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07/12/2021_Besides the shocking early departure of well-known favorites such as the Netherlands, France, Germany, Portugal and Belgium, the European Football Championship produced another remarkable fact: a wave of Chinese sponsors along the sidelines.
Football is extremely popular in China: the European Championship, World Cup and the Champions League have received enormous Chinese TV attention for years. These football events are attractive for companies that want to reach a wide Chinese public. But the Chinese advertisements at the Euro 2020 were not only aimed at the domestic Chinese audience, they were also an expression of the global reach and ambitions that some Chinese companies – and Beijing – are having.
Three Chinese names stood out among the major sponsors: Alipay, Antchain and TikTok. Bytedance’s Social Media app TikTok, which is frequently used by young people, is currently the subject of an EU investigation after complaints from -in particular- Dutch consumer organizations about the improper use of data. A Dutch foundation has filed a claim for compensation with TikTok on behalf of concerned parents. The parents accuse the video app of negligence in ensuring the safety and privacy of children. The company is also said to have illegally collected and traded consumer data or passed them on to the Chinese government. Brussels wants TikTok to adjust its policies and commercial practices and adhere to EU consumer protection rules. The EU is believed to be “in dialogue” with TikTok management.
Alipay is a mobile payment platform created in 2004 by Alibaba and its recently disgraced founder, Jack Ma. Alipay Wallet allows consumers to make mobile payments, similar to Apple Pay or Paypal. Alipay has invested heavily in foreign expansion. It hopes that overseas Chinese, Chinese tourists abroad as well as foreigners will embrace its payment app. To the relief of the Chinese, President Biden earlier this month put a (provisional?) end to the American ban on Alipay, which had been issued by Trump in the final days of his Presidency on the basis of “national security reasons”, without any further explanation.
In addition to Alipay, Trump had also wanted to ban TikTok: those attempts, however, ran into all kinds of legal troubles. And a planned takeover by Walmart or Oracle also failed. Biden would first like to investigate whether the various Chinese apps really do pose a threat to American national security. If that turns out to be the case, he will most likely be able to provide a better legal basis for a future ban by adding all kinds of evidence and proof.
Coincidentally, a CDA motion was put to vote in the Dutch parliament last week that called upon the Dutch government to analyze the role of cyber security in (the use of) apps and mobile devices and to map out risks and vulnerabilities. The aim is to provide children with better protection against apps such as TikTok.
AntChain is the blockchain sister company of the Ant Group, owner of AliPay and Ant Financial, and part of the Alibaba Group. On June 11, 2021, UEFA signed a 5-year sponsorship deal with Antchain, which has big plans to promote its “digital tokens” or certificates in and outside of China.
Blockchain technology and bitcoin mining initially exploded in China, turning the country in the Far East into a ‘Wild West’ for a while that escaped central control and monitoring: but since 2017, the CCP has been actively regaining full control over all private initiatives. The Party nevertheless sees blockchain and a digital currency as an essential part of its strategic goal to reduce dependence on the US dollar and Western technology.
Jack Ma and Alibaba, with the tacit approval of the CCP, were for a time the symbol of China’s eCommerce success competing with the West as the Chinese equivalent of Google and Amazon. Until the CCP became seriously concerned about the financial power that Alibaba could usurp through Alipay or other apps without the supervision of the Chinese Central Bank.
Alipay is the dominant mobile payment platform in China. Jack Ma was keen to list his Ant Finance, the company behind Alipay, on the Hong Kong Stock Exchange last year, with the planned IPO expected to raise $34 billion. Perhaps the success went to Jack Ma’s head: in the run-up to the IPO he dared to denounce and openly criticize Xi Jinping’s rigid financial policies. Immediately his head was -figuratively speaking- chopped off by the Party. He disappeared unannounced and the IPO was called off under pressure from Xi.
It has not literally cost Jack his head like several political dissidents under Xi’s rule. But it did cost him his career: another example of ‘today’s hero, tomorrow’s zero’ in communist China, see also https://www.mijngroeve.nl/history/the-amazing-resurrection-of-yang-bin_-the-orchid-king/ To save his skin, Ma gave up the Ant Group: this spring it was transformed into a financial holding company under control of the Chinese central bank.
In other words, Alibaba, Alipay, AntChain have become Chinese state enterprises in disguise. Fearing future US financial sanctions against Chinese banks and possible access restrictions to the global SWIFT payment system, the PRC has stepped up its efforts to internationalize its currency, the Yuan, and blockchain technology as they fit into the overall strategic goal of the Chinese government to reduce reliance on the West and increase digital sovereignty. Blockchain technology, which in essence implies a decentralization of financial control as well as an undermining of central authority, has already been turned into a new instrument of the State by the CCP.
The promotion of Alipay and AntChain at the European Championship therefore undoubtedly did have the approval of Xi Jinping, even though there has been little room for interaction between the international public and the Chinese blockchains because of the strict Chinese regulations: according to the CCP, data should at all times be stored locally in China and be available for review by the CAC, the Cyberspace Administration of China, responsible for China’s cybersecurity standards.
All Chinese blockchain projects are nowadays put under tight central Chinese control and must be approved by the CAC. Chinese companies are required to ensure that content stored on their blockchain “does not endanger national security, disrupt social order, and violate the lawful rights and interests of others.” In addition, blockchain companies must always provide user data and protocol details to the CAC if requested.
Meanwhile, China’s central bank has launched its own digital currency in an effort to reduce the domestic appeal of Alipay and other payment apps. Bitcoin mining activities and cryptocurrency are increasingly restricted by Beijing. No wonder AntChain has been stating so clearly over the past weeks that it does not trade in bitcoins, digital currencies or any kind of cryptocurrency, but just in unique, non-exchangeable and indivisible certificates, so-called “non-fungible tokens” (NFT).
NFTs can be used to personalize items such as photos, videos, audio and other types of digital files through a digital signature. NFTs are tokens that can be used to determine ownership of unique items. They seem especially useful in the world of digital art, audio and collectibles. An NFT can only have one official owner at a time and is secured by the Ethereum blockchain – no one can change or copy the deed of ownership. No NFT is the same.
This means that creators of so-called ‘content’ no longer have to transfer ownership of that content to the platforms that usually use it for publication, such as Spotify. To date, content creators see their profits and earning potential being swallowed up by those platforms. But with NFT, the creator retains full ownership of the content and can directly manage the sales of his NFT.
AntChain certainly wouldn’t like to antagonize the central authority in Beijing again, so doesn’t want to advertise itself as a cryptocurrency company. What it really is, isn’t quite clear, either. It didn’t stop UEFA from signing a long-term sponsorship deal at a time when Europe’s mood towards China is switching. But hey, UEFA believed it to be a good idea to further strengthen ties with Gazprom, Putin’s toy, in May 2021 too. All is business at usual at UEFA…
UEFA’s sponsorship deals with these Chinese companies reflect the ambivalent attitude of many Europeans towards China. Despite the increasing tensions between the PRC and the West, a lot of Europeans hope and expect to be able to continue earning big money from or with Chinese people as before. The large Chinese TV market is a too lucrative opportunity to ignore. Simultaneously UEFA likes to profess the importance of fair play, human rights and respect etc. whenever it is convenient.
Until quite recently, the EU had a somewhat similar attitude towards Beijing. Europe preferred to take a neutral position in the American conflict with the PRC, especially as long as Trump’s unpredictable, chaotic America first policies prevailed. Furthermore, according to an ancient European tradition, European leaders thought for a long time they could separate politics from economics in the relationship with China. Concerns about human rights, cyberattacks, Hong Kong, Taiwan etc should be dealt with seperately and not impede business. Yet these days the realization is growing that geopolitics is quickly eliminating this preferred European approach. The term ‘rivalry’ features more and more prominently in Brussels and NATO’s descriptions of the ties with China: and the ever rising tensions threaten to make the previously cherished ‘partnership’ with China disappear like snow before the sun.
What usually isn’t mentioned, however, is that a further escalation in the relations between the West and China could have serious economic consequences, also for Europe. Even if we still hope for a de-escalation between the US and China, it is no longer and by no means very certain. All those mountains of gold that quite a few Europeans are still counting on in the future economic exchange with China have become a lot less guaranteed than before. The European high-tech industry is already experiencing the impact of the changed geopolitical situation…
The saga surrounding Huawei in the Netherlands provides another example of the (economic) price that a country could pay as a result of the changing international relations. Around 2014 there was a lot of commotion in Europe when it turned out that the American NSA had tapped the mobile phones of European government leaders. It is now believed that years earlier, Huawei had unauthorized access from China to the core of KPN’s mobile network, allowing it to eavesdrop on telephone conversations, including those of various Dutch ministers and the prime minister.
It will not be until September 2021 that an investigation by the Telecom Agency (AT) will clarify – if it can still be established at all – whether there has indeed been a Chinese wiretapping scandal and up to what level. Cap Gemini already wrote an alarming report a decade ago about the risks of unwanted Chinese interference in our telecom network, as has now become public knowledge via ‘de Volkskrant’. That report was finally brought to the attention of Dutch MPs in 2021: 10 years ago KPN apparently prevented it from leaking out, fearing major reputational and commercial damage.
Shouldn’t we nevertheless assume that at least the Dutch security services and our Prime Minister have been aware of the vulnerability of our network for a long time? This would explain the inclusion of the so-called ‘duty of care’ of our telecom operators in the Telecommunications Act 2012, which states that providers of communication networks and services must take ‘appropriate technical and organizational measures’ for the safety and security of the networks and services they offer. But The Hague left the responsibility for realizing that security mainly to KPN, T-mobile and Vodafone. Did the Dutch government perhaps lean back too much when it came to monitoring the implementation of this ‘duty of care’? And/or did the government underestimate the (potential) consequences of the on-going geopolitical changes?
Only in 2019, under heavy American pressure, Europe and also The Hague began to have stronger concerns about Huawei. Meanwhile, the company had taken a prominent position in the 4G and 5G supply chain among the Dutch telecom operators. The reason: Huawei had offered equipment far below the market price, in extreme cases up to 70% below the prices quoted by its competitors Ericsson and Nokia. The Chinese giant, subsidized by the Chinese State, has been a spearhead in the CCP’s policy to gain a dominant international position in new technology and connectivity.
Did the Dutch telecom operators pay sufficient attention to the national security aspect when purchasing equipment? KPN stated several times that the Chinese equipment did meet all quality and safety requirements. Or could it be that free market thinking, low Chinese prices and lax government control blinded telecom operators to the risks of Chinese equipment? In defense of the operators: the number of suppliers of 5G equipment was limited. Since the telecom operators already made extensive use of Huawei equipment in the 4G network, it was obvious that they would rather opt for 5G equipment from Huawei as it was most compatible with the existing systems. On the other hand, there are plenty of other countries that have set up their 5G systems without the participation of Huawei, such as Japan, Taiwan and South Korea.
Mijnvroeg.nl highlighted before the prominent role of prime minister Rutte in poaching the Chinese telecom giant: as late as 2018 (!), the Chinese company received an award from our Prime Minister. https://www.mijngroeve.nl/sport-en/ajax-huawei-contract-extension/ Did Rutte listen too much to the Dutch telecom lobby, which may have assured him that the use of Huawei would not entail major security risks? Or did the prime minister knowingly close his eyes to the geopolitical developments because of his urge to take a neutral position in the growing US-Chinese conflict and his drive to -above all- promote Dutch economic interests, which Huawei could take advantage of? Has Huawei been tolerated for so long for fear of serious repurcussions against Dutch economic interests in China? Or did other considerations play a role? Did/does the Dutch government believe that a complete ban of Huawei makes our network even more vulnerable because the Netherlands would become too dependent on Nokia and Ericsson? It has never become very clear.
In December 2019, the Cabinet finally issued an ‘Order in Council’ (AMvB/ Decree on security and integrity of the Dutch telecommunications) Telecom stipulating that “untrustworthy suppliers” should be excluded from the core of the 5G network. The EU followed with the so-called ‘toolbox’ or instruction set, to strengthen the protection of European telecom networks. Who was considered unreliable? A supplier who could be suspected of espionage or sabotage and could shut down the entire network. Or a supplier that originates from a country that mandates its citizens and companies to work closely with its government and intelligence services whenever deemed necessary.
Under the AMvB, the Dutch government reserves the right to force a telecom operator to remove unsafe equipment from the core at any time by means of governmental edicts. The Rutte cabinet has maintained a “country-neutral approach” and never mentioned Huawei by name. Mijngroeve.nl did not mince words, however, writing in December 2019: “The die is cast: Huawei banned from core of Dutch 5G network, at last.” https://www.mijngroeve.nl/history/the-die-is-cast-huawei-banned-from-core-of-dutch-5g-network-at-last/ In that same article, I also wondered if the operators would come under pressure to rid the periphery of Chinese equipment as well. In addition, several later blog posts mentioned that there would likely be a fight about who would ultimately have to pay for the costs of last-minute replacements or even a complete phasing out of Huawei’s equipment….
Curiously enough, it took until – allegedly – this spring 2021 before Economic Affairs issued the edicts that unequivocally called on the telecom operators to remove Huawei from the core. The Chinese company itself confirmed this Dutch ban in May 2021. Meanwhile State Secretary for Economic Affairs (EZ), Mona Keijzer, has announced that the costs of replacement will in principle have to be borne by the telecom companies. But ‘disproportionate damage’ will be compensated. Above a certain threshold, the operators will be compensated a certain percentage of the costs. It is unclear and unknown how high the threshold is. Keijzer has just said that this threshold value can only be calculated once the compensation requests from the operators have been received, whereupon the decisions will be made.
She is not yet prepared to pay out large sums and defends herself with the argument that the telecom operators could/should at least have known since the issuance of the AMvB in December 2019 that no new 5G Huawei core equipment should have been purchased. Is she implicitly saying that Huawei equipment purchased after that date will absolutely not be compensated?
According to Keijzer, the late sending of the edicts was mainly due to the fact that it was a time-consuming task for the government task force to distinguish and define all critical parts of the network. It would not surprise me, however, if The Hague also wanted to await the developments in Germany, where the Merkel government kept endlessly putting off a decision on Huawei and various ministries and the CDU/CSU had to juggle all kinds of proposals to appease an increasingly critical parliament.
It took until April 2021 before the new 5G security legislation was finally adopted by the German parliament, giving the German government the option to force telecom operators to exclude or remove ‘unreliable suppliers’ from the network, in a quite similar way as stipulated in the AMvB in the Netherlands. Moreover, Germany too still seems willing to accept the deployment of Huawei equipment in the ‘less critical periphery’ of the network.
Both The Hague and Berlin may have feared that if they were to announce a (complete) ban on Huawei early and openly, the investment agreement with China (CAI) so much desired by Merkel (and Rutte?) would be immediately sacrificed by Xi Jinping. As is well known, that agreement was reached in the final days of Merkel’s EU presidency at the end of 2020, against all odds….https://www.mijngroeve.nl/history/in-a-bind-ratify-eu-china-investment-agreement/
It is striking that it has been the demissionary Rutte cabinet that has sent out the edicts, just as it has also decided to let a Dutch frigate sail through the South China Sea for the first time in 20 years. All of these decisions have been made after the US has started to tighten its ties with Europe, Brussels and NATO have increasingly and emphatically identified the PRC as a systemic rival, European MPs have been placed under Chinese sanctions and ratification of the CAI has been called into question and come to a standstill. Under these growing international tensions and the increasing anti-China climate in Brussels, Berlin and in the Parliament in The Hague, a demissionary cabinet has finally found the courage to take a more open stance against China.
In its approach, the Dutch government nevertheless sticks to the separation between the core and the periphery of our telecom network: Dutch citizens are not allowed to find out what exactly falls under that core and periphery for ‘national security reasons’. In the periphery, which usually includes the Radio Access Network or RAN, the use of Huawei is still allowed. Yet a growing number of European countries, f.e. the UK, France and Sweden, have moved away from such a core-periphery philosophy and have decided to completely phase out Huawei precisely for… national security reasons.
According to the Dutch state secretary, the reason why the Netherlands continues to cling to the core-periphery approach cannot be publicly communicated to our MPs, also on grounds of national security. Citizens should apparently just believe that this approach offers the greatest protection. Or maybe assume that the government is not prepared to take on an even greater compensation cost: after all, replacement of Huawei’s RAN equipment could perhaps run into the hundred(s) million(s) of euros…
Moreover, it is not the Ministry of Economic Affairs, but the Ministries of Defense and Justice that deal with matters of national security, she said in the most recent debate. Due to all this secrecy and excuse by Keijzer, Dutch MPs feel less and less reassured about the security of our network: last Tuesday a PVDA motion was meant to be put to the vote to instruct the government to ensure that companies from countries that we do not trust do no longer have and/or get access to the digital infrastructure.. The motion also requested the government to completely phase out those companies from the network*. But a somewhat similar motion by Groen-Links from a while ago was voted down, I do recall.
A D66 motion requests the cabinet to carry out an audit immediately after the date on which mobile telecom providers must have cleaned the core of their network from Huawei equipment to verify if those networks have indeed been cleaned adequately, and to inform the Parliament about this**. October 2022 is rumored to be the deadline for completing this clean-up operation, although that date is apparently also a state secret: so don’t tell anyone!
The early exit of the Dutch national team during this Euro 2020 has rekindled the national discussion about a new national coach, a ‘new leader’. At the same time, I would like to call for the appointment of a skilled, knowledgeable minister or – at least – secretary of state for technology, innovation and digital infrastructure in the still to be formed new Dutch cabinet, who can prevent soap operas a la Huawei and take Dutch ICT- and digital policies to a higher level. Otherwise we will continue to fall behind and play a losing game…
* Update 12 July 2021: The PvdA suddenly withdrew the motion last week….
** The D66 motion has been accepted by Parliamentary majority
update Oct 1 2021 on NFTs, refer https://www.protocol.com/china/china-nft-crypto-workarounds