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California rejected Chinese company’s push to help with coronavirus testing. Was that the right move?

Advisers told the state to steer clear of BGI, underscoring U.S.-China tech tension

Tubes of biomaterial samples collected in a pop-up Huoyan Laboratory created by BGI in Wuhan, China on February 6, 2020.(Barcroft Media /Getty Images)

As California raced to expand coronavirus testing this spring, advisers to the state noticed one company pitching particularly hard to assist: China’s BGI Group.

The company’s U.S. subsidiary and one of BGI’s partners were approaching city, county and state officials with offers to sell supplies and help set up entire labs, proposing to export a rapid testing model that they said had helped contain China’s outbreak.

In the end, the advisers recommended that California exercise caution about BGI and its U.S. subsidiary, CGI; one of the advisers recommended avoiding them all together. But BGI’s efforts to sell testing supplies in a state now facing a new surge of infections underscores a dilemma the United States will face again and again as China’s ambitious technology companies gain prominence globally: Under what circumstances should U.S. officials and businesses engage with the Chinese tech sector?

Bob Kocher, a physician and venture capital executive who volunteers on the state’s coronavirus-testing task force, said in an interview that BGI’s pitching raised red flags for him. For one, he was worried about relying on a Chinese company for critical medical supplies, given U.S.-China tensions. He was also concerned that allowing a China-headquartered entity to equip U.S. laboratories for coronavirus testing or other future purposes could give China access to sensitive patient data.

Kocher said his concern was sparked in part by a brief and inconclusive U.S. intelligence report cautioning that CGI “may be vulnerable to Chinese influence.” He added, however, that he has seen no evidence of data breaches involving BGI or CGI, and BGI wholly rejected the idea.

Kocher discussed the matter with another of the state’s unpaid coronavirus advisers, D.J. Patil, a health-care-technology executive who previously served as the Obama administration’s chief data scientist. In an interview, Patil said he raised a different concern — that giving BGI a bigger role in U.S. laboratories could strengthen China in the fast-growing and ethically sensitive fields of biotechnology and genetic science — sectors the United States hopes to continue leading.

Kocher in early April advised California’s health secretary, Mark Ghaly, to steer clear of BGI supplies, saying the state had better options, and the health secretary agreed, said Kocher, a partner at Venrock, a venture-capital fund that previously owned a stake in BGI rival Illumina and currently owns part of a company aiming to compete in a field where BGI is also present.

Patil said he advised testing task force members to tread carefully and consider the long-term ramifications of using BGI supplies.

Ghaly didn’t respond to requests for comment. “The state has evaluated multiple testing options in its efforts to significantly expand the availability of covid-19 tests and makes decisions based on which testing platforms best meet the needs of California and its diverse residents," said Ali Bay, a spokeswoman for the California Department of Public Health.

BGI called security concerns about its technology “not valid” and lacking in any evidence.

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“The testing system that we deploy in the U.S. makes it impossible for us to have access to patient data,” Jeremy Nickolenko, an American who heads global commercial partnerships from BGI’s U.S. offices, said in an interview. “We can provide the gear, but it’s a U.S. laboratory that’s actually running the assay and getting the results, and they deal with the data, as they should, per regulation.”

“We are a significant testing and technology company with a global footprint, and we can actually make a very significant impact in the midst of a pretty terrible pandemic,” Nickolenko added. BGI declined to make its leadership in China available for interviews.

Other countries have welcomed BGI to set up high-speed testing labs, including Saudi Arabia and the United Arab Emirates. And testing centers in Sweden and Kansas — and in California’s Santa Clara County, despite the state’s cold shoulder — have purchased supplies from the company, saying they didn’t fear data breaches.

Santa Clara officials took the security concerns into account before buying one piece of equipment but are “100 percent confident that no private information would be made available to the company," said deputy county executive David Campos.

‘Dilemma’ over Chinese tech

China is spending billions on high-tech development, aiming to dominate technologies that will shape the future of business and defense. Those ambitions have concerned not only the Trump administration and Congress but also U.S. business leaders such as former Google chief executive Eric Schmidt, who have warned that the United States cannot afford to cede critical innovation to China.

Tension has already come to a head over Chinese telecom giant Huawei, the world’s largest provider of mobile network gear — a field from which U.S. companies are largely absent. The United States calls Huawei a security risk, which the company denies, and has undertaken an international lobbying campaign, with mixed results, to persuade other countries not to buy from Huawei.

The Trump administration has targeted other Chinese companies, restricting trade with more than a dozen it accuses of supplying surveillance gear in the western province of Xinjiang, where U.S. officials and human rights groups say China’s ruling Communist Party is holding Muslims in mass detention camps.

And the United States has blocked Chinese investors from buying U.S. technology companies deemed strategic to economic growth or national security. Last year, the Trump administration forced a Chinese company founded by BGI’s former chief executive to sell its majority stake in a U.S. health-care-data company, PatientsLikeMe.

At the same time, Chinese companies, often backed by significant government financing that critics say can sometimes represent an unfair subsidy, are cranking out a slew of high-tech products. Their growing output, including industrial drones, electric buses and more, makes Chinese tech harder to avoid or contain.

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“One and a half billion people are going to come up with a lot of cool stuff,” said Rod Hunter, a trade lawyer at Baker McKenzie and a former national security official in the George W. Bush administration. “If it’s something with the potential to save human lives, are we going to say we don’t want it? For U.S. policymakers, it’s going to be a tough choice.”

V.J. Sahi, a partner at the corporate advisory firm Clark Street Associates, who was hired by BGI’s U.S. subsidiary to pitch state officials, said the campaign hasn’t borne much fruit. “Candidly, we haven’t had a lot of success. There is a lot of xenophobia,” he said in an interview. “Some people have been direct with us and said, ‘No, because it’s from China.’”

California is doing a better job providing coronavirus testing than many U.S. states are, but it lags behind the most highly regarded countries and has reported some “worrying signs” in recent days, according to Jennifer Nuzzo, lead epidemiologist for the Johns Hopkins Covid-19 Testing Insights Initiative.

A low rate of positive tests is a sign of a strong testing program. About 4 to 5 percent of tests in California have come back positive in recent weeks, though that number is now rising toward 6 percent — better than Arizona’s 23 percent but worse than South Korea’s rate of under 2 percent, Nuzzo said.

“There are some worrying signs in California. Positivity and case numbers are ticking up,” Nuzzo said. “I think measures the governor is taking to address increasing case growth is important.”

The state’s public health department says it is making progress. “California’s testing capacity continues to increase dramatically — scaling up from just 2,000 per day in April” to about 100,000 a day now, the department said in a statement.

Sensitive work

BGI, based in the southern tech hub of Shenzhen, is well known in the fields of genetic research and medical diagnostics. Its co-founder and chairman, Wang Jian, is a prominent geneticist who spent six years as a research fellow in the United States during the 1980s and 1990s.

The company’s coronavirus-related products enable a standard form of testing that extracts genetic material known as RNA from nasal swab samples, then determines whether it matches the genetics of the novel coronavirus.

A separate BGI business is more closely tied to the future of biotech: selling DNA-sequencing machines and services. The machines, which resemble photocopiers, are like fancy digital cameras that scan DNA molecules to decode the full genetic makeup of people, animals and other organisms.

The genetic maps, or genomes, the machines generate are a hot commodity as researchers worldwide attempt to decipher the genetic underpinnings of life and disease, with the hope of finding new medicines or crops.

BGI has some prominent supporters in U.S. academia, including George Church, the Harvard geneticist who has served on the Chinese company’s scientific advisory board since 2007. In 2017, BGI established the George Church Institute of Regenesis, a research collaboration between Church’s lab and about a dozen staffers at BGI in China.

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The group is attempting to synthesize organisms from human-made DNA, among other projects, Church said in an interview. Church also has a business relationship with BGI: Consumers who want their genomes decoded can send saliva samples to a company he co-founded, Nebula Genomics, which sends them to BGI labs in Hong Kong for sequencing.

Harris Lewin, a professor of evolution and ecology at University of California at Davis, has worked with BGI through the Earth Biogenome Project, an international consortium aiming to sequence many of the planet’s species. “They’ve honored all their commitments to the organization,” he said. “They’ve been good partners.”

Some of BGI’s activities have drawn scrutiny, however. Over the past year, a unit of BGI has sold Chinese police the supplies they needed to collect and analyze DNA from millions of men and boys who have no serious criminal history, according to a recent report by the Australian Strategic Policy Institute, which called the collection a violation of human rights and a disturbing extension of China’s efforts to “manage and control society.”

The BGI subsidiary Forensic Genomics International is one of two dozen Chinese companies that have supplied testing kits or other materials to the project, along with the U.S. company Thermo Fisher, according to the study, which analyzed government purchase orders. The New York Times earlier reported details of the project.

Emile Dirks, an author of the report and a PhD candidate at the University of Toronto, said the men and boys being targeted “really have no capacity to refuse” to give a blood sample and are often located in rural or semi-rural communities where public scrutiny of the collection is less likely. He said the purchase orders make reference to this police-led collection program, suggesting that companies “are aware on some level what is being done with their technology.”

In a written statement addressing the report, BGI said it “does not condone and would never be involved in any human-rights abuses.”

The company “has a long track record in applying strict ethical standards and protection of data privacy and security," added the statement, which was provided by Matthew Ballard, senior vice president of the public relations firm BCW Global.

American researchers who have interacted with Wang, BGI’s chairman, call him a talented scientist who has at times stirred controversy. One pointed to remarks Wang made at a 2018 panel discussion where he said that employees of BGI, which sells prenatal tests, are “not allowed” to have babies with birth defects.

"If there is a birth defect, it is a humiliation for all 7,000 of our employees. It would mean we are swindling the public,” he said, in remarks reported by the Chinese publication Sixth Tone and captured on video.

Asked about the comments, BGI said “there are no such company rules.”

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BGI was founded as the nonprofit Beijing Genomics Institute in 1999, to participate in the Human Genome Project, the international consortium that mapped the first human genome. It relocated to Shenzhen in 2007. In late 2009, it received a $1.5 billion line of credit from the state-run China Development Bank, after which it purchased 128 DNA sequencers from California-based Illumina, the U.S. company announced. At the time, it was Illumina’s largest-ever order.

Three years later, BGI and Illumina found themselves on opposite sides in a bidding war to acquire Complete Genomics, a California-based company whose acquisition gave BGI access to the sequencing technology it now sells. During that fight, BGI complained that Illumina was raising unfair national security concerns about it, but the Committee on Foreign Investment in the United States, or CFIUS, reviewed the deal for national security risks and cleared it.

Still, the one-page U.S. intelligence report reviewed by Kocher and Patil, dated April 10, said BGI’s U.S. subsidiary “may be vulnerable to Chinese influence" via its parent company, which the report said had “multiple connections to Chinese state government,” including the Chinese Academy of Sciences and the Ministry of Science and Technology.

"Chinese influence over CGI could provide China with access to the sensitive medical data of patients who use its medical testing,” said the unclassified report from the Department of the Air Force Office of Special Investigations, which The Washington Post reviewed. It did not elaborate on this risk.

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The Air Force declined to comment on BGI or on the specifics of the document, but said in a statement provided by spokeswoman Linda Card: “A foreign organization that may incidentally gain access to the protected health information (PHI) of current or future U.S. Government personnel through community-based medical testing services, may present an increased opportunity for third-party, foreign intelligence entities to access and exploit that data.”

It added: “The reports that we produce for senior leaders and decision makers are sometimes drawn from publicly available information and placed in a single document to help inform.”

Asked about the report, BGI said it “takes all aspects of data protection, privacy and ethics extremely seriously” and has “no access to patient data” via coronavirus testing. It added that BGI is not “owned or funded by the Chinese government.”

Months of expertise

BGI’s expertise in the current health crisis dates to late December, when the company determined that the covid-19 illness appearing in Wuhan, China, was caused by a novel coronavirus, according to Chinese media outlet Caixin.

On Jan. 25, two days after China locked down Wuhan, Wang led a team to the city to set up testing, according to the company, which later opened similar “Fire Eye” labs in Shenzhen, Beijing and other cities.

By the end of March, BGI and China were promoting the testing gear all over the world. After a phone call between Chinese President Xi Jinping and Saudi King Salman, Saudi Arabia hired the company to establish six testing labs and provide 500 Chinese testing specialists, according to the Saudi Press Agency. In the United Arab Emirates, BGI and a local cloud computing company, Group 42, jointly opened a testing lab in late March, the Chinese company said.

As the United States struggled to ramp up testing, offers of BGI supplies arrived at all levels of California government.

“We propose to establish the world’s largest COVID-19 testing facility through a public private partnership," said an April 5 proposal that BGI’s U.S. subsidiary sent state officials, the mayor of San Jose and task force members, including Kocher. “By working with the state’s existing CLIA testing labs, this operation could be running tests in less than 2 weeks,” it added.

BGI executive Nickolenko said the company’s mention of CLIA labs, which are federally regulated, shows it was expecting California to be fully in charge of any testing operation.

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A second proposal from BGI’s partner in the United Arab Emirates, Group 42, struck Patil and Kocher as more concerning. It said Group 42 and BGI were ready to build two labs on a nonprofit basis and initially operate them.

“G42 and BGI will build, and initially for up to a 30-day period operate, and then transfer two Fire Eye Laboratories … to the State of California,” read the March 23 proposal, sent to Gov. Gavin Newsom (D) by Group 42 Chief Executive Peng Xiao.

“G42 and BGI will provide the equipment, installation, validation and test protocols and train local staff in California to operate the labs," it said.

“We will only recover from you our actual cost of setting up these two laboratories, which we estimate to be approximately $10,000,000. We will provide the necessary technical personnel to build the labs and train the operational personnel,” said the proposal, which even offered to advance California money to help it cover costs.

Patil said he was suspicious of the offer to construct the labs at cost and to advance California money. “What’s the catch here?” he asked in an interview.

In an emailed statement, G42 said it was “prepared to absorb upfront costs in exchange for a long-term commitment from California to buy testing kits and supplies for the laboratory facility."

BGI said: “G42 initiated contact with California on behalf of our partnership in the UAE as a possible way to help." Nickolenko said he didn’t sign off on the proposal, and that BGI’s U.S. unit has never proposed operating California labs.

Newsom’s administration declined to comment on the letter.

U.S. market toehold

Patil said he was also concerned that allowing BGI into U.S. labs could give it market access that the United States would later regret. The country and China are competing to develop industries around DNA sequencing and genomics, he said, including “precision-medicine” ventures to deliver treatments tailored to a patient’s genetic profile. Why should the United States help a Chinese company establish its equipment and services in that field, he asked?

“What China has really been trying to do is try to get to a place where they can own the entire supply chain for genomic testing,” Patil said. “This is a toehold that they build on.”

He added that there are risks to helping China lead a new industry facing so many ethical quandaries. “China is not transparent with their use of technology, and they are using technology in many cases to oppress groups. Do you want them setting the standards?” he asked.

BGI said it “pays particular attention to complying with scientific ethics and personal privacy protection at all times.”

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Kocher said he feared patients’ personal data could leak back to China if California labs opened up to BGI equipment or personnel.

In the case of coronavirus testing, that could include information on the sample test tubes, such as a patient’s name, date of birth or the name of their doctor, he said. While this data is sometimes hidden behind a bar code, labs decode the bar codes to submit bills to insurance companies, so the data can exist in lab information systems, Kocher said.

Nickolenko said BGI would have “absolutely no access” to data flowing through the laboratory information system.

Lars Engstrand, a microbiologist who is overseeing a coronavirus-testing lab at Sweden’s Karolinska Institute that is using BGI equipment, was skeptical that any personal data could leak out, saying he didn’t see any way to obtain patient information protected behind the bar codes on the samples he sees.

Santa Clara County, the home of Silicon Valley and site of the earliest-known coronavirus deaths in the United States, said its officials considered privacy concerns before buying BGI test materials but were confident they could use the supplies in a secure fashion.

The county purchased test kits and a piece of equipment that automates the extraction of RNA from the nasal-swab samples, said Campos, the county official.

“It is a stand-alone piece of equipment. It is not connected to any computer in our system,” Campos said. “It doesn’t have any patient information,” he added.

The instrument will allow the county to perform more tests per minute than other vendors’ equipment would, which was the county’s priority, he said.

Lewin, the University of California professor, said he would like to see BGI products available in the U.S., to boost levels of coronavirus testing. “Any competition that increases testing capacity, drives down costs and improves quality is good,” he said.

Eva Dou and Ruth Eglash contributed to this report.

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