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China technology

Did a property billionaire invest in a flailing Tesla wannabe to gain tech for China? The US thinks so

  • An Evergrande Group subsidiary’s US$2 billion deal to buy a stake in Faraday Future seen as scheme for China to obtain advance technology in new energy vehicles
PUBLISHED : Wednesday, 21 November, 2018, 11:06pm
UPDATED : Thursday, 22 November, 2018, 12:08am

The United States singled out a cash-strapped Tesla wannabe, a top university in Beijing and government-backed venture capital firms as part of China’s programme of unfair technology transfer and intellectual property theft, as the trade war between the world’s two largest economies escalate.

Those entities were identified in a 53-page report released on Tuesday by the Office of the US Trade Representative ahead of a scheduled meeting next week between President Xi Jinping and Donald Trump on the sidelines of the Group of 20 Summit in Buenos Aires, Argentina.

The report, which updated information about the US agency’s Section 301 investigation of China’s technology and innovation-related policies and practices, looks to add more urgency to that meeting, which could lead to a possible truce in the two countries’ trade dispute.

The US$2 billion acquisition of a 45 per cent stake in California-based electric car maker Faraday Future by Evergrande Health, the Hong Kong-listed subsidiary of China’s largest property company the Evergrande Real Estate Group, was cited by the report as an example of how Beijing makes use of outbound investments to obtain advanced technologies favoured by state industrial plans.

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It said Xu Jiayin, the group’s founder and chairman, has been the chairman of his company’s Chinese Communist Party (CCP) cadre since 2002, which deemed that connection a red flag in light of Beijing’s focus on new energy vehicles as part of the state’s “Made in China 2025” initiative.

The report, which was based on publicly available material, also accused China of “conducting and supporting cyber-enabled theft” for gaining access to intellectual property.

The US trade agency also cited a report from cybersecurity firm Recorded Future, which claims a series of cyberattack in May this year originated to IP addresses linked to Tsinghua University, which the report said has close ties with the CCP.

In addition, the report said the Chinese government has created and supports a web of entities with presence in Silicon Valley and other US technology centres to invest in hi-tech American start-ups and other investment activities to further the industrial policy goals of the Chinese government.

“We understand that the US is trying to protect its core economic interests even as it tries to politicise everything,” said Cao Zhongxiong, executive director of new economy studies at Shenzhen-based think tank China Development Institute.

“For example, it is ridiculous to claim that China’s VC investments in US firms are for the purpose of stealing US intellectual property rights and trade secrets.”

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“I believe that cooperation between China and the US will be conducive to further opening up of the Chinese market to US companies,” he said.

Among the state-backed venture capital entities cited by the report, the Zhongguancun Development Group (ZDG) was described as being active in Silicon Valley since 2014. The group’s US unit, ZGC Capital, has partnered with Stanford University, engaged in talent recruitment, made VC investments and invested in other VC funds like Danhua Capital, according to the report.

Tsinghua University did not immediately reply to an email inquiry on Wednesday. ZDG did not immediately respond to a faxed inquiry on Wednesday.

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An Evergrande Health spokesman reached by telephone said the company has no comment on the updated 301 report.

“This update shows that China has not fundamentally altered its unfair, unreasonable, and market-distorting practices that were the subject of the March 2018 report on our Section 301 investigation,” US Trade Representative Robert Lighthizer said in the agency’s release on Tuesday to announce the latest report.

That document appears to reflect the determination of the US to create any advantage ahead of the meeting between Xi and Trump, as billions of US dollars of international commerce are at stake in the trade war.

Cao said the frayed relations between the US and China already transcended trade to competition in technology.