Sino-American Threat

SINO-AMERICAN STOLE MISSILE SECRETS FOR CHINA, FACES 219 YEARS IN PRISON

Shih Yi-chi, a Sino-American electrical engineer and former adjunct professor at UCLA, illegally sent semiconductors with military applications to China.

By Mark Magnier

Sino-American Shih Yi-chi has been found guilty of illegally exporting semiconductors to China.

A Sino-American electrical engineer faces up to 219 years in prison after a federal jury found him guilty of illegally shipping semiconductors with military applications to China.
After a six-week trial in southern California, Shih Yi-chi, a 64-year-old part-time Los Angeles resident and former president of a Chinese semiconductor company, was found guilty of making false statements to a government agency, mail and wire fraud and filing false tax returns.
Shih, who had also been an adjunct professor of engineering at the University of California, Los Angeles, was convicted of conspiring to gain unauthorised access to a protected computer and violating the International Emergency Economic Powers Act, a federal law barring unauthorised exports, the Justice Department said on Tuesday.
Shih, a naturalised US citizen, was convicted of 18 counts on June 26 after being indicted by a federal grand jury.
Shih faces the forfeiture of hundreds of thousands of dollars’ worth of assets. 

US District Judge John Kronstadt has not scheduled hearings to consider the forfeiture issue or pronounce sentence.

“The department’s China Initiative is focused on preventing and prosecuting thefts of American technology and intellectual property for the benefit of China,” Assistant Attorney General for National Security John Demers said in a prepared statement. 

Demers credited the Royal Canadian Mounted Police (RCMP) for its help in investigating and prosecuting the case.

The Canadians got involved because US authorities asked the RCMP to search the lab of Shih Ishiang, Shih’s brother and an associate engineering professor at McGill University in Montreal. 

The two have collaborated on numerous scientific projects and there are no export restrictions between the US and Canada.

According to evidence presented at the trial, Shih and co-defendant Kiet Ahn Mai, 65, of Pasadena, California, gained unauthorised access to a protected computer owned by a US maker of wideband, high-power semiconductor chips known as monolithic microwave integrated circuits, or MMICs. 

The identity of the American company was not given.
Shih gained access to the US computer’s systems through its web portal after Mai posed as a customer trying to buy custom-designed MMICs that would be used solely in the United States.

Shih and Mai concealed Shih’s intention to send the semiconductors to China.

“This defendant schemed to export to China semiconductors with military and civilian uses, then he lied about it to federal authorities and failed to report income generated by the scheme on his tax returns,” said Nicola Hanna, a US attorney for the Central District of California.
The chips are used in missiles, missile guidance systems, fighter jets, electronic warfare, electronic warfare countermeasures and radar applications, and the company’s customers include the US Air Force, Navy and the Defence Advanced Research Projects Agency.
The company that the Justice Department declined to identify was Cree Inc, a foundry in Durham, North Carolina, that makes prototypes. 

The chips were sent to Chengdu GaStone Technology Company (CGTC), a Chinese firm building an MMIC manufacturing facility in Chengdu, where Shih was president until 2014.
Chengdu GaStone was placed on the Commerce Department’s Entity List in 2014, according to court documents, “due to its involvement in activities contrary to the national security and foreign policy interest of the United States – specifically, that it had been involved in the illicit procurement of commodities and items for unauthorised military end use in China”.
Shih used a Hollywood Hills-based company he controlled known as Pullman Lane Productions LLC to funnel funds from China to buy MMICs from the unnamed American company. 

Assistant Attorney General for National Security John Demers announcing the creation of the China Initiative, intended to crack down on hacking and intellectual property theft, on November 1 in Washington. 

Pullman Lane received funding from a Chinese company that was placed on the Entity List the same day as CGTC “on the basis of its involvement in activities contrary to the national security and foreign policy interests of the United States,” according to court documents.

Mai pleaded guilty in December 2018 to one count of smuggling and is scheduled to be sentenced on September 19. 

He faces up to 10 years in federal prison. 

His lawyer could not be reached for comment.
“The FBI is committed to protecting institutions from adversaries who seek to steal sensitive American technology under the guise of research,” said Paul Delacourt, assistant director of the FBI’s Los Angeles field office.
Delacourt said the FBI would “identify and hold accountable individuals who plunder our research or intellectual property at the expense of the American people and our national security.”
US Attorney Nick Hanna said Shih "schemed to export to China semiconductors with military and civilian uses, then he lied about it to federal authorities and failed to report income generated by the scheme on his tax returns."
"My office will enforce laws that protect our nation's intellectual property from being used to benefit foreign adversaries who may compromise our national security," Hanna added.
Over the past few years, the US has stepped up measures to protect American intellectual property against what it calls China's unfair trade tactics. 

The trend has been accelerated under the presidency of Donald Trump.

Taiwan’s Technology Secrets Come Under Assault From China

Trying to break into semiconductor markets, mainland companies are accused of poaching employees and stealing data
By Chuin-Wei Yap

Micron Technology Inc. chips.

HSINCHU, Taiwan—In late 2016, an engineer at Taiwan Semiconductor Manufacturing Co., the world’s largest contract chip manufacturer, received a call from a Chinese rival company asking if he would be interested in a job as chief engineer to advance work on chips used in mobile phones and game consoles.
The offer was notable, according to a court in Taiwan, because the engineer had no expertise in that type of chip.
What he did have was access to records.
Over a two-week period, he illegally downloaded, printed, then photocopied—using a company copier—reams of TSMC’s trade secrets he planned to send to the Chinese rival, state-owned Shanghai Huali Microelectronics Corp., according to the Taiwanese court.
The engineer, Hsu Chih-Peng was intercepted in a TSMC probe days before he was to start his new job, said the court, which in November handed Hsu a suspended 18-month prison sentence on charges of stealing company secrets.
Huali didn’t respond to requests for comment, and Hsu’s attorney declined to comment on the case.

A Micron Technology facility in Taoyuan City, northern Taiwan. 

Taiwan, a self-governed island that makes two-thirds of the world’s semiconductors, is ground zero in a covert war for the technology that increasingly powers the modern global economy.
Taiwanese government officials and company executives say China is deliberately targeting Taiwan, whose manufacturers make chips for the biggest American companies, including Apple Inc., Nvidia Corp. and Qualcomm Inc.
They say China aims both to pressure what it considers a breakaway province and to pursue its own strategic goal of reducing its reliance on foreign suppliers.
Technology-theft cases more than doubled to 21 last year from eight in 2013, according to official data. 
Taiwanese authorities and attorneys say they mostly haven’t indicted Chinese entities believed to be the ultimate beneficiaries, often for political reasons and because they don’t believe they would be able to enforce court judgments on the mainland.
While China manufactures most of the world’s smartphones and computers, it imports almost all the semiconductors needed to provide the logic and memory that run the gadgets.
Last year, China paid $260 billion importing chips—60% more than it spent on oil. 
Chinese leaders want homemade chips to account for 40% of locally produced smartphones by 2025, more than quadruple current levels.
Beijing has $150 billion in funds to develop its own chip industry, frustrated by Washington blocking Chinese takeovers of American manufacturers and efforts to limit investments and exports to prevent the transfer of technology.
Last week, Mr. Trump backed away from a plan to create tough new restrictions on U.S. technology exports to China as officials try to diffuse a looming war over tariffs.
Beijing is using its largess to try to lure businesses and engineers across the Taiwan Strait, sometimes dangling fivefold salary increases, and sometimes enticing recruits to bring design blueprints with them, Taiwanese officials say.
“China’s poaching is getting more and more serious,” said Lin Wei-cheng, of the island’s Ministry of Justice Investigation Bureau.
“We are after all the same race, and there’s the geographic proximity and ease of communication. And we have the expertise.”
A Wall Street Journal study of 10 recent technology-related prosecution cases in Taiwan found that in nine of those, prosecutors allege the technology ended up with or was intended for companies in China.
China’s technology ministry has in public statements said Taiwan and China should cooperate in high-tech sectors including semiconductors.
It didn’t reply to requests for comment on the Taiwanese cases.
One case involved a Taiwanese unit of Idaho-based Micron Technology Inc., America’s largest memory-chip manufacturer. 
On a spring day in 2016, a 41-year-old engineer for the unit opened his company laptop and, according to Taiwanese prosecutors, tapped into Google search: “clear computer use records.”
Wang Yongming found a file-erasing program called CCleaner, which he used to try to delete traces of more than 900 files from his laptop before returning it to his employer, the prosecutors say.
Ten months after Wang returned the laptop to the company and left for a job with a smaller Taiwanese rival, United Microelectronics Corp., Taiwanese authorities say they unearthed evidence of the documents, which detailed production-design secrets of Micron’s memory chips.
In August, Wang and others were indicted in Taiwan on charges of stealing Micron’s trade secrets for illegal use in China.
Prosecutors allege Wang transferred the data to his new employer, which used the designs in service of a Chinese chip maker called Fujian Jinhua Integrated Circuit Co. 
Jinhua is now planning to mass produce its own version of the chips.
In Wang’s case, prosecutors say he has confessed to some charges.
Wang couldn’t be reached, and his attorneys declined to comment.
UMC declined to comment.
Micron, in a separate lawsuit in California, alleges Jinhua masterminded the plan to take a shortcut through a thicket of knowledge Micron accumulated during decades of investment.
Jinhua didn’t respond to multiple messages seeking comment.
Jinhua has denied the charges in public statements, countersued Micron, and said the accusations are part of an effort by “international oligopolists” to block progress by Chinese companies.
In another case, Taiwanese prosecutors in December charged a 46-year-old former employee at Nanya Technology Corp., the world’s fourth-largest memory-chip supplier, with stealing dynamic random access memory, or DRAM, technology while taking online courses provided by the company. Prosecutors say the man used his smartphone to take snapshots of Nanya’s secrets and used them to seek a job with a Chinese producer backed by Tsinghua Unigroup Ltd., China’s largest state-owned chip maker.

A high-tech expo in Beijing last month highlighted China’s semiconductor ambitions. 

Allegations of espionage by Chinese companies aren’t new.
A Chinese professor is awaiting trial in California federal court for stealing cellphone chip technology from two American companies between 2006 and 2011.
TSMC waged court battles in California over proprietary secrets stolen by Chinese rival Semiconductor Manufacturing International Corp.
SMIC disputed but settled the charges.
Attorneys say current cases in Taiwan appear more aggressive and come amid rising political discord between China and Taiwan, which split from the mainland in a civil war seven decades ago and opposes China’s claim to sovereignty over the island.
Beijing’s pursuit of semiconductor secrets is seen as part of its longstanding goal to reabsorb Taiwan under the mainland government.
Its latest salvo, issued in February, is called “31 Measures” and offers a raft of incentives to attract more Taiwanese businesses and highly educated people to study, invest and establish startups in China.
Taiwan’s Vice Premier Shih Jun-ji has called the policy politically motivated, and Taiwan’s leadership has countered by stepping up funding for researchers and business innovation.
Chips underpin Taiwan’s economy almost as much as oil does Saudi Arabia’s.
Semiconductors account for nearly a fifth of the island’s gross domestic product and are by far its largest export, totaling $92 billion last year.
“China is trying very hard to catch up. Over time, it’s a very serious threat to Taiwan’s economy,” said Christopher Neumeyer, an attorney specializing in intellectual property for Taipei-based Duane Morris & Selvam.
The industry has physically reshaped Taiwan.
The sprawling farmland and dusty shophouses of Taichung’s less-developed southern fringe—where Wang lives—give way toward the city’s north to immaculate grass verges and trimmed roads leading to gleaming glass and steel edifices, home to chip giants including Micron and Taiwan’s Siliconware Precision Industries Ltd.
That growth is now leavened with anxiety.
Though there are few external signs of enhanced security beyond guards assiduously checking visitor identification, companies here say they have stepped up internal measures since they began to sense China’s rising interest in their trade secrets.
After Wang’s theft, Micron’s Taiwan unit beefed up policies to bar cameras from areas where chips are assembled and information exchanged, block downloads outside its network, and disable ports for USB drives.
Micron felt it “should have gotten some of the more stringent policies in place faster that would have avoided this,” a person familiar with the matter said.
Wang took advantage of a lapse in security during an office move to transfer the files, the person said.
In all, Micron lost 200 engineers in 2016 and 2017 to firms supplying Chinese rivals.
Wang was one of 50 who jumped to UMC after Stephen Chen, former president at Micron Memory Taiwan, made the switch in July 2015.
Chen, who joined Jinhua as president in February 2017—days after investigators raided UMC offices, didn’t respond to requests for comment.
Around the time Wang left Micron Taiwan, in April 2016, the company conducted an internal investigation based on suspicions that he had made illegal copies of documents.
When investigators raided UMC in February 2017, say Taiwanese prosecutors and Micron, Wang handed his personal cellphone to an assistant and instructed her to take it away—unaware that prosecutors had already obtained a court order to track the device, which also contained incriminating information.
UMC, which Wang joined in April 2016 a few days after trying to erase files from his laptop, had in January 2016 struck a deal with Jinhua to supply the designs to mass-produce DRAM in exchange for more than $700 million in fees, equipment and a cut of future licensing revenues.
Before then, UMC was mostly a foundry that made other companies’ designs.
Micron alleges in its civil lawsuit that Jinhua knew that the technology to be delivered under the deal would be based on Micron’s designs.
The files Wang transferred were a grab bag of production secrets, including test procedures and results, and processes such as placing conductive layers on chips, known as metallization, Micron filings say.
Among the items was a design protocol known as DR25nmS, which provided the basis for Wang to copy instructions that delineate the areas where the chip’s computing takes place.
Analysts say such knowledge is normally acquired via a laborious series of trial-and-error adjustments.
Figuring out such a protocol would take at least three years, if not decades.
In UMC’s case, it took two months, according to Micron.
“The Micron trade secrets that Wang stole proved invaluable to UMC’s development effort and critical to the timeline of the Jinhua DRAM project,” Micron said in its filing.
The speed of UMC’s design development helped Jinhua in October 2016 to start marketing its first two DRAM products, which it called F32 and F32S—names that Micron says were identical to the ones used for chips it produced at its Taiwan facility.
Jinhua is preparing to make trial DRAM chips later this year and mass produce next year, say industry executives and analysts.
Incorporated in February 2016 with a $5.7 billion war chest in state funds, Jinhua is a part of Project 910, the latest phase in a three-decade-old Chinese government program to build globally competitive chip makers.
Shareholders include a handful of companies ultimately owned or controlled by the Fujian provincial government.
Micron’s lawsuit and Taiwan’s indictment say Wang was told before he got hired that he would be transferred to Jinhua at higher remuneration if he satisfied his new employers.
Five months after delivering the secrets to UMC, Wang was promoted to a higher managerial position at UMC, the filings say.
Jinhua is a defendant in Micron’s lawsuit but isn’t named in Taiwan’s indictment, though it is identified as part of the prosecution’s case.
While Taiwanese officials say China’s efforts to steal technology are increasing, investigators and attorneys in Taiwan say it’s impractical to collect evidence and difficult to enforce judgments against China-based defendants.
Taiwan’s law-enforcement officials say they regularly reach out to their mainland counterparts in an effort to resolve the rising theft allegations, to no avail.
“We do talk to China,” said Wu Jung-chun, director of the justice ministry’s economic crime prevention division.
“We provide information to them. But we don’t receive any subsequent response.”

Why Can’t China Make Semiconductors?

After decades of failure, it may now be on the right track

.By Adam Minter

How hard can it be? 

Jack Ma says he's ready for China to make semiconductors at home. 

It's a longstanding goal for the Chinese government. 

And thanks to a recent crackdown on certain technology exports by the U.S., it's now a critical one. The question is whether China can finally conquer this challenge after decades of failures.
Semiconductors are the building blocks of electronics, found in everything from flip phones to the servers that make up a supercomputer. 

Although China long ago mastered the art of making products with semiconductors produced elsewhere (the iPhone is the most famous example), it wants to move beyond being a mere assembler. It aspires to being an originator of products and ideas, especially in cutting-edge industries such as autonomous cars. 

For that, it needs its own semiconductors.
That's no small challenge. 

China is currently the world's biggest chip market, but it manufactures only 16 percent of the semiconductors it uses domestically. 

It imports about $200 billion worth annually -- a value exceeding its oil imports. 

To cultivate a domestic industry, the government has slashed taxes for chip makers and plans to invest as much as $32 billion to become a world leader in design and manufacturing. 

Yet as history shows, spending won't be enough.
China's earliest semiconductor was built in 1956, not long after the technology was invented in the U.S. 

But thanks to the turmoil of the Cultural Revolution, whatever momentum its engineers and scientists had was soon lost. 

When the country reopened for business in the 1970s, officials quickly realized that semiconductors would be a key part of any future market-based economy.
Almost from the start, though, central planning proved to be a serious impediment. 

Early government ideas included importing secondhand Japanese semiconductor lines that were outdated before they were even shipped. 

Expensive efforts to build a domestic industry from scratch in the 1990s faltered due to bureaucracy, delays and a lack of customers for the kind of chips China was making.
Another weakness was a lack of capital. 

For decades, labor-intensive industries -- such as assembling mobile phones -- were the route to riches in China, attracting investment from entrepreneurs and bureaucrats alike. 

Making semiconductors, by contrast, requires billions in up-front capital and can take a decade or more to see a return. 

In 2016, Intel Corp. alone spent $12.7 billion on R&D. 

Few if any Chinese companies have that capacity or the experience to make such an investment rationally. 

And central planners typically resist that kind of risky and far-sighted spending.
China seems to recognize this problem. 

Since 2000, it has shifted away from subsidizing semiconductor research and production, and toward making equity investments, in the hope that market forces could play a larger role. 

Yet funds continue to be misallocated: Over the past 18 months, there's been a spate of government-juiced overinvestment in semiconductor plants, many of which lack sufficient technology. 

Those that eventually open will likely contribute to a glut in memory chips, spelling financial trouble for the domestic industry.
But perhaps the biggest long-term challenge for China is technology acquisition. 

Though the government would like to develop an industry from the ground up, its best efforts are still one or two generations behind the U.S. 

A logical solution would be to buy technology from American companies or form partnerships with them. 

That's the route taken by cutting-edge firms in Japan, South Korea and Taiwan.
Yet China can't do the same. 

Its efforts to purchase American semiconductor companies (often at huge premiums) are regularly blocked for security reasons. 

Japan, South Korea and Taiwan have put Chinese acquisitions under similar scrutiny. 

By one accounting, China has made $34 billion in bids for U.S. semiconductor companies alone since 2015, yet completed only $4.4 billion in deals globally in that span.
Despite these impediments, China has actually made substantial strides in recent years. 

Companies such as Shanghai-based Spreadtrum Communications Inc. are designing semiconductors for mobile phones and other technologies, then outsourcing production to foreign plants. 

Meanwhile, China's considerable investment in factories that make older technologies has provided managers, engineers and scientists some crucial lessons in how to run a semiconductor fabrication business.
None of these efforts will provide the shortcuts that government officials -- and Jack Ma -- seem to want. 

But they might offer the building blocks for an industry that China has spent half a century trying and failing to create.

Chinese Peril: President Trump Weighs Use of Emergency Law to Curb Chinese Takeovers

Goal is to clamp down on acquisitions of sensitive technology
President Trump asked Treasury secretary to act on Chinese investments

By Andrew Mayeda, Saleha Mohsin, and David McLaughlin

The Trump administration is considering a crackdown on Chinese investments in technologies the U.S. deems sensitive by invoking a law reserved for national emergencies, among other options, according to people familiar with the matter.
Treasury Department officials are working on plans to identify technology sectors in which Chinese companies would be banned from investing, such as semiconductors and so-called 5G wireless communications, according to four people with knowledge of the proposal, who spoke on the condition of anonymity.
The investment curbs would be the latest step in President Donald Trump’s plan to punish China for violations of American intellectual-property rights. 

The president asked Treasury Secretary Steven Mnuchin to consider investment restrictions on Chinese firms after the administration released the results of its probe into China’s IP practices last week.
While investors have so far focused on President Trump’s plan to impose tariffs on Chinese imports, new restrictions could deepen a slowdown in Chinese investments in the U.S. since President Trump took office.

“There will be limitations on Chinese investment,” Commerce Secretary Wilbur Ross said Tuesday in an interview on Fox Business Network. 

Pending legislation in the Senate and House to bulk up the Committee on Foreign Investment in the U.S., the panel that currently reviews foreign takeovers, will be part of the response, Ross said, adding that Trump will take “other action.”
The S&P 500 Index dropped 1.7 percent Tuesday, extending this month’s decline, on concern about heightened trade tensions between the world’s largest economies. 

Asian equity markets retreated Wednesday.
“The trade issue and uncertainty related to that is not going to fade in one day because all of a sudden we started thinking that we would reach some sort of a settlement with China,” said Krishna Memani, chief investment officer at OppenheimerFunds Inc. 

“This is going to be somewhat of a long process for things to settle down.”
Earlier this month, the U.S. president rejected Broadcom Ltd.’s hostile takeover of Qualcomm Inc., sending a message that his administration won’t look kindly on any deal that would give China an edge in critical technology. 

Although Broadcom is based in Singapore, China loomed large in the decision, because Qualcomm is locked in a race with China’s Huawei Technologies Co. to dominate the development of next-generation wireless technology.
Last year, President Trump blocked the takeover of chipmaker Lattice Semiconductor Corp. by a private-equity firm backed by a Chinese state-owned asset manager.

If conflicts escalate, China may consider reciprocal measures on more agricultural products, aircraft, automobiles and semiconductors from the U.S., the official Economic Daily reported Wednesday, citing Gu Xueming, director of the Commerce Ministry’s Chinese Academy of International Trade and Economic Cooperation.
President Trump gave Mnuchin 60 days from March 22 to propose executive actions the president can take to address concerns about Chinese investments in industries or technologies “deemed important” to the U.S.
Treasury officials are looking at ways to impose tougher conditions on Chinese firms using legislation that underlies CFIUS, which currently vets foreign takeovers on a case-by-case basis. 

But they are also weighing the use of a law that enables the president to regulate commerce in a national emergency, two of the people said.
The International Emergency Economic Powers Act, enacted in 1977, allows the president to declare a national emergency in response to an “unusual and extraordinary threat.” 

After declaring such an emergency, the president can block transactions and seize assets.
“It’s never been used in connection with unfair trade practices, but it’s broad enough that you could put restrictions on a wide variety of transactions,” said Christian Davis, an international trade lawyer at Akin Gump Strauss Hauer & Feld LLP in Washington.

Strict Reciprocity
The Trump administration is considering enforcing strict reciprocity on Chinese acquisitions, meaning U.S. regulators would only approve deals in sectors in which American companies are allowed to invest, according to two of the people familiar with the matter. 

China restricts or bans foreign investment in a range of industries, from car manufacturing to telecommunications providers and rare-earth exploration.
The Trump administration hasn’t finalized its plans, and the options under consideration could still change, the people familiar with the matter said.
Enforcing sweeping bans on Chinese investment would mark a major departure from the existing CFIUS process, which reviews individual transactions to determine if it threatens U.S. national security. 

The administration could use CFIUS legislation to declare a policy that Chinese investment won’t be allowed in entire industries deemed sensitive, such as microchips and telecommunications, said Davis, the Akin Gump lawyer.
“The question is how different is that from what CFIUS is doing already with respect to Chinese investments in sensitive sectors,” he said. 

“Depending on how these restrictions are implemented, the answer may be not much.”
Republican Senator John Cornyn and Republican House member Robert Pittenger have introduced legislation that would expand the power of CFIUS to review foreign investments. 

Mnuchin has been supportive of the bill, which would broaden the scope of reviewable technologies to include investments in “critical” technologies.
Acquisitions by Chinese firms in the U.S. fell to $31.8 billion last year from $53 billion the year before, according to data compiled by Bloomberg.

Rogue Nation

China tech plan threat to foreign firms
By JOE MCDONALD

China is violating its free-trade pledges by pressing foreign makers of electric cars and other goods to share technology under an industry development plan that is likely to shrink access to its markets, a business group said Tuesday.
The report by the European Union Chamber of Commerce adds to mounting complaints Beijing improperly shields its fledgling developers of robotics, software and other technology from competition.
Technology is a growing flashpoint in trade tensions with Washington and Europe, which worry their competitive edge is eroding as Beijing buys or develops skills in semiconductors, renewable energy and other fields.
European companies express frustration Chinese enterprises have been permitted to acquire technology leaders such as German robot maker Kuka while most of China's assets are off-limits to foreign buyers. 

In December, Germany blocked the Chinese purchase of a chipmaker, Aixtron, after Washington objected on security grounds.
The European chamber warned tactics Beijing is using to carry out its "China Manufacturing 2025" initiative might inflame sentiments in Europe and the United States in favor of trade controls.
The plan calls for China to be able to supply its own high-tech components by 2020 and materials by 2025 in 10 industries from information technology and aerospace to pharmaceuticals. 

A broad outline was issued in 2015 and officials have been gradually releasing details.
Suppliers of electric cars and other goods are under pressure to hand over technology in violation of Beijing's World Trade Organization commitments, the European chamber said. 

It said that also contradicts the ruling Communist Party's repeated promises of equal treatment and to give market forces a bigger role in the state-dominated economy.
That strategy "is in fact a large-scale import substitution plan aimed at nationalizing key industries, or at least severely curtailing the position of foreign business in them," the chamber said.
In a possible response to such criticism, China's top economic official, Li Keqiang, promised in a speech Sunday foreign companies would receive "equal treatment" under the manufacturing plan. 

He gave no details.
Foreign suppliers of technology from X-ray scanners to wind turbines to bank security software complain they face growing official obstacles to making sales in China. 

Those range from controls based on national security concerns foreign suppliers say might be exaggerated to procurement rules that encourage hospitals and other customers to favor Chinese suppliers.
Beijing has clashed repeatedly with Washington and Europe since the 1990s over its efforts to induce foreign companies to hand over encryption and other technology.
In November, Chinese legislators approved a cybersecurity law business groups warned would hamper access to technology markets. 

They said a provision requiring security technology to be "secure and controllable" might require providers to disclose how products work, raising the risk trade secrets might be leaked.
In electric cars, where Beijing sees major opportunities, the manufacturing plan says two of the top 10 global brands by 2025 should be Chinese, the European chamber said. 

It said that rules out joint ventures created by foreign companies with Chinese partners.
The chamber appealed to Chinese leaders to discard quotas and other controls and focus instead on encouraging basic research and improving their manufacturing base.
"Perfecting the market would do far more to ensure that China reaches its full potential for economic development and innovation than more old-school, expensive industrial planning ever could," the chamber said.

Stop Technology Ripoffs By China

Congress should make CFIUS review a requirement prior to the sale of any U.S. company to a Chinese-controlled entity — not just to SOEs.

By Anders Corr

On November 16, a U.S. Government advisory body, the U.S.-China Economic and Security Review Commission, recommended that “Congress amend the statute authorizing the Committee on Foreign Investment in the United States [CFIUS] to bar Chinese state owned enterprises from acquiring or otherwise gaining effective control of U.S. companies.” .”

But Congress should go one step further than just banning Chinese SOEs from buying U.S. companies. 

Congress should reverse prior sales of U.S. technology firms to China, especially those in critical industries like aviation and semiconductors. 

It is because of Chinese acquisition of U.S. technology on the cheap that China can now out-compete U.S. manufacturing. 

This is not a matter of protectionism, but a matter of protecting U.S. democracy and workers from China’s autocratic government.
China’s authoritarian economy benefits because Chinese-owned U.S. companies can innovate and design new technologies in U.S. labs, and with U.S. scientists. 

These new technologies never undergo CFIUS review before getting transferred to China. 

Congress should mandate that CFIUS review, and have the authority to stop, joint development programs between U.S. and Chinese technology companies.
According to the commission, “Overall, the data do not demonstrate that CFIUS has been a significant obstacle for Chinese investment in the United States. 

In 2014, the latest year for which data are available, China led foreign countries in CFIUS reviews with 24 reviewed transactions out of more than 100 total Chinese acquisition deals.” 

As noted by the commission, CFIUS fails to review most Chinese acquisitions. 

Many technology companies, especially little-known startups, can be legally acquired by China without CFIUS ever knowing. 

The startups may not even be aware of CFIUS. 

Congress should make CFIUS review a requirement prior to the sale of any U.S. company to a Chinese-controlled entity — not just to SOEs.
Stopping the loss of U.S. technology to China is about protecting the economy, but also about protecting U.S. national security. 

“The CCP [Chinese Communist Party] continues to use SOEs [state-owned enterprises] as the primary economic tool for advancing and achieving its national security objectives,” according to the commission’s report. 

“Consequently, there is an inherently high risk that whenever an SOE acquires or gains effective control of a U.S. company, it will use the technology, intelligence, and market power it gains in the service of the Chinese state to the detriment of U.S. national security.”
Congress, which created CFIUS in 2000, typically takes a harsh view of Chinese acquisitions of U.S. technology companies. 

But recent presidential administrations respond with greater alacrity to big business lobbies like Boeing and Apple that stand to make over a trillion dollars in revenue in China over the next 20 years. 

U.S. voters, therefore, cannot trust Boeing, Apple, and their lobbyists to influence U.S. national security decisions. 

Voters should take back their government from these special interests and their Chinese conflicts of interest.
The U.S. Treasury Department chairs the CFIUS review process. 

Timothy Geithner was Secretary of the Treasury at the time that CFIUS reviewed and ultimately approved the sale of of one aviation company in 2011, Cirrus Industries of Minnesota, to the biggest Chinese state-owned aerospace-defense company, Aviation Industry Corporation of China (AVIC). Cirrus has since gained access to Oak Ridge National Laboratory (ORNL) officials, from whom they are seeking joint research and development, that is, technology transfers. 

ORNL is funded by U.S. taxpayer money, not to help Chinese defense companies, but to develop our most sophisticated materials science for U.S. military and commercial use.
Geithner joined the private equity firm Warburg Pincus after he left government service in 2013. 

There, he led the 2014 acquisition of a $680 million share of a Chinese state-owned enterprise, Huarong Bank. 

China had it in their power to handsomely reward Mr. Geithner in the 2014 transaction. 

That fact is doubtless not lost on current high government officials in Washington who hope to cash in with Chinese clients after they leave government service.

Appointments of former U.S. Secretary-level individuals to boards of directors or upper-management of U.S. companies doing business in China help China’s influence in Washington. 

It is in U.S. voter interests, therefore, to reform this and other possible paths of monetary influence on U.S. politics, and with it, end the chance of Chinese influence in the beltway. 

Campaign finance reform is needed, not just to keep corporate influence out of critical domestic issues like tax and social spending reform, but to keep Chinese and other international competitor influence out of U.S. national security decisions. 

We also need to pass stronger conflict of interest laws against high government officials taking lucrative post-government positions that profit from Chinese clients. 

The same should apply to Russian clients.
The November 16 recommendations of the U.S.-China Economic and Security Review Commission make headway against the threat of losing yet more technology to China. 

CFIUS has stopped some deals, which is to their credit. 

But the commission and CFIUS don’t go nearly far enough. 

They will need public mobilization to get the job done properly.