Foreign and Defense Policy, Asia, China

US-China technology trouble

Image Credit: 360b / Shutterstock.com

Image Credit: 360b / Shutterstock.com

Things just got ugly. There is now such a stark contrast between how the US treats Chinese technology companies and how China treats US technology companies that Congress may throw a fit. And it will be justified, even if the result harms Sino-American relations.

The story begins with the Chinese government that took office in March 2013. Whatever one thinks of their much-touted domestic economic reform plans, their treatment of multinational companies has been poor from the start, eventually reaching American tech giant Qualcomm.

The attack on foreign companies may have culminated this week in open blackmail by China’s National Development and Reform Commission; the threat of a huge fine is being used to try to force Qualcomm to turn over technology.

This is bad enough. It becomes much bigger news with the otherwise innocuous actions of Chinese computer leader Lenovo. Last week, Lenovo announced its intention to buy IBM’s low-end computer server business for $2.3 billion. Now Lenovo wants to buy Motorola Mobility, which makes Android and Bluetooth products, from Google for $2.9 billion.

Considered in isolation, there is nothing wrong with Lenovo’s two purchases. We have an open market and IBM and Google want to sell.

These are technology purchases, but not advanced technology. They probably should be reviewed by the Committee on Foreign Investment in the United States (CFIUS), whose job it is to make sure sensitive American technology is protected. Because advanced technology does not seem to be involved, the acquisitions probably would be approved by CFIUS. And, considered in isolation, this would be the proper decision.

However, China’s National Development and Reform Commission is essentially undermining Lenovo and its American partners. The IBM deal was going to be the largest technology purchase by a Chinese firm, then almost immediately got passed as the largest by the Google deal.

At the same time, the National Development and Reform Commission is threatening Qualcomm with the largest fine ever imposed on a foreign company. These two records cannot coexist.

Books could be written on how poorly Chinese respects intellectual property. The independent company Motorola used to be was itself a victim of Chinese theft on multiple occasions. The defense offered in some quarters, increasingly half-heartedly, is that China’s treatment of IP has been slowly improving. True, but this improvement has been effectively reversed under the current government.

It would be unfortunate if the Lenovo deals were caught in the political crossfire made unavoidable by Beijing’s own choices. But it will be much more unfortunate if President Obama and the Congress do not decisively act to limit Chinese theft and coerced technology transfer. There are direct means to do this – various kinds of restrictions on Chinese access to our market – which have risks and should be carefully considered.

Thankfully, there are also indirect ways to apply considerable pressure on China, and not only defend but enhance free trade. The most obvious is quickly concluding a Trans-Pacific Partnership agreement that has high standards for IP protection. There are also other important multilateral trade talks that should now move forward without China.

The American market should be genuinely open to all foreign partners of good faith. The People’s Republic of China is not acting like one at present and has to be treated accordingly.

Follow AEIdeas on Twitter at @AEIdeas.

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