Techno-nationalism and corporate governance - DECEMBER 2020 - NUS ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
DECEMBER 2020 Techno-nationalism and corporate governance BY ALEX CAPRI RESEARCH FELLOW, HINRICH FOUNDATION SENIOR FELLOW, CENTRE FOR GOVERNANCE AND SUSTAINABILITY NUS BUSINESS SCHOOL
Contents
INTRODUCTION 4
OVERVIEW OF THIS STUDY 7
I. STATE ACTIVISM AND CORPORATE GOVERNANCE 9
The US government and TikTok 9
Hypothetical espionage scenarios 10
Growing cyber intrusions amplify fears 10
New challenges of joint ownership, acquisitions and 10
corporate governance
Ownership and control 11
Transfer and control of source code, algorithms and key technology 11
China Inc’s influence on corporate boards 11
Communist Party representatives inside tech companies 12
Chinese companies: Corporate relocations and restructuring 12
ByteDance’s move to Singapore 13
Serving the Chinese Communist Party 13
Case study: How state interventionism killed a US$35 billion IPO 15
Case study: Inter-company warfare: Arm UK versus its 16
China subsidiary
II. LOCAL VERSUS GLOBAL CORPORATE GOVERNANCE 20
Can TikTok ignore the Chinese Communist Party? 20
ByteDance in Indonesia 20
Content moderation as a business model 21
The “in-China-for-China” corporate governance dilemma 21
Case study: Apple in China 22
Case study: Microsoft in China 24
In-China-for-China civil society backlash 25
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
2
Contents
III. NEW FRONTIERS: FINTECH, REGTECH AND 26
CORPORATE GOVERNANCE
FinTech and open banking 26
ByteDance, FinTech and privacy standards 26
Spotlight: Sesame social credit system 27
FinTech, localization and the decoupling of global finance 28
New accounting standards aimed at Chinese companies 28
US law banning investment in Chinese companies with military ties 29
Case study: International banks caught between Beijing
and Washington: HSBC 30
Techno-nationalism and FinTech decoupling 32
Pulled into techno-nationalist orbits 32
Data privacy and the “splinternet” 33
The European bloc: General Data Protection Regulations 34
Technology as risk mitigation tool 34
Supply chain transparency and traceability 35
TradeTech and RegTech 37
Unique identifier technology and interoperability of systems 38
Corporate diplomacy 38
Legal frameworks and processes 39
Lobbying through NGOs 39
Public-private partnerships 39
Conclusion 40
RESEARCHER BIO: ALEX CAPRI 41
ENDNOTES 42
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
3
Introduction
Techno-nationalism is profoundly The US-China technology cold war has cope with a shifting trade landscape. In
impacting the internal processes, politicized the business environment short, corporate governance must deal
practices and rules of organizations. for multinationals, creating a world of with the primacy of geopolitics over
contradictions, uncertainties and hard business.
choices.
Fragmented global value chains
For four decades, and despite stark
differences between political and As the effects of techno-nationalism
economic models, the US-China spill over into the commercial
trading relationship flourished. At the landscape, global value chains are
same time, multinationals invested splitting into three distinct streams.
heavily in the development of global
value chains and in China in particular. The first stream includes “strategic”
Global value chains are splitting into This relocation of manufacturing or controlled goods and data which
three distinct streams. activities to China invariably led to require export licenses and are subject
significant transfer of technology to to trade restrictions and sanctions.
local firms, which was a key aim of the
Chinese state as it sought to upgrade The second stream spans a much
its industrial structure. larger “cautionary zone,” where
virtually all of the Fourth Industrial
Yet growing geopolitical rivalry Revolution 1 technologies – artificial
and trade friction now define the intelligence (AI), robotics, the Internet
relationship between the world’s two of Things (IoT), etc. – exist as “dual use”
biggest economies. US firms, as well as technologies, which could, with little
those from Europe and Japan, are now warning, become off-limits. 2
evaluating how to deal with strategic
supply chain decoupling, re-shoring The third stream is comprised of
and ring-fencing. non-strategic, innocuous goods and
is generally unaffected by techno-
A driving force behind these nationalism.
changes is techno-nationalism:
mercantilist-like behavior that links Regarding the first category of
Beijing recently announced updates a state’s national security, economic strategic goods, Washington has been
to its own export control lists, which prosperity and social stability directly famously “weaponizing” semiconductor
include algorithms and rare earth to the technological prowess of its value chains to choke off technology to
elements. institutions and actors. Huawei and other Chinese technology
companies. Beijing, meanwhile,
Techno-nationalism is profoundly recently announced updates to its own
impacting corporate governance, the export controls lists, which include,
internal processes, practices and rules for example, algorithms and rare earth
that an organization follows to execute elements. 3
its values and principles, which must
now be reoriented and restructured to
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
4
INTRODUCTION
Figure 1 – Splintered global value chains
Zone of caution
Restricted Dual use goods
Next generation IT (AI, IoT)
Restricted Entity Lists
Semiconductors
Sanctions
Aerospace and aeronautical equipment
Specially Designated Automated machine tools and robotics
Non-strategic
Nationals (AI, machine learning)
Other consumer goods
Data privacy laws Algorithms
New materials (Food & beverage, soaps,
Data localization laws toys, shoes, clothing etc.)
Maritime equipment and high-tech shipping
Censorship laws Advanced railway equipment
Defense & military Power equipment
New energy vehicles (AV, EV)
Non-proliferation
Biopharma and advanced medical products
Agricultural equipment
Navigation
Rare earths
Source: Semiconductors at the heart of the US-China tech war, Alex Capri, Hinrich Foundation; Alphabetical Index to the Commerce Control List (Supplement no. 1 to part 774), Bureau of Industry and Security;
Category 2 – Materials processing, Commerce Control List (Supplement no. 1 to part 774), Bureau of Industry and Security
Underlying issues requiring the activism is on the rise in the US, Europe
attention of a company’s corporate and other traditional open market,
governance have emerged. These laissez-faire trading systems, which are
reflect the broader dynamics of techno- experiencing a paradigm shift toward a
nationalism as well as more specific more techno-nationalist zeitgeist.
themes that are repeating from one
country to the next. Local versus global: Contradictions
and tensions for multinational
Increased state activism in companies
boardrooms and markets Global value chains are fragmenting
Governments are becoming more and the internet is splintering as states
intrusive in corporate boardrooms look to ring-fence data, technology and
and markets. When it comes to markets. Multinational companies are
partnerships, foreign ownership, localizing production and ring-fencing
acquisitions and corporate behavior in-country operations.
involving deployment or control of
Multinational companies are having technologies, policy makers are looking Increasingly, multinational companies
to adhere to local laws that contradict to become involved in corporate are having to adhere to local laws that
with their global values. outcomes. contradict with their global values
and principles. This creates corporate
This trend is increasing in China, as the governance conflicts for many
Chinese Communist Party (CCP) exerts American and European companies
more control over the economy and doing business in China, for example. In
business sector, in general. But state other instances, there is the risk that a
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
5
INTRODUCTION
local subsidiary affiliate may “go rogue” governments are looking to control.
on its foreign parent company because Recent developments such as the
of influence from the host government CCP blocking the IPO of a major
and local laws. FinTech company (Ant Group) and
threatening to sanction a major bank
Can Chinese companies operating Local versus global tensions are (HSBC) demonstrate that all of these
abroad escape control of the CCP, and also impacting Chinese technology factors are interconnected by techno-
if so, what does this kind of corporate companies as they relocate to places nationalism.
governance look like? like Singapore to set up regional
operations. Here, from a corporate Technology as a corporate governance
governance standpoint, the question enabler
is: Can Chinese companies operating
As multinational enterprises strive
abroad escape control of the CCP, and
to meet data privacy and security
if so, what does this kind of corporate
standards throughout their businesses,
governance look like? Is such an
and as they seek end-to-end value
outcome even realistic?
chain transparency and traceability,
they are looking to leverage technology
Banking, FinTech and techno- as a corporate governance tool.
nationalism
Some sectors will experience Some sectors will experience higher “TradeTech” and “RegTech” are
higher degree of state activism and degrees of state activism and examples of new applications of
government interference than others. government interference than others technology that will facilitate more
because, in a growing digital economy, effective corporate governance.
the stakes are higher. The banking
sector, which is being transformed by These new types of technologies will,
FinTech, is one such area. paradoxically, enhance compliance
and risk management in some areas
From a techno-nationalist perspective, but, in other instances (such as when
FinTech combines economic, national microscopic RFID tracing technology is
security and social stability issues used), create cybersecurity risks.
all at once – areas that, increasingly,
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
6
Overview of this study
This study is the fourth in a series of governance and how different
Hinrich Foundation essays on techno- dynamics are all inter-related. The
nationalism, authored by Research paper then provides a number of
Fellow, Alex Capri. examples and cases involving current
events, companies and markets.
The first essay in the series – which
followed a ground-breaking study on This report is comprised of three
semiconductors – covered US-China sections:
strategic decoupling and focused on
the re-shoring and ring-fencing of I. State activism and corporate
critical supply chains as well as “in- governance
China-for-China” planning and risk
In this first section, we analyze the
scenarios.
different ways that governments
have been exerting state power
The second essay focused on the US-
and influencing the way corporate
China techno-nationalist competition
governance is conducted. We start
and the pursuit of “innovation
by examining the US government’s
advantage.” It also examined the
attempt to force the sale of the social
underlying dynamics and tensions
media app, TikTok, to American buyers,
between markets, non-state actors,
and the lessons learned from this
academia and governments.
exercise.
The third essay in the series focused
China’s Communist Party is expanding Throughout this section, we provide
on the phenomenon of techno-
its influence on corporate boards and insights into the growing power that
diplomacy, and how governments
committees at Chinese companies. the CCP wields over national tech
are pursuing strategic alliances and
giants including Alibaba and Ant Group.
partnerships based on inherent
We also examine the CCP’s expanding
ideological differences between
influence and representation on
techno-authoritarianism and digital
corporate boards and committees at
democracy. It looked at the evolving
Chinese companies. This is viewed
US-EU-China geopolitical relationship
through a corporate governance lens
and how techno-diplomacy was
from the perspective of both non-
influencing multilateral frameworks and
Chinese and Chinese companies.
institutions.
Next, we do a deep dive into the
This study builds upon these previous
Chinese company, ByteDance, and
reports by investigating the corporate
explore the issues it and other Chinese
governance issues. It is intended to
companies face when they relocate to
contextualize the landscape from a risk
other countries; in this case, Singapore.
management and business operations
perspective.
Finally we delve into the case of Arm
Ltd., the British tech firm, versus its
Starting at a high level, the study
subsidiary, Arm China, which serves
explains the overarching impact of
as a microcosm of the gamut of issues
techno-nationalism on corporate
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
7
OVERVIEW OF THIS STUDY
confronting companies in the US-China Sesame compiles a user’s online data
techno-nationalist landscape. and assigns a “trustworthiness” score,
which can be used by the government
II. Local versus global corporate to control and punish an individual
governance based on his or her online activities.
This system clashes with privacy,
Multinational companies must grapple In this section, we examine the
freedom of expression and surveillance
with local laws that contradict or tensions that multinational companies
standards that exist in other regions.
undermine their global policies. must grapple with as they function in
We explore the question of if (and how)
local markets and deal with local laws
Chinese FinTech companies can refrain
and regulations that often contradict
from this kind of data sharing with the
or undermine their company’s global
CCP, when operating outside of China.
policies and governance frameworks.
Next, we examine the blocked 2020
We return to ByteDance’s Southeast
Ant Group IPO in Hong Kong and how
Asia operations and examine its local
this event reflects the convergence of
content modification (censorship)
technology, finance and geopolitics
governance issues, and how these
under the banner of techno-
practices adhered to China’s national
nationalism.
laws in precedence over local
Indonesian laws.
We then turn to an in-depth case
study of HSBC, the world’s sixth
Staying with the theme of local versus
largest bank, and how the banking
global governance contradictions, we
sector and FinTech in general have
examine both Apple and Microsoft’s
become increasingly vulnerable to
“in-China-for-China” practices regarding
export controls and sanctions from
content and product modification, and
both Washington and Beijing. In short,
how those practices clash with their
depending on which geopolitical orbit
global operating principles.
a bank and FinTech company finds itself
in, it could face retaliation and punitive
III. New frontiers: FinTech, RegTech
measures from both China and America.
and corporate governance
The banking sector and FinTech will The third section looks to the future Finally, we look ahead to the ways that
become increasingly vulnerable to of techno-nationalism and corporate multinationals can leverage technology
export controls and sanctions from governance. FinTech is featured as a (“RegTech” and “TradeTech”) to enforce
both Washington and Beijing. hotbed of clashing governance models governance standards around data
around privacy and as a microcosm privacy laws such as the EU’s GDPR, and
of the competition between techno- how companies might use technology
authoritarianism and liberal democracy. to trace products that are subject to
export controls throughout global
We examine ByteDance’s growing value chains.
operations in Singapore and Southeast
Asia4, and whether the company All of this then leads to new ways to
can execute privacy and free speech improve corporate governance and
standards that are independent corporate diplomacy through legal
from the CCP’s mandates in China. frameworks, partnerships and alliances.
This includes a look into Alipay’s
government-mandated “social credit”
rating system, known as “Sesame
Credit” or “Zhima Credit” in China.
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
8
I. State activism and corporate
governance
The US government and TikTok Because of strict requirements laid out
Governments are becoming in China’s Cybersecurity and National
increasingly activist and interventionist Security laws, which require Chinese
in the affairs of multinational companies and citizens to provide
companies. This is impacting a the Chinese Communist Party with
broad range of business activities, user data, TikTok was perceived to
from market access to what kind of be a proxy of the Chinese state and,
standards regarding transparency, data consequently, a malign actor.
security and privacy must be followed.
Social media and digital platform To many, this seemed ridiculous. How
How could a streaming video platform companies have recently found could a streaming video platform
popular with teenagers constitute themselves under a techno-nationalist popular with teenagers constitute
a threat to one of the world’s most onslaught. a threat to one of the world’s most
powerful nations? powerful nations?
In August 2020, US president Donald
Trump signed an executive order5 to To others in the public and private
ban TikTok, the popular social media sectors, however, TikTok was part of
short-video app, on the grounds that a wider digital battleground of data
it constituted a threat to US national that could be weaponized by Chinese
security. The underlying reason: TikTok intelligence.
was owned by ByteDance, a Chinese
company.
Because of strict requirements laid out in China’s Cyber Security and National Security laws, TikTok
was perceived by the US government to be a proxy of the Chinese state (Image source: solenfeyissa/
Pixabay).
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
9
I. STATE ACTIVISM AND CORPORATE GOVERNANCE
Hypothetical espionage scenarios when regulatory agencies such as the
The high degree of mistrust of TikTok Given the vast amounts of data Department of Commerce’s Bureau
is, in part, fueled by an increase in already in circulation linking the of Industry and Security (BIS) and
corporate cyber intrusions and hybrid online activities of Americans, Committee on Foreign Investment
warfare. China’s advanced AI capabilities – in the United States (CFIUS), began
hypothetically – could leverage TikTok’s ramping up export controls, sanctions
growing American subscriber base and the blockage of acquisitions of US
of more than 100 million users6 and technology companies and assets.
connect their private data to other
relevant data points. According to The US Department of Justice has
research done by MIT, anyone can be named individuals and hacker groups
identified by extrapolating from just a suspected of being linked to the
few of their data points.7 Chinese state, which, over time, are
known to have stolen data from
Sophisticated algorithms, super- more than 100 key US tech and
computing and cognitive AI could link telecommunications companies,
a teenager’s age, postal code, ethnicity defense contractors, government
and phone number to a treasure trove agencies and social media groups,
of tangentially related data points including IBM and Hewlett Packard,
that, ultimately, with extrapolation, Boeing, Facebook, and NASA’s Goddard
could lead to the identification of Space Flight Center.10
government employees or reveal
medical records of targeted individuals. These developments have stoked fears
that massive amounts of new consumer
Much of this raw data is already a information from TikTok, WeChat and
by-product of data capitalism. Today, other Chinese social media platforms
an individual’s data has been sold could be combined with data that has
and resold8 by the likes of Google, been stolen through state-sponsored
Facebook, Twitter, Instagram and hybrid warfare operations.
others – all of which are part of
a broader ecosystem that thrives New challenges of joint ownership,
on a secondary market for data acquisitions and corporate
commoditization. governance
Based on these factors, President
Growing cyber intrusions amplify Trump gave an ultimatum to TikTok and
fears its Chinese parent company ByteDance:
sell the company to American buyers or
The high degree of mistrust of TikTok
face being shut down in the US.
is, in part, fueled by an increase
in corporate cyber intrusions.
The ensuing developments have
CrowdStrike, the Silicon Valley-
provided a living case study on the
based cybersecurity and technology
vagaries and difficulties of operating
company, has reported that since 2018,
under these kinds of techno-nationalist
cyber-attacks and intrusions have
pressures.
been increasing and intensifying.9 This
was a contributing factor towards
TikTok in America represents a ground- TikTok, therefore, represents a ground-
the Trump administration’s Section
zero event regarding corporate zero event regarding corporate
301 investigation that led to tariffs
governance in the digital economy. governance in the tech sector. After
which went into effect against
US executive order 13942 was issued11,
Chinese imported goods and, also,
which banned TikTok from operating
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
10I. STATE ACTIVISM AND CORPORATE GOVERNANCE
in the US, a series of events transpired ByteDance took the position that it
that highlight the complexity of would retain majority ownership but
compliance and risk management would distribute TikTok Global’s shares
challenges facing multinational to its existing American investors
companies. including Sequoia Capital, General
Atlantic and Coatue Management.
From a techno-nationalist perspective, This would give “American” interests a
the following questions emerged: majority position, at least in terms of
equity.13 But the problem was that there
– What constitutes “ownership” of
were also Chinese investors involved,
data, algorithms and technologies?
which, once again, raised the specter of
– What defines “control” of data, those entities being proxies for the CCP.
algorithms, source code and other
technologies? Transfer and control of source code,
– Can ownership and control of data, algorithms and key technology
source code and technology be split Even as fundamental questions of
between Chinese and American (or ownership muddle attempts to
other) techno-nationalist interests? combine US and Chinese digital
– How will new Chinese export platforms and data pools, there are
controls on algorithms and AI other challenges when it comes to
complicate business interactions controlling IP and key technologies.
and accelerate decoupling in the
ByteDance was said to have proposed platform economy? In the case of TikTok, ByteDance did
an arrangement where Oracle could not want to transfer its source code
“audit” the source code without Two American companies, Oracle, the for its “recommendation” algorithms,
actually possessing it in its entirety. technology company, and Walmart, the which constituted technology used to
world’s largest retailer, made a move funnel video content to its users.
to purchase ByteDance. Because of
the overarching constraints of US and Instead, ByteDance was said to have
Chinese techno-nationalism, however, proposed an arrangement where
the challenges of such a deal quickly Oracle could “audit” the source code
became apparent. without actually possessing it in
its entirety. Here, again, challenges
emerge regarding trust and control,
Ownership and control
which serve to perpetuate concerns
From an ownership and control about cybersecurity and data privacy
perspective, it was reported that and the activities of the Chinese state.
Walmart and Oracle would take a 20%
combined ownership of TikTok, while China Inc.’s influence on corporate
ByteDance, the Chinese parent, would boards
maintain 80% ownership.12
In a techno-nationalist corporate There were also questions about
environment, ownership and control basic corporate governance when it
However, President Trump’s demand
of data, algorithms and source code came to the composition of TikTok
for “total control” by US companies
have become contentious issues. Global’s board of directors. Oracle
was interpreted differently by all
and Walmart stated that Americans
parties, revealing what the future of
would constitute the majority of the
deal-making in a techno-nationalist
board, while ByteDance said the board
landscape will look like: complex,
would include all of its current board
uncertain and contentious.
members, which included not only
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
11I. STATE ACTIVISM AND CORPORATE GOVERNANCE
Chinese investors but, presumably, military, which, under China’s “military-
appointments of Communist Party civil fusion” 18 initiative, could involve
officials or people directly involved with a broad swath of companies. China’s
the party’s central planners. military-civil fusion initiative will be
discussed later in this study.
China’s largest tech companies According to the Financial Times,
have implemented so-called “party China’s largest tech companies In general, as Beijing pursues an
committees” which ensure alignment have implemented so-called “party increasingly autocratic, state-controlled
with Communist Party dogma and committees” which are charged with business sector, the task of corporate
objectives. ensuring that their firms remain aligned governance by American, European and
with Communist Party dogma and other non-Chinese companies will need
objectives.14 to adjust to this reality.
Under Chinese President Xi Jinping, More specifically, when it comes to
the CCP has increased its reach into populating corporate boards in merger
the economy, not only by doubling and acquisition scenarios involving
down on its support and control of Chinese entities, the TikTok example
state owned enterprises (SOEs) but has brought to light how state activism
by mandating that other parts of the is likely to become a showstopper for
business sector fall in line with the future acquisitions, mergers and joint
CCP’s objectives. ventures.
Communist Party representatives Chinese companies: Corporate
inside tech companies relocations and restructuring
The question facing Chinese The CCP has dispatched “government The question facing Chinese companies
companies is whether they can be affairs representatives” to more than wishing to expand offshore, first
viewed as independent actors. 100 of China’s most strategically and foremost, is whether they can
important companies, including circumvent their ties to the Chinese
e-commerce, social media and state to the point that foreign
technology giants such as Alibaba, companies and governments view
Ant Group, Tencent, Baidu, HikVision, them as independent actors.
Huawei and Dahua.15 ByteDance and other Chinese
technology companies are responding
In September 2020, the CCP published to this challenge through a combination
guidelines aimed at other sectors of of:
the Chinese business landscape with
– Relocating corporate headquarters
the intention to “educate private
out of China
businesspeople to weaponize their
minds with socialism ideology.” 16 – Hiring foreign executive
management and talent
A new law requires US investors These are not encouraging – Ring-fencing on a per-country basis
to divest their shares in Chinese developments for foreign companies
companies linked to Beijing’s military- looking to manage independence and – Vertically integrating sensitive
civil-fusion initiative. conflict of interest issues. In November value chains.
2020, President Trump signed an If any of these maneuvers are to be
executive order 17 that required US successful, value chains involving both
investors to divest their shares in “hard” technologies (such as materials,
Chinese companies linked to China’s equipment and components) and
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
12I. STATE ACTIVISM AND CORPORATE GOVERNANCE
“soft” technologies (such as data, of more than 600 million – but also
platforms and apps) will be held up because they are betting on receiving
to new transparency and traceability more accommodating treatment from
standards. Singapore’s government than in the US,
the EU and elsewhere.
ByteDance’s move to Singapore
However, such an arrangement will test
ByteDance is investing billions in a In 2020, even as ByteDance was
both the Singaporean authorities and
new data center in Singapore, which grappling with negotiations regarding
Chinese firms, particularly as Singapore
will serve other markets in Southeast the sale of TikTok in the US to Oracle,
strives to brand itself as the technology
Asia. Walmart and others, it was spending
sector’s “Switzerland” of Asia by
billions on a new data center and a
implementing best practices around
base of operations in Singapore.19
corporate governance frameworks. 21
The company also filed for a virtual
Should ByteDance, Tencent, Alibaba
banking license with the Monetary
and others fail to adjust to new
Authority of Singapore (MAS) and
standards concerning, for example,
has partnered with other financial
data privacy, they will not convince
institutions to provide FinTech
others of their independence from the
solutions around digital payments and
CCP.
e-commerce. 20
Alibaba and Tencent, China’s biggest Alibaba and Tencent, China’s biggest Serving the Chinese Communist Party
digital giants, have also invested digital giants, have also invested Under President Xi, the CCP has
heavily to make Singapore a major heavily to make Singapore a major base tightened its grip over tech companies
base of operations outside of China. of operations outside of China, not only and doubled down on its techno-
because of its centralized location in nationalist initiatives. In addition to
Southeast Asia – a large “mobile-first” placing party officials within prominent
digital market place with a population companies, it continues to neuter high
Jack Ma, co-founder and former executive chairman of the Alibaba Group, speaking at the UNCTAD
eCommerce Week Conference, 25 April 2017 (Image source: ITU Pictures/Flickr).
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
13I. STATE ACTIVISM AND CORPORATE GOVERNANCE
profile corporate executives where made public announcements affirming
there is the perception that they were loyalty to the party and stressed the
operating independently from party importance of handing over control
directive or becoming too influential. and ownership of their businesses to
the government, when the national
This scenario played out with Jack Ma, imperative required.
the founder of Alibaba, the Chinese
multinational technology company Jack Ma made similar public
Alipay, Alibaba’s online payment specializing in e-commerce, retail, announcements after resigning as
platform, partnered with state- Internet, and technology, which, Alibaba’s executive chairman. In
owned UnionPay, to develop digital in 2020, at one point, had a market what made international headlines,
payment technology for the Chinese capitalization of over US$850 billion. 22 he affirmed his membership of the
government. Communist Party25, and, shortly
Since founding Alibaba in 1999 in afterwards, announced that Alipay
Hangzhou, Jack Ma had become a – Alibaba’s online payment platform
national figure in China and a world – was partnering with UnionPay, a
famous business personality. In 2016, state-owned entity, to develop next
for example, he travelled to the US generation digital payment technology
and proposed to then President-elect for the CCP. This would have major
Donald Trump that Alibaba could create ramifications for Hong Kong’s FinTech
thousands of jobs in the US and bolster and financial clusters, to be discussed
the US economy. 23 later.
In 2019, at the age of 55, however, Mr. The partnership with UnionPay was
One of Beijing’s top techno-nationalist Ma unexpectedly stepped down from significant because one of Beijing’s
priorities is to roll out a fully digitized his role as executive chairman, claiming top techno-nationalist priorities is to
national monetary system, with the he wanted to retire while he was at the roll out a fully digitized national and
e-RMB at its core. top of his professional game. But, taken even international monetary system,
in the broader context of the CCP’s with the e-RMB at its core. 26 This
clampdown on the private sector, to suggests that Alipay will eventually be
many observers, the nuanced message nationalized.
was that Mr. Ma was pre-empting a
scenario where the CCP would view Given Alipay’s prominent role in
both him and his company as having developing the CCP’s social credit
acquired too much prestige and system, Zhima Credit, discussed later,
influence, and therefore, would be a it could be argued that Alipay is a
threat to the party. quasi-state enterprise, as are others
such as Tencent, which has partnered
The Chinese government had already with UnionPay to create QR code and
crushed other rising business stars and blockchain technology for China’s
companies in China’s private sector, international roll out of the digitized
such as HNA Group’s Wang Jian, Renminbi. 27
Anbang Insurance Group’s Wu Xiaohui,
and movie business celebrity, Fan The subsequent blocking of the IPO of
Bingbing. 24 Ant Group – owner of Alipay – further
reinforced the CCP’s requirement that
The latter two were taken into custody Chinese companies must serve the
and were not heard from for several Party’s purposes above all other goals.
months. When they reappeared, they
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
14CASE STUDY
How state interventionism killed a
US$35 billion IPO
In October 2020, the Ant Group, the world’s largest FinTech company, was set for a US$34.5 billion
listing plan for its IPO on both the Shanghai and Hong Kong stock exchange. (Image source: Ennoti/
Flickr)
Any doubt that Beijing’s central First, its size and success had become
planners intended to assert more a growing challenge to China’s state
control over China’s technology banks and state-owned payment
companies – and by extension their services companies such as UnionPay.
global sphere of operations – was
removed when the party blocked the Second, the Ant Group’s success –
Ant Group’s initial public offering (IPO) with Mr. Ma enjoying rock star-like
in November 2020. status – was anathema to the CCP’s
hold on power. Prior to the scheduled
In October of 2020, the Ant Group, the IPO, Mr. Ma had irked party members
world’s largest FinTech company, was and regulators at a public speaking
set for a US$34.5 billion listing plan for event in Shanghai where he had
its IPO on both the Shanghai and Hong stated that China lacked a proper
Kong stock exchanges, with a possible financial ecosystem and that its
valuation of over US$300 billion. 28 regulatory agencies had a “pawnshop”
mentality. 29 These comments backfired
China’s financial and banking But, at the time of the scheduled spectacularly, particularly as China’s
regulators are clamping down on IPO, there were two prevailing issues financial and banking regulators were
FinTech as it powers a booming facing the Ant Group, which has been struggling to reduce systemic risks
platform-driven economy. a dominant player in China’s mobile arising from the micro-lending boom in
payments, micro-financing services, China’s platform-driven economy.
wealth management and micro-
insurance markets.
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
15CASE STUDY
Inter-company warfare: Arm UK versus
its China subsidiary
Arm China’s mutiny against its British Britain’s Arm Ltd., based in Cambridge, an investment consortium, retaining
parent company has opened a is one of the world’s most important the remaining 49% ownership. The
Pandora’s box of issues for corporate technology companies. Its R&D, designs consortium, consisting of state-backed
governance. and advanced software are imbedded enterprises such as China’s Silk Road
in the upstream value chains of most of Fund and China Investment Corp (CIC),
the world’s semiconductors. obtained 51% ownership. 30
Arm dominates the front end of Arm Ltd.’s problems began when it
virtually every Fourth Industrial fired the CEO of Arm China, Allen Wu,
Revolution technology, including who not only refused to step down
internet servers, smartphones, but hired private security to block
computers, weapons systems, Arm Ltd.’s representatives and board
5G and more. members from entering Arm China’s
premises. Mr. Wu retained control of
Arm sells it chip designs to the world’s the company stamp or “chop”, which
leading semiconductor companies meant that under Chinese law he was
and also licenses other tools and entitled to maintain control of Arm
technologies that are essential for China until he turned it over of his own
independent chip designers. Many volition.
Chinese companies, including HiSilicon
and SMIC, rely on Arm’s digital Another problem emerged when Arm
blueprints. Ltd. accused Mr. Wu of conflicts of
interest, including the founding of a
Britain’s Arm Ltd. is a cautionary Arm is a cautionary tale about the separate investment firm that would
tale about the perils of corporate perils of corporate governance in the compete with Arm China. 31 This opened
governance in China’s technology technology sector, particularly when a Pandora’s box of risks for the parent
sector. it involves China and semiconductors. company including the dangers of its IP
From a risk management perspective, being transferred to unauthorized third
key concerns include: parties, and, of course, the disruption
to its business in China. According to
1. Rogue affiliates and subsidiaries
financial filings by Arm Ltd., in 2016,
regarding in-China-for-China
when it was purchased by Softbank,
operations
approximately 20% of its global
2. China’s treatment of aggrieved revenues came from China. 32
foreign companies
3. Overarching techno-nationalist Local treatment of aggrieved foreign
policies that lead to state parties
Multinational businesses around the interventionism As the Arm Ltd. versus Arm China saga
world will be watching the Chinese continues, investors and multinational
government closely to gauge its Dealing with rogue subsidiaries businesses around the world will be
treatment of foreign companies. In 2016, Softbank, the Japanese watching the Chinese government
investment company, bought Arm Ltd. closely to gauge whether the CCP
for US$32 billion. In 2018, Softbank will treat foreign companies fairly in
sold more than half of Arm China to a litigation situation. This is doubly
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
16CASE STUDY: INTER-COMPANY WARFARE: ARM UK VERSUS ITS CHINA SUBSIDIARY
important because, as global value semiconductor value chains and
chains continue to fragment, localize inflicted heavy damage on Huawei and
and ring-fence, companies must invest other Chinese technology companies.
heavily in their “in-China-for-China”
ecosystems. Thus, from a corporate As covered in previous reports in this
governance perspective, they will need series, US semiconductor companies
a level playing field more than ever. such as Applied Materials and Lam
Research have a chokehold on critical
Arm Ltd.’s corporate governance The Arm China case is also significant manufacturing equipment needed to
issues in China come at a time because it represents the single most produce high quality microchips in
when Washington has weaponized important technology sector for the commercial quantities. This is a science
semiconductor value chains. Chinese government: semiconductors. that has been mastered by only a
Chinese semiconductor companies are handful of companies.
years – perhaps even decades – behind
the world’s leading firms when it comes Even leading-edge chip fabricators
to producing home-grown, leading- such as Taiwan’s TSMC rely on American
edge microchips. firms for manufacturing equipment,
a fact that became abundantly clear
For the third straight year, in 2020, when TSMC cut off its supply of
China will import more than US$300 microchips to Huawei’s HiSilicon, due
billion33 in semiconductors and related to the US Department of Commerce’s
technologies, making this its number revision of the Foreign Direct Product
one import, ahead of oil imports. 34 Rule. 37
This dependency on foreign actors – In addition to having a chokehold on
mostly American – has driven Beijing manufacturing equipment, American
to unprecedented techno-nationalist companies such as Synopsis and
spending initiatives. In October Cadence Design Systems control 90%
2020, President Xi announced state of the design software used in the
expenditures of US$1.4 trillion35 in order semiconductor industry. 38 As a result,
to expedite the build-out of China’s there remains only one other major
digital infrastructure. Much of this non-American design company to
money will be diverted to achieving a which Chinese interests can turn: Arm
home-grown semiconductor industry Ltd.
which is already the top priority of the
Made in China 2025 policy, and other Thus, the 51% ownership of Arm China
funding initiatives such as China’s “Big by state-backed investors including
Fund.”36 the Silk Road Fund and CIC could
be interpreted as a form of techno-
All this leads back to the question of nationalist insurance policy.
Once the Arm China situation is sorted whether Beijing can act impartially
out, the question will be to what when dealing with the Arm China In light of these circumstances, once
extent was the Chinese state involved. situation, given its quest to obtain a full forensics review is done on the
leading-edge technology and IP? behavior of Arm China’s CEO, Allen
Wu, the question that remains to
Techno-nationalism, company be answered is to what extent the
ownership and state interventionism fingerprints of the Chinese state are
likely to be found on Arm China’s
Arm Ltd.’s corporate governance
activities.
issues in China come at a time
when Washington has weaponized
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
17CASE STUDY: INTER-COMPANY WARFARE: ARM UK VERSUS ITS CHINA SUBSIDIARY
NVIDIA purchase of Arm Ltd. apply US export controls and block
In September 2020, Softbank access.
announced that it intended to sell
its share of Arm Ltd. to NVIDIA, an Second, because NVIDIA is itself a
American company, for the price semiconductor company, if it were to
of US$40 billion. 39 NVIDIA is the acquire Arm, it would be in a position
world’s leading graphic processing to license Arm designs to competing
chip semiconductor company. If this semiconductor firms (all of whom
sale goes through, it could cause a are Arm customers), which would
tectonic event in the global technology essentially give NVIDIA access to their
landscape.40 competitors’ IP. Granting this kind of
monopoly power to NVIDIA would fly
At the time of this publication, in the face of other efforts underway
the sale of Arm Ltd. is still pending in the UK and the EU to roll back the
government approval in the UK, the power of American tech companies
US and in China. The NVIDIA-Arm deal, such as Amazon, Facebook and Google.
if it goes forward, would hand the US
a total monopoly in the technology Third, in purely techno-diplomatic
sector, giving it dominance of the key terms, the selling of Arm Ltd. would
segments of semiconductor value deprive Britain of a key strategic asset.
chains. It would lose leverage regarding its
influence in standard-setting around
If an American company owns Arm The sale of Arm to NVIDIA would AI rule frameworks and, in general,
Ltd., China would lose access to the therefore affirm three new realities. its room to maneuver with the US
last remaining vital “neutral” design and other countries, including China,
technology. First, once an American company owns regarding bilateral interests.
Arm Ltd., China would lose access to
the last remaining vital “neutral” source Hermann Hauser, the co-founder of
of technology, as Washington could Arm, told The Guardian newspaper that
In September 2020, Softbank announced that it intended to sell ARM LTD to NVIDIA for the agreed
upon price US$40 billion. (Source: Composite image. Left to right: Kici/Wikimedia Commons, The Pop
Culture Geek Network/Flickr)
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
18CASE STUDY: INTER-COMPANY WARFARE: ARM UK VERSUS ITS CHINA SUBSIDIARY
British ownership of Arm gave the UK Taiwan or Xinjiang province, Britain’s
strong leverage in the post-Brexit trade decision to approve the sale of Arm
talks.41 to NVIDIA – under pressure from
Washington – is not outside the realm
Gauging the NVIDIA-Arm outcome of possibility.
The issue to watch is the direction It seems unlikely that Beijing would
The UK government has already
that the British and the American approve the sale of Arm China to
performed an about-face regarding its
governments take to decouple NVIDIA given what is at stake for the
decision to block Huawei from its 5G
strategic industries from China. CCP.
networks.42
The issue to watch, however, is the
From a corporate governance
direction that the British and the
standpoint, how the Arm-NVIDIA deal
American governments take regarding
plays out will reveal the level to which
multilateral efforts to decouple
geopolitics and techno-nationalism
strategic industries from China, or, at
have primacy over trade and
the minimum, move to take further
commerce, and the lengths to which
control of strategic value chains.
companies must go to decouple and
ring-fence operations.
UK-China tensions continue to escalate
over the South China Sea, Hong Kong,
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
19II. Local versus global
corporate governance
For multinational companies, the For multinational companies, the censorship of social media platforms,
next phase of globalization is leaning next phase of globalization is leaning primarily for political reasons. Much of
decidedly towards more localized decidedly towards more localized the censorship is locally driven, at the
operations. operations, which is resulting in behest of local host governments such
increased tensions between local rules as the Indonesian government, but,
and global governance frameworks. in the case of the CCP, the evidence
To see this phenomenon in action, convincingly shows that Beijing expects
we return to ByteDance, this time to Chinese companies operating abroad
observe its expansion into Southeast to adhere to its dictates as well.
Asia, with Singapore functioning as a
base of operations. ByteDance in Indonesia
In Indonesia, for example, from 2018
Can TikTok ignore the Chinese through mid-2020, Reuters reported
Communist Party?
that ByteDance’s headquarters in
In 2020, TikTok logged more than Beijing directed ByteDance Indonesia
360 million downloads in Southeast to censor content on its local news
Asia, with almost of half of them in aggregator app called Baca Berita
Indonesia, the world’s fourth most (BaBe), if that content was seen to be
populous country.43 According to critical of China.45
Sensor Tower, an app analytics
company, TikTok grew 151% over the ByteDance’s Indonesian censorship
previous year in Southeast Asia.44 guidelines mirrored the company’s
The localization model of corporate China-based news app, referred to as
governance reveals the prevalence of The localization model of corporate Toatiao, which, itself, was bound by
censorship of social media platforms. governance reveals the prevalence of content rules established by China’s
Figure 2 – Internet censorship by country
Not free
Partly free
Free
Source: Freedom House, https://freedomhouse.org/explore-the-map?type=fotn&year=2020
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
20II.LOCAL VERSUS GLOBAL CORPORATE GOVERNANCE
internet regulator, the Cyberspace Chinese companies are not alone when
Administration of China (CAC). it comes to blocking political content
from their platforms.
The blocking of political content on a In Indonesia, Toutiao’s content
country-by-country basis has become moderation algorithms were modified In April 2020, Reuters reported that
standard practice for tech companies. to parse digital content with the aim Facebook agreed to censor its platform
of blocking insensitive or offensive in Vietnam and to block offensive,
words or images regarding Indonesia’s adverse or antagonistic content aimed
religious, ethnic and racial sensitivities. at the Communist Party of Vietnam.46
But its algorithms also blocked key Facebook allegedly agreed to this after
searches for words such as “Tiananmen the Vietnamese government shut down
Square” and “Tibet”. Facebook’s local servers, effectively
taking them offline.
After it was publicly exposed,
ByteDance walked back its China- The “in-China-for-China” corporate
related censorship practices in late governance dilemma
2020 and installed local Indonesian
Adjusting to local regulatory Adjusting to local regulatory
content moderators on its TikTok
environments is derailing the policy environments is putting some of the
and BaBe apps, leaving decisions
aims of “good corporate citizens”. world’s best known “good corporate
about what content to remove and
citizens” in direct conflict with their
block from Indonesian cyberspace to
own self-professed core values. From
Indonesian nationals.
a corporate governance perspective,
China-based MNEs are confronted with
Content moderation as a business a Faustian bargain: submit to the CCP’s
model requirements regarding censorship
ByteDance’s corporate governance and state surveillance in exchange for
practices call for teams of moderators market access.
to pursue “non-political” content
benchmarks when it comes to, for This puts civil society – from consumers
example, pro-democracy protests to investors – in a compromised
in Thailand against the ruling junta position. Apple and Microsoft, two
or non-favorable content aimed at American icons, are a case in point.
Vietnam’s Communist Party.
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
21CASE STUDY
Apple in China
Apple has complied with the CCP’s Apple’s global value chains have downloaded, allow users to bypass
numerous requests, over time, to centered on China as an assembly China’s censorship firewalls and access
remove more than 1000 apps from its platform, where Taiwanese the internet.49
App Store. headquartered contract manufacturers
such as Foxconn, Pegatron and Wistron For the purposes of corporate
assemble iPhone from parts and governance, Apple prioritizes
components made all over the world. compliance with local laws in host
Although Apple is diversifying about countries over execution of global
one-fifth of this assembly process to policies regarding, for example,
India47, China remains at the heart of censorship practices by local
Apple’s global value chain. The China authoritarian regimes.
market also accounted for about 25%
of Apple’s global revenue in 2020.48 In September 2020, Apple published
“Our Commitment to Human Rights”,
Local versus global governance which spelled out its worldwide
policies on this topic.
Apple has complied with the CCP’s
numerous requests, over time, to
The document contains language
remove more than 1000 apps from
that highlights the primacy of local
its Chinese App Store, including The
regulatory environments: “Where
New York Times and Quartz, two
national law and international human
influential media outlets, as well
rights standards differ, we follow the
as VPN applications, which, when
higher standard. Where they are in
Apple CEO Tim Cook with former Chongqing Mayor Huang Qifan in an Apple store in Chongqing city’s
CBD. (Source: Junyi Lou/Wikimedia Commons)
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
22CASE STUDY: APPLE IN CHINA
Figure 3 – Revenue of Apple by operating segment from the first quarter of
2012 to the fourth quarter of 2020 (in billion US dollars)
125
100
Revenue in billion US dollars
91.82
88.29
84.31
75.87 78.35
74.6
75
64.04 64.7
61.14 62.9
57.61 58.01 58.02 58.32
54.51 52.91 52.58 53.27
49.6 50.57
50 46.34 43.6 45.65
42.36
45.41
39.19 37.43
35.97 35.32
25
0
’20
’20
’12
’12
’ 13
’ 13
’14
’14
’ 15
’ 15
’ 16
’ 16
’ 17
’ 17
’ 18
’ 18
’ 19
’ 19
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
1Q
3Q
Americas Europe Greater China Japan Rest of Asia Pacific
Source: Apple Inc. condensed consolidated statements of operations, via Statista
Increased scrutiny of in-China-for- conflict, we respect national law while society increases reputational
China operations by civil society seeking to respect the principles of risk and degradation of brand
increases reputational risk and internationally recognized human image internationally.
degradation of brand image. rights.”50
– Sudden escalations in US techno-
Simply put, in China, Apple follows nationalist policies can result in
rules that contradict its global values sanctions against local Chinese
regarding censorship and privacy. There governmental departments,
are other tensions and risks that arise individuals and entities that could
from local versus global governance lead to forced decoupling.
contradictions:
– Rising levels of governmental
– Connectivity with local regulatory distrust in China of foreign
enforcement offices in China expose technology companies requires
MNEs to increased cyber-intrusions expensive corporate diplomacy
and cybersecurity risks, requiring and assurance practices on the part
countermeasures. of MNEs.
– Increased scrutiny of in-China-
for-China operations by civil
HINRICH FOUNDATION REPORT – TECHNO-NATIONALISM AND CORPORATE GOVERNANCE
Copyright © by Alex Capri and Hinrich Foundation. All Rights Reserved.
23You can also read
