Chinese IP theft inevitable

Through much of history, the Western world took — by stealth or strength — Chinese knowhow. The secrets of making paper, silk, porcelain and other staples of modern life leaked out of the Middle Kingdom, despite rigorous attempts by emperors and mandarins to preserve the intellectual property rights. Why then, asks Howard Chua-Eoan, should we now be surprised if the process is reversed? In a sign that Beijing is making progress in circumventing US efforts to contain semiconductor technology, Huawei Technologies Co. and China’s top chipmaker have built an advanced 7-nanometer processor for the Mate 60 Pro smartphone. The Kirin 9000s chip was fabricated in China by Semiconductor Manufacturing International Corp., according to a teardown of the handset that TechInsights conducted for Bloomberg News. And this may only be the thin end of the wedge: With the Chinese government raising $40 billion to support homegrown manufacturing, better (and thinner) chips are inevitable. This will raise eyebrows at Apple, which would like to maintain its substantial technological edge over Huawei. But it also poses a challenge to the Joe Biden administration, which has made a priority of keeping cutting-edge technology from getting into Chinese hands, driven in large part by fears it could be used to boost Beijing’s military capabilities. History suggests this is a fool’s errand. The US “can always tighten its sanctions regimes and strengthen the safeguards to slow the proliferation,” says Chua-Eoan. “But commerce will almost always force out technological secrets.” Think of that when you drink your next cup (porcelain, natch) of tea. (Free read!) Climate Policy Hovers Over Auto Tensions The impending showdown between America’s Big Three carmakers and the United Auto Workers is about profit margins, salaries and benefits. It is also, Liam Denning points out, about Biden’s signature legislative achievement, the Inflation Reduction Act. The IRA is designed to push the auto industry to remake itself entirely, switching from gasoline-powered cars and trucks to electric vehicles in roughly a decade. To this end, the administration aims to reshore the supply chain, loosening China’s grip on clean technologies. (The West still craves some Chinese knowhow.) The White House will subsidize companies for domestic content and manufacturing, and reward them for paying workers federally defined prevailing wages. As Denning puts it: “While the IRA is often dubbed climate policy, it is more accurately described as green industrial policy with a notable labor component.” But it creates some anxieties for carmakers and the UAW alike. For the union, electrification promises some new jobs — in reshored battery factories, for example. But many of the battery and EV plants that have been announced since the IRA was passed are in states where unions are hamstrung by right-to-work laws. Electrification will also make obsolete gasoline and diesel engines and transmissions, which account for roughly half of current vehicle manufacturing capacity. Carmakers, for their part, face the prospect of investing billions to build EVs which are, at least for now, loss-making. At the same time, the unions and manufacturers need each other in order to overcome the so-called “messy middle” of the energy transition, during which the industry must wind down the manufacturing of profitable legacy products while simultaneously investing heavily in new ones that won’t make money for a while yet. Can the two sides get along? Crash Course “We are witnesses to violent extremities that are often unpredictable and difficult to manage. We are the authors of the disasters and victims of the consequences.” On the latest episode of Crash Course, Timothy L. O'Brien spoke with Mark Gongloff, a Bloomberg Opinion columnist who specializes in covering the environment and climate change. Telltale Charts To judge by the performance of real estate investment trusts, the office market hysteria is easing. But, warns Jonathan Levin, it “isn’t out of the woods yet, and risks could loom over the market for years to come if interest rates stay anywhere near current levels.” From dizzying highs after the banking crisis, dividend yield spreads on office property REITs have dropped closer to historical norms. The spread was 1.74 percentage points at the end of last month. But that doesn’t mean we should forget the risks posed by the office market. Borrowing costs remain high, and the mortgage rate is around 7.2%. If interest rate expectations “become anchored at current levels, maybe out of long-term inflation fears or concerns about sustainably high government deficits. If that happens and regional banks remain shy about extending new credit, the wave of refinancings over the next year could easily get ugly in a hurry.”