POLICY BRIEFS SERIES
Risk Mitigation and
Creating Social Impact:
Chinese Technology
Companies in the
United States
Wenchi Yu
Nonresident Research Fellow, Ash Center for Democratic Governance and Innovation,
Harvard Kennedy School
APRIL 2021
POLICY BRIEFS SERIES
Risk Mitigation and
Creating Social Impact:
Chinese Technology
Companies in the
United States
Wenchi Yu
Nonresident Research Fellow, Ash Center for Democratic Governance and Innovation,
Harvard Kennedy School
APRIL 2021
About the Ash Center
The Roy and Lila Ash Center for Democratic Governance and Innovation advances excellence and inno-
vation in governance and public policy through research, education, and public discussion. By training
the very best leaders, developing powerful new ideas, and disseminating innovative solutions and institu-
tional reforms, the Center’s goal is to meet the profound challenges facing the world’s citizens. The Ford
Foundation is a founding donor of the Center. Additional information about the Ash Center is available
at ash.harvard.edu.
This research paper is one in a series published by the Ash Center for Democratic Governance and Innova-
tion at Harvard University’s John F. Kennedy School of Government. The views expressed in the Ash Center
Policy Briefs Series are those of the author(s) and do not necessarily reect those of the John F. Kennedy
School of Government, of Harvard University, or of any organization mentioned in this paper.
About the Author
Wenchi Yu is the Head of Global Public Policy at VIPKid, the world’s leading education technology
platform company. She leads VIPKid’s public policy and social impact initiative, including the establishment
of VIPTeach.org, a non-prot organization seed funded and incubated by VIPKid to promote equitable
access to quality education through technology. Prior to joining VIPKid, Wenchi was the Head of Corporate
Engagement for Goldman Sachs in Asia, where she led strategic philanthropy for stakeholder engagement
and social impact in Asia. Before joining the private sector, she was a senior advisor on global women’s issues
in the U.S. Department of State, and worked on the rule of law and civil society development in China in
the U.S. Congress. Early on, she worked on women’s rights, human tracking, and immigrant issues in the
non-prot sector.
Her writing has appeared in the Wall Street Journal, Council on Foreign Relations blogs, Caixin, and
Forbes. She is a life member of the Council on Foreign Relations and an Asia 21 Fellow of Asia Society. She
has an M.A. in international relations from the University of Chicago and a B.A. in political science from
National Taiwan University.
This paper is copyrighted by the author(s). It cannot be reproduced or reused without permission. Pursuant to
the Ash Center’s Open Access Policy, this paper is available to the public at ash.harvard.edu free of charge.
A PUBLICATION OF THE
Ash Center for Democratic Governance and Innovation
Harvard Kennedy School
79 John F. Kennedy Street
Cambridge, MA 02138
617-495-0557
ash.harvard.edu
Contents
Executive Summary...............................................................................................................................................1
I. Introduction .............................................................................................................................................................. 2
II. The Current State of US-China Relations ....................................................................................... 3
III. Chinese Technology Companies in the United States .........................................................4
US Regulatory and Policy Environment .........................................................................................4
Huawei ....................................................................................................................................................................5
Grindr and Kunlun ...........................................................................................................................................6
TikTok and Bytedance..................................................................................................................................7
Congressional Initiatives ............................................................................................................................ 8
IV. VIPKid’s Risk Mitigation and Social Impact Strategy ............................................................8
Social Impact and VIPTeach.org ....................................................................................................... 11
V. Conclusion and Policy Recommendations .................................................................................. 11
Notes .............................................................................................................................................................................15
Bibliography .............................................................................................................................................................. 18
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Executive Summary
Chinese technology companies have become a topic of interest to not only the business and investor
communities but also increasingly the national security and intelligence communities. Their scale
and level of innovation present new possibilities and new competition as well as shape global trends.
Yet the relationship of such companies to the Chinese government is often opaque. As a result, their
growing integration into the global telecommunications system also casts doubt on their intentions
and legitimacy.
Early generation Chinese technology companies such as Huawei, ZTE, and Lenovo have been
expanding their global reach relatively quietly over the last two decades. Most of these companies
have heeded the spirit of the Chinese aphorism that “a tall tree catches the wind” and have sought to
maintain a low public prole. Yet this strategy comes with costs. Even the more recent Chinese internet
conglomerates, when they go global, rarely implement a comprehensive stakeholder engagement strat-
egy at the point of market entry. While the costs of such a misstep in strategy are not always clear at the
outset, they are revealed and exacerbated during periods of heightened geopolitical tensions. Some
companies are clear threats to national security, while others nd themselves the victim of their own
poorly informed international nonmarket strategy. Media, government, and public perceptions of Chi-
nese technology companies are often undermined by the corporate leadership’s own inability to explain
early on who they are, what their technologies do, and how they work. There is little public trust in such
companies because there is often a pronounced lack of clear corporate information and transparency.
Such distrust in Chinese technology companies is further compounded by a general lack of understand-
ing business-government relations in China as well as the role of the technology sector in society.
This paper reviews key US policy developments under the Trump administration, both broadly
toward China and more narrowly relating to trade and technology, and examines the business strategy
of four Chinese technology companies operating in the United States. It outlines the benets of a cor-
porate risk mitigation approach that incorporates social impact creation as an integral part of business
and nonmarket strategy for Chinese technology companies, in the United States, and elsewhere. How-
ever, this paper also argues that corporate actions can only go so far. Because technology necessarily
involves concerns of national security, the role of government—and government cooperation—is essen-
tial. It is only through a combination of more locally engaged corporate actions and internationally
agreed upon sectoral rules and standard settings that we will be better able to improve transparency
and trust-building across borders.
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I. Introduction
In an increasingly complex political, economic, and social environment, businesses need a comprehen-
sive strategy to mitigate risks and demonstrate their value. For multinational companies, navigating
the geopolitical and varied regulatory environment has become increasingly challenging over the last
few years. Maximizing protability may still be a priority for business shareholders, but generating
long-term value for everyone—shareholders, employees, and communities—is increasingly seen as a
legitimate and important value. In a Business Roundtable CEO statement issued in August 2019, corpo-
rations’ purpose has been redened to serve “an economy that serves all Americans.”
1
As a tool to build public trust and mitigate risks, businesses create corporate foundations to give back
to society and communities through philanthropy. Notable examples include the Walmart Foundation,
ExxonMobil Foundation, Goldman Sachs Foundation, and Citi Foundation. A corporate foundation helps
its parent business enjoy tax benets; its independence from business also helps balance business priori-
ties and society/environment needs. Corporate philanthropic giving is also used strategically to establish
goodwill, introduce business to new markets, and build brands and good public relations.
2
As the thinking of businesses’ relationships with society and the environment evolves, corporate
foundations are no longer the only vehicle for businesses to engage with society. In addition to philan-
thropic giving, businesses are also involved in policy advocacy and other lobbying eorts to change the
overall local business environment. Some companies create their political action committees to pool
campaign contributions, launch ballot initiatives, or lobby, while some create nonprot organizations to
support their particular social mission. Some companies also support groups to advance specic issues
or engage directly with lobbyists to advocate for particular legislation or policies. In a 2018 study by the
National Bureau of Economic Research of corporate foundations aliated with Fortune 500 and S&P
corporations, corporate giving directly correlated to growing political inuence.
3
The increasing number of tools available to businesses to ensure their friendly and healthy rela-
tionship with society can be attributed to increasingly complex business operations and their impact on
society, especially in technology services in more recent years. While technology services are transform-
ing how people live, work, and interact with each other, many unintended consequences have disrupted
norms and created distrust in society. Governments now must grapple with setting up frameworks to
stem such disruptions while continuing to foster innovations. Moreover, minimizing negative inuence
and creating social impact through core technology services, in addition to philanthropic giving, has
become a major challenge for corporate governance and a task for board members and management.
A recent example includes Apple’s Human Rights Policy, published in August 2020, that commits to
freedom of information and expression after criticism of its censorship in China.
4
The challenge is even
greater for Chinese technology companies expanding globally.
This paper explores how Chinese technology companies in the United States create social impact
and build public trust as a business operation and risk mitigation strategy in a politically challenging
environment. It discusses how the perceived national security implications and the competition of leading
technologies between the two countries underpin the Trump administration’s policies toward Chinese
technology companies, and it provides an overview of the deteriorating US-China relationship and the
growing anti-China sentiment in the US during the Obama and Trump administrations. This paper will
examine four Chinese technology companies’ (Huawei, Grindr, TikTok, and VIPKid) operations in the
US under such extreme distrust, competition, and political uncertainties and their chances of success.
This paper argues that, especially for foreign rms, attention to social impact and building public
trust must be an integral part of business strategy and operations—from the inception of the business
and at the point of entry in a new market, not as an afterthought. Investment and eort to establish a
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foreign corporation’s standing in the community and reputation as a good citizen is similar to the soft
power approaches that governments undertake. The objective of these approaches is to accrue good will
and public trust. However, just as with national soft power, there are limits if perceived national security
threats arise. In the case of the four Chinese technology companies, Huawei probably could not have
avoided its issues regardless of resources devoted to its soft power; Grindr probably could have survived
without the data breach; TikTok’s case may have been overtaken by the US-China geopolitical storm, and
its fate remains uncertain; and VIPKid is less exposed as the previous three companies.
In addition, this paper was written when a new administration was underway in the US, and there
is a unique opportunity to discuss global cooperation on data and internet governance. Thus, it further
argues that governments must urgently provide a globally consistent framework of data collection,
protection, storage, localization, and sharing for companies to operate within. A shared and agreed
upon global framework, taking national security into consideration without discriminatory government
policies, will ensure healthy innovation and competition among businesses, inspiring more responsible
corporate citizens. This paper also hopes to enrich the policy discussion on how to engage China in the
context of its technological rise.
II. The Current State of US-China Relations
US-China relations recently reached its lowest point since the two countries resumed diplomatic rela-
tions in 1979. For over three decades, integrating China into the global system—economic integration
in particular—has been the predominant view in Washington, DC. Supported by the Clinton administra-
tion, China joined the World Trade Organization (WHO) in 2000 and marked its ocial participation
in the world economic system. Over most of the last two decades, US policy toward China generally
prioritized engagement, especially in the US State and Commerce Departments. There was an underly-
ing desire to integrate China further into the global community, believing the nation would gradually
follow international norms. There was also a consensus in the business community to inuence and
access the world’s most populous country and potentially the largest market. Sometimes, business
priorities and the need to have China help with North Korea or other US foreign policy interests super-
seded ongoing concerns over China’s poor human rights records and uncertain rule of law.
5
The seemingly abrupt pivot of US policy toward China in the Trump administration was not a
surprise to the business community that had been complaining about market access and fairness over
the last few years. Toward the end of the Obama administration, the American business community in
China had grown increasingly impatient with long-standing barriers to doing business in China, rang-
ing from opaque rules and regulatory practices to the overall lack of the rule of law. During a private
meeting with former deputy secretary of state Tony Blinken, days before the presidential election in
October 2016 convened by the US Embassy in Beijing, a small group of US business representatives as
well as former US ambassador to China, Max Baucus, reiterated that a tougher position on China to
press for better market access is a must in the new administration.
In the early days of the Trump administration, the world witnessed competing views between the
“globalists”—led by Trump’s rst national economic advisor and former Goldman Sachs president Gary
Cohn and Treasury Secretary Steven Mnuchin, also a former Goldman Sachs partner—and “economic
nationalists”—led by Trump’s former senior advisor Steve Bannon, Trade Advisor Peter Navarro, and US
Trade Representative Robert Lighthizer. The former, globalists, advocated for continuing a pro-trade
and open market approach, while the latter, nationalists, campaigned for a “reciprocity” and “trade
decit reduction” approach to China. As Trump started imposing trade taris and barriers in 2018, it
became clear that a US-China trade war was underway. While the trade war focuses on better access
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to the Chinese market and trade decit reduction, the administration also leverages and expands
existing mechanisms such as the Committee on Foreign Investment in the United States (CFIUS) and
the Department of Commerce’s Entity List to scrutinize foreign investment into the US and to export
license control that may concern US national security.
Vice President Pence’s speeches on China in October of 2018 and 2019 signaled the US’s increas-
ing distrust in Beijing. Secretary of State Pompeo’s speech at the National Governors Association in
February 2020 urged 50 governors to adopt a “cautious mindset” about the competition with China.
6
Moreover, in the least likely scenario where education is politicized, the heightened scrutiny of Chinese
donations to universities, suspicion of Chinese researchers for alleged theft from US labs and transfer-
ring research secrets to China, and alleged espionage of the Confucius Institutes on campuses all led to
formulating the US government’s comprehensive “decoupling” policy toward China.
Perhaps what came most unexpected more recently is the global pandemic COVID-19 that put the
world under siege. A novel virus that was rst detected in a Chinese city, Wuhan, spread throughout the
world and caused hundreds of thousands of deaths, including more than 547,000 in the US as of late
March 2021.
7
Both the US and China used the opportunity to blame each other for the virus’s origin,
alleged early cover-up, and delayed response. They even took the feud to the WHO, where global collab-
oration is the default.
On other foreign policy fronts such as the South China Sea, Taiwan, Hong Kong, and Xinjiang,
tensions have only further escalated in recent months. The White House issued the “United States
Strategic Approach to the People’s Republic of China (PRC)” on May 20, 2020, which denes China as
a “competitor” and species three challenges posed to the US: economic, national security, and values.
While the strategy does not discourage engagement between the people, it does ask the US to “rethink
the policies of the past two decades,” which assumed engagement and inclusion would turn rivals into
benign actors and trustworthy partners.
8
While the White House has not used the term “Cold War,” China’s Foreign Minister Wang Yi used
“the new Cold War” to describe current US-China relations at a press conference on May 24, 2020.
Suce to say, the advent of a new rivalry between the US-led western bloc and the yet to be conrmed
China-led bloc will likely split the world into blocs having to side with either power in certain areas,
especially in tech services such as articial intelligence (AI) systems, defense interoperable systems,
information and communications technology, and 5G.
III. Chinese Technology Companies in the United States
US Regulatory and Policy Environment
The rapidly deteriorating US-China relationship is accompanied by concrete measures that aim to
rectify unfair business practices based on the US principle of “reciprocity.” The Foreign Investment
Risk Review Modernization Act (FIRRMA) of 2018 expands CFIUS authority to address national security
concerns over exploiting investment structures traditionally falling outside of CFIUS jurisdiction. In the
regulations issued by CFIUS in January 2020, critical technology and sensitive personal data collection
were added and believed to target Chinese technology business transactions. The technology sector
is of particular concern to many in the national security community due to competition from Chinese
technology companies to lead in areas such as AI and 5G technology deployment in networks. In March
2020, the White House issued Executive Order 13859 titled “Maintaining American Leadership in Arti-
cial Intelligence” in February 2019 and the “National Security Strategy to Secure 5G.”
On June 4, 2020, the White House issued the “Memorandum on Protecting the United States from
Investors from Signicant Risks from Chinese Companies,” which asks nancial regulators to submit
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a report in 60 days with recommendations for action to the executive, including the Securities and
Exchange Commission (SEC) and the Public Company Accounting Oversight Board (PCAOB). This
policy move came as a few Chinese companies listed in the US stock exchanges committed accounting
fraud, leading, among other things, to NASDAQ’s request to delist Luckin Coee.
9
In addition, a few
Chinese technology giants have secondary listings in Hong Kong, including Alibaba, NetEase, and
JD.com.
10
Ant Financial also led a dual IPO in Shanghai and Hong Kong in October 2020. The day after
the IPO price per share was set, Jack Ma, Alibaba’s founder and Ant Financial’s largest shareholder,
remarked during a speech that “it would not have been fathomable ve or even three years ago to le
the largest IPO ever in the history [in China] not in New York.”
11
Nevertheless, Chinese regulators
suspended these dual listings in early November.
12
As a series of US policies that aim to “decouple” US and Chinese technologies in the name of
national security, Secretary of State Mike Pompeo further announced on August 5, 2020, the Clean Net-
work program that consolidates and expands measures to protect American citizen privacy and data, to
ensure information security, and to prevent human rights abuses aided by technologies.
13
The US is also
building an international Clean Network through which countries commit to further separate Chinese
technologies from their information technology systems.
As one of the Trump administration’s last moves to prevent US investments in Chinese businesses
with alleged ties to the People’s Liberation Army (PLA), the White House issued the executive order
titled “Addressing the Threats from Securities Investments that Finance Communist Chinese Military
Companies” on November 12, 2020.
14
It is estimated that about 30 Chinese companies will be aected,
yet its impact may be limited.
15
Below are a few high-prole examples of hurdles that Chinese technology companies have encoun-
tered in the US due to political and regulatory concerns and their risk mitigation strategy, including
their social impact and corporate philanthropy programs.
Huawei
In the case of Huawei, China’s leading technology company, its trouble with the US government began
many years ago when intellectual property thefts and its role with the Chinese military prompted a US
government investigation into the company. Subsequent accusations of Huawei working for the Chinese
government and trade thefts ensued in other countries. In the US, the Bush and Obama administra-
tions used CFIUS to block Huawei from buying 3Com and 3Leaf, while in the Trump administration,
the Department of Defense in 2018 banned Huawei technology on military bases. Two years later, the
Department of Commerce put Huawei on its Entity List so that a special licensing permit is required for
US companies doing business with Huawei. It also used its diplomatic prowess to urge allies not to use
Huawei in their telecom network. Many governments followed suit, with the UK government initially
resisting the Huawei cut-o but then changing its mind after the perception of China turned much
more negative due to COVID-19. The challenge is that Huawei’s technology is embedded in much of the
current 5G network construction and cutting it o is not a simple task. Huawei’s strategic importance
in the telecom network includes providing equipment to all major telecom companies worldwide, and
its phones use chips supplied by US chipmakers. Furthermore, there are no obvious viable alternatives
when factoring in pricing, technology advantages, and Huawei’s ability for speedy rollout.
Throughout these years, Huawei has denied its relationship with the Chinese military vehemently,
even though its founder Ren Zhengfei came from the PLA. The company also claims the US govern-
ment’s persecution is politically motivated. While Huawei is unlikely to regain its business presence in
the US and with its close allies (the UK, parts of Europe, Australia, India, and Japan), it continues to
debunk the accusations of its connection to the Chinese military and government. To rebuild public
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trust, it also continues to invest in public relations, including speaking out in forums and donating
generously during COVID-19.
Huawei has a long tradition of corporate giving and has been publishing an annual sustainability
report since 2008 detailing its strategy of incorporating environmental protection, health, and digi-
tal inclusion as its overall development strategy. However, these eorts, especially early on, were less
integrated into the overall business strategy and operations. A quick online review of Huawei and its
corporate social responsibility in the US found sporadic donations to support STEM (science, tech-
nology, engineering, and mathematics) education, museums, hospitals, food banks, or other national
health and education NGOs.
16
Even though Huawei set up its rst oce in the US in 2001, it was not
until 2009 that it ocially made its foray into the US market when it hired an American as a CTO. By
then, there had been many intellectual property and other legal issues. Still, according to news reports,
Huawei management often ignored advice and undermined recommendations from its US public and
government relations department. The lack of interest in investing in stakeholder engagement in the
US market over the years results in very little understanding of Huawei’s business from the general pub-
lic, other than its core business partners, which are limited to a few large technology companies.
17
The story of Huawei compromising the national security network grew over many years. Huawei
did not take the time to build public trust or undertake social impact programs to help the US under-
stand the company’s business in a more positive light and ameliorate suspicion. It was not until when
the Trump administration issued measures to expunge Huawei from the US telecom system that it
started investing in rebuilding public trust.
18
Nevertheless, these eorts may just be too late.
Grindr and Kunlun
Beijing Kunlun Tech, a Chinese technology company, purchased the popular US application Grindr in
2016 but was informed by the CFIUS in 2019 that it needed to relinquish its ownership due to national
security concerns over its user privacy and data protection.
19
As one of the world’s largest LGBTQ
dating sites, most users are gay and bisexual men. Grindr also voluntarily collects personal health data,
such as HIV information, and in 2018 the application was found to have shared its 3.6 million daily
users’ HIV status with two other companies.
20
Even though Grindr immediately announced the change
of its user data sharing practice, CFIUS is concerned about blackmail against US citizens, potentially
including US civil service and military personnel. CFIUS required that Kunlun sell Grindr by June 30,
2020, and the sale was approved by CFIUS as announced by Grindr at the end of May 2020.
21
Grindr’s data breach came at a time when the news broke that Facebook gave access, without users’
knowledge, to Cambridge Analytica, a political data rm, enabling the company to attempt to inuence
50 million users during the 2016 US presidential campaign.
22
The American public and US Congress
became quite concerned about American privacy and data collected and sold by social media companies
without consent.
With its unique user community, “Grindr for Equality” was launched in 2012 as the company’s
mission to create a world that is safe, healthy, inclusive, and equal for the LGBTQ community. “Grindr
for Equality” as an initiative also supports advocacy groups and the human rights of the LGBTQ com-
munity, and the app disseminates health and sexual information worldwide. Forbes praised Grindr as a
“model for corporate social responsibility.” Therefore when Grindr breached user data and privacy in
2018, it caused an outcry and prompted congressional inquiries by two US senators versed in technol-
ogy and data privacy issues.
23
A former management member involved in the sale remarked that after
CFIUS’s order of sale, there was an eort to do more “Grindr for Equality” to market the company’s
asset to buyers, but there was insucient time to act on this before the sale.
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TikTok and Bytedance
TikTok is a video-sharing social media platform owned by its parent media company Bytedance, one of
the largest Chinese technology companies. Bytedance created two video-sharing products—Douyin for
the Chinese market and TikTok for the international market. In 2018, after TikTok merged with musi-
cal.ly, another Chinese video-sharing company that was already popular and had an oce in the US, it
became the most downloadable application in the US.
Given its popularity among American teenagers and as the rst Chinese application that has ever
achieved such popularity, it drew US congressional and executive branch attention to user data pro-
tection, personal privacy, online child privacy, and censorship issues. While Washington, DC has issues
with TikTok, its business continues to proliferate. To address the various issues involving data stor-
age and the separation between TikTok and its parent company, Bytedance, TikTok has expanded its
lobbying presence, including retaining more DC government relations rms and growing its DC-based
policy team. The company’s response to Washington’s accusation that Beijing has access to its data has
consistently been that its data are stored in Singapore and the US and the authorities in Beijing have
never asked for access.
24
In addition to national security concerns, US Senators Josh Hawley and Marsha
Blackburn are also worried about young Americans spending too much time on the application. With
growing political pressure, TikTok also recently created TikTok for Good, the corporate social respon-
sibility arm of its US business, to revamp its reputation among political, policy, and other social stake-
holders. Most notably, during COVID-19, TikTok announced its commitment of $250 million to support
workers, educators, and local communities.
25
The government of India announced its ban on TikTok and a score of other Chinese apps on June
29, 2020, citing unauthorized data transmission to servers outside India.
26
On July 7, 2020, President
Trump said he was “considering” banning TikTok following Secretary of State Mike Pompeo’s response
to a Fox News interview on July 6 that the US is “looking at” banning TikTok over security concerns.
27
Amidst threats from the Trump administration, TikTok announced hiring a high-prole US CEO, Kevin
Mayer, a senior Disney executive, and its plan to hire 10,000 employees based in the US to demonstrate
TikTok’s commitment to stay in the US market for the long haul. Nevertheless, Mayer resigned after
only three months as the complications described below unfolded.
Notwithstanding the TikTok initiatives, the White House issued an executive order on August 6,
2020, prohibiting business transactions with Bytedance and its subsidiaries, including TikTok, within 45
days.
28
The White House issued another executive order on August 14 ordering Bytedance to divest its
operation in the US, namely TikTok US.
29
Since the orders and the ban by the Department of Com-
merce, there have been court orders granting TikTok injunctive relief from which the US government
has appealed.
30
In several private conversations, current Bytedance and TikTok employees admitted that much
of their social impact, public relations, and public policy work was too late to have a positive inuence
despite having grown their policy sta from one to a dozen and hiring top-dollar lobbyists and law rms
over just a few months. They reckoned that the business grew so fast that they could not adequately
manage the growth with proper support and timely risk mitigation. One employee commented that
earlier advice to Beijing management to sta key US functions and engage policymakers was ignored.
Beijing’s preference was to stay low-key and prohibit the sta from speaking to relevant stakeholders.
When TikTok’s business exploded in the US and experienced serious run-ins with Washington, DC
ocials from both parties, it was too late for the various initiatives to secure reputational improvements
and regain trust. As of mid-February 2021, the Biden administration paused the ban of TikTok, citing it
is “comprehensively evaluating the risks to US data including from TikTok.”
31
No further actions have
been announced by late March 2021.
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Congressional Initiatives
Since the bilateral relationship’s normalization in 1979, the US Congress historically holds a harder
stance on China than the administration. As the president is the primary foreign policy decision-maker,
Congress acts more like a brake and obstacle to the administration’s attempt to engage with China,
especially during China’s market liberalization in the 1990s and the 2000s. For example, the US Con-
gress used sanctions to limit US foreign aid to China after the 1989 Tiananmen Square massacre. To
ensure China’s economic development does not bolster its authoritarian regime’s human rights abuses
or hamper its rule of law development, Congress also established two congressional commissions to
monitor China’s rule of law and human rights development after the Clinton administration’s decision
to normalize trade with China and to help China become a member in the WHO in 2001. Losing Ameri-
can jobs to China because of trade has also been a recurring theme during congressional and presiden-
tial elections, especially in rust belt states where job losses are most pronounced. Current congressional
criticism of China is bipartisan—it coalesces the China hawks from House Speaker Nancy Pelosi and
Senate Minority Leader Chuck Schumer to the conservatives such as senators Ted Cruz, Tom Cotton,
and Marco Rubio. Trump’s harder line on China also received “widespread support” from Congress.
32
On December 18, 2020, President Trump signed into the law the Holding Foreign Companies
Accountable Act (HFCA).
33
This law requires Chinese companies to submit to audits by rms subject
to the PCAOB. Failing to do so for three years in a row would result in delisting from any US securities
exchanges. It also requires public companies to disclose whether they are owned or controlled by a for-
eign government. This law came on the heels of reported accounting fraud committed by Chinese com-
panies, Luckin Coee, and TAL Education Groups listed on NASDAQ and NYSE. On March 24, 2021,
the SEC announced that it would implement HFCA, signaling a continuation of the growing scrutiny of
Chinese companies as tensions continue to grow between the two countries.
34
Another bill that is widely seen as targeting Chinese and Russian companies is the National Secu-
rity and Personal Data Protection Act introduced by Senator Josh Hawley in November 2019.
35
This bill
would prohibit data ow to countries of concern, including China and Russia, if those governments had
access to American data, thus threatening US national security. This bill has not advanced further but
was the rst one to limit user data ow to China.
IV. VIPKid’s Risk Mitigation and Social Impact Strategy
VIPKid is an education technology company headquartered in Beijing with ve oces in the US. The
company connects 100,000 North American English tutors with 800,000 students from more than 60
countries with most based in China through its online platform, which enlists qualied English tutors
who supplement their income and arrange their hours according to their needs. Every day, an esti-
mated 200,000 classes take place online, with 35,000 classes occurring simultaneously during peak
hours. The interactions through online education and the bonds it helps foster between teachers and
students are at such a scale that the platform has drawn increasing scrutiny, and therefore the business
must mitigate political risks while demonstrating its value add in both countries.
In the US, the company set up its headquarters in San Francisco with satellite oces in Sunnyvale,
Dallas, New York City, and Washington, DC. The US operations are tasked with curriculum develop-
ment, teacher acquisition, teacher community management, global business development, public rela-
tions, legal, and public policy functions. With 100,000 tutors throughout 50 states in the US and Canada
teaching on VIPKid’s platform, the business has a signicant presence that comes with scrutiny and risks
ranging from teacher sentiment, legal compliance, reputational, and political to policy and regulatory.
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Early on, VIPKid’s missteps can be mostly attributed to the lack of understanding of American cul-
ture. For example, punitive policies toward teachers who cannot teach last minute due to unforeseeable
illness or personal emergencies led to teacher community outcries. Those issues were mitigated after
the US team hired experienced sta from the education community.
The most challenging political and policy risks facing VIPKid include the following:
a. Worker Classication or Gig Business Model
Similar to other ride share and food delivery businesses such as Uber, Lyft, Grubhub, and
Instacart, VIPKid’s teachers are independent contractors, not employees, so the business does
not have to pay for benets or insurance. This is also a reason why the platform has grown so
rapidly and has so many users. Labor groups and unions, however, consider such new “gig”
businesses to be shirking their responsibilities and have advocated for classifying such gig
workers as employees. The labor-led legislative movement concentrates on blue states, where
the executive and both chambers of legislature are Democrats. California’s Assembly Bill 5
(AB5), eective January 1, 2020, became the rst state law that mandates businesses to reclas-
sify workers if they do not pass the “ABC test”—an employment classication test presuming
that workers are employees rather than independent contractors. VIPKid has more than 4,000
regular teachers from California, not a small number out of 100,000. The company also faces a
class action lawsuit in California that alleges the company misclassies teachers.
To protect its business model, VIPKid retained a lobbying rm in Sacramento to engage
the lobbying of AB5 to exempt “tutors.” Along with volunteer teachers who provided testimony
of the importance of keeping this work arrangement, VIPKid conducted extensive outreach to
the California governor’s oce, labor groups, and teachers unions, taking its teachers to meet
and speak to key state legislators and AB5 authors’ oces. On September 4, 2020, Governor
Newsom signed an amended AB5, under which VIPKid teachers qualify the tutor denition—
signicantly reducing the legal risk of the company’s gig business model in California and set-
ting a precedent for the company to lobby for an exemption in other states considering similar
legislation.
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New Jersey and New York are the two states that immediately followed California’s
AB5 momentum. However, given AB5’s controversy in the business community and COVID-19,
neither state has been able to swiftly move forward similar legislation as of late March 2021.
Worth noting are the various safety net benets provided to gig workers during COVID-19,
allowing them to le for unemployment insurance for a limited period and potentially oering
them paid sick leave. Both benets are historically only available to employees. However, given
the particular vulnerability and large number of gig workers in the US, such changes are likely
to become permanent, not merely a temporary response to COVID-19. As the US experiences
high unemployment rates because of COVID-19, worker protection, including for gig work-
ers, will continue to be an important topic. As a result, VIPKid is pivoting to a more proactive
approach in high-risk states where gig legislation may advance. Furthermore, in low-risk states
such as Utah, VIPKid has successfully lobbied for legislation that protects its gig business
model (Remote Service Marketplace Platforms Act, signed into law on March 16, 2021).
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b. US-China Tensions
While tensions in US-China relations have not had a direct impact on VIPKid’s business, they
have had a signicant eect on how the business conducts its public relations and commu-
nicates with policymakers given that people-to-people connections is the core of its business
model. Discussions of political issues or other topics that are deemed inappropriate or harmful
to children’s learning are discouraged in online classes, as stipulated in the teacher contract.
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Nevertheless, there are occasions where teachers unknowingly discuss issues that China deems
political and draw criticism from customers and parents. These topics related to freedom of
speech highlighted in a Wall Street Journal article, including Tiananmen, Taiwan, Hong Kong,
Tibet, Xinjiang, and more recently COVID-19 origin, are a point of US criticism and concern
addressed to the company.
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In addition, VIPKid has a Chinese learning product, Lingo Bus,
that enlists Chinese teachers to teach Mandarin to children globally. While there are genuine
grassroots and school interests in learning Mandarin, the controversy around the Confucius
Institutes, as mentioned on page 5, casts a shadow on the company’s marketing of Lingo Bus.
Overall, to avoid becoming a victim or target of the growing anti-China sentiment in the
US, VIPKid has taken a low-key approach to its public prole. Its media prole uses local news
outlets and emphasizes human connection stories between teachers and students.
c. Privacy and Sensitive Personal Data Storage
VIPKid’s privacy policy is accessible to the public on its website. It complies with all jurisdic-
tions’ privacy requirements, including the more recent and stringent compliance requirement
by the General Data Protection Regulation (GDPR) in the EU and the California Consumer
Privacy Act (CCPA). VIPKid’s user data collection and storage are also made transparent to the
public on its website. As the company’s server is in China, the Financial Times raised a question
about the possibility of the Chinese government accessing teacher data as a national security
concern, with the US government increasingly viewing sensitive personal data as a national
security asset.
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The Chinese Ministry of Education also requires that specic data be stored in
China for a limited amount of time, such as one year for online class recordings. While there
is currently no legal requirement for localizing user data in the US, as opposed to China’s data
localization requirement, should it become a policy or a compliance requirement as laid out in
the Clean Network program announced by Secretary Pompeo in August, it will most likely pose
a challenge for businesses operating in both Chinese and US markets. As a precautionary step,
VIPKid changed its practice by storing American data in a US server and sensitive American
personal information in the US server only.
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d. Child Online Safety
Given that VIPKid’s students are mostly K-12 English learners, ensuring online safety is a top
priority. Not only do all teachers undergo background checks before they are approved to
teach on the platform, but there are also features during classes that allow teachers to report
emergencies and class monitoring by the “remen.” The business complies with the Children’s
Online Privacy Protection Act (COPPA), which applies to children under 13 in the United
States, and joined the Federal Trade Commission’s (FTC) approved Safe Harbor Program.
VIPKid also joined the Family Online Safety Institute (FOSI), a membership-based nonprot
organization that brings together businesses for family online safety policy and regulatory
standards discussions and best practices sharing.
e. Racism and Other Forms of Discrimination
Racist, body-shaming, or other judgmental statements relating to appearances from Chinese
parents or students to their teachers have been consistently an issue on VIPKid’s platform. To
address those culturally sensitive topics, the business held sessions to help teachers respond to
such situations. The company also uses technology to feature outstanding teachers of color to
break down misinformed ethnic stereotypes, and its teacher advocacy team responds to teach-
ers’ requests if teaching certain students is no longer desirable due to their discriminatory
remarks or behavior. Bridging cultural dierences through sensitive education and communi-
cation remains a high priority for VIPKid.
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In light of the national Black Lives Matter movement in Jun 2020, VIPKid conducted a whole-of-
business review and diversity and inclusion practice improvement, ranging from creating a corporate
diversity statement, HR hiring and employee training practices, curriculum review, and marketing and
advertising content to teaching diversity to students, parents, and external partnerships. The company
launched a corporate website in late August 2020 dedicated to its diversity and inclusion policy.
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Social Impact and VIPTeach.org
In addition to lobbying, legal defense, and public relations and media management to minimize the vari-
ous risks, VIPKid also created a social impact initiative and launched a US-registered 501(c)(3) nonprot
organization, VIPTeach.org, to support better access to English education for the underserved and to
professional development for online educators. Seed funded and incubated by VIPKid, this nonprot
serves as a partner to VIPKid’s Rural Education Project in China. It aims to bring resources to expand the
program beyond its current reach—50,000 students in over 1,000 schools. The Global Online Teaching
Fellowship program is modeled on Teach for America and targets future education leaders who need
rst-hand experience teaching online. Each novice fellow will be assigned an experienced mentor and
given a stipend for professional development during the one-year, two-semester fellowship.
As an independent nonprot for US online educators, VIPTeach.org is an important vehicle for
VIPKid to demonstrate its commitment to advancing online education and building goodwill and
thought leadership, and to engage education sector stakeholders in the US market. It is part of VIP-
Kid’s strategy to be as local and as American as possible early on. Through the Global Online Teaching
Fellowship, 26 fellows have been selected from all over the US and will participate in professional online
education opportunities. The fellows will work with local school districts to provide free online English
as a second language lessons, and their stories will be featured in local media. Through this fellowship
program, VIPTeach will also engage external education experts and thought leaders as speakers. Those
stakeholder engagement eorts are an alternative to position VIPKid as a positive contributor to the US
online education sector. VIPTeach.org’s long-term goal is to raise funding in the US to be self-sucient
without dependence on VIPKid. This will also help ease VIPKid’s nancial burden of supporting phil-
anthropic programs, especially its current Rural Education Project, of which payment to teachers takes
up most of the budget. VIPTeach.org also plans to convene online education thought leaders for policy
and program discussions on the future of online education.
During COVID-19, VIPKid has also provided monetary donations to California and New York. In Cal-
ifornia, a donation of $50,000 was a direct response to the governor’s Cross-Sector Partnerships to Sup-
port Distance Learning and Bridge the Digital Divide. In New York, a donation of $50,000 supported the
state fund for medical supplies and personal protection equipment. In addition to monetary donations,
VIPKid also produced free online teaching videos for teachers who need skills to transition from oine
to online teaching. These resources are disseminated to education or education technology ocials in all
50 state governments. This outreach helps showcase VIPKid’s online teaching expertise and establishes
relationships with education ocials who may nd VIPKid a partner in future endeavors.
V. Conclusion and Policy Recommendations
Chinese businesses have been expanding globally over the last two decades. Unlike their American
counterparts, Chinese businesses tend to stay low-key, are laser-focused on growing business and gen-
erating prots, and are less focused on stakeholder engagement, building public trust, or creating value
beyond strict business protability. In reviewing the four Chinese technology companies’ operations
in the US, risk mitigation and creating social impact were still mostly an afterthought. Huawei has the
longest history in the US and did not invest in shaping the narrative even though the issues arose nearly
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simultaneously with its entry in the US market almost two decades ago. Grindr’s personal data breach
came at a time when privacy and data became a national security concern, especially over the possibility
of the Chinese government accessing American data. Bytedance/TikTok grew too fast and did not pri-
oritize Washington, DC or other stakeholder engagement while its business exploded in the US market.
In reviewing their business practices, VIPKid has a better “trust-building” strategy by creating social
impact and risk mitigation not long after entering the US market.
Several early management decisions may have contributed to VIPKid’s success. First, because the
company’s business relies on many teachers from North America, its management in Beijing has always
been deferential to the US team in making decisions regarding the US market. Second, VIPKid is an
online education company, and the core business is about creating education impact; it is therefore
relatively easy to articulate its social impact and value add to American society, especially its creation of
supplemental income for mostly stay-at-home mothers. Third, as the company formally established its US
business presence, key functions of public policy, social impact, legal, and public relations were immedi-
ately staed to ensure proper business operations. Moreover, all sta in those functions are bicultural and
have experience in both Chinese and American markets. Fourth, as the younger company, it is careful not
to repeat missteps other companies have made and instead follows proven footsteps.
The key questions remain: Will taking those actions discussed above guarantee future success for
Chinese technology companies under the Biden administration? Furthermore, if distrust in those com-
panies lingers due to the uneasy relationship between the US and China, are there better ways to build
trust so that the US does not lose valuable investments and technological contributions from those
companies while ensuring economic and national security?
The year 2020 witnessed the Trump administration unleashing hardened policies toward China. He
made China an important theme of his campaign and attacked former vice president and Democratic
Party candidate Joe Biden for not being tough enough on China. Biden’s campaign also countered
Trump’s accusation by saying that Trump was ineective in containing China’s inuence and curtailing
China’s lack of transparency, rule of law, and human rights because the Trump administration failed in
bringing together allies against China. Until the end of the campaign, both sides maintained a tough
position on policy toward the country.
In an in-depth interview with the China Wire dated May 24, 2020, Trump’s former campaign advi-
sor and White House senior counsel Steve Bannon articulated why, in his view, China and trade were
the most important issues during the 2016 and 2020 presidential elections.
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Bannon commented that
China was the undertone of 2016 and is much more pronounced in 2020 because America in decline is
inextricably linked to the evisceration of the manufacturing base in the heartland—losing jobs to China.
The Washington, DC consensus before the election was that a Biden administration would not
change the direction of the current US-China relations—the two countries are bound to compete and
confront each other head-to-head in all areas. In the technology sector, from research and development
to applied technology services, China is growing so rapidly that it is threatening the US’s long-held
leadership position. While a Clinton or Obama era type of engagement with China is unlikely under
the Biden administration, Washington’s debate over a better approach continues. One camp is led by
those who believe China’s advancement is not based on fair competition or transparency, so “reciproc-
ity” to protect American businesses must be the rule moving forward. This camp also believes that the
root cause of those challenges is the Chinese Communist Party. Until there is a fundamental change in
China’s political system, the US should not trust or engage, which is generally reected in the Trump
administration’s policies.
The other camp is led by those who believe in prioritizing investing in US competitiveness and
innovation over current policies that aim to deter and undercut China. This camp also believes in a
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multilateral approach to building an international alliance to push back on certain China behaviors. We
are likely to see this school of thought reected in the upcoming Biden administration’s policy. Neither
camp trusts China to be the global leader in technology because its authoritarian political system may
abuse technologies to surveil its citizens, silence political dissidents, and oppress ethnic minorities. For
example, Eric Schmidt, Google’s former chairman, recently warned that China is building a “high-tech
authoritarianism” through AI.
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By the time this paper is published, the world would have witnessed the tasty exchanges during the
very rst US-China dialogue under the Biden administration that occurred in Alaska on March 18 and
19, 2021. While there was an early sense of relief among many for policy consistency and predictability
when Biden was elected, including Chinese technology companies, it is anticipated that the real compe-
tition between the US and China to lead global technology has just begun.
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The “witch-hunting” polit-
ical climate may be over, but US technology industry leaders are calling for more clear and transparent
domestic regulatory frameworks as well as global discussions on data and internet governance.
Realistically speaking, purely punitive policies toward Chinese technology companies are unlikely
to lead the US technology sector to better competitiveness or greater access to the Chinese market.
Chinese companies need to do much more to be regarded as trustworthy, outstanding corporate citi-
zens in the eyes of US citizens and the US government. For the sake of both US and Chinese companies
and their customers—and to fundamentally encourage technological competitiveness and to address
cybersecurity, forced technology transfer or theft, and data protection and privacy concerns—the Biden
administration should at least consider the following actions.
1. Establish an interagency technology council to thoroughly review technology from compet-
itiveness, innovation, anti-trust, security, and privacy protection perspectives. The thinking
and implementation of technology policies need to be embedded in every federal agency with
policy implementation resources. The Biden administration appointed a deputy national secu-
rity advisor to oversee cyber and emerging technology. While it is an elevation of technology
in national security policymaking, the White House Oce of Science and Technology (OSTP)
needs to be further integrated into the National Security Council, National Economic Council,
and Domestic Policy Council. In addition, regular outreach and consultation with the technol-
ogy community needs to go beyond the usual big tech companies and lobbyists. We also need
to closely consult with our allies and align security and economic interests.
2. Reverse Trump administration policies that are deemed hostile to international students and
graduates. While staying vigilant about academic theft in research universities, the US must
reinstitute a welcoming environment in universities to international students, especially those
in STEM elds, to ensure the pipeline of talents. Support companies to hire international
STEM graduates who have been the backbone of US technology innovation.
3. The US Congress must pass the National Privacy Act to set standards for collecting personal
information and using such information. Currently, the CCPA passed in 2018 was most com-
prehensive in the nation, giving consumers more control over how their data can be collected
and used. The CCPA is modeled on the European Union’s GDPR passed in 2016 and is consid-
ered the most protective of consumer data privacy so far.
4. The US should also work through the United Nations International Telecom Union (ITU) with
world governments to set global standards ranging from cross-border data management and gov-
ernance to platform content moderation. If the ITU is not the ideal platform due to the distrust
in its ability to facilitate fair policy discussions because its current secretary-general is of Chinese
nationality, using other high-level government platforms such as G20, G7, the OECD, or the
APEC could be an alternative. After all, returning to the table to shape rules is a better strategy.
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5. The US government must enlist private sector talents and collaborate with high-tech compa-
nies to accelerate technology advancements in critical areas such as semiconductor production,
5G deployment, and AI application. While the Trump administration had the right prognosis
of the challenges and initiated some work, its policies were devoid of industry input with prag-
matic solutions. The Biden administration must correct the course while continuing the speed
and recognition of the urgency.
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