Can We Ever Trust Chinese-Manufacturers Again?

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Can We Ever Trust Chinese-Manufacturers

Can We Ever Trust Chinese-Manufacturers

It’s easy to understand why companies like Apple, Amazon, Microsoft, and others build products in China. The lower manufacturing costs, relatively cheap labor, seemingly unlimited production capabilities, and endless expansion opportunities all make Chinese manufacturing a win not only for the companies that use it but for the consumers who buy millions of perfect replicants…er…products and with prices that are surely lower than what they’d spend for similar consumer goods built in the U.S.

This is economics 101 and, I’ll admit, I’ve never really taken a hard look at the long and deep relationship between China and most of America’s major technologies companies. Like everyone else, I was concerned about the 2010 rash of, home of, among other countless products, iPhone and iPad manufacturing. Foxconn, which is based in Shenzhen, initially tried to act as if everything was fine, but after Apple, the plant opened its doors to reporters and made changes to ensure its work standards were more closely aligned with those of its key partner.

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In recent years, however, the conversation’s shifted from one of concern for Chinese workers to the work that the Chinese do for the U.S. and other partners and how that comports with U.S. interests and security.
The Trump administration, in particular, has targeted China and The former for selling technology to North Korea and Iran despite U.S. sanctions against such sales and the latter for being too chummy with the Chinese Government.

My stock answer to all of this has been, “Why would these companies work against their own best interests by doing things that might somehow harm Americans?”
A 2015 report put China’s slice of the global manufacturing pie at . I still believe that companies like Foxconn and the busy cluster of Chinese manufacturers in the city of Shenzhen are making honest deals and solid, consistent products for hundreds of companies.

The Trump administration has pushed hard to bring manufacturing back to America and as a threat and bargaining chip to convince companies to make the move and, it seems, get China to accept more American goods from the heartland. Trump and American companies have also complained vehemently about the Chinese Government’s long-standing requirement for selling any U.S. products in China.

and have warned that they would have unintended consequences, hurting American companies and consumers, who might have to pay more for “Made in China” products. That had been my concern, too.
Then I read the Bloomberg BusinessWeek’s investigative report on the Chinese Government’s allegedly successful program to surreptitiously place tiny chips on server boards manufactured in China but sold by a U.S.-based company to American clients. This is not the story of a chip bug-like Meltdown, the one that. It’s a coordinated effort to infiltrate the servers and businesses of 30 American companies, including Apple and Amazon. The chips offer a communication path and back door for Chinese hackers and their partners to access and alter servers that connect to, for instance, cloud-based systems.

It is not clear from the report how this hack if activated, would impact consumers. There’s also not much evidence that the Chinese have done much with these chips yet. Still, their existence is one of the most stunning and bold hacks in recent tech history. And it’s changed my thinking about manufacturing in China.
A New Kind of Threat
“Chinese Hackers” is not, obviously, an oxymoron. Some of the most sophisticated cyber-attacks originate from China. Government-backed hackers are constantly looking for new ways to access U.S. Government, infrastructure, and.

China’s relationship with U.S. businesses reminds me of ancient. They were round and bronze, but with a square void in the center. That negative space is filled, in my opinion, with the Chinese Government and its political philosophy. You may not always see it, but it’s never far from any institution or business on Chinese soil.
The tale of how the chip ended up on American servers is a perfect illustration. It wasn’t the U.S. company, Super Micro Computer, that placed the chip in the board design, nor was it one of their Chinese manufacturers working for the Chinese party. Instead, according to Bloomberg, the Peoples Liberation Army coerced Chinese manufacturers into adding the chip to the original Super Micro Computer designs.

In other words, the Chinese Government cooked up an audacious, years-in-the-making plan to infiltrate huge swaths of American business and infrastructure and then leveraged China’s position as a global manufacturer to execute the plan.
If true — and I believe the report — the trust American companies have in Chinese manufacturers is irrevocably broken.

My thoughts turn, naturally, to Apple and Foxconn. I know Apple maintains exacting standards for the manufacturing of its consumer products and it’s unlikely China would want to jeopardize such a public and surely lucrative relationship, but how can we be sure? What Foxconn and all those other manufacturers in Shenzhen want is to make as many products as possible for American consumers. But that’s not the only thing the Chinese Government wants, is it?

It will be fascinating to see how Apple, Amazon, Google, Microsoft, and others who build products in China and sell them here, respond to this. Most, while according to BusinessWeek quietly removing them from their systems, have publicly denied the existence of these chips on their server systems. But they must be shaken. Most don’t want to bring manufacturing back to the U.S. to preserve margins and avoid raising prices, but will protect consumers from the Chinese Government change their perspective, too?

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