China's economic aggression is a global threat

The White House in a new report details acts of China's economic aggression. The report lists practices that threaten the technologies and intellectual property of the United States and the world.
By Huileng Tan

The Trump administration ratcheted up its criticism of China in a report released by the White House on Tuesday detailing its claims of economic aggression by the Asian giant.
The 35-page report titled "How China's Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World" came a day after President Donald Trump threatened to slap additional tariffs on goods from China, setting off market turmoil.
China "has experienced rapid economic growth to become the world's second largest economy while modernizing its industrial base and moving up the global value chain. However, much of this growth has been achieved through aggressive acts, policies, and practices that fall outside of global norms and rules (collectively, 'economic aggression')," the White House report said in its opening.
It goes on to describe practices through which China "seeks to access the crown jewels of American technology and intellectual property."
Chinese acts of economic aggression include physical and cyber-enabled theft of technologies and intellectual property, evading U.S. export control laws, counterfeiting, piracy and reverse engineering.
Of note, the report also says that Beijing seeks to manipulate or pressure any of the more than 300,000 Chinese nationals annually attending U.S. universities or working at important American institutions. 

The White House said those Chinese nationals become "non-traditional information collectors that serve Beijing's military and strategic ambitions."
The report also lists a "wide range of coercive and intrusive regulatory gambits to force the transfer of foreign technologies and [intellectual property] to Chinese competitors, in exchange for access to the vast Chinese market." 

Those policies include foreign ownership restrictions, strict administrative approvals and licensing requirements, discriminatory patent and other intellectual property rights restrictions.
"Given the size of China's economy, the demonstrable extent of its market-distorting policies, and China's stated intent to dominate the industries of the future, China's acts, policies, and practices of economic aggression now targeting the technologies and [intellectual property] of the world threaten not only the U.S. economy but also the global innovation system as a whole," the report concluded.
The trade dispute between the world's two largest economies escalated after President Trump said in a statement late Monday that he had requested the United States Trade Representative to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent. 

Beijing responded by saying China will protect its interests and it is prepared to fight back.
That comes after the U.S. on Friday announced that it would impose a 25 percent tariff on up to $50 billion of Chinese products.

Trump advisor asks South Korea's Moon to help with China's many predatory practices

• South Korean President Moon Jae-in met with the Trump administration Thursday and Friday.
• China has pressured South Korea economically for allowing the U.S. to deploy a missile defense system in South Korea.

By Evelyn Cheng

National Economic Council Director Gary Cohn asked South Korean President Moon Jae-in on Friday for help in working with China.
"At some point we'd be interested to hear how you're dealing with the Chinese policies and how you could help us in dealing with Chinese policies," Cohn said in candid comments on camera because the press was invited in to view the start of the meeting.
Speaking at the request of President Donald Trump, the former Goldman Sachs president listed China's many predatory practices, such as:

• its infringement on intellectual property rights
• its demand that the U.S. transfer technology into China
• its requirements that U.S. firms form joint ventures with Chinese companies to operate in the country
• its restrictions on U.S. ownership of companies in China.

The detailed list follows the Trump administration's tough turn this week on China. 

The Treasury on Thursday issued sanctions against a Chinese shipping firm and two Chinese citizens tied to North Korea.

The U.S. also plans to sell Taiwan $1.42 billion in arms, Reuters reported Thursday, citing a State Department spokeswoman.
Then on Friday, Axios reported the White House is "hell-bent" on potentially imposing roughly 20 percent tariffs on imports from countries such as China.
South Korea is China's largest source of imports, and the smaller country's economy has come under significant pressure from Beijing for allowing the U.S. to deploy a missile defense system in South Korea. 

Although the system is intended to deflect North Korean missiles, China views it as a security threat and has boycotted and banned South Korean products.
After winning the election in early May, Moon temporarily suspended deployment of the missile defense system. 

Last week, Moon said he would ask Xi Jinping to lift China's retaliatory measures against South Korean businesses. 

He also said China should do more to curb North Korea's nuclear weapons development.
Trump has criticized U.S. trade policies with China and South Korea. 

In 2016, the U.S. had a $347 billion trade deficit with China for goods and a $27.7 billion deficit with South Korea, according to the U.S. Census Bureau.
"Much of our biggest problem on trade has to do with our economic relationship with China," Cohn said. 

"We have maintained a very large trade deficit with China and it continues to grow."
Also Friday, Trump pledged to work with Moon on dealing with the "menace known as North Korea."

Chinese Peril

U.S. weighs restricting Chinese investment in artificial intelligence
By Phil Stewart | WASHINGTON

An MQ-9 Reaper remotely piloted drone aircraft performs aerial maneuvers over Creech Air Force Base, Nevada, U.S., June 25, 2015. 

U.S. Defense Secretary James Mattis testifies before the Senate Armed Services Committee on Capitol Hill in Washington, D.C., U.S., June 13, 2017.

The United States appears poised to heighten scrutiny of Chinese investment in Silicon Valley to better shield sensitive technologies seen as vital to U.S. national security, current and former U.S. officials tell Reuters.
Of particular concern is China's interest in fields such as artificial intelligence and machine learning, which have increasingly attracted Chinese capital in recent years. 

The worry is that cutting-edge technologies developed in the United States could be used by China to bolster its military capabilities and push it ahead in strategic industries.
The U.S. government is now looking to strengthen the role of the Committee on Foreign Investment in the United States (CFIUS), the inter-agency committee that reviews foreign acquisitions of U.S. companies on national security grounds.
An unreleased Pentagon report, viewed by Reuters, warns that China is skirting U.S. oversight and gaining access to sensitive technology through transactions that currently don't trigger CFIUS review. 

Such deals include joint ventures, minority stakes and early-stage investments in start-ups.
"We're examining CFIUS to look at the long-term health and security of the U.S. economy, given China's predatory practices" in technology, said a Trump administration official, who was not authorized to speak publicly.
Defense Secretary Jim Mattis weighed into the debate on Tuesday, calling CFIUS "outdated" and telling a Senate hearing: "It needs to be updated to deal with today's situation."
CFIUS is headed by the Treasury Department and includes nine permanent members including representatives from the departments of Defense, Justice, Homeland Security, Commerce, State and Energy. 

The CFIUS panel is so secretive it normally does not comment after it makes a decision on a deal.
Under former President Barack Obama, CFIUS stopped a series of attempted Chinese acquisitions of high-end chip makers.
Senator John Cornyn, the No. 2 Republican in the Senate, is now drafting legislation that would give CFIUS far more power to block some technology investments, a Cornyn aide said.
"Artificial intelligence is one of many leading-edge technologies that China seeks and that has potential military applications," said the Cornyn aide, who declined to be identified.
"These technologies are so new that our export control system has not yet figured out how to cover them, which is part of the reason they are slipping through the gaps in the existing safeguards," the aide said.
The legislation would require CFIUS to heighten scrutiny of buyers hailing from nations identified as potential threats to national security. 

CFIUS would maintain the list, the aide said, without specifying who would create it.
Cornyn's legislation would not single out specific technologies that would be subject to CFIUS scrutiny. 

But it would provide a mechanism for the Pentagon to lead that identification effort, with input from the U.S. technology sector, the Commerce Department, and the Energy Department, the aide said.
James Lewis, an expert on military technology at the Center for Security and International Studies, said the U.S. government is playing catch-up.
"The Chinese have found a way around our protections, our safeguards, on technology transfer in foreign investment. And they're using it to pull ahead of us, both economically and militarily," Lewis said.

"I think that's a big deal."

China made the United States the top destination for its foreign direct investment in 2016, with $45.6 billion in completed acquisitions and greenfield investments, according to the Rhodium Group, a research firm. 

Investment from January to May 2017 totaled $22 billion, which represented a 100 percent increase against the same period last year, it said.

AI'S ROLE IN DRONE WARFARE
Concerns about Chinese inroads into advanced technology come as the U.S. military looks to incorporate elements of artificial intelligence and machine learning into its drone program.
Project Maven, as the effort is known, aims to provide some relief to military analysts who are part of the war against Islamic State.
These analysts currently spend long hours staring at big screens reviewing video feeds from drones as part of the hunt for insurgents in places like Iraq and Afghanistan.
The Pentagon is trying to develop algorithms that would sort through the material and alert analysts to important finds, according to Air Force Lieutenant General John N.T. "Jack" Shanahan, director for defense intelligence for warfighting support.
"A lot of times these things are flying around (and)... there's nothing in the scene that's of interest," he told Reuters.
Shanahan said his team is currently trying to teach the system to recognize objects such as trucks and buildings, identify people and, eventually, detect changes in patterns of daily life that could signal significant developments.
"We'll start small, show some wins," he said.
A Pentagon official said the U.S. government is requesting to spend around $30 million on the effort in 2018.
Similar image recognition technology is being developed commercially by firms in Silicon Valley, which could be adapted by adversaries for military reasons.
Shanahan said he was not surprised Chinese firms were making investments there.
"They know what they're targeting," he said.
Research firm CB Insights says it has tracked 29 investors from mainland China investing in U.S. artificial intelligence companies since the start of 2012.
The risks extend beyond technology transfer.
"When the Chinese make an investment in an early stage company developing advanced technology, there is an opportunity cost to the U.S., since that company is potentially off-limits for purposes of working with (the Department of Defense)," the report said.

CHINESE INVESTMENT
China has made no secret of its ambition to become a major player in artificial intelligence, including through foreign acquisitions.
Chinese search engine giant Baidu Inc launched an AI lab in March with China's state planner, the National Development and Reform Commission. 

In just one recent example, Baidu Inc agreed in April to acquire U.S. computer vision firm xPerception, which makes vision perception software and hardware with applications in robotics and virtual reality.
"China is investing massively in this space," said Peter Singer, an expert on robotic warfare at the New America Foundation.
The draft Pentagon report cautioned that one of the factors hindering U.S. government regulation was that many Chinese investments fall short of outright acquisitions that can trigger a CFIUS review. Export controls were not designed to govern early-stage technology.
It recommended that the Pentagon develop a critical technologies list and restrict Chinese investments on that list. 

It also proposed enhancing counterintelligence efforts.
The report also signaled the need for measures beyond the scope of the U.S. military, such as changing immigration policy to allow Chinese graduate students to stay in the United States after completing their studies, instead of returning home.
Venky Ganesan, managing director at Menlo Futures, concurred about the need to keep the best and brightest in the United States.
"The single biggest thing we can do is staple a green card to their diploma so that they stay here and build the technologies here – not go back to their countries and compete against us," Ganesan said.