China’s Technology Ambitions Could Upset the Global Trade Order


Cybersecurity laws enacted this summer give the Ministry of State Security the power to conduct security reviews of technology sold or used in China, said James A. Lewis, senior vice president of the Center for Strategic and International Studies. Such a step could require companies to expose some of their most valuable secrets.

At some companies, Chinese security officials conduct the inspections in corporate “clean rooms” in the United States, with the Chinese officials traveling on business visas, Mr. Lewis said. The companies argue that the access takes place under controlled circumstances that limit what Chinese officials might learn.

“If American companies have a big market in China, they say to the Ministry of State Security: ‘Come in,’” Mr. Lewis said. “Everyone fears retaliation. No one wants to lose the China market.”

Old Rules, New Technology

Wary of the push, the United States has used existing rules to stop Chinese purchases of foreign businesses in areas important to national security.

But many of those tools do not apply to today’s deals, as A.M.D.’s Chinese pact shows.

A.M.D.’s joint venture with its Chinese partner can be found in a gleaming industrial area of the city of Chengdu called Tianfu Software Park.

The park represents Beijing’s vision of the future. Trees and sidewalks jammed with ride-sharing bikes sit beneath a vast strip of office towers, hotels and apartment complexes. Offices of China’s most innovative companies, like Huawei and Tencent, sit next to outposts of their foreign analogues, like SAP and Accenture.

Inside one of its glass towers, A.M.D. works with its Chinese partner, a company called Sugon, to produce new chips.

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A demonstration in 2015 in Shanghai of a robotic arm designed by Kuka, a German company acquired last year by the Chinese appliance maker Midea in a surprise $3.9 billion deal.

Credit
Imaginechina, via Associated Press

Under the nearly $300 million deal, A.M.D. agreed to license chip technology to a Chinese joint venture with Sugon to make chips for servers. Because A.M.D. controls that joint venture, the technology is considered to remain in American hands.

But A.M.D. struck a second partnership that the Chinese company controls. That joint venture works on applications such as integrating the chips with servers. The two ventures are on the 11th and 12th floors of the same building.

Experts say the dual partnerships could help China develop a new generation of powerful supercomputers. China already makes the world’s fastest computers, but they run on homegrown chips that cannot read commonly available software for supercomputers. With A.M.D.’s help, experts say, Sugon could develop chips that could make China’s supercomputers more versatile and adaptable and replace those from foreign firms.

“We have worked closely with and been very clear with U.S. government officials on the strategy and specifics of the technology, which is classified as permitted for export,” an A.M.D. spokesman said in an emailed statement. He added that the processors are also lower performing than other options that A.M.D. sells in America.

Executives in Chengdu said there was a firewall between the two joint ventures, and the one outside of A.M.D.’s control was not involved in chip development.

Yet in an interview with the Chinese state news media, Zhang Yunquan, a top government researcher and head of the National Supercomputing Center in Jinan, China, said that Sugon could use the work of the joint venture to make supercomputer microchips. Such a supercomputer would be crucial in designing next-generation weapons systems, according to experts.

“When they first announced the partnership I was shocked,” said Stacy Rasgon, a semiconductor analyst with Sanford Bernstein.

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An electric-car charging station in Beijing last month. Foreign automakers will soon be required to make electric vehicles in China, now the world’s largest car market, if they want to continue to sell gasoline-powered cars there.

Credit
Gilles Sabrié for The New York Times

“You would think intellectual property and joint ventures would belong under Cfius review,” Mr. Rasgon said, referring to the Committee on Foreign Investment in the United States, which reviews foreign deals. “It should. It’s surprising it isn’t.”

New Rules for a New Era?

For some in the Trump administration, an 18-year-old book by two Chinese Air Force colonels has become required reading.

Called “Unrestricted Warfare,” the book argues that China does not need to match the United States militarily. Instead China can take advantage of the global economy and the internet to take down its main rival.

Some American officials see in it a guide to China’s plan. Some United States lawmakers are proposing to toughen American takeover laws to evaluate deals on an economic as well as a national security basis. They are also pressing for reviews of licensing agreements and joint ventures. The United States trade representative has also launched an investigation into whether Chinese companies are stealing intellectual property.

“There’s concern that U.S. firms are transacting away their competitive advantages,” said Greg Levesque, managing director of Pointe Bello, a research firm in Washington, and a former executive at the US-China Business Council.

Such changes could ripple through the tech world. Chinese investment often means more money with fewer strings attached. Some tech companies say that is good for innovation. China’s spending on science and research is also growing at a time when the United States government and others are cutting back.

Still, many American companies fear the deck is stacked against them. The United States long believed bringing China into the World Trade Organization, which oversees global trade disputes, would ensure it would follow the rules. But the W.T.O. has proved ineffective when it comes to tech issues.

At a recent dinner event in Washington, an American technology executive held up a dinner plate to illustrate the size of the China market, said a person who was there who asked not to be identified because the event was not public. Then the American executive held up a wine coaster that represented the size of his firm’s business.

The message was clear: American companies are at risk of being muscled out of the market.

“Made in China 2025 seems to reject all notions of comparative advantage and future opportunities for high-value-added manufactured exports from the rest of the world to China,” said Jeremie Waterman, president of the China Center at the United States Chamber of Commerce.

“If Made in China 2025 achieves its goals,” he said, “the U.S. and other countries would likely become just commodity exporters to China — selling oil, gas, beef and soybeans.”

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