Two big reports are circulating on Monday, 12 March. One is that President Trump has just prohibited Singapore-based Broadcom, the computer chip giant, from a proposed takeover of San Diego’s Qualcomm, global leader in cellular communications technology.
The other is that the Xi Jinping regime in Beijing has just proposed a sweeping slate of bureaucratic reforms, which will consolidate the control of the Communist Party over huge and significant segments of the Chinese economy.
What does one have to do with the other? The answer lies in the connection between China’s regime, the People’s Liberation Army, and major Broadcom partner Huawei (here, here, here, here) – a Chinese rival to Qualcomm in cellular technology, and in the race to develop the “5G,” fifth-generation framework of wireless tech.
Regarding the significance of 5G, Gordon Chang explained in an opinion piece for Fox News on 2 March:
When 5G is developed it will offer far faster speeds and near-universal connectivity, linking homes, vehicles, machines, and just about everything else. As a result, the company controlling 5G will control much of the world’s communications for a decade.
If Broadcom purchases Qualcomm, China would benefit because Qualcomm will, in all probability, be forced out of the race to develop 5G, opening the way for the Chinese company Huawei Technologies to dominate wireless.
Chang notes that although Broadcom’s CEO, Hock Tan (a naturalized U.S. citizen, born in Malaysia), has said he wants to bring Broadcom’s headquarters back to the United States, that might or might not happen. And even if it did, it probably wouldn’t matter. Chang points to Mr. Tan’s takeover history of vigorous shake-ups and sell-offs, a process in which Qualcomm’s 5G research and development effort could be effectively shut down.
Tan is a slash-and-burn artist, “the arch-consolidator” as the Financial Times politely put it. He buys companies, sells off assets and ruthlessly controls expenses. He boosts financial performance quickly. Shareholders, understandably, love him.
There is no mystery in what Tan would do to Qualcomm. He would unload peripheral businesses and sell off a fair number of patents. He would keep the cellular baseband franchise and the mobile application processor business.
Tan would almost certainly cut costs, especially research and development, on whatever business lines he retains.
According to Derek Scissors of the American Enterprise Institute, quoted by Chang:
As a commercial matter, Broadcom may cut the heavy investment in R&D that keeps Qualcomm at the forefront technologically.
The bottom line for the U.S., from Scissors:
If it gains control of Qualcomm, there’s no reason for Broadcom to consider U.S. national security in its corporate decisions.
Whatever your position on free trade, it should be a no-brainer that some elements of the economy are important enough to national security that we should protect U.S. national positions in R&D. We needn’t fear that Americans are being denied the best possible 5G connectivity, by keeping Qualcomm free of Broadcom’s strategic supervision.
But just as importantly, we should be vigilant about the operation in the U.S. economy of any company as exposed as Broadcom is to Huawei, or other Chinese giants with links to the Chinese government and military.
Chinese power moves
That point highlights the direct relevance of Xi Jinping’s move in the last week to consolidate his and the Party’s power in China. One reason is that the latest move, the slate of reforms for the state regulatory bureaucracy, is taking direct aim at economic sectors. Whatever arguments Huawei has made in the past about being independent from the Chinese government, those arguments are soon to be moot.
Last week, before the reform package was introduced, China’s legislature voted to eliminate term limits for President Xi, which will allow him to retain power for as long as he and the Party are happy with each other.
But the new slate of reforms eyes consolidation on a different vector, one that will whittle down the potential for competing power sectors inside China. Expanded central government control of economic sectors is a classic move against wealthy business owners and the regional officials who work with them. That will only increase the central government’s ability to exploit businesses like Huawei.
It’s not a big revelation to point out that Huawei, closely linked to the Chinese military, gains things like the ability to spy more effectively on Western technology by being a major actor in the tech industry. From that standpoint alone, it would have been wise to prevent the Broadcom-Qualcomm takeover, even without the disquieting moves being made by the Xi regime.
But a second point about Xi’s specific moves drives home how immediately important it is for the U.S. to retain an asset like Qualcomm’s R&D division, and not let a close partner of Huawei be the one to make decisions about it.
Xi isn’t undertaking these moves as an academic exercise or an experiment in government. We haven’t seen this pattern for quite a while, at least not from a nation as big as China. But this is what autocratic regimes do to put their nations on a footing for increased aggression, up to and including war. Xi clearly wants to make China a more effective war machine. At no time in history has an autocrat in a dominant nation made moves like these, without having that end in view.
That doesn’t mean China has a specific plan for a hot war today. It means Xi wants to be able to effectively command the resources for war, so that he can act more aggressively in the near future – ideally, of course, to achieve Chinese goals through intimidation and extortion rather than resorting to force.
These moves means Xi’s mindset is not now that China or the globe is “at peace.” A line is being crossed. This posture shift isn’t aimed only at the United States. Xi has an eye on Japan, India, and Russia, among others. They are all arming up and showing signs of military “outreach,” both incremental and – well, less incremental. (For all three nations, China’s own recent history of outright military build-up has been a key catalyst.)
I have little doubt that China has also read accurately the signs in Iran and Saudi Arabia, where recent internal reorganizations are intended precisely to put military operations and war decisions under more centralized, effective control. That can only mean they want to be ready to pursue their interests militarily, in ways they haven’t before. China regards the disposition of the Middle East as essential to her own security, and foresees greater military requirements for her forces there.
Asia is arming up, and China is making a big – unique and game-changing – move to stay ahead of that trend. To the question whether that would drive Beijing to make sure Broadcom shuts down (or otherwise compromises) Qualcomm’s rival 5G effort, the answer is, “Of course.” All day every day and twice on Sunday.
China will do whatever she can to hamstring U.S. technology and ensure Chinese dominance – as a matter of national power in every dimension, military and political as well as economic. The breezes of war are starting to blow. At some point, a little nation somewhere is not going to agree that it looks like “peace,” to have to accept domination by Russia or China, or some combination of those nations with Iran.
America needs to bring her A-game to this unfolding future. We need to be in charge of developing and fielding 5G for ourselves. That doesn’t mean the U.S. government should take over the enterprise (a very bad idea floated, although not officially, a few weeks ago). But America’s best R&D on 5G should not be under the significant influence of foreign interests. Prohibiting the Broadcom tender for Qualcomm is the right thing to do.