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  • On this episode of China Uncensored,

  • sure, the Chinese Communist Party is trying to steal

  • American innovation at every turn.

  • But that doesn't mean we can't take their money, right?

  • Hi, welcome to China Uncensored,

  • I'm your host Chris Chappell.

  • Made in China.

  • A symbol of quality workmanship and cutting-edge technology.

  • At least, that's what Chinese leader Xi Jinping

  • wants you to think.

  • In 2015, Xi Jinping announced a new economic model

  • called Made in China, 2025.

  • It's focused onThe task of upgrading

  • and accelerating technological development.”

  • On this show, we've talked about several ways the Communist Party has,

  • uh, “accelerated technological developmentin the past.

  • Like by hacking and stealing US intellectual property,

  • then reverse engineering it at Chinese Technology Transfer Centers.

  • So much faster and easier than starting from scratch.

  • China has also weaponized trade,

  • according to Republican Senate Majority Whip John Cornyn.

  • In many instances China has simply used trade as a weapon,

  • coercing US companies into entering joint ventures

  • and other business agreements that require the company

  • to hand over key technology and know how,

  • the so-called secret sauce.”

  • And I always thought secret sauce was mayonnaise

  • plus high fructose corn syrup,

  • left out in the sun for three days.

  • Today, we'll be talking about a third way the Chinese Communist Party

  • acquires American tech.

  • They simply buy the American tech companies!

  • Part of Xi Jinping's Made in China 2025 plan

  • is encouraging Chinese companies

  • to invest in foreign tech companies.

  • In particularhigh tech industries like artificial intelligence,

  • robotics and space travel.

  • You know, your basic Isaac Asimov novel.

  • I guess Xi must be a fan.

  • The amount of money China has pumped into US tech

  • skyrocketed after Made in China 2025 was announced.

  • Deals with Chinese investors jumped from 66 in 2013 to 165 in 2017.

  • Chinese companies have invested in everything from Uber, to Airbnb,

  • to even Grindr!

  • I think the Chinese government might be getting

  • a little more data than they bargained for with Grindr.

  • Ok, Grindr jokes aside, in some cases,

  • Chinese companies are investing in tech companies

  • that are developing technology critical to national defense or infrastructure,

  • or that possess a lot of data on Americans.

  • The Pentagon considers all this investmentnot just Grindr

  • a serious risk for the United States.

  • This report from last year warns that the Chinese Communist Party

  • is stealing the Crown Jewels of U.S. Innovation.

  • Yes, those are the jewels everyone on Grindr is suddenly worried about.

  • China's venture capital investment is at an all time high.

  • And, according to the Pentagon's report,

  • the US government isn't doing enough to address the risk.

  • The threat is so serious that both President Obama

  • and President Trump agree on it.

  • And I thought they didn't agree on anything.

  • In December 2016,

  • Obama stopped a Chinese takeover of the US subsidiary

  • of a German semiconductor manufacturer.

  • The semiconductors industry makes the microchips

  • that are the core of any advanced technology

  • the Chinese Communist Party would like to get their hands on.

  • Obama blocking that takeover helped curb

  • the amount of Chinese money going to into US tech.

  • But Chinese companies potentially buying sensitive US technology

  • was still a problem.

  • In September 2017,

  • Trump blocked a Chinese purchase of Lattice,

  • another US semiconductor maker.

  • And earlier this year,

  • Trump blocked the sale of yet another US chipmaker

  • because of Chinese security issues.

  • Obama and Trump weren't doing this on their own, though.

  • Although they blocked these deals using executive orders,

  • they did it on the recommendation of

  • the Committee on Foreign Investment in the United States,

  • or CFIUS.

  • CFIUS is a committee that involves several

  • top-level US government agencies,

  • and it's chaired by the Treasury Secretary.

  • It was founded in 1975 to oversee purchases

  • of critical US industries by foreign countries.

  • But the CFIUS committee hardly ever met.

  • Until after 9/11.

  • Then Congress passed new legislation

  • that increased the role of CFIUS.

  • And according to Politico,

  • CFIUS did not have the resources to keep pace.

  • One official described 80-hour work weeks with no time off.

  • CFIUS carries so much weight that just their recommendation

  • against a deal is often enough to make it fall apart,

  • without even getting the president involved.

  • At the beginning of this year,

  • CFIUS rejected a planned Chinese takeover of Moneygram

  • because of national security concerns.

  • A month later, CFIUS rejected a state-backed Chinese company's

  • acquisition of another US chip maker.

  • But, an overworked CFIUS can't catch everything.

  • Here's an example.

  • Last year, a semiconductor maker, ATop Tech,

  • filed for bankruptcy.

  • But, it had a market share of 1 billion dollars,

  • because of a ground-breaking product:

  • an automated designer capable of making microchips

  • that could power anything from smartphones

  • to high-tech weapons systems.”

  • So a company called Avatar Integrated Systems

  • swooped in and bought it.

  • Now no one in the semiconductor industry had ever heard of them.

  • Turns out,

  • it belonged to a big shot in China's steel industry,

  • and it looked like he set up Avatar

  • for the sole purpose of buying ATop Tech.

  • At the time,

  • others in the semiconductor industry

  • and even a Pentagon official had warned the bankruptcy court

  • that letting Avatar buy ATop Tech was a bad idea.

  • But the deal went through anyway,

  • because the whole thing flew under the radar of CFIUS.

  • Last year,

  • Defense Secretary Jim Mattis warned that

  • CFIUS is both outdated and overburdened

  • ...and needed to be updated.

  • The Trump Administration said,

  • modernizing CFIUS would strengthen our ability

  • to protect national security and enhance confidence

  • in our longstanding open investment policy.”

  • There are two bipartisan bills going through Congress

  • that aim to strengthen CFIUS.

  • They want to do things like expand the types of transactions

  • CFIUS would look at,

  • including bankruptcy cases like ATop Tech.

  • But there are some serious challenges to CFIUS

  • even if one of the bills passes.

  • See, it's not as simple as just blocking a Chinese state-owned enterprise

  • from purchasing, say, American Secret Sauce Inc.

  • What about a Chinese national,

  • who becomes a New Zealand citizen,

  • but gets his money from the Communist Party,

  • and wants to buy an American business?

  • What about a Mexican company whose stock

  • is partly owned by a Chinese conglomerate,

  • and that Mexican company wants to buy an American business?

  • What about a local Chinese businessman in the United States,

  • who's a US citizen,

  • but the Communist Party is funneling money to him through a relative?

  • Things start to get very murky,

  • and you have deal with some unpleasant things

  • that the Chinese Communist Party would love to exploit.

  • Like, the idea that stopping Chinese investment is motivated by racism.

  • Then there's the counter argument by those who want to

  • see more Chinese investment.

  • An IBM policy executive said in a January Congressional hearing

  • that the new billcould constitute the most economically harmful imposition

  • of unilateral trade restrictions by the United States in many decades.”

  • I mean sure, China is run by an authoritarian regime

  • with a national plan to systematically steal Western technology.

  • But they've got a lot of money,

  • and we want it!

  • Why be a negative nancy?!

  • And it's that kind of broad-minded policy vision

  • that led IBM to sell punch-card technology to the Nazis,

  • enabling them tocalculate exactly how many Jews

  • should be emptied out of the ghettos each day

  • and onto trains to you-know-where.

  • A similar argument is made overall in Silicon Valley

  • that Chinese investment money is a good thing and fuels innovation.

  • I get it.

  • It seems like,

  • it's a free country,

  • why not take the money!

  • It doesn't matter who it comes from.

  • And that fits in just fine with the Chinese Communist Party's

  • plan for Made in China 2025.

  • So what do you think about Chinese investment in US tech?

  • Leave your comments below.

  • And before you go,

  • it's that time when we answer a question

  • from a supporter of the show,

  • a member of our China Uncensored 50-Cent Army.

  • This question comes from...

  • Jonathan Swanberg

  • Hi Chris,”

  • Hi Jonathan.

  • What is the real cost of stolen Intellectual Property (IP)

  • from the US to China?”

  • Great question.

  • The answer depends on who you ask.

  • The Intellectual Property Commission says IP

  • theft costs the US economy $600 billion dollars a year,

  • largely from China.

  • But it might be much bigger than that.

  • Casey Fleming

  • whose company BLACKOPS Partners Corporation

  • consults for Fortune 500 companies

  • he says the actual cost is closer to $5 trillion dollars a year.

  • And that's because

  • (a) You have to factor in the total future value.

  • Not just products sold,

  • but also the loss of future innovation and American jobs.

  • And (b)

  • A lot of big companies that get hacked, haha,

  • don't report it publicly because it's too embarrassing

  • and could make stock prices drop.

  • It's quite likely that the Chinese military has hacked

  • just about every big American corporation.

  • It just doesn't get publicized.

  • And that's all for this episode of China Uncensored.

  • I'm Chris Chappell.

  • See you next time.

  • On the one hand,

  • I'd love to take millions of dollars from

  • some mysterious company in China.

  • On the other hand,

  • that might sliiiightly affect the integrity of China Uncensored.

  • That's why we're funded by direct support from viewers like you,

  • members of our 50-Cent Army who contributed a dollar or more per episode.

  • Click this orange button to visit our Patreon page and become a supporter.

On this episode of China Uncensored,

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Is Chinese Money a National Security Threat?

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    zijun su posted on 2021/07/08
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