NSA revelations damaging for American tech companies … especially in China

U.S. President Barack Obama and Chinese President Xi Jinping held their historic two-day summit last Friday and Saturday. Pre-summit briefings by American officials revealed that cybersecurity was at the top of the agenda for the talks and that the U.S. even planned to impress upon China the importance of the norm of state responsibility – that a state is responsible for activities originating in its territory.

Any perceived American moral high ground on the issue, however, was heavily damaged when the Guardian and the Washington Post reported that the NSA was gathering data on the communications of millions, and potentially hundreds of millions, of individuals. The NSA reportedly carries out this feat through access to the systems of companies such as Google, Facebook, Apple, and Microsoft, which was allegedly the first company to participate in the program. Though all of these companies have publicly denied participating in such a scheme (and the Post has backed down from some of its initial claims) Prism is bad news for them, particularly for those seeking to succeed in China.

For Chinese officials, it must have been difficult to know how to react to the revelations. On the one hand, the NSA’s mass monitoring of electronic data, both domestic and international, largely aligns with the Chinese conception of the Internet as a realm to be closely watched and tightly managed. Indeed, the similarities between China’s approach to electronic surveillance and the NSA’s Prism weren’t lost on Western press outfits like the International Herald Tribune, which published an article titled “On Surveillance, Is America Becoming More Like China?” Chinese officials must also have been pleased by the fact that the Guardian report on Prism undermined U.S. credibility on cybersecurity issues on the very day that President Obama was slated to discuss the topic with their own President Xi.

On the other hand, the public disclosure of Prism is an uncomfortable reminder for Chinese officials of both the reach of American intelligence agencies and the vulnerability of China’s own networks. In a recent blog post, the Brookings Institution’s Kenneth Lieberthal highlighted the strength of this sentiment within the Chinese government:

“From a Chinese perspective, the United States nearly owns the cyber arena. America has the most advanced tools and capabilities, and the Chinese political and financial systems largely run on American software. China assumes the U.S. uses that huge capability to its advantage.”

Prism will undoubtedly serve to further underscore these concerns.

While Chinese officials may have been ambivalent in their reaction to the reports on Prism, American tech companies most certainly were not, as they universally denied participation in the program. Despite these denials, however, their association with Prism as alleged by the Guardian, regardless of the reality, is likely to damage their prospects in China.

Many in Chinese officialdom have long viewed U.S. tech companies as Trojan horses for American values and interests. Such a sentiment has manifested itself most clearly in the Chinese government’s repeated criticism of Google, which has been labeled an American “political tool” and charged with having “intricate ties with the U.S. government.” Thus, regardless of whether America’s tech giants were actually complicit in the program, the already prevalent belief that they are pawns of the U.S. government will undoubtedly be strengthened by the accusations. At the very least, this will further fuel Chinese attempts to create domestic competitors to and/or replacements for popular foreign tech products through subsidies and preferential government procurement policies. In the worst case, it will lead to more general restrictions on the operations of American tech companies in China.

Last October, Congress deemed Chinese telecommunications firms Huawai and ZTE a threat to U.S. national security. Will the Chinese government make a similar ruling about American tech giants like Microsoft and Google sometime in the near future? Its doubtful, but the existence of Prism certainly increases the possibility. In short, stay tuned.