Qualcomm is providing the money, expertise and engineering to help drive Beijing’s master plan to create its own technology superpowers, the Times reports.
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 defense programs.
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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 defense, 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 behavior. 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. No longer content to rely on buying the chips that go into cellphones, computers and cars, China now wants to design and build the brains that drive much of the digital world.
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 U. S. show in town, ” Ms. Barshefsky said.
“Bill Daley and I pushed the Chinese hard on accepting the U. S. 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 G. S. M., or global system for mobile communications. Qualcomm had a competing American standard called C. D. M. A., 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.
“We knew China would be important, and they didn’t have their own system, ” said Perry LaForge, a former Qualcomm executive. “We also told them this system would give them an opportunity to manufacture their own handsets, and not rely on buying them from other countries.”
When Qualcomm first entered China in the late 1990s, it was slow to gain traction. The company struggled to find Chinese partners to produce mobile phones that worked with its network. China also tried to develop its own wireless standard.
Qualcomm eventually won out, helping write the standards for next-generation mobile technology, 3G and 4G service. The standard championed by European telecom providers faded rapidly. And China’s homegrown technology struggled.
By 2013, virtually every wireless device around the world was reliant on either Qualcomm’s chips or its patents — enough to provide some of the technology industry’s fattest profit margins.
With its dominance rising, global brands like Apple and Samsung began complaining to regulators around the world, citing “discriminatory” pricing practices and high royalty fees. In China, a trade group made up of the country’s major handset makers complained about patent holders levying “exorbitant licensing fees.”
“These days a smartphone is covered by about 250,000 patents, ” said Dieter Ernst, a senior fellow at the East-West Center, a research and educational center based in Honolulu. “A Chinese smartphone maker needs to negotiate license agreements with companies like Qualcomm that own the essential patents.”
“The Chinese government was worried about this, ” he added. “That all these costs could constrain Chinese companies.”
The raids began at dawn, in late November 2013. Investigators descended upon Qualcomm’s offices in Beijing and Shanghai, questioning the staff and hauling away laptops and documents.
At the time of the raids, the San Diego-based company’s senior managers were at the Ritz-Carlton Hotel in New York, attending an investor conference. The executives were planning to talk about the company’s strategy. Instead, they began fielding frantic phone calls from China.
The China business, which accounted for more than half of its global revenue, was in trouble.
A week later, one of the country’s most powerful regulatory agencies, the National Development and Reform Commission (N.
