ASSEMBLED IN CHINA – Your interesting longish read of the day is an extract from a new book, “China’s Great Wall of Debt” by Dinny McMahon:

While hundreds of thousands of people are employed to “make” iPhones in China, they contribute only a sliver to the overall value of the end product.

According to a 2010 paper from the Asian Development Bank Institute, 34 per cent of the value of an iPhone came from Japan, which supplied the screen and flash memory; 17 per cent from Germany, which made the camera and power-management integrated circuitry; and 13 per cent from South Korea, which made the SDRAM.

China contributed only 3.6 per cent — primarily the labour. The ratio has gone up since then, but it’s still less than 10 per cent.

Enter supply-side structural reform. At its heart, it is an import-substitution scheme. The aim is for China to make a significantly larger share of the components that go into products like iPhones, which are assembled in China.

By 2025, Beijing wants Chinese companies to produce 70 per cent of basic core components and basic materials used in goods manufactured locally. (By way of comparison, in 2015, China was still importing about 80 per cent of the chips that were used in locally assembled mobile phones.)

If China is to reach its targets, then its success must come at the expense of those countries which currently produce the guts of an iPhone or the more technologically advanced parts of a pen…

So, rather than rely solely on the creativity of its indigenous innovators, Beijing is taking a few shortcuts.

“There are two kinds of big companies in the United States. There are those who’ve been hacked by the Chinese and those who don’t know they’ve been hacked by the Chinese,” said James Comey, then-director of the FBI, in a 2014 interview on 60 Minutes. They’re looking for “information that’s useful to them so [Chinese firms] don’t have to invent” it.

China engages in industrial espionage on a vast scale. But stealing cutting-edge research from foreign firms before they’ve had a chance to commercialise it is just a small part of a broader campaign to acquire intellectual property developed overseas.

Just your regular remainder: China is not our friend and it plays by its own rules.

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