Analysis

The CCP treats tech and talent as extensions of the party state. This is increasing. On talent, the CCP will reportedly impose travel restrictions on China's top AI professionals to prevent them taking their knowledge abroad. Chinese citizens working on AI innovation will be subject to restrictions, including passport confiscation and the requirement for official approval to travel abroad. These are measures that are normally reserved for government workers, civil servants, or those employed in state-owned industries.

The CCP's extension of these restrictions to private tech companies has major implications for the US tech sector. The pipeline of PRC talent into Silicon Valley will feel the biggest effects of these restrictions, as the PRC government will increasingly block STEM graduates and those with the necessary skills from leaving China. These graduates will channel their skills into developing rival products for PRC-based competitors, which will undermine US competitiveness and threaten Silicon Valley's global market share.

In addition to restricting direct outflows of personnel, China is now rolling out a comprehensive legal framework to force the unwinding of completed overseas transactions. For foreign companies operating in or sourcing from China, particularly in the tech industry, this means that even signed contracts can be voided if the CCP wishes. This means that no deal is ever complete, regardless of legal standing. While this is not a new power for the CCP, it explicitly signals both domestically and internationally that the party’s oversight of inbound and outbound investments and asset transfers is limitless. In other words, the CCP is preventing Chinese firms from divesting or selling to foreign buyers without the party’s approval, and that approval can be revoked at any time. 

Tech companies need to take these restrictions on talent and capital seriously. Companies must prioritize talent recruitment, retention, and safety if they are to remain ahead of their PRC competition. Offering paths to US permanent residency, sponsoring US graduate school paths, and educating employees about the risks of travel to the PRC should be priorities. As the CCP continues its neomercantilism commitment to transform technology competition into national security competition, AI professionals are becoming sought-after soldiers. At the same time, US technology investments in China will face heightened scrutiny, and that scrutiny, per the new policy, never ends.

Analysis

US businesses face significant and growing threats from foreign governments and competitors looking to influence operations, compromise employees, and steal intellectual property (IP). As US businesses increasingly become the new front line against foreign adversaries, the onus for protecting US national and economic security is therefore shifting away from traditional institutions, like the Department of Defense (DoD), and towards US companies of all sizes. In response, US businesses feel increasing pressure from the US government, investors, or other business partners to demonstrate that they have mitigated their Foreign Ownership, Control, or Influence (FOCI) risk. 

FOCI involves both legal avenues, like a joint venture, and illegal means, like cyber attacks. Both are equally threatening in their ability to extract sensitive corporate information. Adversaries like China specifically target US businesses to steal information that will simultaneously undermine the United States’ national security and give Chinese competitors a competitive advantage. This is a fight from which US businesses cannot opt out. Understanding FOCI risk is therefore not just about our collective security, important though that is; it is fundamentally good business. 

Demonstrating an understanding of FOCI risk will also likely become a question of compliance. Last month, the DoD proposed expanding the number of contractors that would need to report FOCI risk to include all unclassified DoD contracts and subcontracts with contracts valued at more than $5 million (with some exceptions). If the DoD’s proposal is enacted, which is likely, this will extend FOCI reporting requirements to approximately 40,000 current DoD contractors, around 57% of which are small businesses with limited FOCI reporting experience. These contractors will need to get ahead of the game if they are to remain competitive in the government contracting space. 

But even for companies that are not DoD contractors facing legal requirements, FOCI risk will likely become an important part of a company’s security. Companies will need to understand their vulnerabilities and the methods of influence (particularly from suppliers or joint venture partners). Employee training, structural protections like shielding internal access to IP, reducing dependence on problematic foreign investment or partnerships, and reviewing contracts will become necessary not just for legal reasons, but because they are the first line of a company’s defense against aggressive adversaries.

Analysis

The consequences of booming chip demand are pushing global markets toward a precipice, with astronomical AI growth tempered by slowing revenues across nearly all other sectors. In the first quarter, business investments contributed more to US GDP growth than the traditional economic driver, consumer spending, with AI investments from the “magnificent seven” tech firms projected to exceed $725B. While the unexpected US war on Iran caused total GDP growth to fall under projections, coming in at 2 percent, this number also represents a false stability. Behind this growth is a slowing consumer spending, supply gaps, and a potential tech bubble that Huawei is trying to burst. 

The first quarter reports from Samsung Electronics, a producer of memory chips key to the AI revolution, represent an industry-wide problem. According to official numbers, Samsung posted 43 percent profit, quarter-on-quarter, from January to March, and reached an all-time high operating profit of more than US$38B. This growth was the result of unprecedented demand for memory chips from the AI industry, whose major players have already placed orders through 2027. 

At the same time, Samsung issued warnings that the supply gap may be worse next year than in 2026, as demand is increasing significantly faster than production capacity. After processing orders from the major AI players, moreover, Samsung is finding itself unable to take on other orders, which could spell the end for smaller companies or start-ups looking to break into the field. To resolve the problem, Samsung broke ground in March on a new semiconductor testing plant in Vietnam, but this plant will only come online in late 2027 at the earliest. In the meantime, the magnificent seven and their competitors are poised to overwhelm existing supply chains to the exclusion of those who would attempt to break into the market. In short, current technology and supply chains may have reached their maximum potential for the foreseeable future. 

While Samsung has chosen to expand existing infrastructure as its solution to the problem of global demand, China’s Huawei has gambled on a new technology. In a potentially industry up-ending announcement last week, Huawei’s semiconductor chief, He Tingbo 何庭波, revealed that the company had developed a new way of achieving chip efficiency. Whereas the sector has previously been ruled by Moore’s Law, the idea that chip performance will improve through progressive miniaturization and fitting of additional transistors on a single chip, He proposed a new principle: Tau’s Scaling Law (nicknamed “Her’s Law,” in He’s honor). This new law focuses on improving computing performance and reducing the time it takes for data and signals to move through circuits and systems. It takes flat space (current chips) and folds them, creating vertical layers between which information can be passed “like millions of elevators.” While customers have not yet seen how well this new system works, it is slated to be released as part of the Kirin chip-set in Huawei’s next generation of mobile phones.

If Huawei’s new Tau principle does work as promised, then China may have innovated its way out of current market dilemmas, nullified the effect of US export controls on advanced tech to China, and further closed its technology gap with the US and its allies. On the one hand, the need for the most advanced chips and chip-production technologies will no longer limit China’s semiconductor industry. With domestic silicon wafer production on the rise, and a target of 70% domestic production likely to be hit in 2026, China would be much closer to achieving its goal of self-sufficiency and eliminating its reliance on Western tech. On the other hand, He claims that Huawei could achieve 1.4-nm-class chips via the Tau principle as soon as 2031. If true, that would represent just a three-year lag on Taiwan’s TSMC, which announced that it plans to begin production of 1.4-nm chips in 2028. On the whole, Huawei’s competitors would be wise to pay attention to the deployment of Huawei’s next-gen phones and think how they themselves can find additional creative solutions to current supply chain limitations. 

Analysis

Europe is pulling the plug on the American technology stack. Concerned about US commitment to European security and NATO, European governments now question the wisdom of its overwhelming reliance on US technology infrastructure. Moreover, Europe is moving to reduce its dependence. 

Europe runs almost its entire digital economy on American infrastructure. This means not only software and social media, but cloud compute, enterprise networking, cybersecurity, collaboration platforms, data, and storage. Seventy percent of Europe’s cloud market is controlled by three US companies: Google, Microsoft, and Amazon. In short, Europe’s digital economy runs through the United States.

This is not a sudden break, and it is not inevitable, but without a significant thaw in transatlantic relations, Europe will look to replace US technology with domestic alternatives. In part, this is already happening. Earlier this year, the European Commission launched a €75 million EURO-3C project to build a federated telco-edge-cloud infrastructure. It put in place a Cloud Sovereignty Framework with €180 million in procurement authority for sovereign cloud services. And it has been advancing the EU Cloud and AI Development Act, which would reshape how critical public infrastructure uses cloud services across the bloc. The European Digital SME Alliance was blunt in its 2026 assessment: "2026 will make or break Europe's tech sovereignty."

American executives and policy makers who follow this story at all tend to frame it as a trade dispute that might cost Microsoft or Google some enterprise contracts. That framing grossly understates the risk to US companies, the US economy, and the ability of the United States to marshal allies in its economic war with China. American policymakers and business leaders need to understand what is at stake: not just market share, but the structural underpinning of transatlantic influence. With no effort at all, China benefits from a division of democracies and a self-induced increase in the technology costs borne by Americans and Europeans.

Analysis

The Department of Justice charged American political commentator Thomas Pauken II with acting as an unregistered agent for the PRC. DOJ prosecutors allege that Pauken prepared reports for a Chinese handler who said the information would be passed to President Xi Jinping. The DOJ also alleges that Pauken helped facilitate contact between Chinese intelligence and a US government connected individual, including by providing a laptop and phone for regular reporting. While Pauken's attorney emphasizes that Pauken has not been charged with espionage or mishandling classified information, the case shows that foreign intelligence activity can occur under many guises, many of which may seem, on the surface, to be benign. 

China’s exploitation of sub-state and non-state actors is standard operating practice. In the previous Red Report, we highlighted the case of former Arcadia Mayor Eileen Wang, who allegedly distributed PRC-directed narratives through a local publication, US News Center, with the intention of making PRC-aligned messaging appear as community news. Although Pauken and Wang are alleged to have played different roles, China’s method of intervening in US politics is the same: PRC-linked actors use American intermediaries to make foreign-directed activity appear homegrown and thus credible inside the United States.

Misplaced trust creates a core vulnerability for US institutions. A statement from PRC state media is easy to discount, but the same message delivered by an American commentator or local official can bypass skepticism by appearing domestic and familiar. Intermediaries give foreign statecraft a local face and allow foreign-directed activity to move through relationships that businesses already rely on for a variety of needs, including permitting, partnerships, market access, public engagement, and commercial intelligence. If those relationships are compromised by foreign state direction, companies may inherit legal, reputational, or operational risk without realizing it. 

Standard background checks rarely answer the most important question: Whose interests does this relationship actually serve? Effective diligence should identify which local partners shape access and assess whether those partners show signs of undisclosed foreign direction. The practical takeaway is simple: foreign influence does not operate only in Washington; it can move through local relationships that businesses already trust. Performing regular diligence checks and requiring regular reporting by employees or vendors with foreign exposures should, therefore, be standard business practice.