Managing Conflict with Chinese Organizations

The Obama administration has gone public with direct accusations about Chinese cyberattacks, and challenged Beijing to rein in rogue elements and sign on to “acceptable norms of behavior”. Unless the Obama administration wants to repeat the embarrassing and weak-kneed debacle of the RMB exchange rate controversy (see “geithnering”), they must handle the emerging China cyber-conflict with much more planning, analysis – and backbone.

From the NY Times: U.S. Demands China Block Cyberattacks and Agree to Rules

WASHINGTON — The White House demanded Monday that the Chinese government stop the widespread theft of data from American computer networks and agree to “acceptable norms of behavior in cyberspace.”

The demand, made in a speech by President Obama’s national security adviser, Tom Donilon, was the first public confrontation with China over cyber espionage and came two days after its foreign minister,Yang Jiechi, rejected a growing body of evidence that his country’s military was involved in cyberattacks on American corporations…

What must the White House do to make progress in defending US intellectual property while still maintaining its valuable commercial relationship with China? 5 things:

1. Set the agenda.
2. Control the scope of the conflict. Make it winnable.
3. Go multi-departmental. No mixed messages, symbolic bluster or fiefdoms.
4. Analyze assets and prepare resources. Know what we are willing to give up.
5. Define a win and have good goals.

1. Control the agenda. Either this is the PLA messing with Main Street or this doesn’t belong on the front pages. Don’t talk about war, combat readiness or strategic tensions. National security is serious stuff – way too serious for splashy headlines and McCainesque sound bites. “We were going about our own business, and the scariest organization on the planet snuck into our house and stole our intellectual property to use against us.” China will say they are the victim, Al Jazeera will write about Stuxnet, Anonymous will talk about freedom. We already know this. The WH needs to make this David vs. Goliath from start to finish.

2. Control the scope. Washington tried turning an arcane relationship between the US$ and the RMB into an existential crisis. When the currency peg failed to kill us all, it sucked all the credibility out of the room – and pushed serious trade issues (i.e.: indigenous innovation rules, IP protection) to the back burner. This is a big deal, but if cybersecurity becomes a Fox News sideshow spectacle it’s going to empower the hardliners in Beijing. If you are involved in a dispute with a Chinese counterparty, one of their main tactics will be to diffuse the boundaries of the conflict and expand the scope so broadly that it can’t be resolved.

3. Do not fight fire with fire. Westerners in general and Americans in particular like to compartmentalize complex issues and deal with them in sequential order. Fix this problem and only this problem – then move on to the next challenge. The Chinese don’t work that way – and they don’t respond well to it. Calling for public admissions and apologies isn’t going to work. The course proposed by Sec Advisor Donilon is classic lose-lose negotiation. Beijing will lose face and come out even more aggressive and Washington officials will start making vague threats that they have no way of executing. The US needs to mobilize a wide range of measured responses that put pressure on China. That’s means preparing internal stakeholders in advance. If MNCs and AmCham publicly defend Beijing (they’ve done it before) it will undermine White House credibility and encourage even worse behavior from the PLA.

4. Assess your resources and the costs necessary to execute your strategy. Geithner and the Treasury people always seemed to be surprised when someone took their exchange-rate bluster seriously – they didn’t have a plan for dealing with a recalcitrant Beijing that went beyond pouting to the business press. It made the US look weak and empowered Chinese hawks. The White House has to have a plan ready for when Beijing pushes back and accuses the US of being the real culprit. Have measured responses that policy makers will understand but don’t look like an escalation. Hit them where they are vulnerable – student visas, grain exports and manufacturing (for example – the list is longer). Don’t change policy or make new rules – just slow down the approval process. (If you don’t know what I mean, ask anyone who has applied for Chinese visa in the last year or so.) This hurts us too, but the whole idea of the White House policy is that state-sponsored cybercrimes hurt worse. If not – find other things to worry about.

5. Define a win and have good goals. Know exactly when you are declaring victory. Hint – it should be within 18 months, and there should be some kind of mutual declaration of “all clear – safe to do business again.” I don’t see how a conflict like this resolves – hopefully the White House had some kind of end-game in place before they started giving speeches and issuing press releases. If this turns into yet another acrimonious domestic inter-party squabble, it will do more harm than good and make us look weak. Before you take on the Chinese, you have to negotiate internally to make sure your own organization is backing you up – not tripping you up.

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