China Summons Tech Giants to Warn Against Cooperating With Trump Ban – The New York Times

SAN FRANCISCO — The Chinese government this past week summoned major tech companies including Microsoft and Dell from the United States and Samsung of South Korea, to warn that they could face dire consequences if they cooperate with the Trump administration’s ban on sales of key American technology to Chinese companies, according to people familiar with the meetings.

Held on Tuesday and Wednesday, the meetings came soon after Beijing’s announcement that it was assembling a list of “unreliable” companies and individuals.

That list was widely seen as a way of hitting back at the Trump administration for its decision to cut off Huawei, the Chinese electronics giant, from sales of American technology. The United States has accused Huawei of stealing trade secrets and conducting surveillance on behalf of Beijing.

Details about the meetings, the latest move in two weeks of high-stakes economic brinkmanship between the United States and China, were shared by two people familiar with them, who asked not to be named because they were not authorized to discuss them and could face retribution.

The meetings also included the semiconductor makers Arm of Britain and SK Hynix of South Korea.

Dominic Carr, a Microsoft spokesman in Seattle, declined to comment on the meeting, as did Phil Hughes, a representative for Arm in Austin, Tex., and Dave Farmer, a spokesman for Dell in Hopkinton, Mass.

Representatives for Samsung and SK Hynix didn’t respond to requests for comment.

The breakneck unraveling of the world’s most important trade relationship has left companies and governments around the world scrambling. While the dispute had already been nettlesome for Chinese-U.S. relations, the sudden ban on Huawei last month caught many by surprise, raising the stakes by striking at the heart of China’s long-term technological ambitions.

Now, each of the two superpowers appears to be crafting new economic weapons to aim at the other. What was once a fraught, but deeply enmeshed, trade relationship is threatening to break apart almost entirely, raising the specter of a new geopolitical reality in which the world’s two superpowers would compete for economic influence and try to freeze each other out of key technologies and resources.

“This is now extremely delicate because the Trump administration, through its brinkmanship tactics, has destabilized the entire relationship, commercial and otherwise,” said Scott Kennedy, a senior adviser at the Washington-based Center for Strategic and International Studies who studies Chinese economic policy.

The meetings this week were led by China’s central economic planning agency, the National Development and Reform Commission, and attended by representatives from its Ministry of Commerce and Ministry of Industry and Information Technology, who addressed their remarks to a broad range of companies that export goods to China, according to the two people familiar with the gatherings.

The involvement of three government bodies suggested a high level of coordination and likely approval from the very top of China’s opaque leadership structure. The intervention seemed designed to rally support for Huawei, though the company was not specifically mentioned, the two people said.

“There is a strong perception in Beijing that the U.S. government is intent on blunting China’s technology rise, and that if this process is not slowed or stopped, the future of China’s entire digital economy is at risk,” said Paul Triolo, the head of geotechnology at the consultancy Eurasia Group, adding that the spat had major political implications for Xi Jinping, China’s president and the head of its ruling Communist Party.

“Mr. Xi and the party will be seen as unable to defend China’s economic future” if the confrontation with the United States does major damage to Huawei and throws off China’s rollout of the next generation of wireless technology, called 5G, Mr. Triolo added.

More broadly, the warnings also seemed to be an attempt to forestall a fast breakup of the sophisticated supply chains that connect China’s economy to the rest of the world. Production of a vast array of electronic components and chemicals, along with the assembly of electronic products, makes the country a cornerstone of the operations of many of the world’s largest multinational companies.

As the trade relationship between the United States and China has broken down, fears have risen in China that major companies will seek to move production elsewhere to avoid longer-term risks. In the meetings this week, Chinese officials explicitly warned companies that any move to pull production from China that seemed to go beyond standard diversification for security purposes could lead to punishment, according to the two people.

The Chinese officials appeared to have differing messages for the companies, depending on whether they were American or not, the people added.

To those from the United States, they warned that the Trump administration’s move to cut off Chinese companies from American technology had disrupted the global supply chain, adding that companies that followed the policy could face permanent consequences. The Chinese authorities also hinted that firms should use lobbying to push back against the government’s moves.

“The Chinese government has regularly resorted to jawboning multinationals to try to keep them in line when there are disputes between China and others that could lead these companies to reduce their business in China,” Mr. Kennedy said.

The Chinese agencies did not respond to requests for comment.

In the past, China has used America’s tech behemoths as a tool of diplomacy. For example, during a high-profile visit to the United States in 2015, Mr. Xi stopped in Seattle before heading to Washington. There, he met with a who’s who of American and Chinese tech executives as a way to emphasize the depth of the countries’ economic ties, even as President Barack Obama’s administration sought to chart a course that would push back against China’s anticompetitive trade practices and investment rules.

This time, such a play is less likely to be effective, said Mr. Kennedy, because it forces the companies to choose between complying with pressure from Beijing and violating U.S. law.

“American companies aren’t going to violate American laws, especially in such a high-profile context where their actions are scrutinized,” he said. “The companies are between a rock and a hard place, but that hard place will win out.”

The Chinese officials told companies from outside the United States that as long as they kept up their current relationships and continued to supply Chinese companies normally, they would face no adverse consequences. They also stressed China’s commitment to open trade and its protections of intellectual property, according to the people familiar with the meetings.

The companies’ businesses in China vary widely. Dell has a limited market selling its computers in China, while Microsoft distributes software and its computer processing and storage services there. And Microsoft’s search engine, Bing, is one of the few from an American company that is not blocked in China.

The semiconductor manufacturers supply hardware for smartphones and telecom equipment made by Chinese companies, including Huawei.

After the Trump administration’s ban on sales to Huawei, several American companies slashed tens of millions of dollars from their quarterly revenue expectations. About 60 percent of all semiconductors sold are connected in some way to China’s supply chain, the consulting firm KPMG estimates.

Resolving the mercantilist standoff may be difficult, said Mr. Triolo, because progress in the trade talks has become linked to progress on the Huawei tech ban, but the Huawei issue cannot be dealt with through the official trade channels. For example, the dispute has been inflamed by fraud charges the United States has brought against the Huawei executive Meng Wanzhou, who is awaiting extradition proceedings in Canada, and obstruction and other charges against the company itself.

A separate negotiation between high-level officials over Huawei is probably the only way forward, Mr. Triolo said — that, or an even less likely possibility: “Huawei would have to send a team to Washington to admit guilt and negotiate what could be a humiliating agreement with U.S. authorities.”

“So far, there is no sign that either Beijing or Huawei is considering that option,” he said.