Talk about closing the barn door after the horse has already bolted! A Chinese company is making a bid to acquire disk manufacturer Seagate Technology:
SAN FRANCISCO, Aug. 24 — A Chinese technology company has expressed interest in buying a maker of computer disk drives in the United States, raising concerns among American government officials about the risks to national security in transferring high technology to China.
The overture, which was disclosed by the chief executive of one of the two remaining drive makers in the United States, William D. Watkins of Seagate Technology, has resurrected the issues of economic competitiveness and national security raised three years ago when Lenovo, a Chinese computer maker, bought I.B.M.’s personal computer business.
Tensions have been increasing lately between the countries over China’s ambitions in developing its military abilities and advanced technologies for industrial and consumer uses.
Although disk drives do not fall under a list of export-controlled technologies, the attempted purchase of an American disk drive company would require a security review by the federal government, according to several government officials.
In recent years, modern disk drives, used to store vast quantities of digital information securely, have become complex computing systems, complete with hundreds of thousands of lines of software that are used to ensure the integrity of data and to offer data encryption.
That could raise the prospect of secret tampering with hardware or software to make it possible to pilfer information via computer networks, intelligence officials have warned.
If there were real national security concerns about sensitive industries going overseas, it should have started with computer memories 35 years ago. Thirty-five years ago practically all computer memories were made in the U. S. by U. S. companies. Now almost all computer memories are made overseas, mostly in China. We haven’t made much in the way of computer memories for decades here. I wonder how long it would take before our inventories of computer memories were exhausted? Worried about national security? These days memories are just as necessary for war-making as steel or oil.
Processors, IC’s, board-level products, hard drives—same story. You’d be hard put to find a hard drive that wasn’t produced in China.
It’s not just production. Engineering started moving to Taiwan some time ago and from Taiwan to China, where the stuff was actually made. This is a point I’ve been making for at least a decade: engineering follows production, management follows engineering.
Add Malaysia, Thailand, and the Philippines and you’ve accounted for practically all electronics production. Why pick on the Chinese? And why worry now when the production and engineering moved long ago?
This is just another data point in the anti-Chinese agitation we’ve been seeing from the press and the Congress lately.
Perhaps Not So “Idiotic” After All
Several points I wish to make with regard to your comments:
1) Most disk drives are manufactured in Thailand, not China. About 60% of the total by unit count. Singapore and Malaysia also have appreciable shares of the “off shore” manufacturing of HDDs and other components.
2) China does have HDD production of course, but facilities, know how, and IP are owned by either US or Japan based companies (Seagate & Hitachi are the only two major mfrs with production in China while Samsung and Toshiba have HDD’s built for them by TDK/SAE, a Japan based company. There are a few companies in China that are Chinese owned, and are key suppliers to the HDD industry of course. Some of these hold their own IP, but very little by comparison to the Japanese and American firms.
3) China’s membership in the WTO should, and sometimes does, prevent outright patent infringements. I think this may be an especially critical area for the Chinese at this juncture of the spreading perception that products from China are below standard, often faked copies, and sometimes dangerous enough to cause a recall.
4) Moving manufacturing, process engineering, and failure analysis, to China or elsewhere, does not preempt concerns about guarding research, new product development, and IP which are still held close-to-the-vest by companies like Seagate, Western Digital, Hitachi GST, SAE (TDK), etc.
5) The recent move towards embedding advanced encryption technologies could raise a particular flag for those government bodies who retain oversight on technology exports.
6) Current issues relative to China exports being sub standard, and willfull actions to sacrifice standards and safety in favor of cheaper, (such as use of dangerous chemicals like leaded paint on Children’s toys, and fromaldahyde in food products, or affixing counterfeit UL approval stickers, etc.) are causing a serious problem for the Chinese whose dependence on exports to fuel their groeth is paramount, could weigh in here.
Factually, China must protect it’s membership in the WTO and maintain standards accordingly. This is a very large issue for them right now. Whether or not these recent problems would have anything to do with their chances for official approval to purchase an American hard drive maker or not isn’t clear. But it seems to me that as they continue to climb the ladder of value add and origination of IP, they will need to address issues of assurances on several fronts. Not the least of which is better clarification of their military build-up of recent years and their policies in terms of carbon emmissions, fishing limits, anti-piracy, gross violations of human rights, etc etc. Lets face it, China and the Wes (especially the US) have very differing ideologic values. It is right, and fair, for the U.S. government to take an interest in the acquisition of a company that holds critical technologies related to one of the pillars of Information Technology.
By the way, I would agree in general that there has been far too much anti-Chinese posturing in congress and the press. On it’s own I believe it serves little purpose. However, the two countries are fundamentally different in a myriad of ways, which are better pointed out in the big issues. I consider this one a big issue.
The reforms started by Deng Xiaoping in 1978 have led to a truly remarkable change in China, and these changes have directly influenced the security of the world, and the reduction of poverty in China (from slightl;y above 50% living below the poverty line in 1980, to approximately 10% tday (source: World Bank). Calm deliberation will serve us all better, just as it has always.
Thanks for the opportunity to write these remarks, which are far longer then I anticipated at the start, and I look forward to any rebuttal.
Regards
Thank you very much for your great comment, Gary. It looks as though we disagree in detail but agree in general. My bottom line is, at is has been for a long time, that
1) most Americans including American negotiators don’t understand China
2) China is neither a burgeoning capitalist democracy nor a collectivist anthill but something…well, Chinese
3) China doesn’t have the political, legal, or social infrastructure to make the reforms people here in the West think they should make
4) it’s going to be a long, hard, slow process
5) your concluding point is exactly on target:
Thanks again.