October 30, 2018 / 6:26 AM / 18 days ago

Breakingviews - Wilbur Ross finally picks right fight with China

A researcher plants a semiconductor on an interface board during a research work to design and develop a semiconductor product at Tsinghua Unigroup research centre in Beijing, China, February 29, 2016. REUTERS/Kim Kyung-Hoon

HONG KONG (Reuters Breakingviews) - U.S. Secretary of Commerce Wilbur Ross has picked the right fight with China at last. His department has put a provincial, government-backed chipmaker under an embargo similar to that which battered telecoms giant ZTE. Fujian Jinhua has been accused of IP theft by $39 billion Micron Technology. This retaliation presumes guilt. Even so, targeting small, wayward firms is smarter than blanket tariffs.

    Denying Fujian Jinhua access to critical U.S. components will hit it hard, damaging its Taiwan-based partner United Microelectronics too, as well as American suppliers. The company has been silent and could yet be found innocent, but that hardly matters to Washington. Idaho-based Micron has already been found guilty of patent infringement in a Chinese court, and barred from selling 26 different chip products in the mainland. This move sends a different message.

    Fujian Jinhua is not a centrally owned enterprise. It may be part of the “Made in China 2025” plan that aims to develop domestic technology champions and reduce reliance on imports, but it is not economically significant. Yet it is one of China’s legion of small companies, many backed by local governments, accused of crossing the line on industrial espionage and sanctions violations.

    The timing of the punishment matters here too. Chinese turbine maker Sinovel Wind, for example, was found guilty by a Wisconsin Court in January 2018 of stealing trade secrets from software maker American Superconductor, or AMSC. The judgement came long after the thefts began in 2011, however - a period during which AMSC’s share price declined from nearly $400 per share to roughly $5. Chinese firms betting they can outplay a slow legal process must now rethink.   

   Most importantly, though, the gambit aims at China’s sensitive spot. Beijing tends to be more bothered by actions punishing individuals and specific companies than trade duties that hammer entire sectors. The embargo on ZTE, for example, prompted howls of protest. This may be due to the intimate connections between companies and officials, and the personalised nature of politics in a single party state. Regardless, the White House found the target, and is hitting it again.

Breakingviews

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