ANNUAL REPORT

dkrause on DSKHT7XVN1PROD with USCC
161
ing abroad, and allocated $150 million for investments in Chinese
startups to regain access to its most important market. 170 In June
2015, a subsidiary of Qualcomm partnered with Huawei, IMEC research
institute, and Semiconductor Manufacturing International
Corporation, China’s leading foundry and world’s fifth largest
foundry, to create an equity joint venture to develop 14 nanometer
chips. 171 According to Qualcomm, this joint venture ‘‘reinforces
Qualcomm’s commitment to the continued growth of the vibrant
semiconductor ecosystem in China.’’ 172 Semiconductor Manufacturing
International Corporation noted that this collaboration will
‘‘open up R&D and manufacturing resources in this industry’s ecosystem,
and develop our advanced technology and R&D capabilities.’’
173 In January 2016, Qualcomm formed a joint venture with
the Guizhou provincial government to make advanced server chips
customized for Chinese customers, which Qualcomm noted will
strengthen its ‘‘commitment as a strategic partner’’ and ‘‘yield mutual
benefits for both sides as we together pursue a very large data
center opportunity in China.’’ 174
Intel: In September 2014, Intel, which generates one-fifth of its
annual revenues from China, signed a $1.5 billion joint-venture
deal to get a 20 percent stake in Chinese state-owned subsidiary
Spreadtrum. 175 Intel said this partnership will ‘‘expand the product
offerings and adoption for Intel-based mobile devices in China and
worldwide.’’ 176 However, some analysts have suggested this deal is
in part an effort to avoid the regulatory hurdles its competitors
such as Qualcomm are facing. 177 In October 2014, Intel’s venture
capital firm invested $28 million in five Chinese mobile device companies,
and in April 2015, Intel announced a $17.9 million (RMB
120 million) investment to support Chinese high-tech startups.
These partnerships offer Chinese firms financial, product design,
manufacturing, and sales and marketing support. 178 In January
2016, Intel further expanded its Chinese partnerships with a ‘‘strategic
collaboration’’ with Tsinghua University and Montage Technology
Global Holdings Ltd., a subsidiary of the state-owned information
technology firm China Electronics Corporation, to develop
custom computer processors in order to meet Chinese security requirements.
179 Intel noted that this collaboration will ‘‘create new
and compelling indigenous products while preserving the respective
intellectual property ownership of all parties.’’ 180
China’s Fiscal and Financial Reforms
Fiscal and financial reforms are critical to improving capital allocation
efficiency in China’s economy. The current system has created
indebted local governments with unfunded mandates and
bloated SOEs. According to Eswar Prasad, senior professor of trade
policy at Cornell University, the Chinese government is simultaneously
attempting to achieve two contradictory approaches: ‘‘letting
the market work,’’ while maintaining the ‘‘paternalistic oversight
of the state.’’ 181 Dr. Prasad noted in his testimony to the
Commission that most reform efforts have focused on financial or
capital markets, while reform of China’s tax revenues and government
spending has been very limited and slow. 182 He attributed
VerDate Sep 11 2014 12:16 Nov 02, 2016 Jkt 020587 PO 00000 Frm 00071 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2016\FINAL\06_C1_C2_M.XXX 06_C1_C2_M