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Ali Baba, CFIUS, China, cyber-security, forced technology transfer, foreign direct investment, IBM, innovation, Intel, Qualcomm, technology, Thomas Friedman, Xi JInPing, Xiaomi, Yahoo, {What's Left of) Our Economy
Few stereotypes are as hardy (and seductive, at least for Americans) as that of copycat Asians who come from cultures incapable of fostering creativity and innovation – at least not on the scale for which the USA is known. And few are as as misleading. If you’re skeptical of either proposition, just consider Thomas Friedman’s column today in The New York Times about China’s economic and technological future, and a spate of news reports about the activities of U.S. and Chinese technology companies themselves.
In Friedman’s words, there’s a major conflict between Chinese leader Xi Jinping’s push to move his economy from labor-intensive manufacturing to “more knowledge-intensive work” and his determination to censor the internet as well as university research. “Alas, crackdowns don’t tend to produce start-ups,” Friedman concludes.
It’s hard to argue with the logic, but oft times the world thumbs its nose at sensibileness – or at least as it’s defined by particular peoples. And however Americans cherish the notion that the political freedoms and inventiveness go hand in hand, and vice versa, lots of U.S. tech firms don’t seem to agree.
Cosmically, today also saw the appearance of a Wall Street Journal piece describing how Some of Silicon Valley’s largest companies have deepened their China partnerships in the past year.” The article mentions Intel and IBM, and could have added Qualcomm as well. Many of these deals and investments are simply responses to China’s longstanding policy of forcing foreign companies to transfer technology to Chinese partners in exchange for access to the potentially enormous Chinese market.
Lately, moreover, Beijing has added two big new wrinkles. First, its professions to fear spyware insertions in technology imports and high-profile decisions to curb purchases from U.S. firms in particular have given these companies major incentives to team up with Chinese entities. These are easier for the Chinese government to control – that is, when it doesn’t own them outright or indirectly. Second, China has begun to accuse foreign companies in numerous industries of violating Chinese laws in areas like anti-trust and bribery, and handed out some stiff fines. Non-Chinese firms have gotten the message that carrying out Beijing’s bidding in areas like tech transfer is a great way to stay on the Chinese authorities’ good side.
Nonetheless, it’s also clear that China has developed some technology winners – like Xiaomi, the up-and-coming smartphone producer that’s received Qualcomm funding ever since it held its first financing round. And let’s not forget the Yahoo stake in Chinese e-tailer Ali Baba – which may be the most valuable assets it owns.
Also ignored by Friedman is how, thanks to the literally trillions of dollars in trade profits it’s made with the United States and the rest of the world, China can now buy outright much of the advanced knowhow it needs – and has made acquiring U.S. companies a priority. Chinese takeovers with national security implications can be blocked or quietly deterred by an inter-agency American screening panel, but this Committee on Foreign Investment in the U.S. has more often acted like a rubber stamp than like a guardian.
So the choice is pretty clear: When trying to understand innovation and economics in China, you can listen to the pundits, or you can follow the money. Hardly a close call if you ask me.
RealityChek 
“Alas, crackdowns don’t tend to produce start-ups,” Friedman concludes.
It’s hard to argue with the logic…..
Actually it’s easy to argue the logic-
What linkage is there between crackdowns and start ups? Who says that an authoritarian economic system is less successful? While Hayek goes on and on and on about such – there is no proof. 1930’s Germany was an economic juggernaut. China has been called a “miracle of authoritarian capitalism.” America’s greatest ever GDP growth came when the government regulated, controlled, and dominated it’s WWII economy.
America is better off when Friedman sticks to the middle East and stays out of economics… Where, by the way, his familial interest (He’s married to a Buxbaum) is decidedly in favor of the .01percent.
Arthur – Thanks for yours and sorry for the delay in responding. I take your point and agree that history is full of examples of authoritarian regimes that have fostered stunning technological progress. Even the Soviet Union boasted impressive strengths in this regard. And of course the post itself emphasized the dangers of underestimating China’s advances and potential. (In addition, I disagree with Friedman’s implication that the start-up model is the only way to get or stay ahead technologically. History is pretty clear on that point, too.)
At the same time, although I’m no uncritical idolizer of free market capitalism, I do think there’s not only a logic to the notion that freer societies do better technologically (especially over time), but impressive evidence for the proposition, too. For example, as good as the Soviet Union was on certain technological fronts, the United States overall performed much better. However large Washington’s role (and it was), it was nowhere near that of Moscow’s. And China owes most of its advances to the huge injections of technology it received from foreign (including U.S. and West European) multinationals, either transferred voluntarily or in response to extortion.
Finally, I’m totally with you in hoping that Friedman steers clear of economics – though I’m by no means confident that he will!