Commerce Secretary Penny Pritzker criticized a $150-billion plan by the Chinese government to expand the share of Chinese-made integrated circuits in the domestic market from 9% today to 70% by 2025.
"The world has seen the effects of this type of targeted, government-led interference before," she said. "The result has been overcapacity in the global marketplace that has artificially reduced prices, cost jobs in both the United States and around the world, and caused significant damage to those industries globally."
"In addition, we are seeing new attempts by China to acquire companies and technology based on their government’s interests -- not commercial objectives. And we have witnessed attempts to restrict access to China’s domestic market," she said. She went on to say that "no government should require technology transfer, joint-venture, or localization as a quid pro quo for market access."
She does not understand what is actually going on.
Take a look at what has happened between Germany and China, as described in Der Spiegel's Product Piracy Goes High-Tech: Nabbing Know-How in China, Harmony and Ambition: China's Cut-Throat Railway Revolution, and Beijing's High-Tech Ambitions: The Dangers of Germany's Dependence on China.
The Transrapid, a magnetic levitation train designed by a consortium of German industrial giants Siemens and ThyssenKruppp, was expected to do well in China. As it does with many companies, China demanded that the trains be manufactured in China. This is a common practice around the world to ensure that local jobs are created. A short line was built in the Shanghai area. But then in December 2004, Chinese engineers were videotaped breaking into the Transrapid maintenance room in the middle of the night and taking measurements of the train. There were no more orders for the Transrapid, with Chengdu Aircraft Industrial now being in the business of building Transrapid-style railways around the country.
"Dozens of Chinese manufacturers are shamelessly copying our machines," said Rainer Hundsdörfer, the CEO of Weinig AG, a German company that's been manufacturing machine tools for the Chinese market in its plant in China since 1997. Hundsdörfer constantly discovers copies of his company's products at trade shows. "And when I point this out to the Chinese in their booths, they're not even embarrassed. On the contrary. They're proud of the quality of their copies and want to know how they can improve them even further," he says, half outraged and half amused. The Chinese are "incredibly bold," even using photos taken directly from Weinig brochures in their own product catalogs.
Around twenty years ago, Siemens was sending entire fossil fuel power plants to China. China demanded that Siemens share the technology used in these plants. And now Chinese companies are producing those same plants, with Siemens only supplying the parts that China has not yet started manufacturing.
The general railway market was the real prize, however. Siemens, Alstom, Bombardier, and Kawasaki all wanted to sell train sets in China. But China demanded that all four companies share their technology. And now China South Locomotive & Rolling Stock manufactures train sets with perhaps the highest technology in the world, which was only possible because the Western companies traded their crown jewels for a short period of sales.
Der Spiegel asked "how attractive are these types of deals to Western companies when they're being forced to essentially give away costly technology -- or at least look the other way when it's copied by the Chinese?"
The answer lies in the radically different culture of China.
Siemens has a plant in Sacramento, California, which supplies light rail vehicles to Denver, Los Angeles, Pittsburgh, Sacramento, Salt Lake City, and St. Louis, as well as the Canadian cities of Calgary and Edmonton. No American company has started manufacturing Siemens-style light rail vehicles because intellectual property (IP) laws are upheld here. But Chinese courts refuse to prosecute when it comes to foreign IP.
"The scale of international theft of American intellectual property is unprecedented -- hundreds of billions of dollars per year, on the order of the size of US exports to Asia," reported the Commission on the Theft of American Intellectual Property.
As I wrote before, AMD has given its crown jewels to China in the hope that it will remain in the Chinese market, but it won't be long before we see AMD-style processors for sale. The only question is whether AMD will be able to prevent China from selling its copies outside China.
China's rationale for wanting mostly domestic processors are threefold. First, it will save China a great deal of money in licensing fees. Second, it will reduce spying by the NSA. And third, it will have products it can sell to the world, with those products potentially having firmware and hardware to steal yet more technology, as is happening with Lenovo PCs , or prevent users from attacking China.
It has little to do with rigging the semiconductor market or what its actions represent for jobs in other countries. China now has the technology for all major chip architectures including x86, ARM, and Power. Game over.
The multinational corporate lobby answered with its usual answers: an increase in H-1B visas, lower taxes, and more free trade agreements, even though H-1B visa abuse is rampant, growth was much higher during Eisenhower's terms when personal tax rates exceeded 90%, and free trade agreements have resulted in massive job losses.
During the Cold War, the U.S. did not trade with the Soviet Union, but somehow our leaders allow massively unbalanced trading with China. Some of its weapons were stolen from the U.S. and Russia and others were bought or manufactured using the trillions we have given it. The upcoming war with China, probably triggered by the conflict in the South China Sea, may go very badly.