WASHINGTON, Jan 18 (Reuters) - The Biden administration is
reviewing e-commerce giant Alibaba's cloud business to determine
whether it poses a risk to U.S. national security, according to
three people briefed on the matter, as the government ramps up
scrutiny of Chinese technology companies' dealings with U.S.
The focus of the probe is on how the company stores U.S.
clients' data, including personal information and intellectual
property, and whether the Chinese government could gain access
to it, the people said. The potential for Beijing to disrupt
access by U.S. users to their information stored on Alibaba
cloud is also a concern, one of the people said.
U.S. regulators could ultimately choose to force the company
to take measures to reduce the risks posed by the cloud business
or prohibit Americans at home and abroad from using the service
altogether. The U.S.-listed shares of Alibaba fell
nearly 3% before the market open Tuesday and were last trading
down just over 1%.
Former President Donald Trump's Commerce Department was
concerned about Alibaba's cloud business, but the Biden
administration launched the formal review after he took office
in January, according to one of the three people and a former
Trump administration official.
Alibaba's U.S. cloud business is small, with annual revenue
of less than an estimated $50 million, according to research
firm Gartner Inc. But if regulators ultimately decide to block
transactions between American firms and Alibaba Cloud, it would
damage the bottom line one of the company's most promising
businesses and deal a blow to reputation of the company as a
A Commerce Department spokesperson said the agency does not
comment on the "existence or non-existence of transaction
reviews." The Chinese Embassy in Washington did not respond to a
request for comment.
Alibaba declined to comment. It did flag similar concerns
about operating in the U.S. in its most recent annual report,
saying U.S. companies that have contracts with Alibaba "may be
prohibited from continuing to do business with us, including
performing their obligations under agreements involving
The probe into Alibaba's cloud business is being led by a
small office within the Commerce Department known as the Office
of Intelligence and Security. It was created by the Trump
administration to wield broad new powers to ban or restrict
transactions between U.S. firms and internet, telecom and tech
companies from "foreign adversary" nations like China, Russia,
Cuba, Iran, North Korea, and Venezuela.
The office has been particularly focused on Chinese cloud
providers, one of the sources said, amid growing concern over
the potential for data theft and access disruption by Beijing.
The Trump administration issued a warning in August, 2020
against Chinese cloud providers including Alibaba, "to prevent
U.S. citizens' most sensitive personal information and our
businesses' most valuable intellectual property...from being
stored and processed on cloud-based systems accessible to our
Cloud servers are also seen as ripe for hackers to launch
cyber attacks because they can conceal the origin of the attack
and offer access to a vast array of client networks.
While there are scant public cases of the Chinese government
compelling a tech company to turn over sensitive customer data,
indictments of Chinese hackers reveal their use of cloud servers
to gain access to private information.
For example, hackers connected to the Chinese Ministry of
State Security penetrated HPEs cloud computing service https://www.reuters.com/investigates/special-report/china-cyber-cloudhopper
and used it as a launch pad to attack customers, plundering
reams of corporate and government secrets for years in what U.S.
prosecutors say was an effort to boost Chinese economic
"PILLAR OF GROWTH"
Alibaba, the world's fourth largest cloud provider according
to research firm Canalys, has about 4 million customers and
describes its cloud business as its "second pillar of growth."
It saw a 50% rise in revenue to $9.2 billion in 2020, though the
division accounts for just 8% of overall sales.
It has boasted business relationships with units of top U.S.
companies including Ford Motor Co, IBM's Red Hat,
and Hewlett Packard Enterprise, according to press
While the sweeping Trump era powers don't cover foreign
subsidiaries of U.S. companies, U.S. regulators have previously
found ways to link them to their U.S. parent companies, which
can in turn be subject to restrictions.
Before tech tensions between the United States and China
started to boil, Alibaba had big ambitions for its U.S. cloud
business. In 2015, it launched a cloud computing hub in Silicon
its first outside of China, with plans to compete with
Amazon.com Inc, Microsoft Corp and Alphabet
Inc's Google. It later added additional data centers
there and in Virginia.
A person familiar with the matter says the company scaled
back its U.S. gambit during Trump's presidency as tensions with
In 2018, U.S. authorities blocked a bid https://www.reuters.com/article/us-moneygram-intl-m-a-ant-financial/u-s-blocks-moneygram-sale-to-chinas-ant-financial-on-national-security-concerns-idUSKBN1ER1R7
by Alibaba affiliate Ant Financial, now Ant Group, to acquire
U.S. money transfer company MoneyGram International Inc
over national security concerns. But a move to put Ant Group on
a trade blacklist failed https://www.reuters.com/article/us-usa-china-ant-exclusive/exclusive-trump-administration-shelves-bid-to-blacklist-chinas-ant-group-sources-idUSKBN27J2OD
and an executive order banning its mobile payment app Alipay
was revoked by Biden https://www.reuters.com/technology/us-withdrawing-trump-executive-orders-that-sought-ban-tiktok-wechat-2021-06-09.
Biden, like Trump, has placed more and more restrictions on
Chinese companies. Last month, the U.S. government put
investment and export curbs on dozens of Chinese firms https://www.reuters.com/markets/us/us-adds-more-chinese-firms-restricted-entity-list-commerce-2021-12-16,
including top drone maker DJI, accusing them of complicity in
the oppression of China's Uyghur minority or helping the
(Reporting by Alexandra Alper; Additional Reporting by Karen
Freifeld, Chris Bing, and Echo Wang; Editing by Chris Sanders
and Edward Tobin)