TikTok Hearing: The End of an Era
“Folks like Zhang Yiming and others would have been the best allies of the United States in its way of dealing with US-China relations.”
Kevin Xu, Obama-era White House official and creator of the Interconnected newsletter, comes on ChinaTalk to discuss:
Our impressions of the House’s TikTok hearing;
Continued cross-border reliances around batteries and cloud computing;
The missed opportunity of Zhang Yiming’s generation of founders;
And GPT-4’s remarkable translation capabilities.
Kevin’s opinions are personal and not representative of GitHub or Microsoft.
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How TikTok Could’ve Saved Itself
Jordan Schneider: Kevin, what do you think of this hearing?
Kevin Xu: First of all, I think it’s clear and unequivocal at this point that TikTok, as a company or as a product, is being held to a completely different standard or playing field than all other peer companies here in the US — whether that’s Meta, Snapchat, or other social media companies — because of Chinese ownership. TikTok might have tried to actually argue that everybody else is doing the same thing that they are, and therefore whatever they are doing as TikTok is just part of an industry problem. But at least on the Republican side, it’s pretty clear now that TikTok, because of its ownership, is being held to a completely different standard. Whatever that standard is is still to be determined, but I think that the argument [from TikTok] — that just because they are doing what Facebook’s also doing, we shouldn’t be talking about it all together — is falling flat, as evidenced by this hearing (at least so far).
Jordan Schneider: What’s remarkable to me is that it took this long. We’re here in March 2023. Trump almost banned the app in 2020. All the facts have been there for years now, but watching the metabolism of the policy media ecosystem — [in response to] what TikTok is, what constraints it operates under, and the power and influence that this platform has — move forward in fits and starts over a multi-year process has been really fascinating; and [it’s] a really interesting civics lesson for me in what it takes to go from an idea to consensus to action. Just over the past week, we’ve finally seen that the Biden administration has made a decision that Project Texas, which TikTok has been pushing for the past few years, is not going to cut it.
Kevin Xu: Coming from listening to this hearing, one of the talking points that Shou Zi Chew is very clearly falling back on is Project Texas. He’s like, “Right now we’re still basically not able to guarantee that there’s no access to American data — but we’re spending billions of dollars on Project Texas, and no one else in our industry is doing it.” So he’s trying to say that once we finish Project Texas, we’ll be good.
The questions here are: 1) why is it taking so long for Project Texas to be finished, since it’s [been] at least a year and a half at this point? And 2) if that is going to be the linchpin to solve TikTok’s problem, why go up at the hearing now, [instead of] waiting for it to be finished and then reporting to the American public or to Congress, or giving a much more precise progress report?
I think the other commitment he made was maybe marginally news-making, [which] is that TikTok is also planning to delete all American user data that are currently being stored in this Virginia data center that’s not Oracle-run — [and] therefore not Project Texas — and backup in the Singapore data center.
So it’s an ongoing project, which makes the TikTok CEO’s job today, quite frankly, way more difficult than it probably could have been.
Jordan Schneider: They caught a real break by having Trump get distracted. Larry Ellison whispered in his ear that he had a solution. They had three years to put in place a better fact pattern, in order to be able to go to these debates, testify in front of Congress, and give a more convincing pitch.
Maybe they just thought they could be cute and really quiet, and eventually end up at a place where this fell off the headlines. Maybe if US-China relations had developed in a different way than it had over the past few years, that might have been a more feasible strategy. Maybe whatever Project Texas is is so many billions of dollars that the expected value of having a better talking point to congressional staffers wasn’t worth the $5 or 10 billion or whatever it would take to hire new American engineers and pour everything out of China. But the fact is that we’re sitting here in March 2023 with the CEO being unable to definitively answer questions about engineers based on the mainland having access to the algorithm and data that these Congresspeople are so focused on. And it didn’t have to be that way.
Kevin, you’ve been talking a lot over the past few years about the idea that they could have decided to do what Elon is ostensibly going to be doing with Twitter, which is open-sourcing the entire algorithm. So talk me through a little bit about what that road not taken could have looked like, and why that might have been a potential solution for ByteDance to ameliorate some of these concerns.
Kevin Xu: I’ve heard from a lot of Chinese entrepreneurs and businesspeople, not just at the TikTok level, [that] when Trump lost the 2020 election and Biden became President, there was this false sense of comfort that US-China relations will get magically better overnight. And I think that might have lulled a lot of the TikTok and ByteDance leadership into thinking that this is something that they can negotiate away. There is technically still a pending negotiation with the Biden administration, but I think it’s very clear that if the Biden administration could have banned this app, they probably would have done it by now. But because the Trump attempt to ban the app was struck down by not one, but two federal judges for abuse of the International Emergency Economic Powers Act —which was his justification for how he, as president, could do this, and it clearly didn’t work. Obviously, the Biden administration wouldn’t try to do [that again], if only to avoid the embarrassment that their order could also be struck down by the court.
Now we have a proposal like the RESTRICT Act, which came out of the Senate a few weeks ago, that more explicitly gives the president and the executive branch the power to do these sorts of things. If that bill gets passed, then it’s just a much easier legal process to ban not just TikTok, but any kind of Chinese tech company and their product in the United States, if there is enough justification of a national security concern to push them out.
“We have a president potentially friendlier than Trump, and life is going to be okay.” I think that was what happened in the last two to three years, and it’s now coming to light [that] a lot of these folks were living in a false almost-fantasy.
The RESTRICT Act and the US-China Relations Tragedy
Jordan Schneider: Kevin, what’s in the RESTRICT Act, and what stuck out to you?
Kevin Xu: The RESTRICT Act is a proposal introduced by Senator Mark Warner from the Democratic side and Senator John Thune from the Republican side. It already has the enthusiastic endorsement of Senator Joe Manchin (who may be a Republican, Democrat, or whatever he feels like he wants to be depending on the day).
It’s a bill — not [yet] a law — that basically gives the president and the executive branch — namely the Department of Commerce — a very wide range of power to determine what kinds of technology, products, or services from America’s foreign adversaries that the president now has the power to review, figure out whether they pose any national security threat, and deal with it accordingly — which could be a sale, a ban, or whatever the executive branch sees fit. The “foreign adversaries” are a very specific set of definitions that include the People’s Republic of China (also Hong Kong and Macau), Russia, Cuba, Iran, North Korea, and Venezuela under Maduro.
What was interesting to me is that the list of things that could fall under the covered technology areas for this bill is extremely comprehensive. It basically covers everything that any technology company could make under the sun.
It’s not just the usual suspects of networking equipment, drones, or other sorts of hardware that we’ve come to be familiar with as potential foreign adversary “spyware.” It includes social media platforms and e-commerce technologies and services. It includes strategic areas like AI, quantum computing, cryptography, biotech, etc. And it also includes cloud services: CDN, SaaS products, and even companies that manage open-source software which technically is not actually owned by any company. Even companies that are commercially utilizing open-source for their business gains are now under the coverage of this act, which to me basically spells game-over for any Chinese tech company — not just the big ones, but even relatively small ones and startups that want to gain some market share in the US.
Jordan Schneider: I moved to China in 2017. Xi had just changed the constitution, and dark clouds were on the horizon. But even then, there was still this vision that maybe interconnected commercial and technological interaction between China and the rest of the world could potentially build the context in which the US and China could relate to each other on better terms. This hearing and the RESTRICT Act really marked, to me, the end of an era.
The consensus that has been manifested with this bill and TikTok being banned is a real marker for just how far we’ve gone and how much it’s going to take to shake the idea that’s made it into the American political bloodstream — that US-Chinese technological interaction is somewhat akin to doing deals with the enemy, and any sort of commercial or technological engagement needs to be viewed through that lens because of the broader challenges that are facing the US and China.
There’s something that I find so sad about the moment we’re in, because I don’t think it was inevitable that the US and China had to end up where we are today. I’m going to put it 90-10 on Xi and Beijing’s shoulders for pushing us to this moment. But when I look at the likes of Zhang Yiming — we would be in a much nicer world if the two countries and the two systems were in a place where they could build trust in each other. Shou could be thinking about how to make creators more money and not have to spend all his time on completely justified concerns about data privacy and algorithmic bias. But that’s not the world and timeline that we’re in.
There’s something about the discourse in the US around the US-China relationship that isn’t grappling with the tragedy of all of this. The most tragic thing is not necessarily just the US-China tech relationship, but the trajectory of Chinese governance over the past ten to fifteen years. It’s deeply sad that this is the place that we’re all in.
Kevin Xu: The marker of this being the end of an era with the TikTok hearing today and the RESTRICT Act possibly becoming law is not that hyperbolic. I work with entrepreneurs from different places around the world, and I have held hope that while products like TikTok pose more obvious national security threats and could be dealt with in one bucket, there are many more tech industries that are just trying to make more money and justify their valuation with their VC investors. These are just normal behaviors in business that used to be much more free-flowing, but now they’re all being shoved under the larger movement of an increasingly adversarial relationship between the two countries. This is a new level of separation that I have not seen in the past three decades.
There’s not a whole lot of wishful thinking. The reality is that people need to change their plans. That has nothing to do with whether TikTok is a national security threat or not — which there’s evidence to suggest that it is. There could be more validation on that claim, and we could have dealt with it singularly. There are opportunities where TikTok could have led the pack or really stayed in front of this problem, whether it’s open-sourcing their recommendation algorithm or even the access level between their Chinese and American engineering forces to show more actual transparency — [instead of] building a “transparency center” and parading a few journalists around. Those would be ways to technically verify these claims — but unfortunately, that didn’t happen with TikTok. So here we are.
Jordan Schneider: Everyone is citing the National Security Law, which says that the Chinese government can make private companies do whatever they want if it’s in the interest of national security. [But] Xi didn’t need this law to make companies do what he wanted them to.
The legalization of Chinese governance is something that he’s been very focused on as a way of being for the Party. It’s not rule of law, it’s rule by law — “we want to create the legal framework to understand and justify everything that we’re doing.”
But now fast forward five or six years later, and the Chinese government’s influence over every aspect of Chinese corporate and private life ends up leading to the case where you have the CEO of TikTok being forced to answer questions that are unanswerable. At the end of the day, ByteDance has no recourse when it ends up getting those sorts of requests and directives.
Kevin Xu: This morning, the news dropped that the Chinese commerce ministry issued an official statement about any sort of TikTok sale or divestiture being basically dead on arrival from a Chinese regulatory perspective. It was quite a PR curveball thrown at the TikTok CEO the morning before he has to go to the Hill.
The timing of that was actually a little bit curious. A lot of members on the hearing committee seized on that statement to really push him to answer a question that is literally impossible for him to answer, and basically undermines any valid case that he could have made about separation between TikTok the company and the Chinese Communist Party.
The Chinese Communist Party literally just said you can’t be sold without our permission. What do you say to that?
Jordan Schneider: He could have a better answer for that. He could have said, “Look, in the US, technology transfer sales have to go through regulatory controls, and we have the same thing in the PRC.” But it leads you to the same unanswerable question, which is that these algorithms were created by Chinese engineers who have daily access to them. There have been stories about algorithmic tweaks happening in China that US employees have no idea about. They could have done something about that over the past three or four years, but for whatever reason, it wasn’t in their interest. Now they’re paying the price.
Lost Generation, Lost Opportunity
Kevin Xu: It’s a personal issue in a sense, right? You’ve worked in Chinese tech companies in the past; I’ve worked with a lot of them as well. There is always an assumption that there’s at least a certain part of the economy between these two countries that could just stay benign. But I don’t think that is the reality that we are walking into, whether we like it or not. And that’s just something that we need to recognize and operate under.
Jordan Schneider: I come back to Zhang Yiming’s Weibo posts back when Weibo wasn’t all that censored. He was making all these comments criticizing the government, saying that there should be more freedom of expression in China. You can find those posts from basically every Chinese CEO of his era. These folks worked at Western technology companies; a lot of them even spent time in the US or in Silicon Valley. The ideological mindset of the future that they envisioned for China was much more akin to the peaceful evolution that the US was hoping [for].
These innovators were the closest, I think, that America has really gotten to creating a class of individuals in society which deeply internalized a lot of the liberal values that America holds most dear.
And for us to get to a point where we’re telling these folks, “No, you can’t do this, because the leadership of your country has gone so off the rails that there’s no way we could ever trust you” — it’s just a real shame that this is where we are today, because these guys were probably the best hope that America had for potentially bending China in a different direction. I think Xi recognized that, which is why we’ve had all these tech crackdowns over the past few years. He understood that the Zhang Yimings and Jack Mas of the world were not on board with how he wanted to define Chinese greatness. Unfortunately, we don’t have Chairman Jack Ma running the shots in China; we have Xi Jinping. And that’s the reality that innovators — as well as American policymakers — are going to be having to grapple with for years and years to come.
Folks like Zhang Yiming and others would have been the best allies of the United States in its way of dealing with US-China relations. But instead, we are also doing our best to push them away — all the way to Singapore apparently.
Jordan Schneider: We’re at the inflection point where more and more of the US and China’s technological interconnect points are going to be unwound — but there are still really dramatic dependencies on both sides of the equation which neither country is going to be able to wriggle their way out of anytime soon.
Kevin Xu: On the point about electric vehicle batteries specifically, I think that is one of those industries where there is so much lead that China has built in that industry that — as the United States tries to electrify itself with the Inflation Reduction Act and subsidizing American consumers to buy EVs made by domestic brands like Ford and GM — there is an awkward reliance which is hard for politicians to recognize: how much US automakers simply do not have access to enough domestic technology to acquire reliable batteries for their EVs.
They must rely on global leaders like CATL — which is a Chinese company that is by far the largest supplier of EV batteries in the world — to be able to make the American dream of electrification come true.
Ford has decided to build an EV battery in Michigan with CATL’s technology to supply enough functioning batteries for the next generation of Mach-E and F-150. A more recent piece of news: Ford had a battery incident where a bunch of trucks caught on fire. The batteries were being supplied by South Korean battery giant SK On. It’s been diagnosed and published by US regulators that these batteries are defective, which further pours oil on the fire. Even the alliances the US has built around the world with South Korea, Japan, and other countries aren’t enough to really catch up to the lead that China has built in this particular industry of EV battery-making to help Americans electrify.
That is one industry where the practicality of deglobalization or decoupling is about to really hit — where we see the rubber meet the road. It’s very easy to talk about it in a congressional setting or in a legislative setting, whether it’s giving money away to incentivize or to push companies out in the context of the RESTRICT Act. But if you need a battery, you don’t want to roll one out that’s going to set on fire. And there is this one source of reliable battery, and it just happens to be from your foreign adversary. So there are still threads of interconnectedness, but it’s dangling on these very loose rope lines of technological reliance that’s hard to catch up — and it’s hard to recognize honestly, too, if you are someone who is in DC and trying to drum up all these narratives about deglobalization and decoupling.
Jordan Schneider: One of the most interesting ones is the idea that Chinese firms are going to be increasingly reliant on US cloud providers to have access to the latest and greatest NVIDIA chips that are going to be run from data centers in Singapore. Given the export control restrictions, there’ll be some wiggle room with chips to stay around the capabilities that have been developed in 2020 and 2021 — but it won’t take very long for the NVIDIA chips made just under the limits that the Commerce Department has set to be out of date. The solution now is for foreign cloud providers to allow the Tencents, Alibabas, and ByteDances of the world to train their models outside of China, because China can’t develop leading-edge chips and supercomputers without access to the likes of TSMC. I find it very hard to imagine a world in which — two to three years from now when it becomes even clearer that these models and the inference needed to power them on a nationwide scale is something that the US is providing China — that’s going to fly when Jensen Huang, in 2024, is inevitably called in front of Congress to ask why he is powering the Chinese economy.
Kevin Xu: I think that’s another one where the interconnectedness still holds, but it’s just two layers beneath the surface. I shouldn’t be surprised by this, but I was surprised to read that you could just rent the GPUs in a data center in Singapore, Dubai, or wherever that is not the United States or China. That is so obvious: you just put in a credit card, and AWS or GCP will gladly take your money to run those workflows and never ask a question. You can even do it via partners domiciled elsewhere, and this is something that is very standard in the industries of cloud computing infrastructure and data infrastructure. There are webs of partners and global service integrators: huge Indian companies and Accenture do this stuff for a living. [The export controls] do still handicap national initiatives where you do want to own the hardware to develop your supercomputer. I think that will get set back a few years in China. But NVIDIA has a monopoly on the entire hardware side of AI training and influence-generating right now. That’s the reality of business. I don’t know if whoever is doing the enforcement in the Commerce Department is not really aware that you could just rent a server. I guess this would just be a business boom to all the cloud regions in Singapore, Southeast Asia, and maybe even Japan or South Korea.
Jordan Schneider: I think the justification around the regulations was like, “Look, these are national security concerns, and the PLA can’t be that dumb to run their ballistic modeling in Singapore.”
Kevin Xu: Maybe not! That part of the modeling or that AI initiative in China may probably never leave the border for obvious reasons. But it doesn’t necessarily handicap the SenseTimes of the world.
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