China's New Acquisition Strategy?

To gain control of an important foreign asset, does China try to appease a foreign country by offering to establish its mainly symbolic company headquarters there? At least two recent cases raise this question.

Before Broadcom acquired the New York-based chipmaker, CA Technologies, suspicious Chinese connections of Broadcom's CEO, Hack Tan, helped prevent a takeover of major US chipmaker, Qualcomm. Besides becoming chummy with President Trump prior to the failed purchase of Qualcomm, Hack Tan had moved Broadcom's headquarters from Singapore to San Jose, California, close to Qualcomm's headquarters in San Diego, CA. (Caught up in tariff and trade adjustments between the U.S. and China, Qualcomm failed to receive approval from Chinese regulators for its acquisition of Dutch rival, the NXP semiconductor company, and terminated its two-year effort in July, 2018.)

Before its failed bid to acquire Portugal's largest utility company, state-owned China Three Gorges, which already owns a 23% share in EDP (Energias de Portugal), offered to keep EDP's headquarters in Lisbon.

China's Domestic Economic Belt

Less well known on the world stage than China's land and sea "One Belt, One Road" and "Maritime Silk Road" is China's Domestic Economic Belt along the Yangtze River from densely-populated and heavily-polluted Shanghai, west to the lake region around Wuhan (where COVID-19 originated), and still farther southwest to Chongqing, population over 30 million, larger than Shanghai and Beijing (home to OneSpace, China's solid-fueled commercial spacecraft industry, specializing in launching small satellites) and Chengdu, where police just raided an underground church about to commemorate the June, 1989 democracy demonstration in Tiananmen Square. (This is an opportunity for students to trace the Yangtze River on a map of China.)

Attention to ecology along this Yangtze River route is a priority in China. It entails:

•  Closing polluting chemical plants
•  Restoration of lakes and wetlands 
• Sewage treatment 
• Regulating the fishing industry
• Developing clean air technology (See earlier post,"How to Meet the Clean Air Challenge.")
• Integrating non-polluting energy sources into the existing power grid'
• Building new eco-friendly communities (See earlier post, "Priority: Eliminate generating electricity from fossil fuels.")

A new project in China's far western reaches demonstrates Beijing's focus on developing non-polluting energy sources. Where the Yangtze is known as the Jinsha Jiang River, the new Lawa hydroelectric dam will generate two billion watts of power, the same energy supplied by the U.S. Hoover Dam, on the border between Sichuan and the Tibetan Plateau.

     Development along the Yangtze also indicates China's interest in technological progress.  Economic assistance is going to the Donghu New Technology Development Zone east of Wuhan. The zone houses the FiberHome Technology Group, an optic fiber communications center, and the Wuhan Xinxin Semiconductor Manufacturing Corporation. Producing memory chips for China's semiconductor industry has become a personal priority of President Xi Jinping.

The U.S. Commerce Department's April, 2018 7-year ban on sales of chips to ZTE, the high-tech firm in China's integrated circuit and Smartphone industry, exposed dependence on exports from Qualcomm in California. Once again the consequences of cheating played a part. False statements and missing export records showed ZTE violated a 2017 settlement by illegally using U.S. chips in telecommunications equipment shipped to Iran and North Korea. Although ZTE had settled the 2017 case by paying a $1.2 billion penalty and promising disciplinary actions against 39 employees involved in illegal conduct, ZTE took no personnel measures. To restore Qualcomm's sales to ZTE, the company agreed to install a new management team and to let the U.S. staff a compliance unit that would report to the U.S. Commerce Department for the next ten years. At first the US Congress still rejected the plan, until President Trump and Chinese President Xi reached a separate agreement. 

Violations of the original ZTE technology agreement and other cases of Chinese infringement on intellectual property rights concern the U.S. about China's interest in stealing chip research, development, and manufacturing know-how, not only how work in these areas is progressing at the zone in Donghu. With nearly 350,000 Chinese students in the United States, universities are warned to lock their labs, and legal interns from China are being kept away from sensitive antitrust cases. (See the post concerning Foxconn's intended facility in Wisconsin in the later post, "Unmask Inscrutable Chinese Intentions.") 

China Stretches a Napoleon-Style Belt

Emperor Xi Jinping gained open-ended power, when China's Communist Party scrapped his two, five-year term limit in February, 2018. He already had launched an ambitious One Belt, One Road (OBOR) Initiative to connect China to Europe and a Maritime Silk Road (MSR) that will join China to Africa. The Silk Road term, not coined until the 19th century by a German, is well suited to the OBOR and MSR initiatives which mimic the ancient variety of land and sea routes that carried silk and other goods, as well as ideas, between Asia, Europe, and Africa. Many have observed, however, that besides a means to facilitate trade, China's port projects could serve as a way to establish worldwide influence and naval bases for China's expanding navy.

     In pinyin, the form of Chinese characters described in Roman letters, the One Belt, One Road Initiative is called yidaiyilu. The worldwide use of English and the U.S. dollar rankles China. Beijing's Academy of Contemporary China and World Studies claims globalization is now causing many words, such as xiongmao, the pinyin word for giant panda, to be recognized outside of China.

     Ever since Romans built the Appian Way, leaders have recognized how transportation binds an empire together. Yet, China's infrastructure projects will test the tight control Beijing now maintains over its citizens' telecommunication and face-to-face contacts with the outside world. Like the Chinese employees who built the railroad in Kenya, those building the new container terminal and nearby oil storage installation at Walvis Bay in Germany's former African territory of Namibia, are sealed off from the local community. They live in a closely monitored compound of barracks imprisoned by a wall topped by electrified barb wire.

     Stretching thousands of miles from Beijing, work on the OBOR and MSR cannot help but require ongoing contacts with local government officials, financial institutions, suppliers, laborers, religions, and academics in the countries the roads pass. Already, the China Democratic League, one of China's eight non-communist parties, submitted a proposal to the advisory body, the National Committee of the Chinese People's Political Consultative Conference, suggesting cultural exchanges along the routes are as important as trade.

      Singapore-based Broadcom's failed hostile bid for the San Diego company, Qualcomm, might, however, signal China's determination to maintain control over vast areas by using high-speed optic fiber communications and Smartphone communication and data exchange. The Committee on Foreign Investment in the United States (CFIUS) cited national security issues to block Broadcom from access to Qualcomm's wireless chips and 5G (fifth generation) high-speed mobile network technology and standards. In April, 2018, the U.S. Commerce Department placed a 7-year ban (now lifted) on sales of chips, all from Qualcomm, to China's ZTE, because the company violated a 2017 agreement not to send telecommunications equipment containing Qualcomm chips to Iran and North Korea. In Australia, (and later in the UK and Sweden) China's Huawei telecom companies remain banned from 5G networks.  Before its US-blocked acquisition of Qualcomm, Broadcom transferred its headquarters from Singapore to San Jose, California, and later purchased Manhattan-based CA Technologies, a chipmaker in the infrastructure software field. In July, 2018, China would block Qualcomm's acquisition of China's NXP semiconductor company.

     Noticeably missing from China's One Belt, One Road initiative was any reference to North Korea. But that was before members of the women's hockey players in North and South Korea agreed to play together in the 2018 winter Olympics; and U.S. President Trump accepted Kim's invitation to meet on June 12, 2018 in Singapore. Suddenly, on March 25, 2018, North Korea's dark green train carried Kim to China for a strategy session prior to the upcoming US-North Korean meeting, from which China was excluded. Subsequently, Beijing agreed to Liaoning province's $88 million plan to build roads on the North Korean side of the Friendship Bridge that connects the two countries at Dandong.

     Whether China's strategy in Africa is considered part of the Maritime Silk Road (MSR) or an extended One Belt-One Road-One Continent strategy, China already has shown interest in the Continent by its trade, military base in Djibouti, the dam its Export-Import Bank built in Uganda, and railroad projects in Zambia, Tanzania, Kenya, Ethiopia, Sudan, and Nigeria. Other current and proposed Chinese port, rail, and airport projects ring Africa in the following countries:

• Seychelles
• Mauritius
• Tunisia
• Tanzania
• Uganda
• Rwanda
• South Sudan
• Mozambique
• Namibia
• Gabon
• Cameroon
• Ghana
• Senegal