Corporate crisis management under the new cold war between U.S. and China

Izumi Harada, Chairman, Crisis & Risk Management Society of Japan / Executive Fellow, Institute for International Socio-Economic Studies

Soon after the Biden administration came into power, it shifted away from the policies of the previous administration to steer more towards international cooperation. Despite this shift in policy, however, the so-called New Cold War appears to continue between the U.S. wanting to maintain its superiority and China vying to take over that position. Although the two countries need to cooperate in tackling climate change and other global issues, the rift between them shows no sign of abating as they stand at odds with each other on human rights and national security issues. The U.S. fears that China would leverage civilian technology for military affairs through its Military-Civil Fusion strategy, threatening America’s military supremacy. Apart from international regimes, therefore, the U.S. is independently moving towards bolstering control particularly of emerging technologies that have the potential to change the future military technology systems, such as artificial intelligence (AI) and quantum computers, of semiconductor and other core technologies encompassing a wide range of industrial infrastructures including for the defense industry, and of ICT, cybersecurity technologies, and technologies related to space, aviation, and submarines. It is threatening to impose strict penalties and regulations against breach of sanctions and violations, even against allied countries. Clearly, there is mounting peer pressure towards maintaining economic security to achieve national security by using the economy.

China, on the other hand, has come up with lists called “safety list” and “trusted list” that include companies and products recommended for government procurements. This means that only products of companies that the government considers safe will be allowed for distribution within China.

Many Japanese companies have close economic relationships with both the U.S. and China. These regulatory and political pressures from the two countries, therefore, force Japanese companies into a dilemma wherein their loyalty to either the U.S. or China is being put to the test. This is seen to have a major impact on various aspects of their business, including joint R&D, sales, and production activities with China. As a result, companies may even be forced to separate their Chinese and Western operations within the company. If employees come in contact with sensitive in-house information on either country, they could be implicated in data breach, thus, even concurrent positions for corporate officers must be reexamined. These developments seem to signal the return of the “CoCom,” short for the Coordinating Committee for Multilateral Export Controls, which was established during the Cold War between U.S. and Russia.

To respond to this situation, Japanese companies conducting business in domains related to both the U.S. and China need to build a crisis and risk management structure anchored on economic security management. For this purpose, companies must appoint a Chief Security Officer (CSO) and a Chief Risk Officer (CRO) to manage crisis and risk management under the office of the Chief Executive Officer (CEO) and handle the responsibilities for implementing company-wide security and economic security measures.

Companies also need to conduct research on systems and regulations surrounding the U.S. and China, analyze changes and predict future trends in their situations, and establish a special department for economic security to leverage those analysis and prediction results in their business strategies. Through this specialized unit, companies should determine their proprietary intellectual properties and technical intelligence that need to be protected in relation to Japan-U.S. national security matters, and secure cybersecurity and other security technologies to maintain the confidentiality of those assets. Also, companies should establish qualification schemes (security clearances) for employees handling sensitive information as well as systems and organizational structures to prevent espionage and reconnaissance activities, while properly ensuring the protection of human rights. Moreover, they must collect and analyze relevant information by carrying out information exchange with domestic and overseas intelligence agencies and investigative authorities. Major corporations may need to hire former members and affiliates of relevant organizations in Britain and the U.S for this purpose. In the future, companies would also need to provide proof that the products and data services they are using are not intentionally embedded with backdoor devices and reexamine their supply chains to prevent data breach overseas.

In response to the emergence of problems related to the leak of cybersecurity and sensitive nuclear technologies that can be diverted for military purposes, the Japanese government established an economy unit specializing in economic security within the National Security Secretariat of the Cabinet Secretariat in April last year.

Going forward, I would like to see both the government and private companies enhance their economic intelligence functions as described above, deepen their bilateral cooperation, and pursue unified public-private initiatives in economic security.