Qualcomm and China: Why US Technology Secrets Need Maximum Protection

| JAN 25, 2018 | 9:09 PM

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Apple Threatens To Drop Qualcomm Wireless Chips From iPhone

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This year looks like it may well be the year when Congress finally turns its attention to the defense of America's technological pre-eminence, specifically by imposing stricter oversight over foreign businesses attempting to acquire or control U.S. technology companies and their intellectual property.

Under former President Barack Obama, the U.S. was open for business, and, as far as the federal government was concerned, Chinese state-owned companies and other bad actors could pillage the U.S. tech sector more or less at will. President Donald Trump sees things differently. He prioritizes our national security over all other concerns and, as a result, his administration is already blocking deals that would compromise U.S. technology secrets. Congress is gradually getting the message, too.

How do we know this? In September 2017, the Trump administration vetoed the proposed acquisition of a U.S. semiconductor company by a Chinese fund, despite an appeal to Trump himself by the prospective dealmakers.

Now, the House and Senate are taking up the gauntlet by holding hearings about bolstering the authority of the all-important CFIUS: The Committee on Foreign Investment in the United States.

This committee makes recommendations to the president about whether proposed deals between U.S. companies and foreign entities pose risks to national security. Already, CFIUS is expanding its reach into whole new industries, but now, Congress wants to arm the committee with new powers to potentially stymie any questionable foreign deal, not just those that give foreign businesses a controlling interest in a U.S. company.

The result would be the most robust system for defending U.S. technology secrets in this country's history. Given the determination of strategic competitors and potential adversaries like China to obtain U.S. know-how, these reforms are long overdue.

If Americans are seeking evidence that Chinese penetration of the U.S. tech sector is already well advanced, they need look no further than Qualcomm, the San Diego-based telecommunications and semiconductor company that has become famous for its shady dealings with Chinese companies. I have previously addressed Qualcomm's track record of inveigling itself in corrupt relationships with Chinese businesses. Garden variety corruption, including bribery, however, is just the tip of the iceberg.

First, we must understand the context: The Chinese market accounts for the majority of Qualcomm's revenue. Thus, to suggest that Qualcomm is, in any meaningful sense, an American company is problematic.

Not surprisingly, Qualcomm has been cutting deals left and right with the Chinese government to safeguard its primary asset: its ability to sell licensing agreements to Chinese companies that wish to use Qualcomm's technology. This includes a $280 million deal between Qualcomm and the government of China’s Guizhou province in 2016.

Qualcomm has bent over backward to subordinate itself to Chinese government priorities, including its determination to become the world leader in sensitive areas such as artificial intelligence and robotics. An example would be Qualcomm's recent heavy investments in the Chinese AI firm SenseTime.

SenseTime's Chinese CEO, speaking about the partnership with Qualcomm, recently declared: “Together, we’ll push the envelope and extend AI to places that are currently beyond reach. Our strategic collaboration will become a turning point for the whole AI ecosystem.” Qualcomm has also formed partnerships with Chinese companies with acknowledged government ties, including ties to the military and the intelligence community.

One of these companies is Baidu, which China's Ministry of Science and Technology recently named as part of its “National Team” working on artificial intelligence. Qualcomm, not surprisingly, was already committed to a “strategic collaboration” with Baidu.

Baidu's situation is typical in China, where it is often hard to discern where government ends and the private sector begins. According to Raymond Wang, a consultant with Roland Berger, “in comparison, the U.S. and European countries foster industry growth through government research funding and legislation, but would never elevate individual companies like Google to lead national platforms."

The People's Republic of China, though, has no qualms about picking favorites in critical industries such as AI — and Qualcomm apparently has no problem doing business with these government-backed entities. The potential for technological mischief is obvious.

Qualcomm represents a textbook case of a U.S. company whose bottom line is dependent on a close, fruitful relationship with the Chinese government, and with Chinese companies heavily influenced or directly controlled by that government.

Every deal Qualcomm cuts with Chinese companies must, for this reason, be viewed with skepticism by the American people, and more importantly by CFIUS, Congress, and/or the Trump administration. Broadly speaking, we need to be vigilant, not only about the activities of foreign firms in the U.S., but also with regard to the overseas dealings of U.S. companies.

Some would say we can rely on companies like Qualcomm to police themselves and that the vast profits that can be made in the China trade outweigh any potential loss of America's technological edge.

My response? Tell that to American soldiers, sailors, and airmen who may someday (God forbid) be in the sights of Chinese weapons. Let's make sure that, if and when that day comes, our side holds the advantage, and the Chinese are always playing technological catch-up. Anything less would amount to a rank betrayal of our national interests.

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