Information and organisation: China’s surveillance state growth model (Part 3: The relationship between surveillance and growth)
Phuah Eng Chye (7 December 2019)
Surveillance is supposed to have a chilling effect on innovation and private sector growth. China’s state surveillance model has defied expectations to achieve remarkable economic success; suggesting instead that positive linkages exists between technological surveillance and economic growth. One clear linkage is the role of defence and intelligence expenditures in anchoring demand for a range of technologies from devices (chips, sensors, cameras, drones, robots and IOT), infrastructure (cloud and 5G networks) and knowledge (AI). China is in a position to maximise these benefits because of its research and production strengths.
For example, China built a significant camera surveillance industry on the back of the “increased demand for CCTV cameras by governments after the events of September 11, 2001”. Sarah Dai reports there was massive support from “the country’s own state-directed efforts to build an omniscient surveillance network by 2020”. Other contributory factors “for the industry development are the low police-civilian ratio based on the large population in China, and the challenging situation for public security management” while “the expansion of the public video surveillance network coincides with China’s smart-city drive”.
Jane Zhang reports “the value of China’s video surveillance equipment market (excluding home video surveillance) reached US$10.6 billion in 2018 and is expected to reach US$20.1 billion in 2023…The IDC report revealed that government spending accounted for 47.6 per cent of the total spending in China’s video surveillance industry in 2018, with the transport sector accounting for 10.7 per cent and education services for 7.1 per cent. And China is the main driver of expansion in the global video surveillance market. In 2018, the country accounted for nearly half (45 per cent) of global video surveillance revenue worth US$18.2 billion.”
The economic benefits of surveillance extend well beyond the direct contribution to output. In particular for China, there were significant benefits from the shift from manual to technological surveillance. China started as a surveillance state. Mara Hvistendahl notes “in the years after the 1949 Communist Revolution, the government assigned everyone to local work units, which became the locus of surveillance and control. Individuals spied on their neighbors while also doing everything they could to avoid black marks on their own dang’an, or government files. But maintaining the system required massive state effort and oversight. As economic reforms in the 1980s led millions of people to leave their villages and migrate to cities, the work unit system fell apart. Migration also had a secondary effect: Cities filled up with strangers and pianzi…It didn’t take long for the central government to start thinking about gamifying good behaviour”.
The shift to technological surveillance did not imply a rise in the levels of intrusiveness because the Chinese were already conditioned to surveillance. In fact, there was probably a reduction in the unpleasant human and bureaucratic aspects of manual surveillance. Manual surveillance has many drawbacks. Manual surveillance is centralised. It is blighted by information gaps, errors and tardiness. This leaves a lot of room for subjective decisions which often leads to abuse of power through manipulation (and falsification) of evidence and outcomes, corrupt practices and arbitrary decisions – all of which contribute to an environment of suppression.
In contrast, technological surveillance is distributed. It is transparent because more people have access to information. It is real-time and accurate. The increased efficiency and transparency allow the state to relax manual controls and to dismantle its bureaucracy. Data has greater weight in decision-making and this reduces the incidence of arbitrary and selective decisions. The electronic audit trails act as a safeguard that increase fairness. Importantly, the widespread ownership of surveillance devices (e.g. mobile phones) and social media provide citizens an avenue to highlight wrong-doings by high-ranking officials and their family members.
Mara Hvistendahl relates “the Chinese tech companies have, in their way, helped to shift the Party’s attitude toward digital technologies”. She relates the Communist Party initially saw the internet as a threat and responded through “censorship and other aggressive tactics. But companies like Ant Financial have shown just how useful digital technologies can be in gathering and deploying information. Instead of merely reacting to content by banning search terms or shutting down websites, the government now collaborates with the private sector on facial and voice recognition technologies, along with artificial intelligence research.” “For the Chinese Communist Party, social credit is an attempt at a softer, more invisible authoritarianism. The goal is to nudge people toward behaviours ranging from energy conservation to obedience to the Party.”
China has moved forward to integrate its surveillance capabilities with social credit. Rachel Botsman notes Chinese Ministry of Commerce estimates “the annual economic loss caused by lack of credit information is more than 600 billion yuan …China’s lack of a national credit system is why the government is adamant that Citizen Scores are long overdue and badly needed to fix what they refer to as a trust deficit. In a poorly regulated market, the sale of counterfeit and substandard products is a massive problem…if this particular scheme results in more effective oversight and accountability, it will likely be warmly welcomed.” Wang Shuqin points out that “without such a mechanism, doing business in China is risky…as about half of the signed contracts are not kept…Given the speed of the digital economy it’s crucial that people can quickly verify each other’s credit worthiness.”
New services, companies and industries have been spawned by surveillance data. Rachel Botsman notes China’s social credit could “lead to the rise of score advisers, who will share tips on how to gain points, or reputation consultants willing to offer expert advice on how to strategically improve a ranking or get off the trust-breaking blacklist…We’re also bound to see the birth of reputation black markets selling under-the-counter ways to boost trustworthiness”.
Mara Hvistendahl notes “Ant Financial launched a version of Alipay with a built-in scanner for reading QR codes…The codes linked the online and offline realms on a scale not seen anywhere else in the world…Ant Financial executives talked publicly about how a data-driven approach would open up the financial system to people who had been locked out, like students and rural Chinese”. In this regard, “in China, anxiety about pianzi, or swindlers, runs deep…one promise of Zhima Credit was identifying those who were. Companies can buy risk assessments for users that detail whether they have paid their rent or utilities or appear on the court blacklist. For businesses, such products are billed as time-savers”.
Several commentators remain distrustful of the intent. Samantha Hoffman dismisses claims a social credit system is needed to resolve trust problems. She argues “China’s social credit system is a state-driven program designed to do one thing, to uphold and expand the Chinese Communist Party’s power…There is nothing any liberal democratic society should even think about copying in the social credit system”. Rachel Botsman suggests “the government’s Social Credit System is basically a big data gamified version of the Communist Party’s surveillance methods…instead of trying to enforce stability or conformity with a big stick and a good dose of top-down fear, the government is attempting to make obedience feel like gaming. It is a method of social control dressed up in some points-reward system. It’s gamified obedience”.
These criticisms downplay the benefits of technological surveillance and social credit.
While building “Western-style” trust institutions may be a preferred route, it is difficult one and not many developing countries have succeeded even after decades of independence. In developing economies, ordinary citizens are often victimised by gangs, crooks and corrupt officials. The absence of Western institutions and credit processes also limits access to finance while the judicial system is not well established. In this regard, technological surveillance and social credit are low-cost, data-driven and efficient substitutes for institutional trust and justice.
My insight is that it is not surveillance per se but the information generated by surveillance that is the secret sauce to economic growth. In this regard, surveillance is the front-end of China’s efforts to capture and use information. China is going further than any other country to use technology and information in organising society and these efforts permeate daily economic life.
An example is “Shenzhen who have pioneered measures that infuse party rules with modern technology in enhancing their effectiveness and impact for a number of years”. William Zheng notes “Shenzhen established a Government Services and Data Management Bureau to handle big data collection and analysis…data sets covering populations and the economy…thematic databases that could empower officials who handled social disputes and public grievances…Shenzhen also launched its Weaving Net Project in 2013 under which it divided the city into thousands of data zones and designated an information collector to each zone. The system also uses 2 million surveillance cameras dotted about the city…Almost all criminal cases can be solved in 24 or 48 hours with the help of these technologies”.
William Zheng points out the use of big data to enhance governance is critical as Shenzen “had a large population but only a small number of civil servants…the government’s data platforms had accumulated more than 22.1 billion pieces of data about 20 million people, 3.6 million companies and 14 million properties…only about 40,000 civil servants in Shenzhen, of which about 25,000 were police officers…in 2013, Shenzhen was able to carry out predictive analysis of the public demand for education and health care services…helped the government to review its approval processes and streamlining of its organisational structure”.
Another application is the use of AI to fight corruption. Stephen Chen relates the Chinese Academy of Sciences and the Chinese Communist Party’s internal control institutions jointly developed an anti-corruption AI system dubbed as Zero Trust. It was developed “to monitor, evaluate or intervene in the work and personal life of public servants, the system can access more than 150 protected databases in central and local governments for cross-reference…to draw sophisticated, multiple layers of social relationship maps to derive behaviour analyses of government employees…detecting suspicious property transfers, infrastructure construction, land acquisitions and house demolitions…Once its suspicions have been raised it will calculate the chances of the action being corrupt. If the result exceeds a set marker, the authorities are alerted…at that stage a superior could then contact the person under scrutiny and perhaps help him avoid going down the road of no return with further, bigger mistakes…Some officials might fabricate data, but the machine can compare information from different sources and flag discrepancies”.
Stephen Chen notes the “Zero Trust experiment has been limited to 30 counties and cities, just 1 per cent of the country’s total administrative area. The local governments involved…are located in relatively poor and isolated regions…the idea was to avoid triggering large-scale resistance among bureaucrats…Since 2012, Zero Trust has caught 8,721 government employees engaging in misconduct such as embezzlement, abuse of power, misuse of government funds and nepotism. While some were sentenced to prison terms, most were allowed to keep their jobs after being given a warning or minor punishment”.
Naturally, there is resistance. Stephen Chen point out “some (local) governments…have decommissioned the machine…said they may not feel quite comfortable with the new technology”. “Some officials have questioned the machine’s right of access to sensitive databases because there is neither a law nor regulation authorising a computer or robot to do so. No wonder the system is being decommissioned…those still using it are facing enormous pressure, with the researchers seeing little or no hope of rolling it out nationwide”.
China is also addressing issues relating to data quality and integrity. M.E. Strickland notes “the Chinese government has long been enamored of metrics of all kinds. Officials have been judged by whether or not they hit certain quotas, whether for GDP growth or population control. Numeric targets are declared for whole industries. Great store and pride is set by indices and international rankings…China has issues with data transparency”. Much data is classified or inaccessible, “leaving critical blindspots in our understanding of the country…the data that actually does get published is often just as problematic. China’s GDP figures are famously man-made…When a government invests so much interest in quotas and metrics, it also gives itself an interest in obscuring them if they prove less-than-ideal”.
However, they appear to be facing up to these challenges through initiatives to root out fraudulent data. Sidney Leng notes “Beijing plans to amend its toothless statistics law to hold top local leaders, mayors and governors, accountable for cheating. Local statisticians as well as regional executive leaders will be punished by sacking if found to have provided fraudulent data, according to a draft amendment of the law….The draft…also said the government should apply modern technology, such as big data, cloud computing and artificial intelligence to help compile reliable statistics across the vast country of 1.4 billion people”.
Overall, China’s state surveillance model demonstrates economic growth can be achieved by collecting information extensively (surveillance) and organising activities effectively (state). The integration of technological surveillance into the core of its ecosystem reduces the costs of capture, improves data reliability, improves participation (access), broadens reach and applications (connectivity and ecosystem), reduces information asymmetry, strengthens community trust and facilitates self-organisation. Ecosystem expansion increases the opportunities for monetisation and exchange which is extremely positive for economic growth. In addition, transparent audits of behaviour can neutralise the disadvantage of inequality by ensuring the rich and powerful are subject to the same rules and discipline.
Technological surveillance and social credit are proving to be practical alternatives to Western trust institutions as a means of addressing information asymmetry and achieving social fairness. China’s surveillance state model thus provides developing countries a cost-effective way of leapfrogging industrial and institutional development. In this context, the information ecosystem can be centred around the smartphone. The smartphone acts a cost-effective tool to anchor the identities of individuals, to give them access to finance and to enable them to own and trade assets. In this regard, I earlier hypothesised “the value of individuals is enhanced by more information…poor people lack identity (e.g. even an address) and are unable to generate value…Overcoming poverty requires not only providing individuals with identities but also by ensuring they are endowed with assets (property, education, health, access and opportunities)…development strategies should adopt a human-centric approach by focusing on the organisation and use of information to improve the value of human capital and to let economic development take care of itself”.
It is evident that China’s state surveillance model is starkly different from the Western model with its emphasis on individual privacy rights and private markets. The different approaches to managing information is a growing source of geo-political tension.
My view is that many Western institutions and rules on information were designed during the industrial era. They were designed to overcome information asymmetry and to protect privacy in a low-information environment. But the objectives and safeguards relevant to a low-information environment are redundant in a high-information environment. Hence, the Western model is struggling to cope with information disruption – which requires the discarding of existing rules and objectives and their replacement by new regulatory models. If the West is unable to discard legacy information practices and beliefs, it may end up with a raft of information regulations that end up strangling data-driven economic advancement.
In contrast, China is seemingly moving ahead because it is not constrained by legacy beliefs. China is willing to experiment and disrupt traditional models by expanding the use of information and technology in all aspects of a citizen’s life. Recently, Chinese President Xi Jinping set the tone by highlighting the important role of blockchain “in the next round of technological innovation and industrial transformation” and declared China’s aspiration to become a world leader and rule maker in the field. Jane Cai notes that “more than 500 blockchain projects have been registered with the Cyberspace Administration of China…most relate to financial applications like trade finance, asset management and cross-border payments…though there are also dozens of government-led initiatives and schemes, in areas ranging from communications to land development. In addition, Mu Rongping highlights blockchain is likely to become a key feature in China’s future governance. He points out “China has been conducting governance modernisation for two decades – from the digitalisation of information to the utilisation of big data and artificial intelligence…The potential is huge for the use of new technologies, such as in areas of public security, public transport, crime investigation and anti-corruption campaigns”. Other areas where blockchain are being applied includes redevelopment projects, forestation, public service centres, floodway construction and e-proof cloud platforms (for prosecutors) . Hence, data-driven methodologies are at the core of China’s development approach.
It is likely the two models will continue to evolve along separate paths rather than converge. Western societies are built on a philosophy of individual privacy rights. The concept of a surveillance state evokes feelings of repugnance and critics will outrightly oppose any notion of using surveillance for any economic purpose.
Unfortunately, the growing tensions have led to the prominence of national security concerns which are now dictating the future paths. National security concerns, by their nature, are highly restrictive and confrontational. Already, actions have been taken to restrict information flows (i.e. access to data, talent, research and intellectual property). While efforts to decouple technology can be attempted by evolving different standards and cutting off connectivity via firewalls, it will prove difficult to decouple data, ideas and algorithms and to isolate judicial decisions, social credit ratings and content from spillover effects across borders.
In the absence of convergence, there is little choice but to watch the two systems to evolve along different paths to see which works better or what works. China’s state surveillance model will face many challenges. Over time, China’s citizens will demand greater access to information and freedom of choice. Can and will the state maintain authoritarian control in a high-information environment? More information means more disputes. China will need to evolve rules and due processes to promote transparency, fairness and choice. In doing so, will it be able to escape the trap of over-regulation that envelops most Western economies, be tempted to revert to (authoritarian) type or find a new way out? Information-driven growth benefits from an autonomous environment but leaves a moral vacuum. What values or beliefs would China rely on to ensure society is cohesive and cooperative? Ultimately, the impact of state intervention and surveillance will dependent on how information is used and we can judge then whether the West’s wariness on China’s state surveillance model is justified.
Overall, China’s state surveillance model is not the finished product. In this context, what is important is not what the model was or is but what it could be in the future. In my view, it is China’s surveillance state model rather than the Western model that is the testbed for the transition to a full-fledged information society. It can be said that China has chosen to disrupt rather than adapt the Western model. Admittedly, China still has to address severe shortcomings in relation to transparency, rule-making, dispute resolution and choice. The hope is that China will find a pathway to the information society that would transform the surveillance state into a positive force for community organisation and economic growth and avoid being the authoritarian dystopia feared by many.
Alvin E. Roth (November 2006) “Repugnance as a constraint on markets”. NBER. https://www.nber.org/papers/w12702
Associated Press (19 November 2019) “US failing to prevent China stealing research, congressional report says”. https://www.scmp.com/news/china/diplomacy/article/3038369/us-failing-prevent-china-stealing-research-congressional
Cary Huang (1 December 2019) “China’s miracle economy has a secret ingredient: cooked GDP books”. SCMP. https://www.scmp.com/week-asia/opinion/article/3039987/chinas-miracle-economy-has-secret-ingredient-cooked-gdp-books
Emily Birnbaum (18 November 2019) “GOP senator introduces bill to limit flow of US data to China”. The Hill. https://thehill.com/policy/technology/470860-gop-senator-introduces-bill-to-limit-flow-of-us-data-to-china
Enrico Moretti, Claudia Steinwender, John Van Reenen (November 2019) “The intellectual spoils of war? Defense R&D, productivity and international spillovers”. CEP Discussion Paper No 1662. http://cep.lse.ac.uk/pubs/download/dp1662.pdf
Jane Cai (2 December 2019) “Will the China of tomorrow run on the technology behind bitcoin?” SCMP. https://www.scmp.com/news/china/politics/article/3040132/will-china-tomorrow-run-technology-behind-bitcoin
Jane Zhang (4 October 2019) “In Chongqing, the world’s most surveilled city, residents are happy to trade privacy for security”. SCMP. https://www.scmp.com/tech/policy/article/3031390/chongqing-worlds-most-surveilled-city-these-residents-are-happy-trade
M.E. Strickland (19 September 2019) “The quantified country”. Supchina.com.
Mara Hvistendahl (14 December 2017) “Inside China’s vast new experiment in social ranking”. Wired. https://www.wired.com/story/age-of-social-credit/
Mark Magnier (20 November 2019) “FBI and US Senate raise alarm over China’s recruitment of US scientists”. SCMP. https://www.scmp.com/news/china/politics/article/3038491/fbi-and-us-senate-raise-alarm-over-chinas-recruitment-us
Nicole Kobie (21 January 2019) “The complicated truth about China’s social credit system”. Wired. https://www.wired.co.uk/article/china-social-credit-system-explained?utm_source=More%20Stories&utm_medium=internal
Phuah Eng Chye (31 August 2019) “Information and development: The information path to development”. http://economicsofinformationsociety.com/information-and-development-the-information-path-to-development/
Phuah Eng Chye (28 September 2019) “Information and organisation: Introduction”.
Phuah Eng Chye (12 October 2019) “Information and organisation: Shades of surveillance”. http://economicsofinformationsociety.com/information-and-organisation-shades-of-surveillance/
Phuah Eng Chye (26 October 2019) “Information and organisation: Cross border data flows and spying”.
Phuah Eng Chye (9 November 2019) “Information and organisation: China’s surveillance state growth model (Part 1: China’s state model)”.
Phuah Eng Chye (23 November 2019) “Information and organisation: China’s surveillance state growth model (Part 2: The clash of models)”. http://economicsofinformationsociety.com/information-and-organisation-chinas-surveillance-state-growth-model-part-2-the-clash-of-models/
Rachel Botsman (21 October 2017) “Big data meets big brother as China moves to rate its citizens”. Wired. https://www.wired.co.uk/article/chinese-government-social-credit-score-privacy-invasion
Ryan Swift, Finbarr Bermingham (5 November 2019) “China’s social credit system for business creates new and complex headaches for EU trade officials”. SCMP. https://www.scmp.com/economy/global-economy/article/3036445/chinas-social-credit-system-business-creates-new-and-complex
Sarah Dai (15 May 2019) “How 9/11 and China’s plan for blanket surveillance created a wave that CCTV camera makers Hikvision and Dahua rode to huge success”. SCMP. https://www.scmp.com/tech/gear/article/3010312/how-9/11-and-chinas-plan-blanket-surveillance-helped-hikvision-and-dahua
Stephen Chen (4 February 2019) “Is China’s corruption-busting AI system Zero Trust being turned off for being too efficient?” SCMP. https://beta.scmp.com/news/china/science/article/2184857/chinas-corruption-busting-ai-system-zero-trust-being-turned-being
Sidney Leng (25 October 2019) “China plans to tackle fraudulent data with harsh new penalties for local leaders and the help of AI”. SCMP. https://www.scmp.com/economy/china-economy/article/3034617/china-plans-tackle-fraudulent-data-harsh-new-penalties-local
William Zheng (1 November 2019) “Chinese city of Shenzhen is using big data to become a smart, socialist model city”. SCMP https://www.scmp.com/news/china/politics/article/3035765/chinese-city-shenzhen-using-big-data-become-smart-socialist
Yasha Levine (6 February 2018) “Surveillance valley: Why are internet companies like Google in bed with cops and spies?” The Baffler. https://thebaffler.com/latest/oakland-surveillance-levine
 Enrico Moretti, Claudia Steinwender and John Van Reenen notes that in the OECD, expenditures for defense-related R&D represent a key policy channel through which governments shape innovation, and dwarf all other public subsidies for innovation. Yasha Levine provides a historical account of the dual-use origins of the internet which was rooted in intelligence gathering and war.
 “Information and organisation: Shades of surveillance”.
 See Rachel Botsman.
 See Nicole Kobie.
 See Cary Huang.
 “Information and development: The information path to development”.
 “Information and development: The information path to development”.
 “Information and organisation: Introduction”.
 This paragraph is based on the article by Jane Cai.
 See Alvin E. Roth’s suggests that “markets that are repugnant today that once were not…and there are markets that are not widely repugnant today that once were”.
 See Emily Birnbaum.
 See Mark Magnier.
 See Associated Press.
 See “Information and organisation: Cross border data flows and spying”.
 See Ryan Swift and Finbarr Bermingham on the spillover effects from China’s social credit system.