As Washington Tries to Protect Tech, China Could Fight Back

Photo

The Ford Motor plant in Hangzhou, China. China could penalize American companies operating there if a trade dispute broke out. CreditGiulia Marchi for The New York Times

WASHINGTON — As the Trump administration moves to take on China over intellectual property, Washington will find it has limited firepower. Beijing has a strong grip on American technology companies, and global trade rules could favor China.

Technology is proving a major battleground for China and the United States, as both sides vie to protect their economic and national security interests.

Beijing has forced a long list of American companies to enter joint ventures or share research with Chinese players, part of a broader push to create its own technology giants. From makers of smartphones to chips to electric cars, American businesses have reluctantly agreed, fearful of losing access to China, which has the second-largest economy in the world.

China’s ambitions have set off alarms in Washington, with concerns on both sides of the aisle. Robert E. Lighthizer, the United States trade representative, is now preparing a trade case accusing China of extensive violations of intellectual property, according to people with detailed knowledge of the case.

But China can play a strong defense. The country has broad latitude, under special rules it negotiated with the World Trade Organization, to maintain restrictions within its market.

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“The problem is that U.S. trade negotiators agreed to provisions allowing China to limit market access for U.S. companies unless they engaged in joint ventures,” said Michael R. Wessel, a member of the U.S.-China Economic and Security Review Commission, which Congress created to monitor the relationship between the two countries.

“Potential Chinese partners demand the family jewels,” he said. “Companies can say no, but too many give in to Chinese pressure to make a quick buck.”

The current trade frictions trace back to the Clinton administration.

When China was entering the W.T.O. in 1999 and 2000, American negotiators gave Beijing some leeway, a position later supported by the administration of George W. Bush. As a developing country, China was allowed extra protections, such as requirements that companies in critical industries work with Chinese partners. China, in return, promised to shed the extra rules gradually as its economy matured.

But Beijing did not open up, even as China evolved into an economic powerhouse. Quite the opposite has happened under President Xi Jinping, who has pursued a more nationalistic agenda than his reform-minded predecessors.

China now sees the technology sector as a critical piece of its industrial policy — a policy that Beijing is aggressively enlisting American tech giants to support and that the leadership will most likely go all out to protect.

Beijing’s demands have been partly driven by security concerns, particularly after disclosures by Edward J. Snowden, the former National Security Agency contractor, of electronic spying by the United States on China’s rapid military buildup.

China has also been explicit about its economic motives, seeking to dominate fast-growing global industries that could create millions of well-paid jobs for a generation of increasingly well-educated young Chinese.

GRAPHIC

Building Trade Walls

The Trump administration faces the problem that China’s high trade barriers are allowed by the World Trade Organization, because China entered the group as a developing country and insists it still is one.

 OPEN GRAPHIC

In several cases, China’s strategy to control technology approaches the kind of oversight most countries reserve for industries serving the military or government.

New Chinese rules often force foreign tech companies into partnerships with local companies — in part to gain expertise, in part to assert control. Other guidance from the government has indicated that companies must invest more in China to continue to have access to the market. Apple has opened research and development centers in the country as part of a new charm campaign.

In the chip sector, a major initiative intended to lift Chinese capabilities has drafted America’s biggest makers of the electronic brains that run everything from smartphones to driverless cars. Over the past four years, America’s largest chip companies have entered into a dizzying network of partnerships unlike anything they have anywhere else.

Qualcomm works with a company in southwest China to develop server chips. In 2014, Intel signed agreements with two Chinese chip makers, Spreadtrum and Rockchip, to give it a leg up in the market for China’s smartphones and tablets. Last year, Intel agreed to a partnership with the influential Tsinghua University in China as part of a bid to make server chips that match local specifications.

IBM and Advanced Micro Devices have both licensed chip technology to Chinese partners with ties to China’s military. GlobalFoundries, a California-based company, joined forces with a local government in central China to build a $10 billion chip manufacturing plant there.

American technology companies can find themselves at a serious disadvantage in China unless they agree to cooperate with government-linked Chinese businesses.

Take cloud computing, the fast-growing business of leasing computer power to companies. Chinese laws require foreign companies to join with local partners and allow them only a minority stake. International businesses are also blocked from branding such services under their own names.

Both Microsoft and Amazon, dominant forces in cloud computing in the United States, have local partnerships in China. By contrast, China’s e-commerce giant Alibaba operates two data centers in the United States without any partner.

Another rule calls for data about Chinese consumers or business operations to be stored in China. Apple and Amazon recently set up data centers in China, again with local partners, to store more customer information in the country.

Against that backdrop, the call for trade action is attracting bipartisan support.

Senator Ron Wyden of Oregon, the ranking Democrat on the Senate Finance Committee, which handles trade issues, met with Mr. Lighthizer Wednesday morning and gave him a letter supporting a challenge to Chinese policies. “China’s forced technology transfer policies are among the key challenges facing U.S. innovators operating in China or otherwise competing with Chinese firms,” Senator Wyden wrote.

China can make its own play under global trade rules. Beijing can quickly demand binding arbitration — and could have a good chance of winning. China was allowed into the W.T.O. with very few limits on its ability to regulate services or foreign investment, two categories in which China was fairly weak when it entered the organization in 2001.

If China did win a W.T.O. case, it would then have the right to restrict American exports to the same extent that the United States restricts Chinese imports.

China consistently exports four times as much to the United States as it imports. Even so, China could penalize American companies like Apple and Starbucks that have very large operations that produce and sell in China with minimal imports from the United States.

“U.S. negotiators, I think, basically dropped the ball,” said Nicholas R. Lardy, a longtime trade expert at the Peterson Institute for International Economics, referring to the rules on services that were negotiated when China entered the W.T.O. “They didn’t think China was very important.”

The world’s most valuable brands in 2017

Charli Crosby, 5, points to a doll in the window of an American Girl store at The Grove mall in Los Angeles November 26, 2013. This year, Black Friday starts earlier than ever, with some retailers opening early on Thanksgiving evening. About 140 million people were expected to shop over the four-day weekend, according to the National Retail Federation. REUTERS/Lucy Nicholson (UNITED STATES - Tags: BUSINESS) - RTX15UG2

Mapped … eight of the top 10 brands on Brand Finance’s 2017 list are from the United States
Image: REUTERS/Lucy Nicholson
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For the last five years, Apple held on to the title of the world’s most valuable brand. Then this year, the iPhone maker lost the top spot to Google, according to consultancy Brand Finance’s Global 500 rankings.

As Apple’s brand value tumbled 27% to $107.1 billion in 2016, Google’s increased to $109.5 billion. Amazon, with 53% brand value growth, was close behind at $106.4 billion.

Image: Brand Finance Global 500 2017

Eight of the top 10 brands on Brand Finance’s 2017 list are American, reflecting the global dominance of US brands.

So where does this leave the rest of the world?

Visualizing brands as countries

Using Brand Finance’s ranking, cost information website HowMuch.net has taken the most valuable brands in selected countries and turned them into a map. Each country is sized to reflect the global value of its biggest brand.

After Google, the next most valuable national brand is South Korea’s Samsung, which is in sixth place on the Global 500 list at $66.2 billion. Then it’s Chinese bank ICBC, ranked 10th, with a brand value of $47.8 billion.

Image: howmuch.net

Car-makers Toyota (Japan) and BMW (Germany) are next, with brand values of $46.3 billion and $37.1 billion, respectively. Shell, the multinational oil and gas company based in the Netherlands, also features prominently, at $36.8 billion.

The top brands of most countries, however, are worth less than $25 billion. Across Latin America, the most valuable brand is Mexican energy company Pemex, at $8.5 billion. In Asia, it’s India’s Tata conglomerate, at $12.9 billion. No African brands appear on the map.

The world’s most powerful brands

Lego may have a relatively modest $7.6 billion brand value, but when it comes to sheer power Denmark’s biggest brand punches well above its weight.

Brand Finance’s Brand Strength Index (BSI) awards brands a mark out of 100. Lego gets high scores across a range of metrics such as familiarity, loyalty, promotion, marketing investment, staff satisfaction and corporate reputation.

Image: REUTERS/Fabian Bimmer

The colour-coding on the map indicates brand strength, with Lego and Google (the most powerful brands) in dark blue. Many well-known brands including Samsung, BMW, Shell, Ikea and Nestle are on the next rung down, in light blue.

With marks ranging between 70 and 80, market-leading brands including Santander, Tata and Vodafone, are in pink. Only two top national brands, Taiwan Semiconductor and Thailand’s PTT, coloured red, have scores of less than 70.

Apple is buying so many trees for its new campus that there aren’t enough for anyone else

OBSESSION

The Office

April 13, 2017

Apple has often been known to corner the market for certain parts it needs to bring its latest creations to market. And in its push to become known as one of the greenest companies in the world, it seems that’s also the case when it’s dealing with foliage.

In a recent story on the forthcoming indoor garden above San Francisco’s new Transbay Transit Center train station, The San Francisco Chronicle revealed that there is intense competition for trees in California, partly because of the sheer number that Apple has bought for its nearly completed new headquarters in Cupertino. Patrick Trollip, the lead landscaper on the transit project, and Adam Greenspan, the Transbay’s architect, apparently have been combing nurseries up the Pacific coast in search of trees that it can grab before Apple does:

Buying trees is a surprisingly cutthroat business. And it’s been especially challenging to locate desirable specimens because Apple has been buying up 3,000 trees for its new Cupertino headquarters. When Greenspan and Trollip found a tree they fancied they would “tag it” with a locking yellow tag, so that nobody else — like Apple — could get it. Eventually all the tagged trees were moved to a nursery in Sunol, where the transbay project team leased 4 acres.

Apple has been sourcing thousands of trees and growing them in a nursery in that same town, although it’s unclear if the company has been trying to hoard trees as suggested. Apple has been labeled the most environmentally friendly technology company and it appears to be on a mission to create an eco-Xanadu in the suburbs of Silicon Valley, regardless of whatever anyone else is trying to build. When discussing the new campus in 2014, CEO Tim Cook said: “We are building a new headquarters that will, I think, be the greenest building on the planet.” Literally, apparently.

On its website, Apple says the lands around its new headquarters will eventually be filled with 9,000 trees—many of which will be varieties native to the area, such as oaks—and that the buildings will be powered entirely by renewable energy. It also says that it’s “recycling or reusing more than 95 percent of the material from the demolished buildings at the site by finding ways to repurpose virtually every piece of concrete, glass, and metal.”

Hopefully there won’t come a time that we see lines at garden stores like those that form at Apple stores around the world when a new iPhone is released.


 

Apple sues chip-maker Qualcomm in China

Qualcomm logoImage copyrightGETTY IMAGES
Image captionQualcomm supplies modem chips for the most widely-used smartphones

Apple has filed a lawsuit against Qualcomm in China seeking 1bn yuan (£115m) in damages, claiming the chip maker has abused its market position.

Apple has also filed a second case alleging Qualcomm had broken the terms of a deal covering how Apple could use technologies it had licensed.

Qualcomm said it was ready to defend its business practices in court.

The lawsuits come soon after US regulators sued Qualcomm, alleging that the firm was guilty of market abuse.

In its legal papers, Apple said Qualcomm was using its dominant position as a supplier of communication chips for mobile phones to squeeze more cash from firms that use its technologies.

In the second legal case, Apple said that Qualcomm had denied it access to chip technologies it was entitled to under the terms of an agreed licensing deal.

In a statement, Qualcomm said it had not yet seen all the details of the two cases.

“These filings by Apple’s Chinese subsidiary are just part of Apple’s efforts to find ways to pay less for Qualcomm’s technology,” said Don Rosenberg, head lawyer for Qualcomm.

He added that Apple was offered terms and conditions that were drawn up in 2015 following a ruling by Chinese trade regulators that dictated how Qualcomm should deal with companies keen to use its modem chips.

More than 100 Chinese firms signed up to these terms and conditions, he said, adding that Apple “refused to even consider them”.

“Qualcomm is prepared to defend its business model anywhere in the world,” said Mr Rosenberg.

Legal battles

Last week, the US Federal Trade Commission sued Qualcomm claiming it had abused its dominance in modem chips for mobile phones. The FTC said Qualcomm’s use of low licensing fees was helping it to enforce its monopoly.

In response, Qualcomm said the FTC complaint was based on a “flawed legal theory” and “significant misconceptions” about the way the mobile industry worked.

Soon after the FTC filed its complaint, Apple followed up with its own legal action seeking $1bn (£793m) in rebates and accusing Qualcomm of overcharging it for chips.

Qualcomm said it planned to fight both legal cases.

The chip-maker has been hit with legal challenges and regulatory action around the world over the last few years.

In December 2016, South Korean regulators fined it 1.03trn won (£698m) for breaking competition laws.

In 2015, it paid a $975m (£775m) fine in China following an anti-trust probe. The European Commission has also accused it of anti-competitive practices.

Europol warns of Android tap-and-go thefts

Android PayImage copyrightGOOGLE
Image captionSmartphone-based payments are accepted at millions of stores across the world

Law authorities have warned they believe criminals are using Android phones to trigger fraudulent tap-and-go payments.

The alert comes in Europol’s annual Internet Organised Crime Threat Assessment report.

Experts had previously said that the rollout of smart wallet systems could raise such a threat.

However, the police are unsure exactly how the attacks are being carried out and how common they are.

“The possibility of compromising NFC [near field communication] transactions was explored by academia years ago, and it appears that fraudsters have finally made progress in the area,” the report says.

“Several vendors in the dark net offer software that uploads compromised card data on to Android phones in order to make payments at any stores accepting NFC payments.”

The report’s authors add that one consequence of the novel crime is that shops might not know how to react even if they detect the deceit.

“Currently, when merchants detect a fraudulent transaction, they are requested to seize the card,” the report says.

“However, the confiscation may not be feasible when the compromised card data are recorded on the buyer’s smartphone.”

NFC terminalImage copyrightTHINKSTOCK
Image captionNFC terminals typically accept both touchless smartphone and payment card transactions

The report concludes that smartphone and touchless payment terminal manufacturers should “take action to design out security flaws”.

Anecdotal evidence

Europol is the EU’s law enforcement agency, which helps members states’ police forces co-ordinate operations and intelligence.

Its report is intended to flag emerging cybercrime threats.

One of the body’s advisers acknowledged that investigators were still unclear whether the payments were triggered being by customised apps or via Google’s own Android Pay software.

“It’s anecdotal evidence at the moment – it could be either or both,” said Prof Alan Woodward, from Surrey University.

“But whatever the case, evidence that it is happening is mounting.”

Prof Woodward said the criminals were probably using Android handsets rather than iPhones because Google did not prevent third-party apps using a device’s NFC chip, but Apple did.

iPhoneImage copyrightGETTY IMAGES
Image captionThe report indicates the fraudsters are opting for Android devices rather than Apple’s

“Apple systems are locked down, but you can typically write code to get at NFC, wi-fi and Bluetooth on Android-based devices,” he said.

“It’s just easier to write things on there if what you are doing is pretending to be a contactless card or otherwise sending communications to a contactless payment terminal.”

Prof Woodward added that the threat did not mean people should stop using Android Pay, but rather that all members of the public should remain vigilant against unusual transactions.

A spokeswoman for Google said: “Security is at the centre of Android Pay; we verify cardholders’ identities with banks before enabling them on Android Pay, and we work closely with our banking and payments partners to suspend fraudulent cards.”

Apple sells its billionth iPhone

 
Tim Cook holds an iPhone in front of a staff meeting.
IMAGE: APPLE

Https%3a%2f%2fblueprint-api-production.s3.amazonaws.com%2fuploads%2fcard%2fimage%2f158881%2fbillionth_iphone

Apple on Wednesday announced that it has sold its billionth iPhone. The original iPhone went on sale on June 29, 2007.

The news, which comes a day after the Cupertino giant announced its quarterly earnings for the third quarter of fiscal year 2016. In its latest quarter, Apple sold 40.4 million iPhone devices.

Hitting a milestone of 1 billion phones is impressive, especially when one considers that Apple sold its 500 millionth iPhone in March 2014. It sold its 700 millionth iPhone in March 2015.

Apple’s sales rate in iPhones has undoubtedly been helped by the increase in iPhone sales in crucial markets, such as China.

In January, Apple announced that it had more than 1 billion active devices across all of its platforms (so that includes iPhone, iPad, Apple Watch, Apple TV and Mac). In contrast, Google first announced its billion active users figure in June 2014.

On Tuesday, Andreessen Horowitz analyst Benedict Evans wrote an interesting blog post comparing the active device figures for the two dominant mobile platforms, iOS and Android. Evans’ research indicates that there are 630 million active iPhone devices in the world, compared with about 1.3 to 1.4 billion phones running the Android version of Google.

Still, we can’t think of any other product line — from any single vendor — that has managed to sell 1 billion units in such a short period of time.

Apple is expected to unveil its next iPhone devices in September.

Have something to add to this story? Share it in the comments.

Apple sold fewer iPads than last year but made more money, reversing a 2-year trend

ipad proApple

Apple’s iPad revenue has begun to grow again for the first time in eight quarters, according to Apple’s latest quarterly earnings report.

While iPad unit sales were down for the 10th quarter in a row, revenue actually increased thanks to the more expensive iPad Pro. Apple sold 9.95 million iPads, down 8.7% year-over-year, versus Wall Street expectations of 9.1 million. That’s a big beat.

Tim Cook told the Wall Street Journal that he was encouraged by this upswell. One reason might be because it made good on a prediction Cook put forth at Apple’s last quarterly earnings.

“In the June quarter, we expect to see our best iPad revenue compare in over two years,” Cook said. He also said this: “We continue to be very optimistic on the iPad business. And, as I had said in my remarks, we believe we’re going to have the best compare for iPad revenue this quarter that we have had in quite some time. And so we’ll report back in July on that one.”

That being said, the downward slide of iPad unit sales was not halted this quarter.

Here is a chart of its historical performance:

bii apple ipad sales 2q16 (1)BI Intelligence

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