(What’s Left of) Our Economy: Has Intel Been Cutting its Own Throat in China?

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America Competes Act, China, Digitimes, Intel, microchips, national secuity, semiconductors, subsidies, tech, tech transfer, Vladimir Lenin, {What's Left of) Our Economy

There’s one crucial fact missing from this crucial news item – which features an Intel executive’s prediction that, within five years, strong Chinese rivals will emerge to the giant U.S.-owned semiconductor manufacturer. This development, which has massive implications for America’s national security and economy, will stem in no small measure from Intel’s own major transfers of technology to the Chinese economy.

Just as important: Intel’s tech transfers are continuing even though the company has been lobbying hard to secure huge U.S. government subsidies it claims it needs to build more advanced microchip production in the United States – in order to improve its competitiveness versus China. But since money is fungible, these taxpayer dollars could indirectly find their way into China’s tech sector if – as likely – a big legislative package of support for American technology development is approved by Congress.

Like many big U.S. tech companies, Intel has been helping strengthen China’s technology prowess for literally decades. In 1998, the company announced plans to build a $50 million research center in Beijing, and by 2007, had opened another in Shanghai. According to the above linked account, Intel was focusing on developing software, not semiconductors. But the same piece reported that this work aimed at helping Chinese programmers “get ready for processors wih multiple cores,” and that “Some of the work surrounding Intel’s so-called terascale research–most recently showcased through its 80-core chip prototype–is also being done” in Beijing.

More broadly, an Intel China executive said that “The company is spending a lot of time and money working with the local university education system on science and technology education” – including electrical engineering programs.

Since then, as RealityChek has reported, Intel’s research and development operations in China have expanded significantly. A 2014 post contained the news that the company was working with a state-owned Chinese partner to produce microchips “for the cheapo but technologically advanced phones selling so well in low-income countries like China.” Its involvement in this venture, moreover, built on its “establishment earlier this year of a Smart Device Innovation Center and $100 million venture fund in the same field, and tie-up with a Chinese fabless chip-maker.” Although the semiconductors in question were not cutting-edge, who can doubt that teaching Chinese engineers how to build so-called legacy semiconductors was bound to increase their ability to build more advanced devices down the road?

The following year, I summarized a post from the Taiwanese tech website Digitimes.com (also the source for the Intel prediction leading off this piece) that detailed how Intel had committed a total of nearly $1.8 billion to help Chinese entities develop advanced new products and services. They included unmanned aerial vehicles, smart devices, robotics, cloud computing services, artificial intelligence, machine vision, three-dimensional modeling, virtual reality technologies, and advanced optics.” None of these could ever be relevant to semiconductor production – or advanced weapons systems – could they?

And just last November, I mentioned a Wall Street Journal piece finding that Intel is ntel “is among the active investors, backing a Chinese company now called Primarius Technologies Co., which specializes in chip-design tools that U.S. companies currently lead in making.”

As I’ve written repeatedly, such activities amount to U.S. companies – and U.S. administrations that ignored or approved them – selling China the rope with which to hang America (paraphrasing the famous prediction of Vladimir Lenin, leader of the Bolshevik Revolution that created the Soviet Union). In Intel’s case (and it’s not alone here), the companies keep undercutting their own fortunes. And unless Washington conditions handouts for Intel and other tech companies on halting these giveaways, American taxpayers will finance much of it.

Full disclosure:  Investment-wise, I’m neither long nor short Intel, though I am long TSMC – the Taiwanese chip manufacturer that’s Intel’s top competitor, and that recently replaced it as the world leader in semiconductor production technology. 

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Those Stubborn Facts: About Those Low-Tech Chinese….

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China, Digitimes, semiconductor manufacturing equipment, semiconductors, technology, Those Stubbprn Facts

Number of front-end semiconductor manufacturing facilities forecast to begin operating worldwide 2017-2020: 62

Number forecast to begin operations in China: 26 (c. 42%)

Number forecast to begin operations in “the Americas”: 10 (c. 16%)

(Source: “China to join top-3 semiconductor equipment spenders for first time, says SEMI,” by Jessie Shen, Digitimes, December 14, 2016, http://www.digitimes.com/news/a20161214PR200.html)

(What’s Left of) Our Economy: Trump’s Globalization Promises are Already Producing Victories

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Canada, China, Digitimes, H1B visas, Immigration, India, Infosys, Mexico, NAFTA, Reuters, Taiwan, Trade, Trade Deficits, trade surpluses, trade wars, Trump, {What's Left of) Our Economy

America’s political and media establishments keep warning of the disastrous consequences of President-elect Donald Trump’s vow to conduct international economic policy by in effect telling U.S. competitor countries and offshoring multinational companies to “Jump.” And rather than responding indignantly by promising to resist or retaliate and touch off a series of international trade wars and other conflicts, businesses in these countries keep responding by in effect asking “How high?”

As a result, they keep adding to the already copious body of evidence indicating that the United States boasts more than enough leverage (thanks to the matchless power of its market) to achieve better terms of trade unilaterally. Here are two of the latest examples.

Yesterday, the reliable Taiwanese technology publication Digitimes reported that “US-based high-tech enterprises are expected to reduce their reliance on data centers abroad and add ones in the US.” In addition, the Digitimes piece quoted a Taiwanese tech magnate speculating – reasonably – that tech companies (like his) that have already built significant manufacturing capacity in the United States will have advantages over more foreign-centric competitors – who will “have to evaluate the feasibility of shifting factories from Mexico or other areas to the US….”

Meanwhile, on Sunday, Reuters quoted the COO of the Indian tech services giant Infosys as stating that because they expect Mr. Trump to curb significantly the visa programs that enable American tech companies to replace U.S. workers with low-paid imported Indian counterparts, companies such as his will “speed up acquisitions in the United States and recruit more heavily from college campuses there.”

Specifically, according to this Indian executive, “We have to accelerate hiring of locals if they are available, and start recruiting freshers from universities [in the United States].”

Previously, it should be noted, both Canada and Mexico announced in the wake of the Trump victory that they would indeed be willing to renegotiate or “discuss” NAFTA.

China may still apparently believe it can bluff Mr. Trump. But good luck to Beijing and its still export-heavy economic growth strategy if it thinks it can find foreign markets to substitute for America’s, with which it ran a $367 billion goods trade surplus last year. Good luck also to China’s efforts to maintain political stability if, as likely, declaring a trade war on such a crucial foreign customer raises unemployment.

America’s economic competitors are fully aware that its enormous trade surpluses have fueled much of their own, and global, growth for decades. The biggest change on this front represented by Trump’s election is that now a U.S. president clearly understands – and has been publicly touting – this indisputable reality as well.  In otherwise, for the first time in decades, America is led by someone well versed in “the art of the deal.”   

Following Up: How Intel May Wind Up Inside China’s Military

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China, cyber-security, Digitimes, Following Up, hacking, Intel, multinational corporations, national security, Obama, Office of Personnel Management, South China Sea, technology transfer, The New York Times, The Wall Street Journal

China keeps challenging American security interests, notably by staging damaging cyber attacks on key U.S. strategic and commercial targets, and by asserting territorial claims in Asian waters that could threaten global shipping and air traffic. And evidence keeps pouring in of U.S. technology companies showering China with valuable capital and defense-related know-how – and of a decided “What, me worry?” attitude taken by the Obama administration.

Last week, a post of mine summarized two recent New York Times articles reporting the beginnings of some concerns in the national security community about these dangerous corporate activities, along with a Wall Street Journal piece that summarized some especially troubling recent tie-ups involving entities part of or clearly controlled by the Chinese government.

This week, the Taiwanese publication Digitimes shed major new light on the American tech sector’s role in beefing up China’s capabilities in a piece focusing on Intel’s operations. According to Digitimes, by the end of this year, the world’s biggest semiconductor company will have committed nearly $1.80 billion to helping Chinese companies develop advanced new products and services. Just as alarming as the scale of this investment are some of the specific recipients.

Digitimes correspondents Monica Chen and Joseph Tsai report that the company now owns part of a Hong Kong company that makes unmanned aerial vehicles, and parts of firms in China proper involved in smart devices, robotics, cloud computing services, artificial intelligence, machine vision, three-dimensional modeling, virtual reality technologies, and advanced optics.

Every single one of these investments could easily find its way into Chinese weapons – which could easily wind up using them against the American military. But although tensions in the South China Sea may be rising, and the files of tens of millions of federal employees may have been hacked earlier this year, don’t tell any of Intel’s top executives or anyone making China policy for President Obama. For them, it’s clearly business as usual with Beijing.