RESTRICT China

From time to time, I like to read the full text of a legislative bill, if only to put my past work experience at the White House and my law degree to some good use. What caught my attention recently was the RESTRICT Act, which goes after the national security implications of Chinese technologies in the US. It is getting lots of traction in DC, so I read it – all 55-pages of it.

My one-sentence conclusion: if it becomes law, the RESTRICT Act basically spells “game over” for all Chinese technology companies seeking to do business in the US.

RESTRICT stands for Restricting the Emergence of Security Threats that Risk Information and Communications Technology. (Never underestimate how much energy Congressional staffers put into a catchy acronym to help pass a bill.) It covers all the potential dangers posed by technologies affiliated with America’s foreign adversaries – namely, the PRC (including Hong Kong and Macau), Russia, North Korea, Iran, Cuba, and Venezuela under Maduro. But everyone knows the bill is squarely aimed at China and, to a much lesser extent, Russia. (No one is concerned about the threat of networking equipment made in Iran or Cuba.)

What’s surprising to me is how extremely comprehensive the technology areas that are covered under this proposal, and how much power this bill gives the executive branch to ban (or restrict) these technologies for national security purposes.

Extremely Comprehensive

Section 5 of the bill outlines in great detail the types of technologies that are considered priorities to scrutinize. The list is long and covers essentially every type of technical product or service under the sun, so it really does not provide much “prioritization.” Everything is on the table and potentially problematic.

Some of the areas are to be expected: networking equipment, satellites, drones. Some of the areas are of obvious strategic value for both the US and China, so also expected: AI, quantum computing, biotech. But some areas that are quite innocuous, generic, and not strategic in nature are also included: e-commerce, CDNs, cloud-based SaaS products. Even open source software, which by definition is not “owned” by any company, let alone any country, is on the list.

Source: https://www.warner.senate.gov/public/_cache/files/3/f/3f2eaae6-09ad-49e1-b254-46289cf20cca/843D73B1823EA0D4122B4365262410D6.restrict-act-final-text.pdf

The threshold that triggers scrutiny is also very low. For hardware, it is 1,000,000 units sold in the U.S. For software applications or services, it is 1,000,000 annual active users (not monthly or daily) who are located in the US (do not have to be US citizens). These thresholds are laid out in Section 2.

Source: https://www.warner.senate.gov/public/_cache/files/3/f/3f2eaae6-09ad-49e1-b254-46289cf20cca/843D73B1823EA0D4122B4365262410D6.restrict-act-final-text.pdf

Like I said in the beginning, if passed, the RESTRICT will restrict the business operation of Chinese technology companies of almost any size in any industry.

Expansion of Executive Power

The scope of the RESTRICT Act goes well beyond banning TikTok or sanctioning Huawei. By providing an extremely broad and fairly loose framework, the bill empowers the President and the executive branch (specifically the Department of Commerce) to act swiftly with legal empowerment from Congress, which avoids the embarrassment of Trump’s previous attempt to ban TikTok and WeChat.

Quick flash back: two federal judges struck down Trump’s attempted ban in 2020, because his invocation of the International Emergency Economic Powers Act was deemed to have overstepped the power granted to the President. If the RESTRICT Act or something similar were law during the Trump administration, his ban likely would not have been struck down by the judicial branch. That’s likely why the Biden administration has not pursued a similar strategy and opted to negotiate with TikTok. That’s perhaps also why the Biden White House enthusiastically endorsed the RESTRICT Act the day it was announced. Banning is certainly easier than negotiating, and few have said “no” to getting more power.

Stepping back, the RESTRICT Act could be the largest expansion of executive power in the name of national security since the USA PATRIOT Act (also a pretty nifty name in legislative-acronym-making). In fact, the bill is directly built on the Patriot Act’s definition of what constitutes “critical infrastructure.”

Source: https://www.warner.senate.gov/public/_cache/files/3/f/3f2eaae6-09ad-49e1-b254-46289cf20cca/843D73B1823EA0D4122B4365262410D6.restrict-act-final-text.pdf

Just like fighting global terrorism in 2001 after 9/11, there is no issue that enjoys more bipartisan support than fighting the China threat in 2023.

So What’s Next?

It is highly likely that the RESTRICT Act will become law sometime this year. The bill was introduced with bipartisan support by Senators Mark Warner and John Thune. Perennial bellwether swing vote, Senator Joe Manchin, also enthusiastically supports the bill. The White House, in its statement, voiced its unequivocal support and “urge Congress to act quickly to send it to the President’s desk.” Its passage is a question of when, not if, in my view.

Surely, the American Civil Liberties Union (ACLU) opposes this bill on First Amendment grounds, much in the same way that it opposed the Patriot Act. There is also a competing version proposed by the House, called the DATA Act (Deterring America’s Technological Adversaries Act – a more mediocre legislative acronym), so there may be some delay and haggling between the Senate and the House. But given that the China threat narrative is reaching a feverish pitch in DC, the bill would not be watered down and only become tougher, as if there’s any room to be more tough.

This is a harsh reality that Chinese technology companies of all sizes must now face, many of whom have benign and purely business intentions in their pursuit to enter the US market. It is theoretically possible that the RESTRICT Act, after passage, could: 1. Get challenged in court again; 2. Be poorly enforced by the Department of Commerce. But hoping that one of these two scenarios happens is not something to bank on.

Hope is not a strategy.

For founders and entrepreneurs, it's time to start recognizing this reality and plan your overseas market expansion activities elsewhere. There are plenty of opportunities still, albeit less profitable ones, in Southeast Asia, Latin America, the Middle East, and corners of the EU.

For VCs who invested in Chinese tech startups at rich valuations on the assumption that the US market is up for grabs, it's time to do an honest markdown of those deals and adjust expectations accordingly.

And while you make these adjustments, perhaps make some donations to the ACLU, as a Hail Mary.

RESTRICT 中国

我时不时喜欢读一读一项法案的全文,哪怕只是为了用用我在白宫的工作经验和法学学位。最近引起我关注的是刚从美国参议员出炉的RESTRICT Act,该法案针对中国科技在美国的国家安全影响。它在华府特区已经备受关注,所以我把整套法案的55页都扎扎实实的读了一遍。

如果用一句话总结,那就是:如果通过,成为法律,RESTRICT基本上意味着 “游戏结束” game over 对所有在美国寻求开展业务的中国科技公司。

RESTRICT这个名字是个缩写,意义是“限制出现威胁信息和通信技术安全风险的安全威胁”(Restricting the Emergence of Security Threats that Risk Information and Communications Technology)。(永远不要低估美国国会工作人员为了通过一套法案而投入多少精力编出一个吸引眼球的缩写作为提议名称。)它包括目前所有美国视为“敌对”因此其技术会带来潜在国家安全威胁的国家,即中国(也包括香港和澳门)、俄罗斯、朝鲜、伊朗、古巴和马杜罗领导下的委内瑞拉。但是众所周知,这项法案主要针对中国,其次是俄罗斯。(没有人担心伊朗或古巴制造的网络设备会带来什么威胁。)

让我惊讶的是,这项提议涵盖的技术领域极为之广。法案同时也给予行政部门更大的权力可以以国家安全的理由任意禁止或限制所有被覆盖的技术。

涵盖广泛

法案中第五章详细概述了被认为是需要被优先审查的科技类别。这个清单很长,基本上涵盖了所有可以想象的技术产品和服务,因此它实际上没有提供太多的“优先级” – 所有科技都可能带来国家安全问题。

其中有些领域预料当中的:网络设备、卫星、无人机。有些领域对美国和中国都具有明显的战略价值,因此也是可以预料到的:人工智能、量子计算、生物技术。但还有一些纯商业的、大众通用且本质上没有任何战略价值的行业和领域也被包括在内:电商、CDN、基于云的SaaS产品。甚至连开源软件,按定义不属于任何公司或国家的科技,也上了清单。

来源: https://www.warner.senate.gov/public/_cache/files/3/f/3f2eaae6-09ad-49e1-b254-46289cf20cca/843D73B1823EA0D4122B4365262410D6.restrict-act-final-text.pdf

触发监管审查的门槛也非常低。对于硬件产品,在美国的销售量仅需达到一百万个单位。对于软件应用或服务,只要位于美国境内(不需要是美国公民)的活用户(不是月活或日活)达到一百万人即可触发。这些门槛标准在法案第二章中一目了然。

来源: https://www.warner.senate.gov/public/_cache/files/3/f/3f2eaae6-09ad-49e1-b254-46289cf20cca/843D73B1823EA0D4122B4365262410D6.restrict-act-final-text.pdf

正如我在文章一开始提到的,如果通过,RESTRICT法案将限制几乎任何规模、任何行业的中国科技公司在美国运营。

行政权力的扩张

RESTRICT法案内形容的管辖范围远远超越了仅仅禁止TikTok或制裁华为。通过提供一个极其广泛且宽松的法律框架,该法案赋予美国总统和他的行政部门(商务部)可以迅速做出任何对中国科技产品进行限制的法律依据。因为有国会立法的直接授权,今后的任何限制举动都会更好的避免特朗普之前试图封杀TikTok和微信的尴尬。

我们回顾一下:在2020年,两名联邦法官驳回了特朗普对TikTok和微信的禁令,因为他引用了《国际紧急经济权力法案》而被法官们视为超出了总统被该法案授权的权力。如果在特朗普党政期间,RESTRICT法案或类似法案已经通过变成法律,他的禁令很可能不会被法官们驳回。这可能也是为什么拜登政府没有采取类似策略,而是选择与TikTok进行谈判。这也可能是为什么拜登白宫在RESTRICT法案宣布的当天就积极地支持提议。封杀当然比谈判要爽得多,历史上也很少有人会拒绝获得更多的权力。

从更广的层面来看,RESTRICT法案可能是自美国爱国者法案(Patriot Act)以来,以国家安全之名对行政权力的最大一次扩张。更何况该法案还直接引用了爱国者法案对“关键基础设施”一词的法律定义。

来源: https://www.warner.senate.gov/public/_cache/files/3/f/3f2eaae6-09ad-49e1-b254-46289cf20cca/843D73B1823EA0D4122B4365262410D6.restrict-act-final-text.pdf

就像2001年9/11事件后打击全球恐怖主义一样,在2023年,没有什么问题比打击中国的威胁更能获得两党的支持。

接下来怎么办?

RESTRICT法案今年有很大可能通过,成为法律。该法案由参议员马克·华纳(民主党)和约翰·图恩(共和党)共同提议。永远是一张摇摆票的参议员乔·曼钦也热情地支持该法案。白宫在其声明中毫无保留地表达支持态度,并“敦促国会尽快采取行动,将次法案送交总统面前签字”。在我看来,它的通过是一个时间问题。

当然,美国公民自由联盟(ACLU)以第一修正案为基础反对该法案,就像它当年反对爱国者法案一样。众议院还提出了一项类似的提议,称为DATA法案,因此参议院和众议院之间可能还需要做一些谈判,会拖延最终法案通过的时间点。但鉴于中国威胁论在华府特区已经达到了高潮,该法案不会被削弱,只会变得更严厉,虽然好像也找不到任何更严厉的空间了。

这是无论大小,所有规模的中国科技公司现在必须面对的严酷现实,其中许多公司进入美国市场也就是为了纯粹的商业目的。当然从理论上讲,在RESTRICT法案通过后,还是有可能:1. 再次被告上法庭;2. 商务部具体落实执行无力。但是仅期望这两种可能中的一种发生并不是靠谱的方案。

期望不是策略。

对于创始人们来说,现在是开始认识到这个现实并计划在其他地方进行出海市场扩张方案的时候了。在东南亚、拉美、中东以及欧盟的某些角落,仍有很多发展机会,尽管利润比美国比要低不少。

对于那些在假设美国市场触手可及的前提下,以丰厚的估值投了中国科技初创公司的VC们来说,现在是诚实地对这些公司的估值进行减记,并相应调整预期的时候了。

在做这些调整的同时,也许也可以适当给ACLU捐点钱,作为最后一搏的Hail Mary。