U.S.-China tech rivalry will put Chinese firms under scrutiny

Chinese companies will continue to face intense scrutiny as U.S.-China tensions and competition won’t be easing anytime soon, one analyst told CNBC.

“There is this intense geopolitical competition. Chinese companies are getting a ton of scrutiny in part because of their ties to the Chinese Communist Party,” said Lindsay Gorman, senior fellow for emerging tech at the German Marshall Fund’s Alliance for Securing Democracy, on CNBC’s “Squawk Box Asia” Tuesday.

Last Thursday, TikTok CEO Shou Zi Chew was questioned by lawmakers for five hours over the app’s ability to operate independently of its Chinese parent ByteDance.

The short-video app faces a potential ban in the U.S over concerns that American user data may end up in the hands of the Chinese government. Chew said that China-based employees at ByteDance may have access to some U.S. data from TikTok.

“I think it’s important to look at the broader context of the Chinese Communist Party’s efforts to interfere in democratic institutions to suppress free speech and democracies,” Gorman told CNBC.

China had said that it would “strongly oppose” a forced sale of TikTok from its parent company ByteDance, hours before Chew’s testimony before U.S. Congress.

Both countries are also competing for control over subsea cables — the backbone of the internet. More than 99% of global communications are transmitted over fiber optic cables, most of them undersea.

Huawei and China Telecom have built undersea cable networks across the world.

The U.S. and China are vying for technology dominance “because of that fundamental internet infrastructure,” according to Gorman.

“Whoever builds the infrastructure and gains dominance in industries that we are building today and for the future — whether that’s artificial intelligence, subsea cables, or quantum information systems, those are going to be the leaders of the future, of the world,” said Gorman.

“That’s why you see both sides of it fighting so hard to have their own technologies win the day,” she added, noting that the technological competition between the U.S. and China is “really not going away.”

The U.S., concerned about China spying on subsea cables, has reportedly obstructed several Chinese projects to build underwater cable networks since 2020, according to a Reuters.

On Monday, the U.S. Congress passed the Undersea Cable Control Act to limit countries like China “from acquiring American-made goods and technologies that are used in developing and supporting undersea cables.”

“Whether it’s TikTok or a spy balloon, the U.S. has been caught flat-footed in countering Chinese influence. We can’t let undersea cables become another example of that trend,” said U.S. Congressman Brian Mast, in the press release.

“We cannot empower the same China that wants to topple America and put communism on top to control one of the most powerful communications tools on the planet. We must protect this infrastructure and technology that Americans rely on every day,” said Mast.

In response to the act that was passed, China’s foreign ministry spokesperson Mao Ning said: “We oppose the U.S.’ overstretching the concept of national security to hobble foreign companies and abusing state power to disrupt normal market rules and order. The pursuit of ‘competitive edge’ does not legitimize bad behavior.”

After Thursday’s TikTok hearing in Congress, Apple chief Tim Cook visited China on the weekend, where the CEO praised China’s evolution and its long-standing ties with the iPhone maker, according to local media reports.

“That really speaks to just how intertwined the U.S. and Chinese technological ecosystems are and have been,” said Gorman, adding that U.S. companies like Apple “rely on China for a good amount of their operations.”

That complicates the “decoupling of the U.S. technology ecosystems from the Chinese technology ecosystems,” she said.

“These ties are obviously really tight. It’s not going to be a, sort of, one-and-done decoupling,” said Gorman.

“It’s not going to be particularly smooth sailing and we see that with U.S. and other multinational corporations that still have very strong ties to China.”