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Fmr. US Under Sec. of State Keith Krach says Alibaba, Tencent and Baidu vital to Chinese military, must be blocked from US investment

WeChat (Sinchen.Lin/Flickr)
May 21, 2021

In an interview with the Center for a New American Security (CNAS) this week, Keith Krach, the former Under Secretary of State for Economic Growth, Energy, and the Environment, said Chinese companies Alibaba, Tencent and Baidu are vital tools to the Chinese military and the Chinese Communist Party (CCP) surveillance apparatus, and should be blocked from investing in the United States.

“These three companies are perhaps the most important companies to the Chinese military and to the surveillance state,” Krach said in an interview he shared on Twitter.

Prior to working for the State Department, Krach served as the CEO of DocuSign. Krach was unanimously confirmed to his State Department position, and during his time in office, he was the mastermind behind the “Clean Network,” a campaign to get dozens of countries and telecommunications companies to avoid partnering with Chinese telecoms companies and to instead turn to trusted alternatives.

Krach warned about Alibaba, Tencent and Baidu in response to a question about what companies should be added to a Pentagon list of companies blocked from U.S. investment for security reasons. He said the threats posed by the Chinese companies are along the lines of artificial intelligence and “you could see it in the open source.”

Alibaba is an online e-commerce company similar to Amazon. Baidu provides an internet search engine similar to Google. Tencent is involved in a variety of e-commerce and entertainment ventures and social media and messaging applications like WeChat.

In 2017, the Wall Street Journal reported Chinese companies like Alibaba, Baidu and Tencent are required to help the Chinese government hunt down criminal suspects and silence political dissent, and that their technology is also being incorporated into cities wired for mass surveillance.

Krach said, “There’s no sense cutting off technology for these guys if you’re financing them.”

Krach said during his time leading the Clean Network initiative, the administration was “very close” to adding the three Chinese companies to the Pentagon list. While the effort to block those companies from U.S. investment failed, Krach said the companies still “would be at the very top of my list.”

During the closing months of his administration, President Donald Trump signed executive orders attempting to ban Chinese apps like TikTok and Tencent’s WeChat messaging app. While Trump gave TikTok’s Chinese owner ByteDance permission to sell its U.S. operations to Oracle, a federal judge halted the Trump administration’s efforts to ban WeChat.

Addressing the reason the three Chinese companies were not added to the Pentagon list, Krach said, “It’s because of commercial interests, and I think that’s a politically correct way to say ‘conflict of interest,’ because there’s a lot at stake there.”

Krach said the average American investor is likely not aware that by investing in Alibaba, Tencent or Baidu “he’s financing the Chinese military, their surveillance state and genocide.”

Krach said the three Chinese companies have anticipated potential regulatory action for years and as a result, have broken the companies into an “unnatural amount of subsidiaries” in an effort to avoid regulatory scrutiny. With their subsidiaries, Krach said the Chinese companies have been able to proliferate across U.S. markets. He said the subsidiaries “go into the emerging index funds, like the MSCI Emerging Index Fund, FTSE, Bloomberg Barclays Fund, and then those go into products like 431 emerging market products like BlackRock, and they’re in there and then those go into the $11.7 trillion pension funds and the American public has no idea about it.”

Short of an outright ban on U.S. investments, Krach said at minimum, subsidiaries of the Chinese companies should disclose their ownership to U.S. investors.