“By any means necessary”: China’s Huawei Technologies flies close to the sun in its quest commandeer proprietary technology.

Not all-smiles at the moment … Chinese leader Xi Jinping.

In China, it’s difficult to discern where private industry ends and the government begins. At some level, we’ve been aware of that conundrum for decades.

Still … opportunities for doing business in the world’s largest country have been a tempting siren call for American companies. And over the past 15+ years, conducting that business has seemed like the “right and proper” thing to do — what with China joining the G-8+5 economic powers along with incessant cheerleading by the U.S. Department of Commerce, abetted by proactive endeavors of other quasi-governmental groups promoting the interests of American commerce across the globe.

But it’s 2019 and circumstances have changed. It began with a change in political administrations in the United States several years ago, following which a great deal more credence has been given to the undercurrent of unease businesspeople have felt about the manner in which supposedly proprietary engineering and manufacturing technologies have suddenly popped up in China as if by magic, pulling the rug out from under American producers.

Nearly three years into the new presidential administration, we’re seeing evidence of this “new skepticism” begin to play out in concrete ways. One of the most eye-catching developments – and a stunning fall from grace – is Huawei Technologies Co., Ltd. (world headquarters: Shenzhen, China), one of the world’s largest makers of cellphones and high-end telecom equipment.

As recounted by NPR’s Weekend Edition reporter Emily Feng a few days ago, Huawei stands accused of some of the most blatant forms of technology-stealing.  Recently, the Trump administration banned all American companies from using Huawei equipment in its 5G infrastructure and is planning to implement even more punitive measures that will effectively prevent U.S. companies from doing any business at all with Huawei.

Banning of Huawei equipment in U.S. 5G infrastructure isn’t directly related to the theft of intellectual property belonging to Huawei’s prospective U.S. suppliers.  Rather, it’s a response to the perceived threat that the Chinese government will use Huawei equipment installed in U.S. 5G mobile networks to surreptitiously conduct espionage for military, political or economic purposes far into the future.

In other words, as one of the world’s largest telecom players, Huawei is perceived as a direct threat to non-Chinese interests not just on one front, but two: the demand side and the supply side.  The demand-side threat is why the Trump administration has banned Huawei equipment in U.S. 5G infrastructure, and it has also publicly warned the U.K. government to implement a similar ban.

As for the supply side, the Weekend Edition report recounts the intellectual property theft experience of U.S.-based AKHAN Semiconductor when it started working with Huawei. AKHAN has developed and perfected an ingenious form of diamond-coated glass – a rugged engineered surface perfectly suited for smartphone screens.

Huawei expressed interest in purchasing the engineered glass for use in its own products. Nothing wrong with that … but Huawei used product samples provided by AKHAN under strict usage-and-return guidelines to reverse-engineer the technology, in direct contravention of those explicit conditions – and in violation of U.S. export control laws as well.

AKHAN discovered the deception because its product samples had been broken into pieces via laser cutting, and only a portion of them were returned to AKHAN upon demand.

When confronted about the matter, Huawei’s company officials in America admitted flat-out that the missing pieces had been sent to China.  AKHAN enlisted the help of the FBI, and in the ensuing months was able to build a sufficient case that resulted in a raid on Huawei’s U.S. offices in San Diego.

The supply side and demand side threats are two fronts — but are related.  One of the biggest reasons why Huawei kit has been selected, or is being considered, for deployment on 5G mobile networks worldwide is due to its low cost. The Chinese government, so the thinking goes, “seduces” telecom operators into buying the Huawei kit by undercutting all competitors, thereby gaining access to countless espionage opportunities. To maintain its financial footing Huawei must keep its costs as low as it can, and one way is to avoid R&D expenses by stealing intellectual property from would-be suppliers.

AKHAN is just the latest – if arguably the most dramatic – example of Huawei’s pattern of technology “dirty tricks” — others being a suit brought by Motorola against Huawei for stealing trade secrets (settled out of court), and T-Mobile’s suit for copying a phone-testing robot which resulted in Huawei paying millions of dollars in damages.

The particularly alarming – and noxious – part of the Huawei saga is that many of its employees in the United States (nearly all of them Chinese) weren’t so keen on participating in the capers, but found that their concerns and warnings went unheeded back home.

In other words – the directive was to get the technology and the trade secrets, come what may.

This kind of behavior is one borne from something that’s far bigger than a single company … it’s a directive that’s coming from “China, Inc.”  Translation: The Chinese government.

The actions of the Trump administration regarding trade policy and protecting intellectual property can seem boorish, awkward and even clumsy at times. But in another sense, it’s a breath of fresh air after decades of the well-groomed, oh-so-proper “experts” who thought they were the smartest people in the room — but were being taken to the cleaners again and again.

What are your thoughts about “yesterday, today and the future” of trade, industrial espionage and technology transfer vis a vis China? Are we in a new era of tougher controls and tougher standards, or is this going to be only a momentary setback in China’s insatiable desire to become the world’s most important economy?  Please share your thoughts and perspectives with other readers here.

China-bashing is taking its toll.

Over the past year, Americans have been fed a fairly steady stream of news about the People’s Republic of China – and most of it hasn’t been particularly positive.

While Russia may get the more fevered news headlines because of the various political investigations happening in Washington, the current U.S. presidential administration hasn’t shied away from criticizing China on a range woes – trade policy in particular most recently, but also diverse other issues like alleged unfair technology transfer policies, plus the building of man-made islands in the South China Sea thereby bringing Chinese military power closer to other countries in the Pacific Rim.

The drumbeat of criticism could be expected to affect popular opinion about China – and that appears to be the case based on a just-published report from the Pew Research Center.

The Pew report is based on a survey of 1,500 American adults age 18 and over, conducted during the spring of 2018.  It’s a survey that’s been conducted annually since 2012 using the same set of questions (and going back annually to 2005 for a smaller group of the questions).

The newest study shows that the opinions Americans have about China have become somewhat less positive over the past year, after having nudged higher in 2017.

The topline finding is this: today, ~38% of Americans have a favorable opinion of China, which is a drop of six percentage points from Pew’s 2017 finding of ~44%.  We are now flirting with the same favorability levels that Pew was finding during the 2013-2016 period [see the chart above].

Drilling down further, the most significant concerns pertain to China’s economic competition, not its military strength. In addition to trade and tariff concerns, another area of growing concern is about the threat of cyber-attacks from China.

There are also the perennial concerns about the amount of U.S. debt held by China, as well as job losses to China; this has been a leading issue in the Pew surveys dating back to 2012. But even though debt levels remain a top concern, its raw score has fallen pretty dramatically over the past six years.

On the other hand, a substantial and growing percentage of Americans expresses worries about the impact of China’s growth on the quality of the global environment.

Interestingly, the proportion of Americans who consider China’s military prowess to be a bigger threat compared to an economic threat has dropped by a statistically significant seven percentage points over the past year – from 36% to 29%. Perhaps unsurprisingly, younger Americans age 18-29 are far less prone to have concerns over China’s purported saber-rattling – differing significantly from how senior-age respondents feel on this topic.

Taken as a group, eight issues presented by Pew Research in its survey revealed the following ranking of factors, based on whether respondents consider them to be “a serious problem for the United States”:

  • Large U.S. debt held by China: ~62% of respondents consider a “serious problem”
  • Cyber-attacks launched from China: ~57%
  • Loss of jobs to China: ~52%
  • China’s impact on the global environment: ~49%
  • Human rights issues:  ~49%
  • The U.S. trade deficit with China: ~46%
  • Chinese territorial disputes with neighboring countries: ~32%
  • Tensions between China and Taiwan: ~21%

Notice that the U.S. trade deficit isn’t near the top of the list … but Pew does find that it is rising as a concern.

If the current trajectory of tit-for-tat tariff impositions continues to occur, I suspect we’ll see the trade issue being viewed by the public as a more significant problem when Pew administers its next annual survey one year from now.

Furthermore, now that the United States has just concluded negotiations with Canada and Mexico on a “new NAFTA” agreement, coupled with recent trade agreements made with South Korea and the EU countries, it makes the administration’s target on China as “the last domino” just that much more significant.

More detailed findings from the Pew Research survey can be viewed here.

Jobless Americans and Gallows Humor …

Jobless AmericansThere’s a funny-yet-sobering ditty bounding about cyberspace that chronicles a day in the life of an unemployed American looking for work.

Whether it’s the alarm clock, the coffee pot, clothing, appliances, the car and the gasoline it takes to run it, everything with which this person interfaces during the course of the day comes from overseas – especially China or some other East Asian country.

For those of you who haven’t encountered this satirical little piece yet, you can read it here.

Dana Bales, an industry colleague of mine who is a managing partner at Dayton, OH-based NEO Marketing Communications, reacted to this joke by noting a few key points about China. He writes:

I’m a free trade advocate. I absolutely support NAFTA. But for the life of me, I don’t get our trade relationship with China. Let me get this straight:

 China imposes trade barriers to many of our goods and services.

 China allows its industries to pollute with impunity, keeping its costs for manufactured goods lower while adding to atmospheric and oceanic pollution.

 China allows its citizens and companies to rip off non-Chinese patents.

 Although experts may disagree on the degree of impact, China manipulates its currency to benefit its own export goods.

 China actively supports efforts to hack into U.S. corporate and defense systems, stealing untold billions of dollars’ worth of technology.

 China uses American dollars to subsidize its own industries.

Food for thought, indeed – even if you don’t agree with every single one of Bales’ statements.

It would be nice, too, if our government and trade officials could focus on coming up with some workable solutions to these issues. I think we’d all be happier if we could relegate this sort of gallows humor to the literary trash can!