In 2019, the National Committee established a new Track II dialogue between the United States and China to discuss issues relating to the digital economy, in partnership with the Guanchao Cyber Forum, a division of Chinese Internet Security Conference. The dialogue focuses on changes affecting corporations doing business globally and on finding ways that American and Chinese companies can cooperate to address these concerns. At the conclusion of each dialogue, the two sides will develop a consensus agreement, documenting areas of discussion and recommendations to both nations.

The dialogue participants are evenly divided between the United States and China, and are experts in the field, along with corporate representatives from different industrial sectors. The United States team is led by Admiral Dennis Blair, former director of national intelligence and a member of NCUSCR's Board of Directors, and Michael Chertoff, former secretary of Homeland Security. The leader of the Chinese delegation is Major General Hao Yeli (ret.), president of the Guanchao Cyber Forum and vice president of the China Institute for Innovation and Development Strategy.

At the conclusion of each dialogue, the two sides develop a consensus agreement, documenting areas of discussion and recommendations to both nations. The National Committee shares this document with relevant agencies and offices in both governments.
 

Read the March 2019 consensus (PDF | TEXT)

Read the December 2019 consensus (PDF | TEXT)
 

  • 2019 U.S.-China Track II Dialogue on the Digital Economy

    March 10, 2019 to March 12, 2019

    Washington, DC

    The inaugural dialogue on the Digital Economy was held in March 2019 at the Cosmos Club in Washington, D.C. This initial gathering brought together ten American participants and ten Chinese participants, consisting of experts in the field and representatives of major technology companies. During the two-day meeting, participants focused their discussions on data governance, supply chain risk management and the Internet of Things.

    The two sides developed a consensus agreement, which has been shared with both governments.

    December 9, 2019 to December 10, 2019

    Sanya, Hainan, China

    The National Committee on U.S.-China Relations and the Guanchao Cyber Forum convened their second Track II Dialogue on the Digital Economy on December 9 and 10, 2019 in Sanya, Hainan, China. The dialogue brought together U.S. and Chinese experts from academia, think tanks, and industry for off-the-record discussions on digital economy issues of concern to both countries.

    During the two-day meeting, representatives from both sides discussed a series of topics including data governance, optimizing and appropriately securing digital economy supply chain, artificial intelligence technology, and new trends in digital economic cooperation. They reached the following consensus agreement to provide a set of recommendations for their respective government departments based on the principles of openness and mutual benefit.

Event Materials

  • Download the March 2019 consensus agreement PDF

    The National Committee on U.S.-China Relations and the Guanchao Cyber Forum convened their first Track II Dialogue on the Digital Economy on March 11 and 12, 2019 in Washington, D.C. The dialogue brought together U.S. and Chinese experts from academia, think tanks, and industry for off-the-record discussions on digital economy issues of concern to both countries. (See below name list.)

    The United States and China are the world’s two largest national economies and the primary drivers and beneficiaries of the digital economy. Given the broader role of existing technology in society today, and the novel challenges and opportunities that new technologies may present, both countries have a responsibility to lead in setting the rules and norms governing the digital economy.

    Members of the two delegations discussed a variety of issues, including those around data governance, supply chain risk management, and the Internet of Things (IoT). In these and other areas, the U.S. and Chinese participants identified many similar risks. These include risks to public safety or to national or global security, as well as the possibility that policies designed to address these challenges may unnecessarily limit the benefits of the digital economy.

    While identifying similar risks, the two delegations recognized that U.S., Chinese, and other global approaches to these issues differ, sometimes in fundamental ways. Nonetheless, they believe there is potential for positive joint and coordinated action by U.S. and Chinese actors. This document represents a joint accounting of the themes of the discussion, as well as a set of recommendations for government and private sector actors in each country.

    DATA GOVERNANCE

    The flow of data across borders is one of the greatest enablers of the digital economy that in turn drives economic growth in all countries. Yet, every business that operates internationally needs to deal with the issues of how data (both its own and that of third parties) can, and must, be collected, managed, stored, and protected. Data governance is thus fundamental to the growth of the digital as well as the global economy.

    One of the major concerns international companies face today is the diversity of data governance frameworks. Conflicting emerging legal and regulatory frameworks are taxing the digital economy. To operate in multiple markets, businesses must incur substantial operational and legal costs to comply with differing, and often ambiguous or even conflicting, national laws, regulations and practices pertaining to data governance. Data localization requirements also make it difficult and expensive to manage global operations, especially for small and medium-sized companies.

    Addressing these concerns would be of great benefit to both countries and to the global economy, potentially resulting in a 10 percent increase in global GDP.

    Specific suggestions by the participants for cooperation and coordination between the two countries include the following:

    • A consistent, clear set of definitions is key to developing further policies and methods that can be well-implemented in both nations. Appropriate U.S. and Chinese agencies should consider developing a joint white paper establishing common definitions. For instance, participants noted the dangers to both economies of an increasingly broad definition of national security.
    • In discussing existing regimes for data governance, the participants identified several problems with the European Union’s General Data Protection Regulation (GDPR), including concerns about adaptability to emerging technologies, high penalties, the need to establish safe harbors, obstacles to innovation, and high business costs that are inconsistent with U.S. and Chinese priorities. Participants concurred that reciprocity helps interoperability. In general, participants felt that the Cross-Border Privacy Rules (CBPR), promulgated by the Asia-Pacific Economic Cooperation (APEC) presents a promising starting point for identifying common areas of agreement for China and the United States. An upgraded version of the CBPR could contain beneficial parts of the privacy protection framework spearheaded by the European Union and its GDPR. On top of that, it is vital to consider the cost of certification and implementation, the feasibility of enforcement, and the scope and feasibility of the compliance certification process.
    • The aim for both sides should be to seek a path towards ensuring interoperability between the two systems, two sets of legal frameworks, and differing approaches to data privacy. Both countries are in the midst of formulating and updating new frameworks for data governance, offering an opportunity to find common ground, based on existing international best practices.
    • The United States and China should focus first on particular segments of the economy, as that may make consensus easier to achieve. Areas of focus identified include the following: financial services, a sector that is already accustomed to substantial government regulation and oversight; food safety and airplane maintenance, two areas where China and the United States are in regular communication; and the medical/pharmaceutical industries, where both share a strong concern in data security and product integrity.
    • Both governments should encourage innovation and the free flow of data, understanding that the two countries have different approaches to national security and other objectives that may justify some restrictions on data flow.
    • Both countries should adopt a risk-based approach in determining the scope of necessary regulations.
    • U.S. participants encouraged China to continue exploring proposals to establish open data zones, for example in Pudong, Shanghai, Hainan Province, or Qianhai in Shenzhen.
    • Protection of intellectual property rights (IPR) is essential to the encouragement of innovation and the growth of the digital economy. To aid industry in both countries, the United States and China should consider implementing an international IPR adjudication system. Regarding the regulatory enforcement of cross-border data flows, it is proposed to establish a specialized agency (which can be a multi-stakeholder entity) initiated by China and the United States with the participation of third-party neutral countries to supervise the compliance and certification of cross-border data flows.
    • Rules should foster collaboration between government and business and encourage businesses to come forward when there is a breach, loss of data, or impact on the integrity of data.

    SUPPLY CHAIN RISK MANAGEMENT

    Corporations today rely on extensive global supply chains to deliver their products and services, and supply chains for IT products and services central to the digital economy present special challenges of reliability, trust, and security. These challenges lead to the potential for balkanization through specific regulatory requirements and mandating the use of certain technology that would duplicate efforts, increase costs, and inhibit innovation. With increasing supply chain security measures, companies of all sizes are challenged to meet such requirements, but small- and medium-sized enterprises, which the digital economy relies heavily on, in general have fewer resources for cybersecurity and other risk management measures.

    As the bulk of supply chain activity involves business-to-business processes, industry is best situated to develop norms, standards, and procedures to manage the security and integrity of supply chains. Such rules should rely on industry standards developed through the international technology community. They should be grounded in a risk-based approach and should be technology-neutral, ensuring greater adaptability as technology changes. There is also a role for verification by third-party experts that can certify the integrity of particular products or technologies.

    Participants expressed their concern about the position of the U.S. government to increasingly “politicize” the interdependence of the digital supply chain. The delegates of both countries hope that the definition of national security can be made clear and measurable. The security-related restrictions on the import and export of digital products and services should be controlled within a narrow and precise range, without arbitrary expansion for political purpose, which is breaking down the well-integrated supply chain for digital goods and services for the two countries. The risk to the digital supply chain can be classified according to the level of product, process, enterprise, and industry chain, and adopt corresponding identification and management.

    Insurance can also assist in managing supply chain risks. Cybersecurity underwriters increasingly work with businesses on preventative work and training before cybersecurity incidents, as well as with legal compliance, response, and recovery after such incidents. While threats are increasing, we should move toward a risk-based approach that does not stifle innovation.

    INTERNET OF THINGS

    The rapid adoption of smart, adaptive, and connected devices—the “Internet of Things” (IoT)—is occurring across virtually all critical infrastructure sectors. The IoT will bring significant societal benefits, many of which are already being realized through increased efficiencies, early detection of faults, improved reliability and resilience, and more. But the rapid and massive connection of these devices also brings with it risks, including new attack vectors, new vulnerabilities, and perhaps most concerning of all, a vastly increased ability to use remote access to cause physical destruction.

    To deal with this complex interplay of networks and devices, governments and industries should set rules to govern the IoT, including standards of security, compatibility, and interconnectivity of devices sold in the global market. IoT products should be regulated and certified (in some cases, on an ongoing basis), similar to current practices such as the periodic inspection of elevators and the certification of electronic devices by UL. Different IoT systems (e.g., kitchen appliances vs. self-driving cars) will present varying levels and types of risk which will need to be addressed accordingly.

    In the field of IoT, China and the United States should establish cooperation with the relevant international standards development organizations (ISO/IEC JCT 41) to formulate security compliance standards, test certification processes, improve the role of security governance at all levels, and enhance the social awareness of IoT security.

    CONCLUSION

    Today, the United States and China are the world’s two largest economies and each other’s largest trading partner. They are both well-positioned to reap the benefits of the digital age. At the same time, they both face similar threats and challenges. There is some urgency in the opportunity, driven not by any geopolitical or business agenda, but rather by the relentless march forward in technology development. Moore’s Law today is enabling a new revolution in innovation born of the convergence in artificial intelligence, 5G, and our connected global digital infrastructure. Both countries stand to enjoy significant gains by laying new groundwork for collaboration, data sharing, threat and risk sharing, and continued security research. Whether it be combating cybercrime, protecting IoT systems, or providing consistent rules to allow their companies to operate globally, China and the United States will be much better off if they collaborate in dealing with these problems and provide a framework within which all businesses and individuals can unlock new opportunities to grow.

    Despite the lack of strategic mutual trust given today’s circumstances, the United States and China, as two major digital economies, can and will respect each other, find common interests and concerns, and conduct possible cooperation agreement on the basis of transparency and the rule of law.

    CHINESE PARTICIPANTS

    HAO Yeli Vice President, China Institute for Innovation and Development Strategy
    GUO Quanqi President, CECC Holdings Corp. Ltd
    LI Bo Executive Director, Chunqiu Institute for Development Strategy
    LV Benfu Vice President, Guanchao Cyber Forum
    LYU Jinghua Visiting Scholar, Carnegie Endowment for International Peace
    PENG Lihui Secretary General, China Electronics Chamber of Commerce
    Edward Tsai Director of Investment, 360 Enterprise Security
    WANG Bin Vice President, Hikvision
    WU Shenkuo Professor of Law, Beijing Normal University
    ZHANG Xundi  Senior Security Operations Specialist, Alibaba Group

    AMERICAN PARTICIPANTS

    Dennis Blair Chairman and Distinguished Senior Fellow, Sasakawa Peace Foundation
    Melissa Hathaway President, Hathaway Global Strategies
    Yancy Molnar Senior Vice President, International Government Affairs & Public Policy, Chubb Group
    Stephen Orlins President, National Committee on U.S.-China Relations
    Pamela Passman President and CEO, CREATe.org
    Thomas Quillin Director, Cyber Security, Intel Corporation
    Nigel Thompson Vice President, Product Marketing, Blackberry
    Paul Triolo Practice Head, Geo-Technology, Eurasia Group
    Graham Webster China Digital Economy Fellow and Coordinating Editor, DigiChina, New America

     

  • Download the December 2019 consensus agreement PDF (English | Chinese)
     

    The National Committee on U.S.-China Relations and the Guanchao Cyber Forum convened their second Track II Dialogue on the Digital Economy on December 9 and 10, 2019 in Sanya, Hainan, China. The dialogue brought together U.S. and Chinese experts from academia, think tanks, and industry for off-the-record discussions on digital economy issues of concern to both countries. (See below name list.)

    Through the two-days meeting, both sides recognized that, as the two largest digital powers in the world, trust and collaboration between China and the United States will have an important impact on the economies of the two countries and even the global economy. Confrontation and even "decoupling" between the two countries in the digital field may result in huge economic losses to both nations in terms of duplicative research and development, excess manufacturing capacity, reduced innovation, and the disruption of global industry supply chains. Localization of production should be limited and transparent to avoid further economic disruption. The possibility of two—or more—different digital economy ecosystems could drastically limit the interaction among the leaders and citizens of the two largest economies in the world, and therefore severely affect the understanding and trust of both sides.

    In recent years, the governments of both nations have tended to use overly broad concerns regarding national security as a reason for restricting access to certain data or technologies. These restrictions impose a heavy burden on industry and ultimately citizens. To avoid such harms, both governments should define national security-based restrictions as clearly and precisely as possible, based on well-defined policy goals, and should apply such restrictions only to the specific product or element of a product that poses a national security risk.

    During the two-day meeting, representatives from both sides discussed a series of topics including data governance, optimizing and appropriately securing digital economy supply chain, artificial intelligence technology, and new trends in digital economic cooperation. They reached the following consensus to provide a set of recommendations for their respective government departments based on the principles of openness and mutual benefit:

    DATA GOVERNANCE

    Data flows across borders should only be restricted to the extent necessary to achieve legitimate goals related to national security and protection of personal data and critical infrastructure-related information. Measures should be developed to allow confidence in security and data protection regardless of the physical storage location of data.

    We recommend that through clear data classification standards, efforts should be made to minimize the mis-classification of data as sensitive data related to national security, personal privacy data and key infrastructure data. To this end, the two governments could consider in detail how to start with managing flows of commercial data, paving the way for mechanisms and solutions for handling cross-border data flows between China and the United States—one approach could be to establish a “free data port” where certain uses of commercial data and personal data could be streamlined under agreed rules, in line with best international practices.

    GLOBAL DIGITAL ECONOMY SUPPLY CHAINS

    In the spirit of both nations’ laws and international norms related to the protection of intellectual property rights. technology sharing and collaboration between the two countries should be encouraged, as it is conducive to enhancing the overall innovation capacity of industry.

    Denying non-domestic companies access to domestic technology should be done only in the most limited of situations and for specific, publicly available reasons.

    Policy challenges or disputes touching on specialized technical fields should be dealt with separately, and not be made a part of broader trade or economic negotiations.

    Both governments should collaborate to develop mutually recognized technical safety standards and industrial certification systems (or adopt existing international standards and systems recognized by third parties), and should enter each other’s market with the same standards and methods. Relevant technical disputes and industrial supply chain disputes should be resolved through technical and economic means. Neither country should employ restrictions on digital economy supply chains to express displeasure to the other nation on unrelated issues.

    ARTIFICIAL INTELLIGENCE

    In fields such as 5G and AI where private sector actors are most consequential in shaping technology’s role in society, forums for exchange and policy thinking should include private sector, government, and civil society stakeholders.

    On the basis of complying with relevant regulations, the two countries should encourage collaboration in key areas of research into artificial intelligence technology and the integration of AI technology (including software and hardware). They should also jointly discuss the safety, security and ethics of artificial intelligence technology with the goal of contributing to the formulation of international standards and governance approaches that ensure that artificial intelligence develops in a "positive" direction.

    DIGITAL ECONOMY DEVELOPMENT

    The two governments should open direct contact between officials working on specialized technical fields such as 5G wireless, artificial intelligence, and data governance. Based on current policy challenges, regular meetings between these officials should be established.

    In addition, universities and think tanks in China and the United States, with their forward-looking perspective, should strengthen exchanges and cooperation to further improve understanding and sharing of norms relating to the development of the digital economy.

    Both governments should promote technical cooperation on the basis of abiding by the intellectual property protection laws of the two countries. If there is a dispute, it should not be “stigmatized” or “presumed guilty,” but should be resolved legally through an international court or an international Court of Arbitration in accordance with relevant international intellectual property protection regulations.

    KEY POINTS TO DISCUSS IN THE NEXT SESSION

    During the meeting, the experts from both sides considered that in the midst of recent trade disputes, the policies or laws enacted by the two governments have interfered with markets, trade and acquisitions, and will seriously affect normal international markets and particularly global supply chains. It is necessary to make further in-depth discussions on the following aspects and to make reasonable proposals for both governments to enact corresponding policies:

    (1) All subsidies and financial support that a government provides to any organization should be transparent (e.g., published on a government website); open to local and global companies on an equal footing; government requirements should not require any mandated technology transfer; and should meet all applicable WTO rules.

    (2) Both governments should publish all procurement rules and should avoid those (both in writing and in practice) that encourage organizations to “buy local” or “not buy foreign.”

    (3) Both governments should respect the other’s multilateral trade activities in global supply chains, and should not through domestic laws implement “long-arm jurisdiction” to limit normal trade activities between the other nation and third-party countries.

    The digital economy presents enormous opportunities for all nations, and digital infrastructure has become even more important in the wake of the COVID-19 pandemic, as we move work, education, and entertainment on-line. We are entering a new era of digital transformation, for both governments and businesses, and the resilience and security of digital infrastructure has never been more important for our two economies, and for global economic stability. Like all countries, China and the United States face novel security, economic and social challenges as technology develops and comes into use. It is in the interest of both nations to handle emerging issues jointly through careful discussion and understanding of their mutual interests.

    CHINESE PARTICIPANTS

    HAO Yeli Vice President, China Institute for Innovation and Development Strategy
    DING Kuisong Research Fellow, National Institute for Global Strategy, Chinese Academy of Social Sciences
    LI Bo Executive Director, Chunqiu Institute for Development Strategy
    Eric LI Founder, Managing Director, Chengwei Capital
    LI Xiaodong Founder and CEO, Fuxi Institution; Professor and Director, Center for Internet Governance, Tsinghua University
    LV Benfu Vice President, Guanchao Cyber Forum
    PENG Lihui Secretary General, China Electronics Chamber of Commerce
    QIAO Siyuan Ph.D., Information Security; Senior Strategy Researcher, Qi-An-Xin Group
    Edward Tsai Director of Investment, Qi-An-Xin Group
    WANG Bin Vice President, Hikvision; Director, Internet and Information Security Lab
    WEN Zhumu Ph.D., Network and Information Security; Executive Director, 801 Cybersecurity Institute

    AMERICAN PARTICIPANTS

    Dennis Blair Chairman and Distinguished Senior Fellow, Sasakawa Peace Foundation
    Melissa Hathaway President, Hathaway Global Strategies
    Stephen Mak Vice President, Enterprise Sales-Asia & Japan, BlackBerry
    Stephen Orlins President, National Committee on U.S.-China Relations
    Matthew Spence Advisor to the President and Professor of the Practice, Thunderbird School of Global Management, Arizona State University
    Christopher Thomas Visiting Professor, Tsinghua University
    Toby Thompson Associate General Counsel, APAC, Chubb
    Paul Triolo Practice Head, Geo-Technology, Eurasia Group
    Graham Webster China Digital Economy Fellow and Coordinating Editor, DigiChina, New America

     

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