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Exploring the US-China Technology Dynamic Through Digital Expansionism: Exploring the U.S.-China Technology Dynamic Through Cybersecurity Policy and International Marketing Strategies in the Cloud Computing Sector Julien Isaacs Working Paper CISL# 2019-14 June 2019 Cybersecurity Interdisciplinary Systems Laboratory (CISL) Sloan School of Management, Room E62-422 Massachusetts Institute of Technology Cambridge, MA 02142 Isaacs 1 Digital Expansionism: Exploring the U.S.-China Technology Dynamic Through Cybersecurity Policy and International Marketing Strategies in the Cloud Computing Sector By Julien Isaacs BSFS Georgetown University, 2012 SUBMITTED TO THE MIT SLOAN SCHOOL OF MANAGEMENT IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN MANAGEMENT STUDIES AT THE MASSACHUSETTS INSTITUTE OF TECHNOLOGY JUNE 2019 ©2019 Julien Isaacs. All rights reserved. The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part in any medium now known or hereafter created. Signature of Author: _____________________________________________________________ Julien Isaacs MIT Sloan School of Management May 10, 2019 Certified by: ___________________________________________________________________ Stuart Madnick John Norris Maguire Professor of Information Technologies, Sloan School of Management & Professor of Engineering Systems, School of Engineering Thesis Supervisor Accepted by: ___________________________________________________________________ Jake Cohen Senior Associate Dean, MIT Sloan Undergraduate & Masters Programs MIT Sloan School of Management Isaacs 2 Digital Expansionism: Exploring the U.S.-China Technology Dynamic Through Cybersecurity Policy and International Marketing Strategies in the Cloud Computing Sector By Julien Isaacs Submitted to MIT Sloan School of Management on May 10, 2019 in Partial Fulfillment of the requirements for the Degree of Master of Science in Management Studies. ABSTRACT The U.S. and China remain largely separated from one another in terms of technological market access, with both sides implementing policy regimes serving as official or unofficial barriers to international trade, especially evident in data-sensitive industries, such as cloud computing. The result is a very low market share for American cloud computing providers in China, and vice-versa. This paper explores the U.S.-China dynamic insofar as government policy and action are concerned, the U.S. and China markets, and private enterprise’s response and strategy in the cloud computing industry, which is notable not only given its value, $278.3 billion worldwide by 2021, but also its central position in the flow of global data.1 The paper arrives at a number of conclusions. Firstly, given China’s techno- nationalist policy regime, U.S. cloud computing firms, and by extension, all U.S. technology companies, will face increasingly limited market share and opportunity in China. Conversely, Chinese cloud computing providers, and by extension Chinese technology products, in general, may be able to successfully garner market share in the U.S. by offering innovative products with little to no substitutes, for which Americans will potentially waive their data privacy concerns in order to access (which may lead to unintended consequences). Lastly, the U.S. and China should work together to form, articulate and implement cybersecurity and data norms, enhancing international cooperation on a government and private enterprise level, effectively removing international trade barriers and promoting and enhancing market access. Cooperation, however, remains a challenge, given the differing policy objectives of the U.S. and China. Thesis Supervisor: Stuart Madnick Title: John Norris Maguire Professor of Information Technologies, Sloan School of Management & Professor of Engineering Systems, School of Engineering 1 “Gartner Forecasts Worldwide Public Cloud Revenue to Grow 17.3 Percent in 2019.” Gartner IT Glossary, Gartner, Inc., 2018, www.gartner.com/en/newsroom/press-releases/2018-09-12-gartner-forecasts-worldwide-public-cloud- revenue-to-grow-17-percent-in-2019. Isaacs 3 Table of Contents 1. Introduction................................................................................................................................................6 2. Cloud Computing ......................................................................................................................................8 2.1 Cloud Computing Technology Overview ........................................................................................ 8 2.2 Cloud Computing: Market Analyses ............................................................................................. 12 2.3 Cloud Computing: U.S. Market ....................................................................................................... 16 2.4 Cloud Computing: China Market ................................................................................................... 17 3. Cybersecurity .......................................................................................................................................... 22 3.1 Cybersecurity; Overview & Framework...................................................................................... 22 3. 2 Cybersecurity; International Trade ............................................................................................ 23 3.3 Cybersecurity; The Cloud ................................................................................................................ 24 3.4 Parkerian Hexad ................................................................................................................................ 25 3.5 A Discussion on Cloud, Data and Consumer Data Privacy...................................................... 28 3.6 Porter’s Five Forces .......................................................................................................................... 30 3.7 A Comprehensive Framework ....................................................................................................... 32 4. America to China: Cloud Expansion................................................................................................ 34 4.1 America to China: Context & Background .................................................................................. 34 4.2 A Discussion on China & the WTO ................................................................................................ 36 4.3 A Discussion on Techno-nationalism........................................................................................... 39 4.4 America to China: Policy Background ......................................................................................... 41 4.41 2006 - 2012: Early Policies & Initiatives ................................................................................................................ 41 4.42 2009 China Telecom Law............................................................................................................................................. 43 4.43 ICP & ISP Licenses .......................................................................................................................................................... 43 4.44 2012 Decision of the Standing Committee of the National People's Congress on Strengthening Information Protection on Networks ................................................................................................................................ 44 4.45 2015 National Security Law ........................................................................................................................................ 45 4.46 2017 Cybersecurity Law .............................................................................................................................................. 46 4.5 America to China: Cloud Computing Case Study: Microsoft ................................................... 51 4.6 America to China: Analysis ............................................................................................................. 53 5. China to America: Cloud Expansion................................................................................................ 56 5.1 China to America: Context & Background .................................................................................. 56 Isaacs 4 5.11 A Discussion on Huawei & ZTE: A Helpful Precedent ........................................................................................ 56 5.12 FIRRMA & CFIUS ............................................................................................................................................................. 63 5.13 Exposing PLA Unit 61398 (总参三部二局) ............................................................................................................ 65 5.14 Increased U.S.-China Cyber Tension ........................................................................................................................ 66 5.15 2015 The U.S.-China Cyber Agreement ................................................................................................................... 67 5.2 China to America: Policy Background ......................................................................................... 70 5.21 1986 Stored Communications Act (SCA) & 1986 Electronic Communications Privacy Act (ECPA) .. 71 5.22 1994 Communications Assistance for Law Enforcement Act
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