank focused on technology policy that has conducted studies detailing the Chinese government’s pressure on technology companies.
“They have a large carrot and a large stick,” he said. 

“And they have a market no C.E.O. can walk away from.”
Qualcomm’s biggest new venture is taking shape in southwest China’s Guizhou Province. Determined to leap into advanced technology, China has designated a large parcel of land in the provincial capital of Guiyang as the home of a new industrial park for supercomputing, data centers and cloud computing. 

The country’s large state-run telecom operators and its internet behemoths, including Alibaba and Tencent, are moving in, to build massive server farms. 

The region offers lower energy costs and abundant supplies of water, necessary to cool server farms.
A year ago, Qualcomm set up a joint venture with the Guizhou government and pledged to invest about $140 million for a minority stake in the business, situated in a development zone that has also attracted the interest of Microsoft and Dell. 

Qualcomm says it received American government approval for the deal.
The new Qualcomm joint venture, Huaxintong Semiconductor, broke ground on the site in 2016, and now operates in a 46,000-square-foot design and engineering center. 

A major test of the partnership will come when the joint venture’s first server chips are released — helping Qualcomm and the Chinese government stake out new ground. 

The Chinese government will control the chips and reap most of the profits.
In late March, Qualcomm’s president, Derek K. Aberle, flew to Guizhou to meet a powerful local government leader, Chen Min'er, a confidant of the Chinese president. 

Seated in a government hall, before an enormous landscape painting, Mr. Aberle pledged to “continually cooperate” with the Chinese government.