Foreign Companies Facilitating China's Technology Acquisition

Key Insight

The allure of China's vast market and the need for competitive advantage led several major foreign tech companies to engage in technology transfer, often under pressure from Beijing. Following a 20% sales slump in China after the Snowden leaks, IBM sought to re-establish market access by offering its Power chip architecture to Chinese partners. This strategic shift, presented as fostering a 'new and vibrant ecosystem of Chinese companies,' was embraced by officials, including the individual in charge of China’s chip upgrade efforts, and led to a former cybersecurity chief of China’s nuclear missile arsenal working with this newly available technology.

Similarly, Qualcomm, a dominant smartphone chipmaker, entered a joint venture with Chinese firm Huaxintong to develop Arm-based server chips, shortly after resolving a pricing dispute with Chinese regulators who held significant leverage over its core revenue. Although the venture was short-lived, expertise appears to have transferred to other Chinese firms like Phytium, which the U.S. later alleged helped the Chinese military develop advanced weapons. The most controversial instance involved AMD, which, facing financial struggles, sold an 85% stake in its assembly facilities to a Chinese firm and licensed modified x86 chip production for the Chinese market. This deal, despite warnings from Intel and Pentagon skepticism, bypassed stringent U.S. government review and was seen by Chinese experts as crucial for domesticating 'core technologies' for national defense.

Even Arm, the British chip architecture designer, spun off 51% of its China division to Chinese investors, for a comparatively low price of 775 million dollars, reportedly to allow for local development of systems for China's military or surveillance, which the parent company could not previously undertake directly. These deals, while often justified by the individual companies as sound business decisions driven by market access, financial needs, or leveraging non-core technology, collectively posed a risk of significant technology leakage. They have contributed to China's supercomputer programs and reduced its reliance on foreign designers and producers for data center chips, illustrating how foreign firms, often inadvertently, help China advance its technological capabilities.