135. China: Business Partner Or Security Threat?

0:11Hello and welcome to The Rest Is Money with me Steph McGovern and I am delighted to see one of my former colleagues from the BBC, Gordon Carrera is with us, security correspondent, of course, covering all kinds of topics, terrorism, cyber security, spy and all of that. And now the host, co-host of The Rest is Classified with David McCloskey. And I know I've joined the Rest is family. So it's great to be part of it. And it's fascinating, your podcast, because you really go into all those kind of conspiracies we love to talk about. And I mean, there's loads I want to get into with you, particularly what's going on with China.

0:50It's something that Robert and I are talking about all the time at the moment in terms of investment and spying, the tariffs with Trump. There's loads to get into. Before that, though, I want to take you on a trip down memory lane because this was a long time ago now. It was about, God, it must have been about 15 years ago. I rang you for your help on something because at the time I was Robert's producer. I was in my 20s. I'd been on a night out in Soho. Oh, yeah. I like that. Oh, yeah. And I'd had my mobile nicked, right? Yeah. Nightmare, but didn't think much of it. It was a flip phone. It was an old Nokia flip phone.

1:29Anyway, a couple of days later, I'm with my mum and dad. Dad's phone rang and then my mum's phone rang. He didn't get to it in time because parents seemingly never do manage that. And I was like, someone's ringing your phone. this is weird because it's normally only me who rings your mobile phone particularly back when mum answered it suddenly heard her going yes okay yes i'm with my daughter that's my daughter blah blah blah and i was thinking what is going on she hands me the phone and it is a police officer who is he tells me from the counterterrorism unit and he's saying to me i need to ask you some questions about your phone and i'm like hang on a minute who are you like you're on my mum's Mobile?

2:09This is a scam. And instantly my financial scam dog is going off in my head. Anyway, it turns out it is supposedly from the counterterrorism unit. This guy tells me that he's rang ma 'am and dad in the phone, in my phone, because if it was a terrorist phone, that might be like the code name for someone important. I mean, it does sound really far fetched. And I came off the phone and I was like, this is rubbish. This is total rubbish. I don't get this. Because they wouldn't give me any of their details. Yeah, because it's counter-terrorism. They're very secret about it. Someone will be in touch in a couple of days.

2:45And I was like, nah, I'm not having it. So I went to the local police station and went in and said, this has happened. And they said, oh, yeah, that just sounded a bit unusual. Then they went off into the back room and came back and said, no, we can't get involved in this. Just wait until you're contacted. Well, suddenly I felt like I was in a James Bond movie. Because I was like, what has gone on? and they I did get contacted again and this person on the phone tells me we have reason to believe that a suspected terrorist has boarded tried to board a flight at Heathrow and they had your phone on them and so and we need you to come to the station to give a statement and I'm like I what what do you want me to say in the statement what do I know yeah they said can you come and meet us and actually maybe if we meet at rather than at the police station if you could meet us in this pub it'd be a bit more relaxed and i'm like again my little spiny senses are going this is dodgy ass at that point robert peston uh says to me why don't you ring frank gardner or gordon carrera and you know securities correspondence and ask them what to do i rang you i think you thought i was a bit mad yeah and um you said to me go just get take as many this is really interesting take as many notes as you can so again my journalist was like right i'll take my mate with me and then got to the station because i'd said i'm not meeting at a pub like that just feels really like weird and then they said oh no we were just trying to make it easier for you so you didn't have the kind of intimidation of coming into a station and all that i wasn't sure about that anyway went to the station gave this statement was all excited to find out what the rest of the story was and it was just that was it they never they never told you anymore so that's very interesting so firstly I think it feels like we should be doing an episode of the rest is classified investigating the story of that mobile phone and what the mystery of what happened to it yeah it does sound strange I mean I guess maybe it was useful for them to be able to get that crime report for you to hold the guy because often they have suspects and they need to investigate them and they don't know what they can charge them with or if there's something they can charge them with So if they had that, then, you know, that might have helped them.

4:57But it does make you wonder. I mean, sometimes there's an overlap between criminality and terrorism. So you might have had a load of stolen phones or stolen phones and be shipping them and using that to fund terrorism. You sometimes used to see stuff like that. But yeah, it's a good mystery. Anyway, we're not used to talk about that. Without your phone, what we can do. Yeah. So obviously everyone's talking about China at the minute. Yeah, they should be. Yeah, and it's really fascinating. I mean, it's coincidental. It's Chinese New Year. It's the year of the snake, isn't it? And I think, you know, it's really interesting, particularly in the last couple of days, DeepSeek.

5:31So we've talked a lot on this show about NVIDIA. They're kind of, you know, this business that's brought out these AI processing chips. It's absolutely stormed the market. There was no beat in them, or so it seemed. In everything we use, obviously really important for AI, absolutely flying on the stock market. And then DeepSeek, this little company no one's really been talking about, apart from Peston will be screaming if he's listening to this. I've been talking about them for ages. They come out and they've developed something to rival ChatGBT that is using fewer NVIDIA chips and therefore NVIDIA's stock tanks.

6:13By$588 billion in a day. I mean, that's about money to lose in a day. It kind of tells you something big's going on. Yeah. But now there's a kind of talk of they've done this fire industrial espionage. What are they going to do with this? Go on, give it your favor. No, no, you're right. There's some questions about espionage, but there's also some questions about, you know, how did they actually do it? There's still some mysteries around it, but there's no doubt this is a shock to the US. and it's a shock because AI is really now at the forefront of national security worries as well as economic worries.

6:51And I think what you can see and why it's great to be on this podcast is kind of national security and economics and business increasingly merging. It's something we've seen in the last five, ten years. You know, they used to be kind of separate and would only occasionally kind of meet each other. Whereas these days, especially over China, it's becoming kind of more and more intertwined, those two subjects. and the race over AI is perhaps the kind of best example of that. There are other examples as well, but AI is a big one because whoever gets their first, whoever gets their fastest, they get massive economic advantages, might be able to kind of keep that first mover advantage and lock it in, but they also get kind of national security advantages to it as well.

7:33You know, and economic power is security power, but also there's specific ways in which it feeds international security, the things you can do with AI in the military domain, in the cyber domain, in terms of influence operations, all these things mean AI is at the kind of forefront between that kind of rivalry between the US and China. And I think, you know, people have talked about DeepSeek being a kind of Sputnik moment. You know, the reference being to when the Soviet Union launched that first satellite into space, you know, and the US had thought in the Cold War it was ahead in technology.

8:05And suddenly it goes, hang on, we're not. Now, I'm not sure it's quite, you know, the same as that, but it's close, I think, the kind of shock that the US had thought it was ahead. It was convinced that its restrictions on chips going to China had made a difference. And it was convinced, you know, it had the science, the innovation to keep it ahead. so suddenly this idea that it may not be and you know how far that's true still a bit early days I think is a shock to the security establishment you know as well as the business establishment that really matters it's really interesting timing as well of course isn't it because obviously Trump's just back in do you think that there's a reason this has happened now as in they were waiting for Trump to come back in for him to you know whack on again you're coming back with 60 percent tariffs or whatever and they've had this ready to go and they're like ha look we can bring down you know your top companies we're in the race with you yeah not really clear if because it's not really quick clear how far deep seek are kind of how close they are to the state and that's always a question with chinese companies that's a good point and you know they've actually been a bit more below the radar than some of the other big chinese companies you know who are more closely associated.

9:25So I think that's hard to say. Definitely a kind of big questions about the Biden administration policy. I think this issue of chips is the big one, because that's, you know, within videos, what it comes down to is the idea that the US thought it restricted some of the high end chips going to China, and that that would slow down their AI development. Instead, China has shown it can innovate, it can use open source, maybe it can use some US research and, And, you know, piggyback off that. That's one of the big questions. And maybe it's found ways to get around those restrictions. You know, it's stockpiled some of those chips early.

9:58Maybe it's found other ways to get hold of some of the chips. So there's a kind of policy question for the US and for the Trump administration, which is, can you restrict China or by restricting it, are you just pushing it to innovate faster in new ways? How is the Trump administration going to play that race? The Biden administration have one plan. And I think a lot of people think, well, what Trump might do, because he's close to all the tech bros, as they call them. Tech bros, my God. The Trek bros, you know, the kind of Elon Musk of this world. It sounds sort of like fraternity, doesn't it?

10:28It does. And I think it is a little bit, all bros. You know, he might go, OK, we need to beat China. That would be the Trump way. Yeah. Unleash them. You know, go for it. And I think, you know, one of the interesting things that some people worry about is that the kind of race between the US and China will lead to a kind of no interest in regulation. from the US administration because they just want to beat China. So they'll just say, go for it, do whatever you want, not much worry about safety of AI development or anything else because all the emphasis will be on the national security priority of beating China.

11:02And I think there's a lot to look at there for how DeepSeek is going to kind of play out with that debate in Washington and what it will mean for kind of not just what kind of AI, but how much regulation there is out of it from the Trump administration. Yeah. And that's when that kind of race, as you say, with not much regulation could mean AI could easily be used for bad. Yeah. And I think, you know, these open source models, you know, and DeepSeek is an open source model, which means the code is available to other people to use. You can, you know, use it to make your own applications and things like that.

11:34You know, the worry is that that has big national security implications because the potential is other states can use it. Criminals can use it. You know, people can use it to develop biological research, to develop drugs. But you could also use it for biological research, develop weapons. So, you know, there are really big questions about the kind of unleashing of that AI without regulation or with what kind of regulation. Yeah. And then at the same time, you've got everything kicking off with TikTok as well. And I know this is something you guys did a whole episode on. It's fascinating to hear that.

12:06You should watch it. Sorry, watch and listen. You can watch and listen. It's the weird thing about this podcast land now. But yeah, it's a brilliant episode. You should definitely watch, listen to that. So I'm really interested in this because obviously TikTok, as your co-host David talks about, he watches hippo videos and things like that. Doesn't he? Amongst other things. I loved hearing that. He's like a former CIA turned spy novelist who watches hippo videos on TikTok. I mean, we all have to relax somehow, but that's clearly his way. Not mine, I'm afraid. It's interesting this because obviously Trump hated it to begin with, didn't he?

12:38And then Biden came in and ended up banning it, which only lasted for a couple of days before Trump came in and reversed that. And it's something massively used in America, isn't it? I think you guys, is that a third of adults in America use it now? Yeah, for news and information. Yes. But obviously the concern is around the fact that TikTok is owned by ByteDance, which is a Chinese company. What is the big issue with TikTok here? You know, for those people who are listening to this, who are like, whether they or their kids use TikTok and they're doing daft videos and everything else, what's the fascination?

13:13Yeah, should they worry about it? Yeah. And it is interesting because before DeepSeek, TikTok, you know, just a couple of weeks ago was the kind of national security worry when it came to China. It just shows you how quickly things move. So TikTok, I think, is really interesting because, you know, there is this kind of simple question people ask, which is, is TikTok spying on you? It's not really, it's actually a lot more complicated, I think, the threat. And it goes again to the bigger questions about the US and China and security and business. Because there are a couple of layers to it. One is, is TikTok collecting data?

13:45You know, does it collect your personal data? And the answer is yes. But also in the way that lots of other apps, social media apps, so does Facebook, so does Instagram, so does, you know, X, Twitter. You know, that's their business model is to collect data on you to sell advertising, as we know. One of the issues about TikTok is, though, that should we care about that data going to China? Now, most people will not be worried about when they're watching their hip-hop videos. Or hip-hop. Or hippos doing hip-hop. Maybe. But they won't worry about that. You know, do you care? And for the average person, it doesn't.

14:18Although in the aggregate, all of that data going to a Chinese company is quite valuable for the insights you can use to mine it about people. Behaviour. About behaviour, about social behaviour, to train your AI on that kind of data, going back to AI. So there's value in that data beyond it being used to spy on you individually. But as I said, that may also be true for other companies as well. But it's the issue of the nationality of the companies. Do you trust Chinese companies? And China has a national intelligence law which says Chinese companies have to give data to the state if they demand it.

14:56Now, TikTok is very clear. It won't do that. It keeps its data outside of China, keeps it in the US, keeps it in Singapore if it's American, different for different countries. So, you know, they deny that there's any risk to data, but there is that kind of data risk. I think the more interesting and the bigger question with TikTok is actually to do with the fact that it's become the primary source of news and information for people. Yes. The fact it has a very powerful algorithm which recommends people more information. And that's what makes it so good. That's its secret source is that algorithm which drives people to more content, which is useful and which they find engaging.

15:32And the question is, could that be used to shape people's views? Yeah. Could you use it to restrict what information people see? And, you know, in our podcast, David was talking about this idea of cognitive warfare. Yes. Fascinating. Sounds quite dramatic, doesn't it? And it sounds like explains it. But yeah, it's basically you don't necessarily just fight wars with, you know, with with armies. you can fight it in people's minds. You can imagine situations in which you could sow more division in a country that you were trying to disrupt or you could restrict the ability of another country, let's say, to know things about Taiwan or Tibet or issues which are sensitive to China or to push certain narratives or viewpoints through what's effectively a secret algorithm.

16:17Now, TikTok, we should say, absolutely denies it does this and there's no evidence at the moment that it does. It's the potential. And I think that's one of the things that worries people is that as people become more dependent on TikTok as their primary source of news and information, which it is for a lot of people in America, particularly younger people, the ability to use that to shape their views and understanding of the world is pretty powerful. Now, you could say Meta, Facebook, Instagram can do that as well. And you can see them tweaking their algorithms to turn what content people can see.

16:53You know, they're limiting the fact check, allowing more misinformation to go up, part of what they say is free speech. So you can see it's possible for that algorithm to be manipulated to change what people see. Again, the issue is how comfortable are people being dependent on a company which is linked to China for the bulk of their news and information? What are the implications of that when there is a rivalry and adversity and potentially even a conflict between the US and China? That's the question. Yeah, because obviously we saw around the elections and things in various countries that there was a lot of debate about how much people were influencing their voting by what they saw.

17:33And by TikTok, you know, and there's some European elections. I think, you know, it was at Romania. There's been a few where people have said, you know, TikTok played a really powerful role. Now, that was people using TikTok. But the sense that it has that power, you know, is real. So again, it's a question of dependency. And I think this is the really sensitive thing for the US, which has been so used to having the lead in technology companies, for its social media giants to be the ones the rest of the world is using. To suddenly be dependent on China is difficult. And remember, one of the interesting facts is that Western US social media companies are not allowed in China.

18:07So China won't let Facebook, Instagram, X operate in China, but TikTok is operating in the West. And so you can see why... But not in China. They have a different version in China with slightly different algorithms. So you look at that and you can see why if people are looking at it from a national security point of view, They're like, is this a dependency that we're comfortable with or is this a national security threat? It's more complicated than spying, if you like. It's not really about spying. It's more about risk and potential of what could happen. Yeah, you guys describe it. It was really amazingly put.

18:43It potentially could be a weapons delivery system in a cognitive AI battle. Yeah, exactly. And when you think of it like that, you suddenly go, I mean, it made me suddenly question what I am looking at online. You do, don't you? There is loads more I want to ask you, Gordon. So sit tight while we have a quick break.

19:05Can we talk about then the kind of form and why we're so worried about China? Because obviously the other big story was around Huawei and what they were doing in terms of using tech to somehow be spying on us and things like that. And everybody went crazy about that, didn't they? There was loads of time and money spent on taking the products apart. And I mean, it was, you know, for the UK was really caught in the middle between the US and China on that. And I think it's a really good case study for some of the questions that come up, you know, with Chinese investment and as Chinese technology companies get bigger.

19:40And, you know, the thing about Huawei is it was the first Chinese company to go global and where other countries were suddenly finding themselves using Huawei Kit. becoming potentially dependent on it again in a very sensitive area, which is telecoms. And again, it wasn't that there was evidence that Huawei was spying or that there were backdoors. It was the potential for it. It was about the dependency, the possibility that the data could be going to China and that it would be hard to spot. And that potentially if your entire telecoms infrastructure, through which you rely on everything else, runs off your telecoms infrastructure, you know for data and and for connectivity if that is in chinese hands does that make you dependent on china and then able to exert influence over you because you know they could switch you off and it was really interesting because i covered it in a lot of depth at the time and britain thought it had found a middle way and i think this is what's really interesting the uk thought it had found a middle way where we had huawei in our telecoms infrastructure long story how it came in.

20:44It was a deal with BT who thought it was cheaper and it was cheaper. And then they suddenly went, oh, there are some security risks to this. And then they then had to retrofit some security around it. And Britain then put a kind of wrapper around Huawei where they had a fascinating place in Banbury, which I went to, where they inspected the Huawei kit to look for secret backdoors, the code, but also the physical routers and devices and switches. And Britain thought, right, we've got a position where we've got it in our infrastructure but we can inspect it we can be comfortable with it this is a way of dealing with the risks of globalization and of Chinese investment and having the cheaper kits but not having the security risks and the US came along and said uh-uh you know basically we are not happy with you having that we are not happy with one of our closest allies having that Chinese kit in the system we want it out and they squeezed the UK hard and you know They took various measures.

21:40They made various threats. They cut off again chips, chips applied to Huawei, which then made it harder for the UK to assess its security. The US dialed it up. And in the end, the UK had to basically fold and go in with its ally in the US. And that was an example where if you have got growing US-China tension, it is hard to be in the middle. You know, and I think, you know, this is a big question for this government, which is currently looking for investment from China. Rachel Reeve's going to Beijing now, you know, which areas it may not be in nuclear and telecoms and some of the more sensitive areas.

22:15So it's different for different areas. But you've got that you've got that drive from the government. If you've also got a Trump administration which wants to turn up the dial on China, then then there's you can see that those tensions that were there over Huawei, they could come back again. over different industries and over different questions. Do you know, it's got very Traders vibes, this, isn't it? It's like trying to work out who's the faithful and who's the traitor out of all of these different Chinese companies. We had Gerard Lyons on the show a few weeks ago, obviously an economist on the board of the Bank of China, very big into talking about the positives that could come from investment from Chinese companies into the UK.

22:56And obviously, you know, we haven't got any money. We keep talking about this big black hole. We need better infrastructure. we need investment and all of that jazz and as you say rachel reeves is doing the rounds at the minute trying to drum up that are you worried about what they might invest in that you know we're talking about heat throw at the moment and the chinese have a stake in heat there's like there's yeah and i know they've rode back a bit we've talked about that on another episode about pulling back on some of the areas you've said like nuclear telecoms and things but what what What are your thoughts on it?

23:26Well, I think even the most hawkish people would say security worries should not stop you dealing with China. And one of the things, you know, the Biden administration was hawkish on China, but we're still sending the Commerce Secretary out to China to do the business. So, you know, the US, you know, we shouldn't think that actually worrying about security means you shouldn't do business for China. It just means being discerning, I think, about where. And I think that's the difficult issue, is trying to work out where are the areas where you'd worry about being dependent on China, where they might have a kind of influence or coercive control.

24:02Where are the areas where it's sensitive national security technology? And in the old days, that was simple because you just go, it's the defence industry. But now, it's not anymore because security and business are merging and it's anywhere with data. And with large amounts of personal data or business data, how sensitive should we be about that? So that's, you know, I think there's a new category of businesses where in the old days, as I said, defence and critical industries, you'd go, let's keep foreign or adversarial ownership out of that. But which ones are critical? Where data and it's often not ones which look critical, which hold large amounts of data, which could be useful to China.

24:42And how should we feel about that? So I think rethinking where those boundaries lie and going anything outside of those kind of sensitive areas, they shouldn't you know, no one should think there's a problem with with that. I think there's also kind of question about whether whether it's good for us to kind of disentangle ourselves, the West from China. Or whether that actually raises the risks of conflict. Because a lot of people would say, some people who are in favour of engagement, and I've heard George Osborne say this, for instance, that actually you want to have both sides having skin in the game.

25:16Our economy's being, if you like, entangled, because then it makes it less likely that there'll be a conflict. Yes, because they're relying on you. They don't want you to tank. Neither side wants the other to tank. But other people say, well, if you look back at history, the economy was very globalised before the First World War and it didn't stop countries going to war. You know, business and economic reasons don't always trump nationalism and security. It's so interesting, though, as you've explained, that kind of how you work out what's sensitive and what isn't. So we did a series about children's homes being owned privately.

25:49And there's a lot of kind of, for example, Saudi money in children's homes here. And even like in the northeast, there's a lot of Saudi money in the football club and the chemicals industry and things like that. And it's like looking at the lesser of evils in some way. And then you think, well, what's sensitive and what isn't? For example, the money spent by local councils on things like children's home, and that's totally killed our public finances and things like that. I don't know how you work out what's useful foreign money and what isn't. Because essentially, everyone is trying to profit from us, aren't they?

26:25They're not doing it out of the good of their heart. And sometimes it's just profit. Yes, and sometimes it's power. And sometimes it's power and influence. Yeah, whitewashing. Yeah, reputation washing or things like that. And you see that a lot with countries and companies sometimes doing that. So I guess it's just being alert to that. And I think the problem is the more desperate the economic situation in the UK looks, the more likely you are to turn a blind eye to it. But then there are risks down the road to that. And I think it's really difficult because I think if all you did was listen to security hawks in government or in the spy services, then you wouldn't have economic growth and you'd have all kinds of other problems.