WSJ Reporters On How China Built The World's Biggest Surveillance State

The PRC is by far the world's largest single video surveillance market, making up over half of sales despite only having ~17% of global population and GDP. One reason: the PRC's construction of a surveillance state with arguably no equal in size and sophistication.

To explore how this system came to be, IPVM interviewed Liza Lin and Josh Chin, two WSJ China technology reporters who have just published a new book titled Surveillance State: Inside China's Quest to Launch a New Era of Social Control.

In this post, IPVM asks the authors about their book, including:

• How the PRC became one of the world's top surveillance producers
• The moral responsibility of both Chinese and Western firms
• Whether the PRC market will ever be oversaturated
• How critical foreign technology is to the PRC
• Whether PRC surveillance exports pose a risk to global freedom
• If US sanctions are truly effective

How do PRC companies profit from PRC government surveillance spending? Are they reluctant participants who can't say "no" to government deals, as some in the industry have suggested?

Liza: I don't think we can say they're reluctant. The math doesn't pan out. It is super profitable to sell to large and local government agencies in China. It's very hard for someone like Hikvision or Dahua to find alternative commercial buyers to buy such large sums. Particularly for the software side, which is very untested and unproven. It's hard to say they are reluctant because they need their profits; SenseTime's smart city contracts are about half of total revenue in 2020 and 2021. But selling to local government in China is a double-edged sword. Globally it's a public relations disaster. Those firms are kind of seen as feeding into the Chinese surveillance state and this means they could run a very high risk of being put on a trade blacklist or sanction. This will only continue going forward. Now you're seeing US allies like the UK also saying they don't want firms like Hikvision in their government.

How critical were Western firms to building China's surveillance state? The book notes Seagate and Western Digital supply the "overwhelming majority" of surveillance hard drives in the PRC, including for Xinjiang police, making over $1 billion there annually.

Liza: Our finding from the book is that Western capital and companies is very pivotal to the development of the Chinese surveillance state. There's a report by [researcher] Greg Walton in 2001 in which he chronicled one of China's very first security expos. Many Western companies were there selling to public security bureaus, the top Silicon Valley and other firms at the time: Sun Micro, Cisco, Nortel, Siemens… everyone was eager for a slice of the China pie. Sun Micro built China's first national fingerprint database. That kind of gives you an example of the eagerness companies had to sell into China even two decades ago. In terms of capital, even before Silver Lake [invested in SenseTime], Bain Capital gave Uniview its start and was very critical to the development of the firm. [Note: Uniview was also initially venture between Huawei and US tech firm 3Com].

What led the PRC government to decide to spend so much on video surveillance? To what extent was this the result of Xi Jinping himself?

Josh: Xi came into power in 2012 when the CCP was running into a legitimacy crisis. It's clear that what is happening in China today is the result of Xi wanting to decisively change how the Party uses power and coincidentally having the tools to make that power more attainable.

Liza: Hikvision and Dahua were given a good start through the Hanghzou government's tech subsidies and cheap land. But it was Xi who gave them the massive government market on the national level.

Why did Western investors and firms rush into China to build up its surveillance state - did they not have any ethical concerns at all?

Liza: If you go back to when China joined the WTO, companies had huge potential not just to manufacture products there but to sell products to the China market. In the early 2000s every Western company had a lot of pressure to go into China from their shareholders. I would probably describe their attitude as naïve optimism. The commercial priorities completely overshadowed everything. It was such an easy place to make profits. In the last 3 or 4 years, as the US has shifted in terms of bilateral relations and concerns about human rights in China, you're seeing corporations being a lot more cautious of the risk of doing business in China. In the 2000s and 2010s, the conversation in the company is really 'how do we expand in China'. Right now, what you're hearing from boardrooms is the regulatory risk and how to decouple. The conversation has shifted a lot.

Thanks in part to lavish domestic security spending, PRC manufacturers have gone global and sell cheap cameras all over the world. You have a detailed chapter about how Huawei helps Ugandan authorities surveil dissidents. Is the spread of PRC surveillance tech a threat to freedoms outside the PRC or do you think this idea is overstated?

Josh: You don't see many countries able or willing to fully emulate China, but you see countries willing to use Chinese ideas and systems to crush and subvert free processes. Chinese diplomats are acting as salesmen for Chinese surveillance companies like Hikvision and Huawei. In Uganda, the Chinese ambassador arranged for police to visit police in Beijing to learn how the Chinese government uses surveillance. The academic Sheena Greitens surveyed contracts for Chinese safe cities and found they have been sold worldwide more than 80 countries including democracies. I think the danger that Chinese state surveillance poses to the liberal order is the normalization of using tech to assert political control. It could become accepted for governments around the world to use these tools to crush dissent.

PRC surveillance companies want to expand abroad but they are also encountering increasing resistance in the form of sanctions, bans, and the like. Long-term can they ever overcome this challenge?

Liza: This question is the reason why China really needs the world to believe its surveillance state model can succeed. Not just for public security and people tracking, but also for smart city applications. If China can convince the world its surveillance machine works at home, then the surveillance export machine can keep humming. This is pivotal to Hikvision and Dahua.

Do you think the Chinese surveillance industry is in any way in a bubble? China makes up 17% of global GDP but at least half of video surveillance spending and likely much more of facial recognition spending. Even in an authoritarian country, at what point does this massive market become oversaturated?

Liza: With the smart city and Sharp Eyes projects, China is now close to 0.5 billion cameras and is by far number one in the world for having so many state-run cameras. I think what we will see in the future is more expansion into upgrading the networks and smart analytics. There is a push by the local governments to equip or upgrade cameras with analytics. And the smart city trend is going to continue, we've seen reports that growth will keep going at about 30% per year. There's a shift away from just collecting data to breaking down data islands: the cameras don’t talk to each other and that kind of limits what kind of insights the local governments can get. And that requires software. Software has the higher margins as well; the margins on hardware are a lot smaller. The profits grow a lot faster.

Can the flow of US technology to PRC surveillance companies ever be effectively restricted? The book notes that the fractured nature of modern supply chains "have made it possible for American businesses and investors to reap rewards from assisting oppressive regimes while keeping their hands relatively clean."

Josh: I think it's a really immense challenge for governments to intervene in these markets precisely because of the decentralization. There's so many ways for Chinese companies to get their hands on US tech that are very difficult to track. It boils down to willpower. Other trade restrictions give the US government tools, the question is how much energy the government wants to put into enforcing those rules.

Liza: SenseTime is the classic example of being slapped on both the trade side because of the Entity List and the investor side as well, but they still got around it by having a Beijing entity and a Cayman Islands entity. There are tons of loopholes the Chinese companies can exploit to get around the sanctions. It doesn't mean they are completely useless because the idea of being on the Entity List does make your suppliers think twice about dealing with you. You might be importing something from the US that might go to these people on the Entity List and you might be breaking the law without realizing it. So people will be a lot more cautious about doing business. It might not kill you completely, but it's definitely an overhang. The US got the ball rolling but we're also seeing other countries, other democracies, come in. I wouldn't say it's completely useless. In the case of Huawei, it is succeeding in killing HiSilicon.

The book begins and ends with the story of a Uyghur poet who fled Xinjiang at the start of the crackdown. You've interviewed many Uyghurs and been to Xinjiang yourselves. Do you see the Xinjiang model spreading or is it contained?

Josh: At the very beginning of reporting for this book we interviewed a Chinese human rights activist and told him what we'd seen in Xinjiang, and he predicted right away it would spread elsewhere in China. He had a very dim view of the Party of course, but we did start to see it a year or two later. Cameras in mosques popping up in provinces with Muslims, for example. Where you really see it now is with the government handling the pandemic. Closing down residential compounds so cameras can watch every person entering; assigning risk ratings to people, tracking their locations... these were all techniques pioneered in Urumqi and Kashgar and other places in Xinjiang we visited. It's been quite an experience to see that, including in the wealthiest cities in China. But no doubt Xinjiang is still the most place with most frightening consequences.

Your book notes that "China's success with surveillance is likewise the result of a concurrence of advantages—a large and disciplined bureaucracy, massive stores of data, and deep financial resources". Do you think China's success at building a surveillance state means future domestic political change is basically impossible?

Josh: It's always risky to predict the future in China. But one aim of the surveillance state is to prevent any future political change. It was extremely difficult to do it before and now with the level of visibility, it's orders of magnitude higher. We would never say never, but for anything to loosen the Party's grip it would have to be the result of a development so catastrophic, so huge, it overwhelms the system. And even with the pandemic the CCP was able to clamp down.

China is developing its own concept of privacy which conveniently omits government surveillance and focuses on corporate data abuses, as noted in the book. Do you ever see China tackling government surveillance abuses as well?

Josh: In the West, the dominant concept of privacy is set against the government. The concern is government encroachment on your personal matters, your data, et cetera, and in China the government has managed to massage the understanding of privacy in a way that is focused almost entirely on companies. Still, you do occasionally see pushback on government surveillance. In Zhengzhou, local security forces tried to stop protests against the freezing of deposits in local banks by turning protestors' COVID health codes red to lock them up in quarantine hotels. That actually blew up and became a huge deal on Chinese social media. They had to fire top officials too. So there are flare-ups where you see resistance to abuse of government surveillance, but not the government surveillance itself per se. Fundamentally there doesn't seem to be any prospect of a significant pushback against government use of this data and the pandemic has locked it in even more strongly. A lot of people feel it saved a lot of lives, even if people have reservations and realize the downsides.

How were you able to write this book given Josh getting expelled and COVID shutting most out of China itself?

Josh: The book benefited from the fact that we actually did get to do a bunch of reporting in China before COVID. In the early days of surveillance you had companies like SenseTime and Megvii, all these companies were eager for attention because they were raising money and they actually wanted to talk. And even local governments were really proud and excited to talk too. So we benefited from that early on. After the expulsions and pandemic the challenges got much greater plus the government started to get more savvy about sources of info, like making procurement documents harder to access, so it really became a grind.

Liza: For me, COVID gave the book a new dimension to state surveillance. In the past we thought it's a really bad thing but COVID changed the calculus because we saw in the first year, despite the very blatant privacy tracking, they managed to keep COVID death and case counts low. That made us think this is another side to state surveillance that isn't just 'Big Bad China'. You definitely saw a lot of Chinese throw their weight behind government data collection and see the benefit too, compared to deaths and cases in the US and UK.

What would you say is the book's chief takeaway - is it a warning to the world?

Josh: One of the main takeaways is that state surveillance can be Orwellian and terrifying, which is what we discovered in Xinjiang, or it can be really seductive depending on who and where you are. And it can change. In places like Hangzhou, algorithms sand away the frictions of life and tech makes life simpler and more convenient. But if you live in Hangzhou and suddenly the government wants to knock down your apartment, and you decide to protest, suddenly all that surveillance turns against you. A universal response to state surveillance, not only in China, is 'if you haven’t done anything wrong you have nothing to worry about.' You hear it over and over again. To a degree that’s true, but, critically, it depends on what the people in power define as "doing something wrong".