How Qualcomm, a US tech giant, is backing China's tech ambitions

Providing money, expertise, engineering for Beijing's master plan to create its own tech superpowers

As the Chinese government develops drones, the American technology giant Qualcomm is helping. The same goes for artificial intelligence, mobile technology and supercomputers. Qualcomm is also working to help Chinese companies like Huawei break into overseas markets in support of China’s “go global” campaign to develop big multinational brands.

Qualcomm is providing money, expertise and engineering for Beijing’s master plan to create its own technology superpowers.

Big American companies fiercely protect their intellectual property and trade secrets, fearful of giving an edge to rivals. But they have little choice in China — and Washington is looking on with alarm.

To gain access to the Chinese market, American companies are being forced to transfer technology, create joint ventures, lower prices and aid homegrown players. Those efforts form the backbone of President Xi Jinping’s ambitious plan to ensure that China’s companies, military and government dominate core areas of technology like artificial intelligence and semiconductors.

As concerns mount about Beijing’s industrial policy, the Trump administration is preparing a broad investigation into potential violations of American intellectual property, according to people with knowledge of the matter. Congress is also considering ways to restrict China’s ability to acquire advanced technology by toughening rules to prevent the purchase of American assets and limit technology transfers.

In this arena, America’s economic interests are aligned with its national security needs. The worry is that by teaming up with China, American companies could be sowing the seeds of their own destruction, as well as handing over critical technology that the United States relies on for its military, space and defence programmes.

Advanced Micro Devices and Hewlett Packard Enterprise are working with Chinese companies to develop server chips, creating rivals to their own product. Intel is working with the Chinese to build high-end mobile chips, in competition with Qualcomm. IBM has agreed to transfer valuable technology that could enable China to break into the lucrative mainframe banking business.

“There’s a great deal of unease in Washington,” said James Lewis, an analyst at the Center for Strategic and International Studies, a Washington-based think tank. “The defence, intelligence agencies and others are concerned that advanced chip-making capabilities are going to China.” Qualcomm declined to comment, as did Intel.

Qualcomm is caught in the middle. The world’s dominant mobile phone chip maker, Qualcomm ran afoul of the Chinese government, getting hit in 2015 with a record $975 million fine for anticompetitive behaviour. To get back in Beijing’s good graces, the company agreed to lower its prices in China, promised to shift more of its high-end manufacturing to partners in China, and pledged to upgrade the country’s technology capabilities.

The extent of Qualcomm’s involvement with the Chinese government — and the complications for American tech giants — is seen in a low-slung office building in the southwest part of the country. There, a team of engineers is developing leading-edge microchips to compete with the finest made by Intel. The chips will help power a huge data and cloud center with the potential to strengthen the country’s computing capabilities. 

The government is providing land and financing to the start-up formed with Qualcomm, called Huaxintong Semiconductor. Qualcomm has provided the technology and about $140 million in initial funding. “Qualcomm has a balancing act,” said Willy Shih, who teaches at Harvard Business School. “Most of the world’s PCs are made in China, and most of the world’s smartphones too, so they have to play along. It’s a fact of life.”

Qualcomm was early to break into China. In the mid-1990s, as China’s economy began to boom, President Bill Clinton pressed the country’s leaders to open to American technology companies.

Members of the Clinton administration, including Charlene Barshefsky, the United States trade representative, and William M Daley, the secretary of commerce, were dispatched to Beijing to hammer out the details. They pushed for one company by name: Qualcomm.

“At the time, they were the only US show in town,” Barshefsky said. “Bill Daley and I pushed the Chinese hard on accepting the US standard for wireless technology,” she added, “and that was Qualcomm.”

Mobile phone adoption was taking off globally, largely backed by a European wireless standard called GSM, or global system for mobile communications. Qualcomm had a competing American standard called CDMA, or Code Division Multiple Access.

Irwin M Jacobs, a founder of Qualcomm, spearheaded an aggressive lobbying campaign in Washington and Beijing, promoting the technology’s potential to transform wireless communication markets.

© 2017 The New York News Service