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China’s data paranoia reaches new depths with reported ban on Teslas near government meeting

June 21, 2022, 5:13 PM UTC

A peculiar little story Monday shows just how messy the U.S.-China battle over sensitive data could become for Big Tech.

Reuters, citing a local traffic official, reported that Tesla vehicles have been banned from entering Beidaihe, a small Chinese city on the Bohai Sea, for two months. 

While Chinese officials haven’t explained their rationale for the imposition, the Reuters story suggested it stems from fears that Tesla’s embedded cameras could present a security threat during an annual gathering of government VIPs in Beidaihe. (Tesla has previously denied suggestions that it would spy on Chinese leaders, and the company committed to storing all vehicle-derived data in the Asian nation.)

If the inference is true, the ban represents one of the pettiest actions taken in the escalating fight over data between the U.S. and China. But that trifling turn of events would also show the lengths to which China could go to clamp down on high-tech U.S. companies operating in its backyard.

For the past several years, the world’s most-powerful foreign adversaries have been engaged in an escalating dustup over data. 

Since 2017, Chinese policymakers have instituted sweeping new cybersecurity, digital retention, and data sharing regulations, many of which are designed to give the autocratic regime greater access to user information. Most notably, China ordered that companies harvesting user data on its citizens must store that data on the mainland.

The U.S.’s last two presidents, Donald Trump and Joe Biden, have responded with executive orders of their own. 

Trump moved in the second half of his tenure to ban the Chinese telecommunication company Huawei and two hugely popular apps in China, TikTok and WeChat. He argued that the technology presented a national security threat given China’s potential ability to access American users’ data. 

After taking office one year later, the Biden administration reversed the TikTok and WeChat order amid questions about the legality of the bans, which never took effect. However, Biden simultaneously ordered the Commerce Department to scrutinize apps developed by foreign adversaries for potential data and national security implications.

The results of both countries’ actions are a mixed bag to date. While China has frozen out many U.S. tech companies, aiming to prop up domestic outfits, some American firms continue to operate there without much disruption. Apple, the U.S.-based company with the deepest roots in China, made a series of concessions to fall in line with new data regulations, the New York Times reported last year. TikTok, meanwhile, announced Friday that all U.S. user traffic is now going to Texas-based Oracle’s cloud servers.

Several other firms, however, have retreated from China. Yahoo and Microsoft’s LinkedIn shuttered operations there late last year, with both citing legal concerns following the enactment of new data security rules. Grindr, the dating app tailored to the LGBTQ+ community, withdrew in February from Apple’s App Store in China, partly owing to issues with regulatory compliance.

Even as big-name tech companies get comfortable with the new data privacy protocols, paranoia still persists. 

BuzzFeed News reported Friday that audio recordings and employee interviews show China-based TikTok workers still had access to nonpublic American user data as recently as early 2022—contrary to the spirit of pledges made by TikTok owner ByteDance. Chinese officials also have banned Tesla vehicles from sensitive locations in the past, out of fear that the vehicles could record video and transmit it back to American soil.

For now, this latest Tesla ban doesn’t figure to dent any bottom lines. Tesla shares surged 12% in midday trading Tuesday, and CEO Elon Musk complimented his Chinese competition as “extremely competitive, hardworking, and smart” during an early-morning interview.

But as cloud-connected software further embeds into American-designed technology, China’s obsession with control will eventually make a bigger dent on revenues. Tesla and its tech counterparts may one day look back wistfully on the banning at Beidaihe as a simpler time.

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Jacob Carpenter

NEWSWORTHY

Some staffing specifics. Tesla CEO Elon Musk clarified Tuesday that he expects employee cutbacks will total about 3% of the company’s workforce, with salaried workers hit the hardest by any layoffs, Bloomberg reported. Musk’s comments at the news organization’s Qatar Economic Forum came after internal memos and public statements led to confusion over his staffing plans. Musk has said he fears a recession is imminent in the U.S., while vehicle assembly in China has been slowed this quarter by COVID-related shutdowns and supply-chain snags.

Hello again, strangers. Uber announced Tuesday the return of shared rides in select cities after a two-year hiatus brought on by the pandemic, CNBC reported. The option, which allows two strangers to take the same vehicle in a similar direction at a discounted rate, is now available in 10 cities, with more locations set to come online this summer. Uber rival Lyft reinstated a carpooling feature late last year, with seven cities currently offering the feature.

An antitrust détente. Google has dropped its appeal of a $527 million fine levied by French regulators, which alleged that the Alphabet unit failed to engage in fair negotiations with publishers over the use of copyrighted material, Bloomberg reported. As part of an agreement with French antitrust authorities, Google committed to a framework for future negotiations with hundreds of French publishers over payments for access to their material. A law passed in 2019 in France ordered companies displaying links and small snippets of content to pay publishers for their works.

Grounded for now. Terraform Labs employees are not allowed to leave South Korea after local prosecutors investigating the $40 billion collapse of the organization’s cryptocurrencies banned them from foreign travel, the Financial Times reported Tuesday. Dozens of current and former Terraform Labs staffers are subject to the travel restrictions, prosecutors in Seoul said. The inquiry follows the demise of TerraUSD, a so-called algorithmic stablecoin that was supposed to be pegged to the dollar, and the associated token Luna.

FOOD FOR THOUGHT

The short-form successor. Two years after the Indian government booted TikTok amid a border battle with China, the race is on to take its place. The Wall Street Journal reported that Google and Instagram are jockeying for control of the potentially lucrative short-form video market in India, which already has an estimated 240 million users. Google has the inside edge, however, owing to the success of long-form video platform YouTube in India. The Alphabet unit also is investing hundreds of millions of dollars across several Indian video startups, in case its current Shorts product doesn’t fully catch on there. 

From the article:

Google now appears to be taking a carpet-bombing, or perhaps carpet-fertilizing, approach to its husbandry of the remaining Indian short-video startups. Its other investments in the space include InMobi’s lock-screen product Glance, and VerSe Innovation, parent to another short-video app, Josh. Last year, YouTube also bought a small video-commerce platform called simsim. All this comes despite YouTube’s own short-video feature, Shorts, finding some success in India.

When compared with China, India’s short- and live-video segment is still in its infancy, leaving a lot of room for experiments and mistakes.

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BEFORE YOU GO

Opening his wallet. Get yourself a friend like Sam Bankman-Fried. As Fortune’s Taylor Locke wrote Tuesday, the billionaire FTX chief executive, whose cryptocurrency platform ranks among the world’s largest, is quickly becoming the savior of distressed blockchain outfits. Crypto lending platform BlockFi, which announced last week that it had to liquidate a large client amid a sharp downturn in the crypto markets, said Tuesday that FTX will provide the firm with a $250 million revolving line of credit. The disclosure came four days after a quant trading shop founded by Bankman-Fried threw a reported $485 million credit line to crypto broker Voyager Digital. Bankman-Fried told Locke last week that the selloff “will be very bad for poorly built or not very successful projects,” but he remains bullish on the long-term prospects of the industry.

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