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New UK laws will block China's Huawei from sensitive state projects: The Sun
February 9, 2019 12:00 am|Comments (0)

FILE PHOTO – A woman sits next to a salesperson at a Huawei shop in Bangkok, Thailand, January 30, 2019. REUTERS/Athit Perawongmetha

(Reuters) – New laws on foreign investment in the UK will block Chinese firm Huawei from sensitive UK tech projects, The Sun newspaper reported on Friday.

Many are concerned that allowing Huawei an inside track on the rollout of the 5G mobile network in the UK would let China spy on private lives and hack UK companies, The Sun said.

Foreign Secretary Jeremy Hunt and Defence Secretary Gavin Williamson are among those concerned about the Chinese firm’s reach, the report said.

Reporting by Gaurika Juneja in Bengaluru; Editing by Sandra Maler

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China's Fujian Jinhua to file complaint to be taken off U.S. export control list
January 25, 2019 6:00 am|Comments (0)

SHANGHAI (Reuters) – Chinese chipmaker Fujian Jinhua Integrated Circuit Co Ltd said on Friday it has notified the Unites States that it plans to file a complaint to be taken off the export control list, according to a statement on social media.

The firm added that it does not pose any security risk to the United States.

Earlier this month, the company said it had pleaded not guilty to U.S government charges that it stole trade secrets.

The U.S Justice Department had last year launched an indictment against Fujian Jinhua and United Microelectronics Corp (2303.TW), alleging they attempted to steal trade secrets from memory chip maker Micron Technology Inc (MU.O).

The U.S. Commerce Department had put Fujian Jinhua on a list of entities that cannot buy components, software and technology goods from U.S. firms.

Reporting by Josh Horwitz; Editing by Himani Sarkar

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George Soros Attacks China's AI Push as 'Mortal Danger'
January 25, 2019 12:25 am|Comments (0)

Governments and companies worldwide are investing heavily in artificial intelligence in hopes of new profits, smarter gadgets, and better health care. Financier and philanthropist George Soros told the World Economic Forum in Davos Thursday that the technology may also undermine free societies and create a new era of authoritarianism.

“I want to call attention to the mortal danger facing open societies from the instruments of control that machine learning and artificial intelligence can put in the hands of repressive regimes,” Soros said. He made an example of China, repeatedly calling out the country’s president, Xi Jinping.

China’s government issued a broad AI strategy in 2017, asserting that it would surpass US prowess in the technology by 2030. As in the US, much of the leading work on AI in China takes place inside a handful of large tech companies, such as search engine Baidu, and retailer and payments company Alibaba.

Soros argued that AI-centric tech companies like those can become enablers of authoritarianism. He pointed to China’s developing “social credit” system, aimed at tracking citizens’ reputations by logging financial activity, online interactions and even energy use, among other things. The system is still taking shape, but depends on data and cooperation from companies like payments company Ant Financial, a spinout of Alibaba. “The social credit system, if it became operational, would give Xi Jinping total control over the people,” Soros said.

Soros argued synergy like that between corporate and government AI projects creates a more potent threat than was posed by Cold War-era autocrats, many of whom spurned corporate innovation. “The combination of repressive regimes with IT monopolies endows those regimes with a built-in advantage over open societies,” Soros said. “They pose a mortal threat to open societies.”

Soros is far from the first to raise an alarm about the dangers of AI technology. It’s a favorite topic of Elon Musk, and last year Henry Kissinger called for a US government commission to examine the technology’s risks. Google cofounder Sergey Brin warned in in Alphabet’s most recent annual shareholder letter that AI technology had downsides, including the potential to manipulate people. Canada and France plan to establish an intergovernmental group to study how AI changes societies.

The financier attempted to draft Donald Trump into his AI vigilance campaign. He advised the president to be tougher on Chinese telecoms manufacturers ZTE and Huawei, to prevent them from dominating the high-bandwidth 5G mobile networks being built around the world. Both companies are already reeling from sanctions by the US and other governments.

Soros also urged the well-heeled attendees of Davos to help forge international mechanisms to prevent AI-enhanced authoritarianism—and that could both include and contain China. He asked them to imagine a technologically oriented version of the treaty signed after World War II that underpins the United Nations, binding countries into common standards for human rights and freedoms.

Here is the text of Soros’s speech:

I want to use my time tonight to warn the world about an unprecedented danger that’s threatening the very survival of open societies.

Last year when I stood before you I spent most of my time analyzing the nefarious role of the IT monopolies. This is what I said: “An alliance is emerging between authoritarian states and the large data rich IT monopolies that bring together nascent systems of corporate surveillance with an already developing system of state sponsored surveillance. This may well result in a web of totalitarian control the likes of which not even George Orwell could have imagined.”

Tonight I want to call attention to the mortal danger facing open societies from the instruments of control that machine learning and artificial intelligence can put in the hands of repressive regimes. I’ll focus on China, where Xi Jinping wants a one-party state to reign supreme.

A lot of things have happened since last year and I’ve learned a lot about the shape that totalitarian control is going to take in China.

All the rapidly expanding information available about a person is going to be consolidated in a centralized database to create a “social credit system.” Based on that data, people will be evaluated by algorithms that will determine whether they pose a threat to the one-party state. People will then be treated accordingly.

The social credit system is not yet fully operational, but it’s clear where it’s heading. It will subordinate the fate of the individual to the interests of the one-party state in ways unprecedented in history.

I find the social credit system frightening and abhorrent. Unfortunately, some Chinese find it rather attractive because it provides information and services that aren’t currently available and can also protect law-abiding citizens against enemies of the state.

China isn’t the only authoritarian regime in the world, but it’s undoubtedly the wealthiest, strongest and most developed in machine learning and artificial intelligence. This makes Xi Jinping the most dangerous opponent of those who believe in the concept of open society. But Xi isn’t alone. Authoritarian regimes are proliferating all over the world and if they succeed, they will become totalitarian.

As the founder of the Open Society Foundations, I’ve devoted my life to fighting totalizing, extremist ideologies, which falsely claim that the ends justify the means. I believe that the desire of people for freedom can’t be repressed forever. But I also recognize that open societies are profoundly endangered at present.

What I find particularly disturbing is that the instruments of control developed by artificial intelligence give an inherent advantage to authoritarian regimes over open societies. For them, instruments of control provide a useful tool; for open societies, they pose a mortal threat.

I use “open society” as shorthand for a society in which the rule of law prevails as opposed to rule by a single individual and where the role of the state is to protect human rights and individual freedom. In my personal view, an open society should pay special attention to those who suffer from discrimination or social exclusion and those who can’t defend themselves.

By contrast, authoritarian regimes use whatever instruments of control they possess to maintain themselves in power at the expense of those whom they exploit and suppress.

How can open societies be protected if these new technologies give authoritarian regimes a built-in advantage? That’s the question that preoccupies me. And it should also preoccupy all those who prefer to live in an open society.

Open societies need to regulate companies that produce instruments of control, while authoritarian regimes can declare them “national champions.” That’s what has enabled some Chinese state-owned companies to catch up with and even surpass the multinational giants.

This, of course, isn’t the only problem that should concern us today. For instance, man-made climate change threatens the very survival of our civilization. But the structural disadvantage that confronts open societies is a problem which has preoccupied me and I’d like to share with you my ideas on how to deal with it.

My deep concern for this issue arises out of my personal history. I was born in Hungary in 1930 and I’m Jewish. I was 13 years old when the Nazis occupied Hungary and started deporting Jews to extermination camps.

I was very fortunate because my father understood the nature of the Nazi regime and arranged false identity papers and hiding places for all members of his family, and for a number of other Jews as well. Most of us survived.

The year 1944 was the formative experience of my life. I learned at an early age how important it is what kind of political regime prevails. When the Nazi regime was replaced by Soviet occupation I left Hungary as soon as I could and found refuge in England.

At the London School of Economics I developed my conceptual framework under the influence of my mentor, Karl Popper. That framework proved to be unexpectedly useful when I found myself a job in the financial markets. The framework had nothing to do with finance, but it is based on critical thinking. This allowed me to analyze the deficiencies of the prevailing theories guiding institutional investors. I became a successful hedge fund manager and I prided myself on being the best paid critic in the world.

Running a hedge fund was very stressful. When I had made more money than I needed for myself or my family, I underwent a kind of midlife crisis. Why should I kill myself to make more money? I reflected long and hard on what I really cared about and in 1979 I set up the Open Society Fund. I defined its objectives as helping to open up closed societies, reducing the deficiencies of open societies and promoting critical thinking.

My first efforts were directed at undermining the apartheid system in South Africa. Then I turned my attention to opening up the Soviet system. I set up a joint venture with the Hungarian Academy of Science, which was under Communist control, but its representatives secretly sympathized with my efforts. This arrangement succeeded beyond my wildest dreams. I got hooked on what I like to call “political philanthropy.” That was in 1984.

In the years that followed, I tried to replicate my success in Hungary and in other Communist countries. I did rather well in the Soviet empire, including the Soviet Union itself, but in China it was a different story.

My first effort in China looked rather promising. It involved an exchange of visits between Hungarian economists who were greatly admired in the Communist world, and a team from a newly established Chinese think tank which was eager to learn from the Hungarians.

Based on that initial success, I proposed to Chen Yizi, the leader of the think tank, to replicate the Hungarian model in China. Chen obtained the support of Premier Zhao Ziyang and his reform-minded policy secretary Bao Tong.

A joint venture called the China Fund was inaugurated in October 1986. It was an institution unlike any other in China. On paper, it had complete autonomy.

Bao Tong was its champion. But the opponents of radical reforms, who were numerous, banded together to attack him. They claimed that I was a CIA agent and asked the internal security agency to investigate. To protect himself, Zhao Ziyang replaced Chen Yizi with a high-ranking official in the external security police. The two organizations were co-equal and they couldn’t interfere in each other’s affairs.

I approved this change because I was annoyed with Chen Yizi for awarding too many grants to members of his own institute and I was unaware of the political infighting behind the scenes. But applicants to the China Fund soon noticed that the organization had come under the control of the political police and started to stay away. Nobody had the courage to explain to me the reason for it.

Eventually, a Chinese grantee visited me in New York and told me, at considerable risk to himself. Soon thereafter, Zhao Ziyang was removed from power and I used that excuse to close the foundation. This happened just before the Tiananmen Square massacre in 1989 and it left a “black spot” on the record of the people associated with the foundation. They went to great length to clear their names and eventually they succeeded.

In retrospect, it’s clear that I made a mistake in trying to establish a foundation which operated in ways that were alien to people in China. At that time, giving a grant created a sense of mutual obligation between the donor and recipient and obliged both of them to remain loyal to each other forever.

So much for history. Let me now turn to the events that occurred in the last year, some of which surprised me.

When I first started going to China, I met many people in positions of power who were fervent believers in the principles of open society. In their youth they had been deported to the countryside to be re-educated, often suffering hardships far greater than mine in Hungary. But they survived and we had much in common. We had all been on the receiving end of a dictatorship.

They were eager to learn about Karl Popper’s thoughts on the open society. While they found the concept very appealing, their interpretation remained somewhat different from mine. They were familiar with Confucian tradition, but there was no tradition of voting in China. Their thinking remained hierarchical and carried a built-in respect for high office. I, on the other hand I was more egalitarian and wanted everyone to have a vote.

So, I wasn’t surprised when Xi Jinping ran into serious opposition at home; but I was surprised by the form it took. At last summer’s leadership convocation at the seaside resort of Beidaihe, Xi Jinping was apparently taken down a peg or two. Although there was no official communique, rumor had it that the convocation disapproved of the abolition of term limits and the cult of personality that Xi had built around himself.

It’s important to realize that such criticisms were only a warning to Xi about his excesses, but did not reverse the lifting of the two-term limit. Moreover, “The Thought of Xi Jinping,” which he promoted as his distillation of Communist theory was elevated to the same level as the “Thought of Chairman Mao.” So Xi remains the supreme leader, possibly for lifetime. The ultimate outcome of the current political infighting remains unresolved.

I’ve been concentrating on China, but open societies have many more enemies, Putin’s Russia foremost among them. And the most dangerous scenario is when these enemies conspire with, and learn from, each other on how to better oppress their people.

The question poses itself, what can we do to stop them?

The first step is to recognize the danger. That’s why I’m speaking out tonight. But now comes the difficult part. Those of us who want to preserve the open society must work together and form an effective alliance. We have a task that can’t be left to governments.

History has shown that even governments that want to protect individual freedom have many other interests and they also give precedence to the freedom of their own citizens over the freedom of the individual as a general principle.

My Open Society Foundations are dedicated to protecting human rights, especially for those who don’t have a government defending them. When we started four decades ago there were many governments which supported our efforts but their ranks have thinned out. The US and Europe were our strongest allies, but now they’re preoccupied with their own problems.

Therefore, I want to focus on what I consider the most important question for open societies: what will happen in China?

The question can be answered only by the Chinese people. All we can do is to draw a sharp distinction between them and Xi Jinping. Since Xi has declared his hostility to open society, the Chinese people remain our main source of hope.

And there are, in fact, grounds for hope. As some China experts have explained to me, there is a Confucian tradition, according to which advisors of the emperor are expected to speak out when they strongly disagree with one of his actions or decrees, even that may result in exile or execution.

This came as a great relief to me when I had been on the verge of despair. The committed defenders of open society in China, who are around my age, have mostly retired and their places have been taken by younger people who are dependent on Xi Jinping for promotion. But a new political elite has emerged that is willing to uphold the Confucian tradition. This means that Xi will continue to have a political opposition at home.

Xi presents China as a role model for other countries to emulate, but he’s facing criticism not only at home but also abroad. His Belt and Road Initiative has been in operation long enough to reveal its deficiencies.

It was designed to promote the interests of China, not the interests of the recipient countries; its ambitious infrastructure projects were mainly financed by loans, not by grants, and foreign officials were often bribed to accept them. Many of these projects proved to be uneconomic.

The iconic case is in Sri Lanka. China built a port that serves its strategic interests. It failed to attract sufficient commercial traffic to service the debt and enabled China to take possession of the port. There are several similar cases elsewhere and they’re causing widespread resentment.

Malaysia is leading the pushback. The previous government headed by Najib Razak sold out to China but in May 2018 Razak was voted out of office by a coalition led by Mahathir Mohamed. Mahathir immediately stopped several big infrastructure projects and is currently negotiating with China how much compensation Malaysia will still have to pay.

The situation is not as clear-cut in Pakistan, which has been the largest recipient of Chinese investments. The Pakistani army is fully beholden to China but the position of Imran Khan who became prime minister last August is more ambivalent. At the beginning of 2018, China and Pakistan announced grandiose plans in military cooperation. By the end of the year, Pakistan was in a deep financial crisis. But one thing became evident: China intends to use the Belt and Road Initiative for military purposes as well.

All these setbacks have forced Xi Jinping to modify his attitude toward the Belt and Road Initiative. In September, he announced that “vanity projects” will be shunned in favor of more carefully conceived initiatives and in October, the People’s Daily warned that projects should serve the interests of the recipient countries.

Customers are now forewarned and several of them, ranging from Sierra Leone to Ecuador, are questioning or renegotiating projects.

Most importantly, the US government has now identified China as a “strategic rival.” President Trump is notoriously unpredictable, but this decision was the result of a carefully prepared plan. Since then, the idiosyncratic behavior of Trump has been largely superseded by a China policy adopted by the agencies of the administration and overseen by Asian affairs advisor of the National Security Council Matt Pottinger and others. The policy was outlined in a seminal speech by Vice President Mike Pence on October 4th.

Even so, declaring China a strategic rival is too simplistic. China is an important global actor. An effective policy towards China can’t be reduced to a slogan.

It needs to be far more sophisticated, detailed and practical; and it must include an American economic response to the Belt and Road Initiative. The Pottinger plan doesn’t answer the question whether its ultimate goal is to level the playing field or to disengage from China altogether.

Xi Jinping fully understood the threat that the new US policy posed for his leadership. He gambled on a personal meeting with President Trump at the G20 meeting in Buenos Aires. In the meantime, the danger of global trade war escalated and the stock market embarked on a serious sell-off in December. This created problems for Trump who had concentrated all his efforts on the 2018 midterm elections. When Trump and Xi met, both sides were eager for a deal. No wonder that they reached one, but it’s very inconclusive: a ninety-day truce.

In the meantime, there are clear indications that a broad based economic decline is in the making in China, which is affecting the rest of the world. A global slowdown is the last thing the market wants to see.

The unspoken social contract in China is built on steadily rising living standards. If the decline in the Chinese economy and stock market is severe enough, this social contract may be undermined and even the business community may turn against Xi Jinping. Such a downturn could also sound the death knell of the Belt and Road Initiative, because Xi may run out of resources to continue financing so many lossmaking investments.

On the question of global internet governance, there’s an undeclared struggle between the West and China. China wants to dictate rules and procedures that govern the digital economy by dominating the developing world with its new platforms and technologies. This is a threat to the freedom of the Internet and indirectly open society itself.

Last year I still believed that China ought to be more deeply embedded in the institutions of global governance, but since then Xi Jinping’s behavior has changed my opinion. My present view is that instead of waging a trade war with practically the whole world, the US should focus on China. Instead of letting ZTE and Huawei off lightly, it needs to crack down on them. If these companies came to dominate the 5G market, they would present an unacceptable security risk for the rest of the world.

Regrettably, President Trump seems to be following a different course: make concessions to China and declare victory while renewing his attacks on US allies. This is liable to undermine the US policy objective of curbing China’s abuses and excesses.

To conclude, let me summarize the message I’m delivering tonight. My key point is that the combination of repressive regimes with IT monopolies endows those regimes with a built-in advantage over open societies. The instruments of control are useful tools in the hands of authoritarian regimes, but they pose a mortal threat to open societies.

China is not the only authoritarian regime in the world but it is the wealthiest, strongest and technologically most advanced. This makes Xi Jinping the most dangerous opponent of open societies. That’s why it’s so important to distinguish Xi Jinping’s policies from the aspirations of the Chinese people. The social credit system, if it became operational, would give Xi total control over the people. Since Xi is the most dangerous enemy of the open society, we must pin our hopes on the Chinese people, and especially on the business community and a political elite willing to uphold the Confucian tradition.

This doesn’t mean that those of us who believe in the open society should remain passive. The reality is that we are in a Cold War that threatens to turn into a hot one. On the other hand, if Xi and Trump were no longer in power, an opportunity would present itself to develop greater cooperation between the two cyber-superpowers.

It is possible to dream of something similar to the United Nations Treaty that arose out of the Second World War. This would be the appropriate ending to the current cycle of conflict between the US and China. It would reestablish international cooperation and allow open societies to flourish. That sums up my message.


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China's Supreme Court to take on intellectual property cases
December 29, 2018 12:03 pm|Comments (0)

A Chinese national flag flutters near a minaret of the ancient Id Kah Mosque in the Old City in Kashgar in Xinjiang Uighur Autonomous Region, China September 6, 2018. Picture taken September 6, 2018. To match Special Report MUSLIMS-CAMPS/CHINA REUTERS/Thomas Peter

BEIJING (Reuters) – Intellectual property rights cases can from next month be taken to China’s Supreme Court, the government said on Saturday, as the country seeks to strengthen protections in the face of complaints from the United States about the issue.

China and the United States are currently in talks to resolve a trade dispute, in which both countries have put tariffs on imports of each other’s products.

The United States, along with the European Union, have long complained about poor enforcement of intellectual property rights in China, and this has been a key complaint of the Trump administration, along with forced technology transfers and a yawning trade gap.

Beijing in response has been seeking to show that it is serious about addressing U.S. concerns.

Deputy chief justice Luo Dongchuan told a news conference that from Jan. 1 the Supreme Court would begin handling appeals on intellectual property rights cases, whereas previously only provincial-level high courts would handle them.

“Setting up a Supreme Court intellectual property rights court is an important decision by the Communist Party, is a major step to strengthen the legal protection of intellectual property rights and will have a major impact at home and abroad.”

Luo did not directly answer a question about how the United States should view the move and what it said about China’s efforts to protect intellectual property, saying that such protection was a “basic national policy”.

“China is already the world’s second largest economy, and in the future China’s development will rely on innovation. The protection of innovation needs there to be legal protection for intellectual property rights.”

Reporting by Ben Blanchard. Editing by Jane Merriman

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Russia says detention of China's Huawei CFO shows U.S. arrogance
December 7, 2018 12:01 pm|Comments (0)

Russian Foreign Minister Sergei Lavrov arrives for a news conference on the sidelines of the Organization for Security and Co-operation in Europe (OSCE) summit in Milan, Italy, December 7, 2018. REUTERS/Alessandro Garofalo

MILAN (Reuters) – Russian Foreign Minister Sergei Lavrov said on Friday that the detention of Chinese technology giant Huawei’s chief financial officer in Canada was an example of “arrogant” U.S. policy abroad.

Speaking at a news conference in Milan, Lavrov said the detention showed how Washington imposes its laws beyond its jurisdiction.

Huawei CFO Meng Wanzhou, 46, who is also the daughter of the company founder, was arrested on Dec. 1 at the request of the United States. The arrest, revealed by Canadian authorities late on Wednesday, was part of a U.S. investigation into an alleged scheme to use the global banking system to evade U.S. sanctions against Iran, people familiar with the probe told Reuters.

Reporting by Crispian Balmer; writing by Tom Balmforth and Maria Kiselyova; Editing by Peter Graff

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China's Xiaomi swings to net profit in third-quarter on robust sales in India, Europe
November 19, 2018 12:00 pm|Comments (0)

HONG KONG (Reuters) – Chinese smartphone maker Xiaomi Inc said on Monday it swung to a net profit in the third quarter, beating analyst estimates, driven by robust sales in India and Europe.

Xiaomi branding is seen at a UK launch event in London, Britain, November 8, 2018. REUTERS/Toby Melville

Profit for the three months through September reached 2.48 billion yuan ($ 357.23 million), versus an 11 billion yuan loss in the same period a year earlier. That compared with a 1.92 billion yuan average of five analyst estimates compiled by Refinitiv Eikon.

Xiaomi also said operating profit sank 38.4 percent to 3.59 billion yuan in the third quarter. Revenue rose 49.1 percent to 50.85 billion yuan.

The mixed results come amid a slowdown in smartphone purchases both in China, where Xiaomi once was the top-selling handset brand, and overseas.

Nevertheless Xiaomi, along with fellow low-cost handset makers Oppo and Vivo, accounted for around a quarter of the global smartphone market in the first half of 2018, showed data from researcher IDC.

Xiaomi’s fastest-growing markets are India, where it has had success with its budget Redmi phone series, and Europe, where it entered in 2017 with launches in Russia and Spain. Earlier this month it released its flagship Mi 8 Pro device in Britain.

But to weather the global market slowdown, analysts said Xiaomi needs to expand to new markets and also sell more higher-priced devices with wider profit margins.

The firm has been adding new brands to its smartphone portfolio to target niche consumers. Concurrent with today’s earnings, it announced a partnership with Meitu Inc, a maker of a photo app popular with young women, to sell phones under its brand. Earlier this year it launched Black Shark, a phone targeted at gamers, and Poco, a value-for-money device aimed at India.

Mo Jia, who tracks China’s smartphone makers at research firm Canalys, said attempts to sell more expensive devices requires changing its brand perception.

“It’s still very hard for Xiaomi to change its perception of being a low-end device manufacturer as the majority of its smartphone shipments are the Redmi series.”

Xiaomi also aims to transform itself from a smartphone firm into a software company. As the firm prepared for its IPO, founder Lei Jun touted internet services – namely advertisements placed on the firm’s in-house apps – as its future and key differentiator from other handset brands.

In the third quarter, Xiaomi’s smartphone division grew revenue by 36.1 percent while its internet service division grew 85.5 percent. But phones made up 64.6 percent of total sales, while internet services made up 9.3 percent.

The results are the second set released by Xiaomi since the smartphone maker raised $ 4.72 billion in an initial public offering (IPO) in June, valuing the firm at about $ 54 billion – around half of some earlier industry estimates of $ 100 billion.

Its shares have fallen roughly 20 percent since they started trading in July amid a broader Chinese stock market sell-off and concern about a slowdown in China’s tech industry.

Reporting by Josh Horwitz; Editing by Christopher Cushing

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China's ties with Taiwan chip firms under scrutiny as U.S. trade war heats up
November 7, 2018 12:03 am|Comments (0)

TAIPEI (Reuters) – Washington’s decision to cut off U.S. supplies to a Chinese chip-maker spotlights mounting tensions over China’s drive to be a global player in computer chips and the ways in which Taiwan companies are helping it get there.

FILE PHOTO: Men walk past a signboard of chipmaker United Microelectronics Corp (UMC) in Hsinchu, Taiwan January 10, 2006. REUTERS/Richard Chung/File Photo

Shut out of major global semiconductor deals in recent years, China has been quietly strengthening cooperation with Taiwan chip firms by encouraging the transfer of chip-making expertise into the mainland.

Taiwan chip giant United Microelectronics Corp (UMC) (2303.TW) last week halted research and development activities with its Chinese state-backed partner Fujian Jinhua Integrated Circuit Co Ltd, following the U.S. move.

Taiwan firms such as UMC have helped supply China with a steady pipeline of chip expertise in exchange for access to the fast-growing chip market there.   

China has faced a shortage of integrated circuit (IC) chips for years. In 2017, it imported $ 270 billion worth of semiconductors, more than its imports of crude oil.  

At least 10 joint ventures or technology partnerships have been set up in the last few years between Chinese and Taiwanese firms, according to industry experts, luring Taiwanese talent with hefty salaries and generous perks.

“Such companies will need to also take care to ensure no patent or IP infringement is involved as the U.S. has export control means to restrict support of critical technology,” said Randy Abrams, an analyst at Credit Suisse in Taipei.

Among the most valuable cross-strait partnerships for China would be ones that strengthen its foundry services and memory chip production. Those two sectors require much-needed help from overseas firms due to the complexity of the manufacturing technologies and intense capital requirements, analysts have said.

TRADE TENSIONS

But the technology transfer between China and self-ruled Taiwan has raised concerns amid the Sino-U.S. trade war and escalating tensions across the Taiwan Strait.

China has aggressively used “market-distorting subsidies” and “forced technology transfers” to capture traditional and emerging technology industries, Brent Christensen, the director of America’s de facto embassy in Taipei, told a business gathering in late September.

“These actions are harming the United States’ economy, Taiwan’s economy, and other economies.”

Taiwan is one of the largest exporters of IC globally and many worry the island could lose a key economic engine to its political foe.

Taiwan’s government views the island’s chipmakers’ cooperation with China cautiously and has implemented policies to ensure Taiwan’s most advanced technology is not transferred.

“When businesses go to the mainland to invest in wafer production, they must accept controls including one that requires the manufacturing technology to be a generation behind,” the economics ministry’s industrial development bureau said in a statement to Reuters.

INTELLECTUAL PROPERTY CONCERNS

Cooperation between UMC and Fujian Jinhua came under scrutiny last month, when the U.S. government put the Chinese company on a list of entities that cannot buy components, software and technology goods from U.S. firms amid allegations it stole intellectual property from U.S.-based Micron Technology. Fujian Jinhua denied the allegations.

Fujian Jinhua now faces big challenges to reach commercial high volume production as expected in 2020, industry observers say.

Last week, both UMC and Fujian Jinhua, which was only founded in 2016, were charged with conspiring to steal trade secrets from Micron in a U.S. Justice Department indictment.

“Taiwanese tech companies need to carefully re-evaluate their positions and supply chain arrangements as the tension between the two super powers escalates,” Bernstein analyst Mark Li said.

While China will need at least six years before it can catch up in chip manufacturing, according to some estimates, the scale of its chip-making abilities is already seen as a threat in other parts of the chip supply chain.

Barely 2-1/2 years after breaking ground on a 12-inch wafer plant in China, Nexchip, a joint venture between the Chinese city of Hefei and Taiwan DRAM maker Powerchip, started producing 8,000 wafers a month. Wafers are thin pieces of material, usually consisting of silicon, used to make semiconductor chips.

Nexchip’s main goal is to produce liquid crystal display driver ICs for flat-panel makers.

Using Powerchip’s resources and Taiwanese talent, which make up a quarter of its 1,200 employees, Nexchip is helping reduce China’s reliance on foreign chip suppliers.

With an aim to become “the world’s No.1 chipmaker for display drivers,” Nexchip plans to build three more 12-inch wafer plants and ramp up its monthly production to 20,000 wafers by 2019, according to a person with direct knowledge of the matter.

After visiting Nexchip late last year, researchers from Taiwan’s chip hub, Hsinchu Science Park, said progress at the Hefei plant was a “breakthrough”.

“This will likely increase Taiwan firms’ needs to invest in the China market, and it will be a test for the (Taiwan) government’s industrial policy.”

Reporting by Jess Macy Yu and Yimou Lee in Taipei

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China's Baidu tops revenue estimates with strong app traffic
October 31, 2018 12:00 am|Comments (0)

(Reuters) – Traffic growth on Baidu Inc’s mobile app helped drive higher-than-expected third quarter revenue as China’s biggest search engine operator places more emphasis on artificial intelligence (AI) and autonomous driving.

FILE PHOTO: A Baidu logo is seen at the Global Mobile Internet Conference (GMIC) at the National Convention Center in Beijing, China April 27, 2018. REUTERS/Damir Sagolj

Revenue rose to 28.2 billion yuan ($ 4.11 billion) from 23.49 billion yuan in the same quarter a year ago. That beat the average estimate of 27.53 billion yuan, according to Refinitiv data.

Baidu has been investing heavily in new business lines following tighter rules in China introduced in 2016 requiring search engines to make it clear which results are paid-for ads, but has said these projects may not help boost sales growth in the near term.

Baidu’s sales momentum has lagged technology peers Alibaba Group Holding Ltd and Tencent Holdings Ltd, and it has sold or closed several businesses over the past year which were in direct competition.

Baidu forecast fourth-quarter revenue of 25.48 billion yuan to 26.72 billion yuan, lower than financial analysts’ target of 27.69 billion yuan.

At the same time, Baidu has become one of China’s biggest names in AI, with its efforts endorsed by the government as well as international firms. This month, it became the first Chinese company to join an AI ethics group alongside members such as Apple Inc and Alphabet Inc’s Google.

“Baidu delivered a solid third quarter with impressive results from search, feed and new AI businesses,” said Baidu Chief Executive Robin Li.

He added that Baidu’s AI platform DuerOS saw strong adoption and Apollo, Baidu’s self-driving car technology, was now powering fully autonomous Apolong minibuses in over 10 locations.

Baidu said its AI system blocked over 430 million medical ads to combat misleading and low-quality medical advertisements in the third quarter. The stricter rules on Chinese internet advertising resulted from the death of a student who underwent an experimental cancer treatment which he found using Baidu.

Net income rose 56 percent from a year earlier to 12.4 billion yuan, the company said.

Excluding gains from the divestiture of its financial services business, Baidu posted adjusted earnings per share of 19.01 yuan versus Wall Street expectations of 16.70, according to Refinitiv data.

While the company said its Baidu App saw strong traffic in the quarter, its daily active user number dropped to 151 million in September from a peak of 161 million reached in August. The September number was up 19 percent year-on-year.

Baidu’s U.S.-listed stock was slightly lower following the results in after-hours trade on Tuesday. The stock is down over 20 percent since the beginning of the year amid a wider selloff of Chinese technology shares.

Reporting by Cate Cadell in Beijing and Jane Lanhee Lee in San Francisco; Editing by Meredith Mazzilli and Tom Brown

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China's Didi to halt some mainland services in new safety measures
September 4, 2018 12:00 pm|Comments (0)

BEIJING (Reuters) – China’s ride-hailing firm Didi Chuxing said on Tuesday it will halt some late-night services in mainland China including taxi and ride-hailing operations between Sept 8 and Sept 15 as part of their steps to improve safety.

FILE PHOTO: The logo of Chinese ride-hailing firm Didi Chuxing is seen at their new drivers center in Toluca, Mexico, April 23, 2018. REUTERS/Carlos Jasso/File Photo

Didi also said in a statement it will upgrade its police hotline function for customers and its investments for customer service.

The firm has been under mounting pressure from regulators and consumers after a 20-year-old passenger was murdered by her Didi driver in August. Another passenger was killed by a driver in May.

Reporting by Beijing Monitoring Desk; editing by Jason Neely

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China's ZTE posts 1.1 billion first-half loss on impact from U.S. supplier ban
August 30, 2018 12:00 pm|Comments (0)

HONG KONG (Reuters) – ZTE Corp (000063.SZ) (0763.HK) reported a first-half net loss of 7.8 billion yuan ($ 1.1 billion) on Thursday, weighed down by a ban on U.S. firms selling parts to the Chinese telecom equipment maker that forced it to cease operations for three months.

FILE PHOTO: The company name of ZTE is seen outside the ZTE R&D building in Shenzhen, China April 27, 2016. REUTERS/Bobby Yip/File Photo

The result compared with the 7 billion to 9 billion yuan net loss estimate disclosed last month, and the 2.3 billion yuan profit booked in the same period a year earlier.

Operating revenue in the first half fell 27.0 percent to 39.4 billion yuan.

In June, the network equipment and smartphone maker paid the United States $ 1.4 billion in penalties in a deal to have the supplier ban lifted. The ban, imposed in April in relation to sanction violations, crippled ZTE and became a source of friction in Sino-U.S. trade talks.

($ 1 = 6.8300 Chinese yuan renminbi)

Reporting by Sijia Jiang and Twinnie Siu; Editing by Christopher Cushing and Edmund Blair

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