Cybersecurity & Tech

Lawsuits Demand Compensation From China for COVID-19; U.K. Reconsiders Huawei’s 5G Role

Richard Altieri, Benjamin Della Rocca
Friday, April 24, 2020, 2:33 PM

Lawfare's biweekly roundup of U.S.-China technology policy news.

Missouri Attorney General Eric Schmitt, who recently brought suit against China for its handling of the coronavirus pandemic. (Source: Flickr/Office of Missouri Governor)

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A Flurry of Lawsuits Demand Compensation From China for COVID-19

In recent weeks, U.S. federal courts have seen a wave of lawsuits seeking compensation from China for losses incurred as a result of the coronavirus pandemic. While experts say that efforts to hold the Chinese government liable in U.S. courts will most likely fail, the suits provide a window into the growing efforts by American officials and private parties to hold China accountable for the crisis.

On April 21, Missouri filed a civil suit in federal court against the Chinese Communist Party (CCP), the governments of Wuhan and Hubei province, various ministries of the Chinese government, the Wuhan Institute of Virology, and the Chinese Academy of Sciences. The suit alleges that during the early stages of the pandemic, “Chinese authorities deceived the public, suppressed crucial information, arrested whistleblowers … [and] permitted millions of people to be exposed to the virus,” resulting in “loss of life, human suffering, and economic turmoil experienced by all Missourians.” The lawsuit seeks restitution and punitive damages. On April 22, Mississippi announced plans to bring a similar suit.

Meanwhile, four class-action suits against China have been filed in various U.S. district courts. In one such suit, Bella Vista LLC v. The People’s Republic of China et al., a group of Nevada small businesses allege that the Chinese government’s “cover-up of the coronavirus pandemic” has devastated small businesses in Nevada and around the United States. In another, Logan Alters, et al. v. People’s Republic of China, et al., a group of Florida citizens sued the Chinese government for physical illness and emotional distress resulting from the Chinese government’s mismanagement of the virus. Like the lawsuit filed by the state of Missouri, the suits allege that the Chinese government concealed key facts and lied to the public and is therefore liable for the crisis that has ensued.

Both the class-action suits and the lawsuit brought by the state of Missouri are likely to fail because of the Foreign Sovereign Immunities Act (FSIA), which generally bars parties from bringing suit in a U.S. court against a foreign government or one of its subdivisions. The class actions and Missouri’s suit argue that U.S. courts have jurisdiction over the Chinese government under two exceptions to the general principle of foreign sovereign immunity articulated in the FSIA. First, the suits point to the “commercial activity exception” to the FSIA, which waives immunity for foreign states when they engage in commercial activities that have a direct effect on the United States. The Missouri suit—in reasoning similar to the class-action suits—argues that, because coronavirus damages arise in part from China’s operation of its health care system and management of social media companies, the commercial exception applies. Second, the Missouri suit argues that U.S. courts have jurisdiction because of the FSIA’s “non-commercial tort exception,” which waives immunity in cases of tortious acts committed by a foreign sovereign in the United States. Missouri alleges that because certain harms resulting from China’s mismanagement of the novel coronavirus took place in the United States, the Chinese government’s immunity should be waived.

Experts believe that neither set of arguments is likely to succeed. The “commercial activity exception” will apply only if China’s actions related to the coronavirus had a “direct effect” in the United States. In Republic of Argentina v. Weltover, Inc., the Supreme Court ruled that an action of a foreign sovereign has a “direct effect” only when the effect “follows as an immediate consequence of the defendant’s ... activity.” But the harms caused by the coronavirus in the United States are the result of a number of factors, so experts believe they likely do not meet this standard. Meanwhile, federal courts have consistently held that the “non-commercial tort exception” will apply only if the entire tort occurred in the U.S. As the Supreme Court held in Argentine Republic v. Amerada Hess Shipping Corp., the fact that an injury occurred in the U.S. is insufficient to waive sovereign immunity.

Missouri has also tried another tactic. It argued that, as a political party, the CCP—one of its named defendants—is not entitled to sovereign immunity. But generally speaking, courts have not looked favorably on attempts to skirt the FSIA in this way. In a 2009 decision, the U.S. Court of Appeals for the Second Circuit upheld a decision granting sovereign immunity to China Central Television, a Chinese state-owned television service, because it was “the mouthpiece of the Chinese Communist Party.” And analysts agree widely that China is a party-state, in which the functions of the CCP and the government are closely intertwined.

Even if damages do not materialize, the suits may serve other purposes. As COVID-19, the respiratory disease caused by the novel coronavirus, wreaks havoc in the United States, both Democrats and Republicans have been eager to appear tough on China in advance of the 2020 elections. Joe Biden released a controversial campaign video condemning President Trump for praising Chinese efforts to manage COVID-19 in the early stages of the pandemic. Meanwhile, the president and his allies have claimed that Biden has failed to recognize the economic and political threat China poses to the United States. And in Congress, Sen. Josh Hawley has introduced legislation that would waive sovereign immunity for China and allow courts to freeze assets belonging to the Chinese government so that parties could recover damages. Meanwhile, Sen. Marsha Blackburn has introduced a bill that would create an exemption to the FSIA in cases in which a state actor discharges a “biological weapon.” The act appears to target China, on the basis of the unsubstantiated theory—aired widely by certain right-wing media outlets—that the coronavirus was produced by the People’s Liberation Army.

U.K. Reconsiders Huawei’s 5G Role, as Europe Grows Wary of Chinese Tech

Support in the U.K. Parliament for giving Huawei a role in Britain’s 5G network is collapsing. Prime Minister Boris Johnson granted Huawei approval to supply 5G technologies for parts of the U.K. network back in January, but this plan requires an act of Parliament to take legal effect. Now, members of Johnson’s Conservative Party, in particular, have grown increasingly opposed to the idea. U.K. lawmakers last week expressed near certainty that a law letting Huawei supply 5G technologies would not now pass Parliament. Despite these reports, on April 16 a U.K. government spokesperson stated that the country’s plans regarding Huawei had not changed.

The shift in parliamentary opinion is driven by concerns over China’s nontransparent handling of the coronavirus pandemic. Many in the U.K., and elsewhere, have alleged that China has not honestly reported the extent of its coronavirus infections and deaths, and that it suppressed news of the virus as it first emerged. U.K. lawmakers are therefore worried about doing business with Huawei given its ties to the Chinese government, which they increasingly fear is untrustworthy. As one lawmaker described it, the shift within Parliament is an emerging “shared realization” of the risks from a “business that is part of a state that does not share our values.” Earlier this week, Britain and Australia both called for investigations into how China has handled the pandemic—a move now supported by over 80 percent of the British public.

If the U.K. chooses not to let Huawei supply its 5G network, the decision would be a significant about-face. Johnson had decided in January to give Huawei a limited role in the U.K. 5G network, and Britain’s cabinet-level National Security Council then approved his plan. (The plan specified that Huawei could supply only nonsensitive technologies—like antennae and masts—and that its share of these goods would be capped at 35 percent.) And the Conservative-majority Parliament, until recently, was expected to approve the measure. A majority in March had voted down an amendment that would have barred Huawei from participating in U.K. 5G—although the amendment garnered significant support from Johnson’s own party.

Concern over China’s handling of the pandemic has heightened suspicion in the U.K. about Chinese technology policy generally, even apart from Huawei. On April 7, a U.K. minister intervened to stall a Chinese investor’s bid—which U.K. regulators had previously cleared—to take control of British chip producer Imagination Technologies. The British culture secretary is seeking to gather more information about the transaction, which may have security implications, before it continues. The former head of British intelligence agency MI6 advocated stopping the takeover, citing “deep rivalry” between China and Western nations over control of technology.

Similar suspicions of China’s technology policy, and of Chinese investors taking over domestic tech firms, are mounting across Europe. E.U. competition commissioner Margrethe Vestager this month suggested that European governments should buy stakes in domestic tech firms to block Chinese takeovers if Chinese investors try to make purchases. At least one other European leader, German Economy Minister Peter Altmaier, has expressed similar willingness to intervene. Analysts observe that European tech companies, given the economic slowdown, are “vulnerable” to takeovers—many have experienced significant stock-price declines this year.

In light of surging unpopularity among U.K. policymakers, Huawei has stepped up its public appeals. On April 13, Huawei Vice President Victor Zhang wrote an open letter that expressed a desire to help the U.K. manage the pandemic, while also arguing that “groundless criticism” of Huawei’s 5G rollout “would do Britain a disservice.” (Huawei has consistently denied that it poses a security threat to Western nations.) A U.K. decision to block Huawei, however, could create significant tensions with China. China has threatened “repercussions” to countries should they exclude Huawei from their 5G networks.

Reports also emerged this month that Huawei itself has been cutting commercial ties to companies outside Mainland China. Since late 2019, Huawei has been redirecting semiconductor purchases away from Taiwan Semiconductor Manufacturing Company (TSMC), one of its largest chip suppliers, toward Shanghai-based Semiconductor Manufacturing International Corp. (SMIC). One anonymous source claimed that Huawei’s desire to help spur SMIC’s growth is a key reason behind the decision. This news comes on heels of other reports in April that U.S. officials have coalesced around new measures to tighten technology exports to China. One such measure would force foreign manufacturers to receive Washington’s permission before selling technology with U.S.-made components—such as many of TSMC’s chips—to China.

Other News

On April 9, U.S. executive agencies called on the Federal Communications Commission (FCC) to revoke the U.S. operating licenses of China Telecom Corp., a Chinese state-owned telecommunications provider. The recommendation cited national security risks as the reason for rescinding China Telecom’s authorizations. The Department of Justice published the recommendation, which had the support of officials from agencies including the Department of Justice, the Department of Homeland Security and the Department of Defense. The officials promulgating the recommendation constitute an ad hoc group known as Team Telecom, which aims to guide the FCC on matters regarding foreign ownership of U.S. telecom infrastructure. It remains to be seen whether the FCC will heed the agencies’ recommendation, but the call comes at a time when U.S. policymakers are coalescing around stricter oversight of Chinese telecom companies. The FCC already blocked another Chinese telecom provider, China Mobile, from entering U.S. markets last year. And last week, reports also emerged that a Senate panel—the Senate Permanent Subcommittee on Investigations—will soon issue a report advocating increased oversight of such companies within U.S. borders. The report also criticizes U.S. regulators for failing to sufficiently scrutinize Chinese telecom firms in the past. China Telecom has had authorization from the FCC to operate in the United States since 2007.

On April 18, Hong Kong law enforcement arrested 15 leaders of the city’s pro-democracy movement—their largest crackdown since protests began last year. Prominent citizens arrested include the founder of Hong Kong’s Democratic Party, Martin Lee; publishing tycoon Jimmy Lai; and former lawmaker Margaret Ng. These events, coupled with other official remarks, may signal a shift in Beijing’s strategy for Hong Kong toward a more authoritarian response. The arrests follow comments last week from the chief of the Hong Kong Liaison Office—Beijing’s official outpost in Hong Kong—that seemed to advocate for relying on means other than written law to quell the protests. Hong Kong “must create a social and public opinion environment,” stated Luo Huining, the office’s head, that fosters “struggle against behaviors threatening Hong Kong’s stability and national security.” Commentators have described Luo’s words as “alarming” and “contrary to the rule of law,” and some argue that China is using the pandemic as an opportunity to exert more force against protest movements. The United States, along with other observers, criticized China for the arrests, particularly for the fact that they took place during a pandemic. A continued Chinese crackdown on Hong Kong could heighten U.S.-China tensions. The United States, late last year, enacted the Hong Kong Human Rights and Democracy Act, which calls on Trump to sanction officials responsible for human rights violations in Hong Kong.

The People’s Bank of China, China’s central bank, has introduced a pilot program to pay civil servants in four cities with China’s state-backed cryptocurrency. The program is being rolled out in Chengdu, Suzhou, Shenzhen and Xiong’an. Documents from Suzhou authorities clarify that employees of the municipal government will receive a portion of their compensation in the digital currency beginning in May. According to the People’s Bank of China, the pilots are geared toward improving the cryptocurrency’s functionality, and the currency will not be issued nationwide anytime soon. China accelerated its push to develop a national cryptocurrency last year; commentators have observed that Beijing wants a digital currency in order to collect more information about financial transactions and preserve the country’s financial stability. There are other indications that China plans to ramp up the use of its state-backed cryptocurrency in the near future. At least two state-owned banks—the Bank of China and the Agricultural Bank of China—have released pilot mobile apps that support the currency, and officials recently stated that it might be used in Beijing’s 2022 Olympics.


For the New York Times, Paul Angelo and Rebecca Bill Chavez contend that President Trump’s failure to coordinate a coronavirus response with Latin American allies has created space for Beijing to position itself as a leader in the region. In the Washington Post, Fred Hiatt argues that President Trump should partner with U.S. allies to counter Chinese disinformation campaigns related to the origins and impact of the coronavirus. For Brookings, Yun Sun argues that, in the face of rising economic uncertainty in Africa, China will likely postpone loan payments and consider restructuring debt—but it likely will not provide outright relief. For CSIS, Rebecca Hersman writes that Russia and China may have violated arms control agreements by conducting yield-producing or supercritical nuclear tests over the past year.

In Foreign Affairs, Michael Green and Evan S. Medeiros argue that many analysts have been too quick in concluding that China will emerge from the coronavirus saga as a global leader. Instead, Beijing faces challenges both domestically and abroad that may prevent it from gaining greater sway in international affairs. The Wall Street Journal editorial board contends that while the world focuses on responding to the coronavirus, China has redoubled efforts to clamp down on dissidents in Hong Kong. For RealClearPolitics, Michael Auslin says that the coronavirus should prompt the United States and other countries to reconsider the extent to which supply chains for critical goods flow through China. In the New York Times, Nicholas Kristof maintains that American lives would have been saved if the United States had worked more closely with the World Health Organization (WHO), instead of cutting its funding.

For Lawfare, Eric Posner argues that the WHO has fumbled its response to the coronavirus in part because its structure requires that it avoid offending the political sensibilities of its members—especially China. In partnership with Lawfare, Jordan Schneider's ChinaTalk podcast interviews Adam Ni and Yun Jiang on the CCP’s domestic propaganda during the coronavirus pandemic, including efforts to co-opt the story of Li Wenliang, an early coronavirus whistleblower who later died of COVID-19.

Richard (Ricky) Altieri is a third-year student at Yale Law School. He holds a Bachelor’s degree in Philosophy from Amherst College and a Master’s in Global Affairs from Tsinghua University, where he studied as a Schwarzman Scholar. From 2015-2016, as part of a Watson Fellowship, Richard performed stand-up comedy in English, Spanish and Chinese in various countries. From 2017 to 2019, Richard served as a Business Advisory Services Manager at the US-China Business Council in Beijing, where his work focused principally on Chinese technology policy and intellectual property law.
Benjamin Della Rocca is a third-year student at Yale Law School. Before law school, he researched global macroeconomics at the Council on Foreign Relations and at Bridgewater Associates. He holds a bachelor’s degree from Yale in Ethics, Politics and Economics. His writing has appeared in Foreign Affairs, the Wall Street Journal and the Washington Post.

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