With Edward Snowden back in the news again (not that the attention ever really dissipated), it seems like a good time to explore how last year’s explosive revelations have affected China. As Robert Garrett pointed out, in some ways the Snowden revelations could potentially threaten Chinese leaders, should the files contain incriminating information on corruption within the Party’s upper echelon. However, I would argue that this potential risk is more than outweighed by the gains that have already been realized.
First, there is the economic impact on both the U.S. and China. An opinion piece by Dr. Cheng Li and Ryan McElveen at Brookings’ John L. Thornton China Center argues that “U.S. technology firms conducting business in China … will never fully recover from the irreparable damage left by the devastating NSA revelations of 2013.” China Economic Weekly named eight U.S. technology companies that have “infiltrated” the Chinese market: Apple, Cisco, Google, IBM, Intel, Microsoft, Oracle and Qualcomm. Since this list was published, Li writes, “the sales of those companies have fallen precipitously.” Cisco’s China orders fell by 18 percent; IBM’s China revenue dropped 22 percent, and Microsoft has acknowledged that China growth was weak in 2013.
U.S. companies from Cisco to AT&T have also expressed their concerns directly to President Obama. The Washington Post reported that late last year leaders of large U.S. technology firms told President Obama that the NSA surveillance programs are costing them customers. The article further notes that “Silicon Valley has been a critical driver of the economic recovery” —hinting at wider economic consequences should the decline in U.S. tech firms continue.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
Meanwhile, Chinese technology firms such as ZTE and Huawei stand directly to benefit from an increasing distrust (and corresponding decline in market share) of U.S. firms. The Chinese government had already toyed with “indigenous innovation” policies that essentially required government offices to favor products invented and patented in China. The U.S.-China Business Council complained that this policy “encourage[d] discriminatory practices” and the Treasury Department made relaxing these restrictions a priority. In part due to U.S. pressure, the Chinese government agreed to revise its policy in 2011.
Now, however, campaigns to “de-Cisco” China have had effectively the same effect — handicapping foreign firms and prioritizing domestic ones — but these new policies can be more than adequately defended as the result of security concerns. Plus, doing so provides a handy way to retaliate for the U.S. congressional decision to blacklist Huawei. Caixin noted in November that Chinese government procurement regulations are now encouraging officials to “buy local,” cutting into U.S. firms’ profits while also providing a boost to China’s tech industry.
However, Snowden’s greatest impact on China may be political rather than economic. Cheng Li noted that, as a result of NSA revelations, “the United States had lost all credibility on the cyber security issue.” The timing could not have been worse for the Obama administration — the Snowden revelations came mere months after the U.S. government had decided to make cyber-security concerns a top priority in its relationship with China. Now, it is extremely difficult for the U.S. to make headway on cyber issues because the Obama administration is constantly on the defensive about NSA surveillance.
Finally, there are the less tangible but potentially more important effects on the U.S.’s global image and diplomatic relationships. Allegations of phone tapping and other surveillance of world leaders have caused a backlash around the world. Germany’s Defense Minister called the tapping of Angela Merkel’s phone “completely unacceptable,” adding “we simply can’t return to business as usual [with the U.S.].” Brazilian President Dilma Rousseff was so upset by the allegations of NSA spying in Brazil that she postponed her planned visit to the U.S. Much of the damage was done to U.S.-European Union ties. While former State Department and CIA officials have argued that the damage is likely to be short-term, precisely because these relationships are so strong, it will take time for the U.S.’s image to come back. This is good news for China. If Beijing can’t effectively create or use soft power, as many (including Joseph S. Nye) have argued, the next best thing is watching the United States’ own soft power take a serious hit.
Worse, other U.S. allies also face credibility issues due to their participation in the cyber-espionage campaign. The United States, the United Kingdom, Canada, Australia, and New Zealand are all implicated as the so-called “Five Eyes,” partners in what The Guardian called an “electronic eavesdropping alliance.” For example, based on Snowden’s leaked documents, The Guardian accused UK’s Government Communications Headquarters (GCHQ) of large-scale internet and phone surveillance operations, with the gathered information being shared with the NSA. The damage, in other words, has spread from the U.S. to its allies.
In addition to the general prestige damage done to the “Five Eyes,” there have been specific diplomatic gains for China. Snowden’s leaks have seriously damaged the relationship between Australia and Indonesia, which further opens the door for China to expand its influence in ASEAN. As Brad Nelson wrote earlier for The Diplomat, Indonesia, with its leadership potential in ASEAN, is something of a diplomatic battleground for the U.S. and China. Both countries expend a lot of time and money trying to get Jakarta to lean their way. With Indonesia and Australia at odds over a U.S.-led espionage campaign, it opens the door for China to deepen ties in Jakarta at Washington’s (and Canberra’s) expense.
Economically and politically, then, China stands to gain quite a lot from the global revelations about NSA activities. And that’s not even counting whatever intelligence boost China might gain from the leaked information.