The media often paint the U.S.-China trade brawl as a clash of two superpowers, or a matter of U.S. protectionism. But left understated is that current Chinese policies threaten, sometimes existentially, companies outside China—and something needs to be done about it.
China has always found ways to privilege its companies at the expense of foreigners. But in 2015, it dialed it up a notch when it launched the “Made in China: 2025” program that targets homegrown innovation in 10 high-tech industries, including information technology, aerospace and railways. It would base such innovation on the “assimilation and absorption of imported technology,” according to that plan.
One early case of such “assimilation and absorption” involved Kawasaki Heavy Industries, the firm that built Japan’s high-speed rail. In 2004, China invited Kawasaki to partner with them, saw all of Kawasaki’s intellectual property (IP) and plans and, after a few years of working together, fired the Japanese. China built the rest of its railways on its own, eventually consolidating its interests into one national rail company in 2015.
Now, with the Belt and Road Initiative, China is building rail capacity in other countries largely using what was originally Japanese technology. This has created ripples worldwide: Two European firms, Siemens and Alstom, have been attempting to merge their rail businesses as perhaps the only way to compete against the national Chinese rail company.
The Kawasaki case may well be the playbook Beijing adopted for various schemes. The U.S. ambassador to the World Trade Organization (WTO) last year echoed a years-long complaint that foreign companies are forced to transfer technology to access China’s marketplace. Foreign firms often acquiesce, given the promise of the fast-growing Chinese market. General Electric, for example, agreed to share technology when China started designing its own passenger jets in the late 2000s.
Lately, however, China has brazenly taken even when the companies say no. In 2017, DuPont suspected its Chinese partner of stealing its textile-polymer IP. Fellow U.S. chemicals firm Huntsman says that Beijing uses foreign-investment review panels as way to grill incoming companies for secrets. In January 2018, a U.S. jury found a Chinese wind-turbine maker guilty of stealing secrets from its supplier, Massachusetts-based AMSC.
When there is no partner to coerce, China has resorted to outright espionage. This is most prominent in semiconductors, the cornerstone for a homegrown information technology sector that China is so keen on. After China was rebuffed in its attempts to acquire Micron, the largest U.S. memory-chip maker, a Chinese state-backed chipmaker partnered with a Taiwanese company to develop technology. Instead of designing their own IP, that Taiwanese firm lured Micron’s engineers in 2015 and had them steal over 900 files before they left.
In 2016, a Chinese state firm tried to steal IP from Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip maker. China may have attempted to hack Dutch firm ASML, too, which makes upstream machinery essential for chip making.
And according to an investigation by Bloomberg Businessweek that sent shockwaves through Silicon Valley, China infiltrated and planted chips into Supermicro’s motherboards, which then found their way to Google, Apple and Amazon servers. How much information was taken is still unknown.
The examples keep racking up. In July 2018, U.S. authorities arrested a former Apple employee before he could board a flight to China with secrets of Apple’s self-driving car project. Chinese intelligence officers hacked into GE’s jet-engine joint venture with France’s Safran, according to a U.S. indictment last year.