Why Is the U.S. Targeting Alibaba Cloud Over National Security Concerns?

Reuters reported that three insiders say the Biden administration is reviewing Alibaba's cloud business to assess national security risks, amid heightened U.S. scrutiny of Chinese technology.

The investigation focuses on how Alibaba Cloud stores U.S. customer data, including personal information and intellectual property, and whether the Chinese government could access that data. U.S. officials worry China might undermine users' access to information stored on Alibaba Cloud.

Regulators could force Alibaba to mitigate risks or ban U.S. users from the service. Alibaba’s U.S.-listed shares fell nearly 5% at the open and closed down 2.26%.

One source noted that the Office of Intelligence and Security, created under the Trump administration, is leading the probe. The office monitors Chinese cloud providers for potential threats.

Trump had warned in August 2020 that Chinese cloud services could expose sensitive personal data and valuable IP to foreign adversaries. Cloud servers are seen as vectors for cyber attacks, and while China rarely forces companies to hand over data, hackers often exploit cloud servers to obtain private information.

Alibaba’s cloud unit is a key growth pillar, ranking fourth globally and first in China with about 4 million customers. It contributed 8% of total sales but saw 50% revenue growth in 2020, reaching $9.2 billion.

Alibaba Cloud has partnerships with U.S. firms such as Ford, IBM, Red Hat, and HP. However, U.S. restrictions on Chinese firms have increased, and previous attempts to block Alibaba’s subsidiary Ant Group’s acquisition of a U.S. remittance company were partially successful.

U.S. authorities have previously linked foreign subsidiaries to their U.S. parent companies to impose restrictions, and recent measures have targeted dozens of Chinese companies, including drone maker DJI.