The honeymoon between China and the US tech industry is over, and the warm feelings may be gone for a while.
In the past several months, China has adopted a series of regulations that seem calculated, at least according to Westerners, to help Chinese manufacturers as well as force multinationals to expand their local operations. The Chinese-developed Wi-Fi security protocol called Wired Authentication and Privacy Infrastructure (WAPI) is one example. Starting on 1 June, all Wi-Fi equipment sold in China will have to comply with the proprietary protocol, and Western chipmakers are now required to pay select Chinese companies a per-chip royalty for WAPI and/or partner with them on development. And because WAPI technology can't leave the country, Western companies will have to staff local facilities if they want to participate in the market.
"There are literally thousands of test hours in every driver," said Jeff Thermond, vice president of Home and Wireless Networking at Broadcom, which has decided to pull out of the Chinese Wi-Fi market after the June WAPI law takes effect. "All the work must be done by employees in China."
The country also continues to maintain a value added tax (VAT) on imported semiconductors that is prompting foreign chipmakers to build facilities in the country or sign up with local foundries. Imported products get saddled with a 17 percent VAT, while the VAT on locally made products can be as low as 3 percent. On Thursday, the Bush administration filed suit with the World Trade Organisation over the VAT.
"It is an artificial way of forcing US companies to invest in China," said Daryl Hatano, vice president of public policy at the Semiconductor Industry Association.
US trade representative Robert Zoellick has issued a statement calling for China to change its tax policy and repeal the WAPI law, and US secretary of commerce Donald Evans and secretary of state Colin Powell also sent a letter to Chinese vice premier Wu Yi and others urging them to reconsider the law.
"China must live up to its WTO obligations. It cannot impose measures that discriminate against US products," Zoellick said in a statement.
Conflicts will also likely emerge around China's TD-SCDMA standard for 3G cell phones. The Chinese government is currently testing the standard and will issue licences for four carriers later this year. To participate, though, Western companies need to find local partners. Germany's Siemens formed a $100m joint venture with China's Huawei and will appoint 200 employees to the project.
Like other governments, China has also kicked off an initiative to get its internal agencies to buy local software.
To top it off, Taiwan is holding a national referendum this weekend that could further polarise relations by raising the question of Taiwanese independence. Taiwan and China joined the WTO in 2001.
Talkback
I fully support China's decision to protect its market. After all the IT sector has been dominated by US and Japan standards for a long time and the rest of the world is paying huge sum of loyalty to few US/Japan companies.