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The Disparate Effects of Apple and Google on Sino-American Relations

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Title:
The Disparate Effects of Apple and Google on Sino-American Relations
Physical Description:
1 online resource (106 p.)
Language:
english
Creator:
Geary, Sean B
Publisher:
University of Florida
Place of Publication:
Gainesville, Fla.
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Thesis/Dissertation Information

Degree:
Master's ( M.A.)
Degree Grantor:
University of Florida
Degree Disciplines:
Political Science - International Relations, Political Science
Committee Chair:
Oren, Ido
Committee Members:
Selden, Zachary Alan
Brown, Myra Leann

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Subjects / Keywords:
apple -- china -- google -- mnc -- us
Political Science -- Dissertations, Academic -- UF
Genre:
Political Science - International Relations thesis, M.A.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract:
This paper seeks to explore theeffects of multinational corporations on international relations by delvinginto the differing impacts that two technology companies, Google and Apple,have on Sino-American relations. Using the works of political economy scholar Robert Gilpin as a theoretical framework, this paper attempts to unpack themultinational corporation in order to demonstrate that evaluating the role ofthe multinational corporation in international relations as a monolithic entityis overly reductive.   Throughthe juxtaposition of Google, a company that is heavily dependent on the freeaccess to information, and Apple, predominantly a manufacturing company, thispaper elucidates how the former is significantly more problematic for theChinese government. Because of Google’s commitment to a free internet and theinherent problems its business model poses for authoritarian governments, ittends to be a tension-producing in Sino-American relations. On the other hand,Apple’s business model dovetails nicely with the neo-Mercantilist, export-basedmodel that the Chinese government has embraced. As a result, Apple tends to produce far less tension in Sino-American relations than Google.
General Note:
In the series University of Florida Digital Collections.
General Note:
Includes vita.
Bibliography:
Includes bibliographical references.
Source of Description:
Description based on online resource; title from PDF title page.
Source of Description:
This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility:
by Sean B Geary.
Thesis:
Thesis (M.A.)--University of Florida, 2013.
Local:
Adviser: Oren, Ido.

Record Information

Source Institution:
UFRGP
Rights Management:
Applicable rights reserved.
Classification:
lcc - LD1780 2013
System ID:
UFE0045097:00001

MISSING IMAGE

Material Information

Title:
The Disparate Effects of Apple and Google on Sino-American Relations
Physical Description:
1 online resource (106 p.)
Language:
english
Creator:
Geary, Sean B
Publisher:
University of Florida
Place of Publication:
Gainesville, Fla.
Publication Date:

Thesis/Dissertation Information

Degree:
Master's ( M.A.)
Degree Grantor:
University of Florida
Degree Disciplines:
Political Science - International Relations, Political Science
Committee Chair:
Oren, Ido
Committee Members:
Selden, Zachary Alan
Brown, Myra Leann

Subjects

Subjects / Keywords:
apple -- china -- google -- mnc -- us
Political Science -- Dissertations, Academic -- UF
Genre:
Political Science - International Relations thesis, M.A.
bibliography   ( marcgt )
theses   ( marcgt )
government publication (state, provincial, terriorial, dependent)   ( marcgt )
born-digital   ( sobekcm )
Electronic Thesis or Dissertation

Notes

Abstract:
This paper seeks to explore theeffects of multinational corporations on international relations by delvinginto the differing impacts that two technology companies, Google and Apple,have on Sino-American relations. Using the works of political economy scholar Robert Gilpin as a theoretical framework, this paper attempts to unpack themultinational corporation in order to demonstrate that evaluating the role ofthe multinational corporation in international relations as a monolithic entityis overly reductive.   Throughthe juxtaposition of Google, a company that is heavily dependent on the freeaccess to information, and Apple, predominantly a manufacturing company, thispaper elucidates how the former is significantly more problematic for theChinese government. Because of Google’s commitment to a free internet and theinherent problems its business model poses for authoritarian governments, ittends to be a tension-producing in Sino-American relations. On the other hand,Apple’s business model dovetails nicely with the neo-Mercantilist, export-basedmodel that the Chinese government has embraced. As a result, Apple tends to produce far less tension in Sino-American relations than Google.
General Note:
In the series University of Florida Digital Collections.
General Note:
Includes vita.
Bibliography:
Includes bibliographical references.
Source of Description:
Description based on online resource; title from PDF title page.
Source of Description:
This bibliographic record is available under the Creative Commons CC0 public domain dedication. The University of Florida Libraries, as creator of this bibliographic record, has waived all rights to it worldwide under copyright law, including all related and neighboring rights, to the extent allowed by law.
Statement of Responsibility:
by Sean B Geary.
Thesis:
Thesis (M.A.)--University of Florida, 2013.
Local:
Adviser: Oren, Ido.

Record Information

Source Institution:
UFRGP
Rights Management:
Applicable rights reserved.
Classification:
lcc - LD1780 2013
System ID:
UFE0045097:00001


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1 THE DISPARATE EFFECTS OF APPLE AND GOOGLE ON SINO AMERICAN RELATIONS By SEAN BUTLER GEARY A THESIS PRESENTED TO THE GRADUATE SCHOOL OF THE UNIVERSITY OF FLORIDA IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS UNIVERSITY OF FLORIDA 2013

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2 2013 Sean Butler Geary

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3 To my Mom and Dad for their constant support, both emotional and monetary

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4 ACKNOWLEDGMENTS particular Dr. Oren, for his seemingly inexhaustible patience and incredible wisdom. Florida for opening my eyes to new schools of thoughts, arguments, and perspectives.

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5 TABLE OF CONTENTS page ACKNOWLEDGMENTS ................................ ................................ ................................ .. 4 LIST OF ABBREVIATIONS ................................ ................................ ............................. 7 ABSTRACT ................................ ................................ ................................ ..................... 8 C H A P T E R 1 INTRODUCTION ................................ ................................ ................................ ..... 10 Premise ................................ ................................ ................................ ................... 10 Argument ................................ ................................ ................................ ................ 11 Literature Review ................................ ................................ ................................ .... 12 Notes ................................ ................................ ................................ ...................... 15 2 A BRIEF HISTORY OF SINO AMERICAN ECONOMIC RELATIONS .................... 16 Opium Wars to Nixon ................................ ................................ .............................. 16 Normalization to September 11 th ................................ ................................ ............ 17 21 st Century Sino American Relations and the Chinese Economy ......................... 18 Notes ................................ ................................ ................................ ...................... 20 3 A BRIEF HISTORY OF APPLE AND GOOGLE IN CHINA ................................ ...... 22 Apple in China ................................ ................................ ................................ ........ 22 Google in China ................................ ................................ ................................ ...... 23 Notes ................................ ................................ ................................ ...................... 25 4 GOALS OF CHINA AND THE UNITED STATES ................................ ..................... 27 Goals of China ................................ ................................ ................................ ........ 27 Foreign Policy ................................ ................................ ................................ ... 27 Economy ................................ ................................ ................................ .......... 28 Currency ................................ ................................ ................................ ........... 29 Protectionism ................................ ................................ ................................ .... 31 Consumption of U.S. Debt ................................ ................................ ................ 35 Goals of the United States ................................ ................................ ...................... 37 Security ................................ ................................ ................................ ............ 37 Human Rights ................................ ................................ ................................ ... 39 Trade ................................ ................................ ................................ ................ 40 China and U.S. Debt ................................ ................................ ........................ 41 Intellectual Property ................................ ................................ .......................... 42 Notes ................................ ................................ ................................ ...................... 43

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6 5 GOALS OF APPLE AND GOOGLE ................................ ................................ ......... 48 Goals of Apple ................................ ................................ ................................ ........ 48 Manufacturing ................................ ................................ ................................ ... 48 Retail ................................ ................................ ................................ ................ 51 Goals of Google ................................ ................................ ................................ ...... 52 Ideals ................................ ................................ ................................ ................ 53 Business Model ................................ ................................ ................................ 54 Intellectua l Property ................................ ................................ .......................... 55 Notes ................................ ................................ ................................ ...................... 57 6 NEXUS ................................ ................................ ................................ .................... 61 Convergence and Divergence ................................ ................................ ................ 61 Manufacturing ................................ ................................ ................................ ......... 61 Apple: Chinese Perspective ................................ ................................ ............. 61 Apple: American Perspective ................................ ................................ ........... 62 Google: Chinese Perspective ................................ ................................ ........... 63 Piracy and Intellectual P roperty ................................ ................................ .............. 64 Apple and Intellectual Property ................................ ................................ ......... 64 Google and Intellectual Property ................................ ................................ ...... 67 Competition ................................ ................................ ................................ ............. 69 Apple and Competition in China ................................ ................................ ....... 69 Google and Competition in China ................................ ................................ ..... 70 Chinese protectionism ................................ ................................ ............... 71 Political censorship as protectionism ................................ ......................... 72 Protectionism a nd Sino American relations ................................ ............... 73 Privacy, Censorship, and Information Technology ................................ .................. 75 Apple and Privacy, Censorship, and Information Technology .......................... 75 Google and Privacy, Censorship, and Information Technology ........................ 76 ................................ .................. 77 Google and the U.S. on censorship ................................ ........................... 78 Cyberwarfare ................................ ................................ ................................ .......... 80 Apple and Cyberwarfare ................................ ................................ ................... 80 Google and Cyberwarfare ................................ ................................ ................ 80 U.S. reaction to Chinese cyberattacks ................................ ....................... 81 Google, Cyberwarfare, and Sino American relations ................................ 83 Notes ................................ ................................ ................................ ...................... 84 7 CONCLUSION ................................ ................................ ................................ ......... 91 LIST OF REFERENCES ................................ ................................ ............................... 94 BIOGRAPHICAL SKETCH ................................ ................................ .......................... 106

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7 LIST OF ABBREVIATIONS A M C HAM The American Chamber of Commerce CCP The Chinese Communist Party MNC Multinational corporation(s) NATO The North Atlantic Treaty Organization NGO Non government organization PRC The RMB Renminbi, the currency of China. SEZ Special Economic Zone

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8 Abstract of Thesis Presented to the Graduate School of the University of Florida in Partial Fulfillment of th e Requirements for the Degree of Master of Arts THE DISPARATE EFFECTS OF APPLE AND GOOGLE ON SINO AMERICAN RELATIONS By Sean Butler Geary August 2013 Chair: Ido Oren Major: Political Science International Relations This paper seeks to explore the effects of multinational corporations on international relations by delving into the differing impacts that two technology companies, Google and Apple, have on Sino American relations. Using the works of political economy scholar Robert Gilpin as a theoret ical framework, this paper attempts to unpack the multinational corporation in order to demonstrate that evaluating the role of the multinational corporation in international relations as a monolithic entity is overly reductive. Through the juxtaposition of Google, a company that is heavily dependent on the free access to information, and Apple, predominantly a manufacturing company, this paper elucidates how the former is significantly more problematic for the Chinese tment to a free internet and the inherent problems its business model poses for authoritarian governments, it tends to be a tension producing in Sino model dovetails nicely with the neo Mercantilist, export based model that the Chinese

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9 government has embraced. As a result, Apple tends to produce far less tension in Sino American relations than Google.

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10 CHAPTER 1 INTRODUCTION Premise Sino American relations, while composed of many facets, is largely influenced by matters of economic importance; identifying which economic factors drive this relationship is critical to understanding this relat ionship. In light of the fact that multinational corporations have grown increasingly larger and more powerful over the past few decades, using multinational corporations with vested interests in both China and the United States as a unit of analysis could provide new insight into Sino American international relations have often relegated multinational corporations to a secondary position, preferring nation states as the pri mary unit of analysis. A prime example of this is the manner in which Robert Gilpin explores the role of the multinational corporation in U.S. Power and the Multinational Corporation For Gilpin, the multinational corporation is unequivocally a significan t factor in the realm of international relations; however, the works of Gilpin largely treat multinational corporations as a monolithic entity. In this paper, I will look to demonstrate how individual multinational corporations can have divergent effects o n international and bilateral relations. In order multinational corporation into individual entities in this case, Google and Apple -to show how these two companies c an differently influence the relations between China and America. Specifically, by delving into the impact of two these two prominent American multinationals, I look to explore how these two darlings of the tech sector have drastically different effects o n Sino American relations. I posit that, while

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11 ostensibly both competitors in the field of technology, the manner in which they operate in China (Apple, as primarily a manufacturer of goods and a provider of high end goods to well heeled urban Chinese cus tomers, and Google, as primarily a purveyor of intangible goods and information) ensures that the actions of Apple and Google have dramatically different ramifications for Sino American relations. Argument I argue that, because Apple lacks true Chinese com petition and its China existing manufacturing framework for foreign entities and its neo Sino American relations is confined to the realm of widely noted piracy problems (and, in many ways, is analogous to that of other companies with manufacturing outfits in the Chinese Politburo: it deals mostly in intangible goods wit h minimal manufacturing; it allows for unprecedented access to information; it is competitive with nascent Chinese firms; it is on the forefront of a new paradigm in the global economy; and indirectly party to the murky world of cyberwarfare. Given the lac k of a true international framework for disputes involving matters of twenty first century technology, it is not surprising to find and foster uncensored interaction ha ve been problematic to Sino American relations. will explore the role of these two corporations and the differential effects of their Chinese interests through eviden ce of disruptions (or lack thereof) in Sino American relations from various publications, news articles, press releases, and academic papers. The principal conclusion I will draw is that companies that produce tangible goods and

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12 those that peddle in intang ible ideas have drastically different effects on Sino American relations. I will further conclude with informed speculation as to what this means for the future of Sino American relations, and Chinese and American foreign policy as a whole. Literature Rev iew During the 1970 s, when Gilpin wrote his seminal work on multinational corporations, the debate in international political economy raged over the proper role of government in the economy. Proponents of liberalism, stemming from the Smithian rebuttal to mercantilism through David Ricardo, long advocated the diminished role of government in matters of the economy. Liberal thinkers of the time, including neo classicists and members of the Austrian and Chicago Schools all proposed the deregulation of state c ontrolled industries and the increase of free trade, although each division of liberalism championed different specific prescriptions for what constitutes an progressively more fr towards the economy. 1 In addition to liberalism, Marxist thought maintained a prominent position in mainstream political economy, coinciding with the apex of Soviet power. Since then, as powe rs espousing Marxism have mostly dissipated, the influence of the doctrine has declined in the real global economy. As Gilpin notes in his later work Global Political Economy: Understanding the International Economic Order how to 2 However, Marxism 3 especially pertaining to pernicious elements of capitalism like the boom bust cycle and pervasive poverty coexisting alongside unabashed wealth. 4

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13 The third broad interpretation of the international political economy is realism, the school of thought to wh ich Gilpin subscribes. It should be noted that realism for Gilpin, as well as for many other international relations and political economy theorists, is not necessarily a normative endorsement of this manifestation of economic exchange (for example, Gilpin is a self proclaimed neoliberal in a normative sense) 5 Rather, many realists such as Gilpin subscribe to realism because it best depicts the actual functionality of political economy, even if some elements of the theory are not necessarily in the best in terest of global society. Specifically, Gilpin believes in state centric realism in the anarchic structure of international relations as the most accurate diagnostic approach to political economy because it most accurately reflects the fact mi litary economic, and or psychological (forces) will be vitally important in 6 7 While they are indeed interactive, the nation state is the determining force behi 8 Although nation states are the driving force behind political economy, Gilpin also claims that markets, technology, and multinational corporations contribute substantially, but do not mold the rules of the game. 9 This paper will focus on the multinational corporation and its role in the interaction between nation etical framework. Gilpin 10 (even these corporations are

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14 11 Gilpin continues by outlining the with respect to technology, access to capital, source s of supply, or whatever else gives nation. 12 Gilpin goes on to raise a number of important points and questions about American multinational corporation expansion abroad. multinational corporation, along with the phenomenon of foreign direct investment, constitutes a major innovation in the history of international politics, in that it seeks to enable the industrial/technological leader to maintain its dominant economic position... direct investment becomes, therefore, essentially a strategy by which to arrest relative 13 14 to the U.S. from increased foreign d irect investment from multinationals could be detrimental to overall U.S. interests. Put more succinctly, multinational corporations will equally true that American for eign policy has frequently run counter to corporate 15 Evidently, interests of a multinational corporation that differ from those of the home country of a multinational corporation or a country in which it is operating has the potential to cause problems in these complex relations. As well, Gilpin rightly argues that competing economic centers will have disputes over trade and investment resources, 16 in which multinational corporations serve as a disruptive influence. However, Gilpin does not ad dress the idea that individual multinational corporations

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15 country and on the foreign countries in which these multinationals operate. Gilpin tends to treat all multina tionals as a monolithic entity; this paper is not looking to disprove the works of Gilpin, but rather, to build upon the framework outlined by Gilpin by unpacking the multinational corporation to demonstrate how these firms have disparate effects on bilate ral relations. Notes 1 Robert Gilpin, Global Political Economy: Understanding the International Economic Order (Princeton: Princeton University Press, 2001) 13. 2 Ibid., 13. 3 Ibid., 13. 4 Ibid., 13. 5 Ibid., 14. 6 Ibid., 19. 7 Ibid, 23. 8 Ibid., 23. 9 Ibid., 17. 1 0 Robert Gilpin, U.S. Power and the Multinational Corporation: The Political Economy of Foreign Direct Investment, ( New York: Basic Books, Inc.,1975), 8. 1 1 Ibid., 9. 1 2 Ibid., 214. 1 3 Ibid., 142. 1 4 Ibid., 179. 1 5 Ibid., 142. 1 6 Ibid., 214.

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16 CHAPTER 2 A BRIEF HISTORY OF SINO AMERICAN ECONOMIC RELATIONS Opium Wars to Nixon Although informal relations between China and the United States date back to the Opium Wars, for the sake of brevity and relevance to the topic at hand, this overview of the history of Sino American relations will be rather cursory until the point of Korean War, and the Chinese Civil War would be both su perfluous and overwhelming. China (PRC), its concomitant support of the Republic policies of isolation, 1 ideological discord, and sparring between China and the United States in the Korean and Vietnam Wars, antipathy festered between these two mutually unrecognized giants. (Although high level diplomats did m eet in neutral locales throughout the 30 year period of frozen relations, at one point, tension in the mid 1960 s grew to such a level hat President Johnson even considered a preemptive strike against the Communist government in response to their developmen t of a nuclear program). 2 While diametrically opposed from an ideologica l perspective, by the late 1960 s, the United States and China had a more pressing concern in the form of the extant threat of the Soviet Union. Although China and the Soviet Union we re ostensibly on the same side of the Cold War, their relationship devolved as a result of ideological and geopolitical differences. 3 By 1969, border skirmishes flared between China and the Soviet Union, rendering the Chinese unable to remain isolated inte rnationally and

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17 seeking potential counterbalances to Soviet Union projections and projectiles. Given the a vested interest in mending bilateral relations. However, due to the pervading international climate (namely, a bifurcated global system based on two competing ideologies), clandestine diplomacy, replete with note passing through intermediary countries and a secret trip to Beijing by U.S. National Security Advisor Henr y Kissinger, was imperative. 4 Nixon to Beijing through diplomatic channels. Nixon ventured to China the next year, where he and Mao Zedong signed the Shanghai Communiqu which had both China and the United States pledge to begin the process of formalizing diplomatic relations. Six years later, on January 1, 1979, Premier Deng Xiaoping and President Jimmy Carter signed the Joint Communiqu on the Establishment of Diplomatic Relations by t he U.S. and China officially switching American recognition from the Taiwan based 5 Normalization to September 11 th The normalization of relations resulted in the opening of embassies in Beijin g and Washington, D.C. as well as the implementation of a number of bilateral accords over the next decade. Although Sino American relations started auspiciously, the relationship ent crackdown against protesters at Tiananmen Square. In the wake of this incident, the United States condemned the actions of the CCP, dismantled high level engagement, and imposed economic sanctions on the PRC. 6 The sanctions were pernicious to the Chine se, and included the suspension of activities by the U.S. Trade and Development Agency, the elimination of American manufactured weapons exports to the PRC, and a

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18 withdrawal of support for most International Monetary Fund credits destined for China. The po st Tiananmen tension between China and the U.S. lasted for the next decade, further fueled by incidents such as the provocative PRC naval exercises in the Taiwan Strait in 1996, the accidental bombing of the Chinese Embassy in Belgrade during campaign in 1999, and the downing of a U.S. spy plane over Hainan Island in 2001. policy priorities morphed rapidly and drastically; formerly adversarial relationships with na tions like Russia and China became more amicable with a shared goal of combating Muslim extremism. Russia and China, having long dealt with Islamic uprisings in Chechnya/Dagestan and Xinjiang, respectively, were understanding of the American cause; in the case of the PRC, the government actively supported the American invasion of Afghanistan and the War on Terror as a whole. 7 21 st Century Sino American Relations and the Chinese Economy Present day Sino American relations echo previous contentions between t he two giants; Concerns pertaining to human rights, military relations, and Taiwan remain at the forefront of the relationship between these two giants. However, as the PRC has embraced market socialism, veered away from more dogmatic interpretations of Co (in terms of Purchasing Power Parity), the economics and business components of Sino American relations is one of the primary driving forces in their relationship: Trade deficit/ surplus, debt, outsourcing, and currency manipulation are at the forefront of any discussion on Sino American relations. 8 Although economic and corporate concerns

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19 have become arguably more important in Sino American relations over the past decade, they hav e been an integral aspect of the relationship since rapprochement in the 1970 s. Although realism derived geopolitical concerns pertaining to the Soviet Union unequivocally served as the primary catalyst for the U.S. to unfreeze relations with China, econom ic and corporate concerns did serve as a factor in the American decision communist Cultural Revolution when Sino American relations thawed, a number of corporations advocated the opening of relations with China. Simply, they viewed quarrel with the global communism flag bearer, the Soviet Union. Once the obstacle of communism was removed, Ame rican corporations would potentially be able to access a billion consumers. These prognostications became a reality when Deng Xiaoping 9 or the opening of China to a restricted form of capitalism. T hrough the creation of Special Economic Zones (SEZ), in which both domestic and foreign entities could trade with impunity, China embarked on its first meaningful steps toward market socialism. 10 While many pundits frequently claim that China is communist in name only, 11 12 No country portends to maintain a purely capitalist regime, although, incidentally, the Chinese controlled Special Administrative Region of Hong Kong operates as one of the most purely capitalist entities in the world, Chinese markets maintain a number of cumbersome restrictions on non Chinese

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20 multinational corporations in China. Corporations in certain sectors are required to enter joint ventures with Chinese firms. The rule of law does not always apply to multinational corporations in China. Laws pertain ing to trade that would be considered protectionist in other WTO signatory nations are flaunted in China. Thus, China still has a long way before its capitalism resembles those of Western nations. As a result, these hurdles will continue to pose problems f or multinational corpo rations doing business in China. Notes 1 At one point in the 1970 s, China had only one formal ally: Albania. 2 Program 1960 National Security A rchive, 2001, Internet, http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB38/ (date accessed: January 12, 2012). 3 Sergey Radchenko, The Cambridge History of the Cold War (Online), Vol. 2: Ch. 17, Internet, http://histories.cambridge.org/extract?id=chol9780521837 200_CHOL9780521837200A0 18 (date accessed: 12 January 2012). 4 USC U.S. China Institute. 21 July 2011 Internet, http://china.usc.edu/ShowArticle.aspx?articleID=2483 (date accessed: 12 January 2012) 5 Joint Communique on the Establishment of Diplomatic Relations, 1 January 1979, Internet, http://www.taiwandocuments.org/communique02.htm (date accessed: 12 January 2012). 6 Tiananmen U.S. China Policy: Domestic Constraints, Asian Affairs, Vol. 19, No. 4, 1993, Internet, http://www.jstor.org/stable/30172167 (date accessed: 12 January 2012). 7 Huang USC U.S. China Institute, 30 April 2008, Internet, http://china.usc.edu/ShowArticle.aspx?articleID=1021 (date accessed: 12 January 2012). 8 American Relations: New Changes Australian Journal of International Affairs Vol. 61, No. 1, 2007, 98. 9

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21 10 John Naisbitt and Doris Naisbitt, China Megatrends: The 8 Pillars of a New Society, (New York: Harper Collins, 2010), 76 77. 11 Think Progress 2 June 2010, Internet, http://thinkprogress.org/yglesias/2010/06/02/197416/communism with chinese characteristics/?mobile=nc (date accessed: January 13, 2012). 12 De Paul University: Global Studies Association 13 May 2006, Internet, http://www.luc.edu/faculty/dschwei/ChinaCaGSA.pdf (date accessed: 13 January 2012).

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22 CHAPTER 3 A BRIEF HISTORY OF APPLE AND GOOGLE IN CHINA Apple in China chain from low end textiles to high end technology, foreign companies took advantage of ratively cheap labor; Apple was no exception. Up until the mid 90 s, plants in Elk Grove, California and Colorado Springs, Colorado. 1 The expansion of rings from personal computers to handheld devices coincided apparent that Sino -Taiwanese outfit HonHai (better known as Foxconn) was able to offer a substantially lower ma production could while also providing a comparable if not equivalent standard of quality, Apple began to shift production of its wares to Guangdong Province. As the iPod popularity soared globally an increased exponentially while American plants suffered. By 2004, Apple had scuppered its manufacturing plants in Colorado Springs and Elk Grove (although the Elk Grove campus remains open as a logistics center). 2 from manufacturing goods from Apple, Microsoft, Dell, and others resulted in the company becoming the largest manufacturer of electronics in the world; its two Shenzhen campuses (including the infamous Longhu a factory) alone employ 400,000 people. 3 The company has over 1,000,000 employees total 4 and a market capitalization of over $30 billion. 5

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23 serious foray into the Chinese c onsumer market roughly coincided with a string of high Apple store in China, reports surfaced of employees of Foxconn committing suicide, ostensibly over poor working co nditions and unfair pay. 6 Both Apple and Foxconn have endured some public backlash as a result of this adverse publicity. China Labor Watch, a New York their laborers. 7 However, the ne gative headlines do not appear to have tarnished the Apple brand and have had no discernible effect on its core business. Any moral qualms that potential customers may have appear to be trumped by a desire to own Apple products and the cachet they confer: pace globally (profit was up 52% year over year as of last quarter), 8 in particular in over year equaling $3.8 billion in revenue 9 as iP ads and iPhones have become status Chinese retail sector spans a mere three years. 10 Google in China d more brusque; Google only opened its first China office in 2005. While the first few years of its operations in China were relatively uncontentious, the convivial atmosphere dissipated quickly in the wake of a reported cyberattack against the company. Up to that point, Google (as well as most other Western companies operating in the tech sector) had tacitly agreed to censor searches that the Chinese government deemed sensitive.

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24 nd 11 Google decided to halt searches on google.cn; internet users in Mainland China who attempted to access google.cn were re directed to the Hong Kong based Google site. 12 This superficial sophisticated web censorship apparatus, colloquially known as the Great Firewall, the 13 The culmination of this disput e resulted in a January 12, 2010 announcement that Google would shut down its operations in Mainland China. While certain voices in the company, namely CEO Eric market, the op inions of co founder Sergey Brin prevailed. Brin, born in the Soviet Union, possesses an almost visceral antipathy for censorship as it reminded him of the Wall Street Journal Mr. Bri their policy, particularly with respect to censorship, I see the same earmarks of 14 As a result of this pseudo departure 15 Further discord erupted in the summer of 2011 when Google accused the Chinese government of att empting to hack the Gmail accounts of U.S. officials and Chinese dissidents, which sparked further acrimony between Google and the Chinese government. 16 However, in a surprise about face, exactly two years after its previous withdrawal on Jan. 12, 2012, G oogle announced a new strategy for Mainland China.

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25 While their concerns pertaining to cyberattacks and censorship remain, Google has 17 Principal among these ser In an its Android platform for smartphones and tablets. In order to maintain a competitive platform, it is imperative that a tech play er offers a broad base of applications (or China. This prevented Android platform phones (which make up 60% of Chinese smartphones) from offering potentially lucrative G oogle applications, like their vaunted search engine. Evidently, Google has modified its China strategy in order to more adequately compete in the smartphone and tablet market so as to gain market share in the gigantic Chinese market without comp romising t Notes 1 The Philadelphia Inquirer, 20 November 2011, Internet, http://articles.philly.com/2011 11 20/news/30422175_1_elk grove plant desktop computers power book (date accessed: 13 January 2012). 2 Ibid. 3 The New York Times 6 June 2010, Internet, http://www.nytimes.com/2010/06/07/business/global/07suicide.html?pagewanted=all (date accessed: 14 January 2012). 4 Bloomberg, 10 December 2010, Internet, http://www.bloomberg.com/news/2010 12 10/foxconn says its china workforce exceeds 1 million employee s.html (date accessed: 12 January 2012). 5 http://www.google.com/finance?q=TPE%3A23171 (date accessed: 12 January 2012; TWD = 0.033 USD).

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26 6 Reports surfaced later that some of the suicides were directly attributed to the generous death benefit package that Foxconn issued which included suicide victims. After suicide notes expressly mentioned this motivation, Foxconn removed the suicide death benefit. Further, after the reports of the suicid es began to make global headlines, national average and only a quarter of that of the American suicide rate. In hindsight, although it appears the suicides at Foxconn were exaggerated by the media as it fostered a compelling narrative (Apple employing a company that used slave like conditions and meager pay so that the Western world could obtain the fanciest gadgets with little concern for those who manufactured them), the notion of suicides over poor Wired, 28 February 2011, Internet, http://www.wi red.com/magazine/2011/02/ff_joelinchina/all/1 (date accessed, 12 January 2012). 7 The New York Times. 8 http://www.apple.com/pr/library/2011/10/18Apple Reports Fourth Quarter Results.html (date accessed: 13 January 2012). 9 Apple Insider, 19 July 2011, Internet, http://www.appleinsider.com/articles/11/07/19/apples_china_boom_continues_with_6x_ revenue_growth_to_3_8b.html (date accessed: 13 January 2012). 10 The Wall Street Journal, 27 August 2009, Internet, http://blogs.wsj.com/chinarealtime/2009/08/27/iphone%E2%80%99s long march to china/ (date accessed: 13 January 2012). 11 Wall Street Journal, 12 Ja nuary 2012, B1. 12 Ibid. 13 Ibid 14 Ibid. 15 Ibid. 16 Ibid. 17 Ibid.

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27 CHAPTER 4 GOALS OF CHINA AND THE UNITED STATES Goals of China Prior to delving into the role of the Apple and Google in Sino American relations, it is imperative that we first outline the goals of both China and the United States in Sino American relations. After these goals have been delineated, it will be far easie r to elucidate the role that the given multinational corporations play in this relationship. Foreign Policy Chinese foreign policy with all nations, not just the United States, revolves around one principal concern: the preservation of power. In order to maintain control, projection of power is imperative. While domestically, this is evident through pervasive censorship and a foreboding intolerance of dissent, in terms of foreign policy, it is most often One China policy, as the name indicates, states that there is only one China, meaning olves around the projection of power through both a massive standing army and sizable military expenditures, and the notion Sikkim and Arunachal Pradesh) and Vietnam, the Philippines, Malaysia, Brunei, and the Republic of China (over the Paracel and Spratly Islands). 1 Most recently, China has butted heads with Japan over islands in the East China Sea known as Diaoyu and Senkaku to the Chinese and the Japanese, respectively. While these are principal analysis. Given their importance to the CCP, it was important that they were addressed;

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28 however, this paper will not delve much further into these aspects of Chinese foreign policy. Economy Obviating perceptions of weakness by the CCP is not confined to the realm of military policy; perceptions of economic prowess are an integral component of the l nature of modern economics, Chinese renders it susceptible to pressure from an increasingly well more autonomy. Over the past twenty years, the Chinese populace and the CCP have fashion, as long as they continue to provide the country with massive growth opportunities. Implicitly, the majority of the populat ion has forsaken certain individual liberties in order for a higher monetary standard of living. In order to maintain such control, the CCP cannot be perceived as excessively yielding to foreign demands to the potential detriment of the economic climate in China. This theme manifests itself continually in the individual facets of Chinese foreign policy pertaining to economic matters. Specifically, this paper identifies three economic goals of Chinese foreign policy vis vis the United States that are cruci explicitly or even outright denied: maintaining a relatively weak Renminbi allowing China to maintain a trade surplus, protecting n ascent tech industries, and ensuring the On a macro level, Chinese economic policy is centered on a neo mercantilist he priority of national

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29 2 balance of payments surplus...(and) the imposition of import or export controls, or 49 Both of these objectives feature prominently in Chinese economic policy, with a particular emphasis of protection over state owned firms and domestic champions. Currency More specifically, maintaining a weak RMB is another integral component of mercantilist agenda (an amalgamation of mercantilism and certain contingent upon maintaining a large trade surplus through exporting more goods than it imports (a simplification of the intricacies of the process, but an accurate generalization erefore, the Chinese Communist Party has a vested interest in ensuring its currency is not particularly strong in order to keep its export sector strong. 3 China, however, maintains that it is not a currency manipulator, as was evident when Wen Jiabao balke d at such a claim in a Financial Times interview in 2010. Wen Jiabao claims that: To allege that China is manipulating its currency exchange rate is completely unfounded. From the second half of 2005 we started to conduct te regime. With more than three years of the reform, the Renminbi has appreciated by 21 percent in actual terms against the US dollar and 12 percent against the Euro. Now we have in place a market based managed floating exchange rate regime with a referen ce to a basket of currencies. This regime is consistent Renminbi on a reasonable and balanced level. 4

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30 Ho wever, a number of Western analysts from disparate theoretical camps disagree with the Chinese assessment of their currency. For example, noted neo Keynesian and Nobel Laureate Paul Krugman aggressively claims China is deliberately keeping its curren 5 Moderate neoliberal and Secretary of the Treasury, Timothy Geithner, also expressed his to float. 6 Further, former Federal Reserve Chairman Alan Green span claims, 7 Evidently, there exists a widespread perception outside of China that the RMB continues to be artificially depressed. In order to alleviate some foreign pressure, as well as i nflationary concerns, the CCP, as Wen Jiabao illustrated above, has allowed its currency to appreciate roughly 25% against major currencies over the past six years. However, the CCP still maintains tight monetary control over the RMB, not allowing the curr ency to float freely for fear of a substantial appreciation of the RMB that would render their exports uncompetitive compared to other low cost exchange rate...will only be a big disa 8 If the CCP were to allow its currency to float, the theoretical ramifications include a massive economic slowdown and concomitant political upheaval. Evidently, maintaining a in order for continued economic expansion in their neo mercantilist system and, in turn, to maintain political order.

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31 Protectionism Although not an explicitly stated interest by the Chinese government, protectionism of both nascent and mature domestic in dustries, as habitually evidenced by Chinese actions since their accession to the WTO, continues to remain at the forefront of Sino American economic relations. At its most basic, Chinese law is implicitly protectionist; in order to operate within the coun try, many foreign companies, in particular in the manufacturing sector, are required to form joint ventures. Hence, this is why Honda is known as the Guangqi Honda Company or Dongfeng Honda Company, depending on the model. The legal structure regarding jo int ventures ensures that Chinese foreign partnerships are inherently one sided and onerous for the foreign side. Most joint ventures are required to be majority Chinese owned. Because there exists very little legal protection for the foreign investment co ntingent in a joint venture, the Chinese side is afforded the ability to engage in unscrupulous practices to the detriment of the foreign partner simply because he can. This is symptomatic of joint ventures across the entire spectrum, from very small ventu res (a friend in Beijing had his pizza chain taken out from under him) 9 to some of the very largest (Yahoo owns a large stake in Chinese firm Alibaba, an outfit similar to Ebay. Alibaba sold its lucrative Alipay service, think: Paypal, from underneath Yaho o. The issue was later resolved, but Yahoo is entitled to less than what the company assumed it owned with a 43% stake in the company and clouded the possibility of a long awaited global IPO for Alibaba given cited concerns about the Chinese government wis hing to keep the company Chinese owned). 10 Not every foreign company operating in China must be a joint venture; some (like Apple and Google) operate as a Wholly Foreign Owned Enterprise (WFOE). WFOEs,

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32 while they may not be preoccupied with an unscrupulous partner siphoning off their assets, are hampered by both petty and onerous regulations and unnecessary interference. As a result of increased pressure on foreign companies of late (see below), a multitude of WFOEs have faced thinly veiled protectionist ma neuvers by the CCP. According to Businessweek : Unilever was fined $308,000 for publicly announcing it was considering price hikes, allegedly sparking hoarding. In July fast food giant KFC was pilloried in the state media for its use of powdered soybean milk, instead of the fresh variety, in outlets in Shanghai and Guangzhou. 11 Further, Wal Mart was forced to close 13 stores, pay more than $500,000 in fines, and fire two high level executives. Such actions have been perceived in the business community as thinly veiled attempts at protectionism, in particular in the case of Wal Mart where officials fear that foreign competitors are edging out local outfits in the fast growing domestic grocery market. 12 In the wake of China joining the WTO in 2001, foreign multinationals were finally granted authority to operate in China, as it had previously been verboten. Foreign companies were not only eager to enter the billion person strong market; the Chinese government actively sought foreign multinational investment and expertise in order to nomy. However, by the mid 2000 s, Chinese government and public opinion had soured on the influx of foreign MNCs into the country. There existed a perception that stakes in previously state owned cor porations were being sold off for less than their intrinsic value. This nationalist resentment of foreign influence manifested itself palpably in 2006: 70 percent of all announced deals involving foreign companies failed to go through. 13 Since this discern ible shift in attitudes, the CCP has become increasingly more protectionist of its own domestic

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33 technology and Internet firms have felt the squeeze of the Chinese gov ernment as well. Though I will delve into this subject in a more substantive fashion later in this paper, it is important to note here that companies such as Google, Twitter, and Facebook have all lost share in China because of censorship measures employed by the CCP. While the primary motivation behind such measures was to stymie platforms for potential dissent as part of the larger scheme to ensure the perpetuation of CCP power, such measures served the secondary purpose of eliminating more sophisticated competition for coincidentally, these firms are more pliant to the will of the CCP and their censors The American Chamber of Commerce (AmCham) has noted that protectionism has by no means dissipated of late. As noted in their 2010 White Paper, AmCham expressed their concern with enhanced protectionist mechanisms by the Chinese government. In particular the AmCham expressed concern about protectionism in light of the opaqueness of bidding processes for government procurement projects, 14 over the lack of protection of intellectual property rights, 15 and the inability of multinational financial services f irms to penetrate the Chinese domestic financial industry. 16 American MNCs have also complained of increased protectionism of late; General Electric CEO Jeff Immelt told the Financial Times that the CCP policies favored local they (the Chinese government) want any of us to win, or any of us (foreign companies) 17

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34 The consternation is not confined to American outfits; the European Chamber of Commerce in China echoed similar sentiments, as reported in Le Figaro when it its annual report, the European Chamber of Commerce in China claims that despite the promises, Bei 18 in particular in the areas of renewable and green energy. 19 Even more jarring to some Western observers is the fact that protectionism extends to the preservation of industries that actively peddle pirated goods. In spite o f WTO directives that supposedly protect intellectual property amongst signatory states, the Chinese government has coddled producers of pirated goods mainly because such outfits are, in the short term, beneficial to the Chinese economy. As Professor Danie l C. China was flooded with between $19 20 with the market likely increasing substantially year over year. For years, China has embrac ed the myopic perspective of allowing piracy and protectionism to run rampant (although the government has claimed to score some significant victories over piracy of late, as Vice Minister of Commerce Jiang Zengwei indicated in July, pirated goods remain o mnipresent on the streets of Beijing and Shanghai). 21 China observers tend to be at odds over the long term viability and efficacy of the which face unfair competition and risk the loss of proprietary technology. Unequivocally, China understands the importance of Foreign Direct Investment, because, as Chow from the lowest, most labor

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35 intensive sectors to the hig hest and most advanced technological sectors as quickly as possible. To accomplish these goals, China must have access to advanced 22 However, not all of this technology is is through unauthorized copying, theft, and counterfeiting, all of which allows China to obtain technology transfer without the 23 Thus, it remains an implicit goal for China to maintain the delicate equilibrium of continuing to attract l ucrative FDI to the country without ostracizing MNCs who risk losing proprietary technology to piracy and contracts to favored domestic players in order to gain access to the billion person strong Chinese domestic market. Consumption of U.S. D ebt A third Chinese economic concern is its consumption of United States via U.S. treasuries and dollar Treasuries stems from its positive balance of trade with the United States and its unwillingness to engage in normal trade practice. In theory, when one country has a positive balance of trade (in this case, China), said country would buy their own currency on the open market using the excess currency of the partner country (in this case, the United States) which would eventually serve as a correcting mechanism for the balance of trade as the currency of the country with the positive balance of trade strengthens. However, as previously illustrated, China does not want to see a trade equilibrium through a strengthe ning of the RMB as this would render their exports less competitive which, given the importance of exports to the greater Chinese economy, could yield destabilizing consequences to Chinese society as a whole. Instead of purchasing RMB on the open market (a nd concomitantly strengthening the RMB as the result of increased demand), the CCP limits the convertability of the currency and,

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36 instead, sterilizes its currency through the purchase of U.S. Treasuries, which has the effect of forcibly removing the trade balance from global currency markets. The Chinese decision to purchase dollar denominated assets is not haphazard. While the Chinese have somewhat diversified their holdings, including euro and yen holdings continue to be in dollar denominated assets with $1.13 trillion worth of Treasuries, 24 even though the U.S. because there exists no rival bond market that po ssesses the depth and liquidity of that of the United States. Further, the next two largest bond markets, Japan and Italy, are not only a fraction of the size of the American bond market, but the structural economic flaws of the two issuing countries rende r debt investments inherently more risky. Thus, until the creation of a true, unified Eurobond market that could theoretically have the depth and liquidity of the American bond market, China must continue to use the U.S. bond market to sterilize its curren cy reserves. understandably miffed by the debt ceiling debacle in mid 2011 when Congressional Republicans and Democrats were unable to negotiate a solution to the budgetary impasse. This dollar plus holdings in US Treasuries, China expressed considerable dismay at the American handling of the situation. Chinese Central Bank Advisor Li Daokui urged the United States government 25 given the global ramifications of a U.S. default. Government backed news agency Xinhua released an editorial imploring the United States to get its

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37 act togethe such political brinkmanship in Washington is dangerously irresponsible, for it risks, among other consequences, strangling the still fragile 26 Further, the editorial output, it is time for Washington to revisit the time tested common sense that one 27 to the domestic polici concern over the fiscal health and policy making decisions of the United States. Goals of the United States The goals of the United States in Sino American relations are manifold and w ide ranging. The U.S. China Economic and Security Review Commission, in its annual Report to Congress in 2009 explicitly outlined the following objectives as priorities in the Sino American dyad: proliferation practices, economic transfers, energy, United States capital markets, regional economic and security impacts, United States China Bilateral programs, World Trade Organization compliance, and freedom of expression. 28 Although the full spectrum of American objectives within said dyad include rather dis parate topics, from the security of the Straits of Taiwan to human rights concerns, this section will focus primarily on the economic goals of the United States as these are most pertinent to this paper, while addressing less relevant concerns only as they relate to the economic matters. Security Any discussion of American objectives within the Sino American relationship must address security given its prominent role historically between the two powers. Briefly, the U.S. maintains an armed presence in the F ar East in order to ensure stability

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38 while projecting its own power. Namely, the U.S. wants to prevent potential hot spots such as Chinese claimed Taiwan and Stalinist North Korea from flaring up and causing regional conflict. While the motivations behind U.S. security in the Far East are multifaceted, U.S. commercial interests are unequivocally a factor. Given the large U.S. multinational presence in countries within this sphere of interest like Japan, South Korea, and China/Taiwan, ensuring security in th e Far East and, concomitantly, a stable business environment is an integral component of American security policy in Sino American relations. American security concerns vis vis the Chinese are not confined to the realm of traditional conflict; 21st cent ury security invariably encompass threats from cyberspace star general, to the new U.S. Cyber Command post is tangible evidence of an increased American emphasis on this relatively new d imension of warfare. 29 As illustrated in a paper produced by Northrop Grumman as a recommendation for the US China Economic and Conduct Cyber Warfare and Computer Network Ex cyber warfare prowess over the past decade. The report indicated that in the decade spanning from 1999 2009, 30 40 cyber attacks took place that could be traced back to Chinese IP addresses. 30 However, discerning exactl y who is behind said attacks proves to be inordinately troublesome. Experts in the space refer to this difficulty as the attribution problem explaining it thusly : The Internet was never built with security as a priority. The current version of the Intern loopholes and methods by which a perpetrator can mask his or her real identity and location. Online identities and servers can be cleverly hidden...

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39 connections can be masked and redirected throug h multiple servers. A clever attacker can often hijack a machine belonging to an otherwise innocent organization and use it as a base or launching attacks. 31 Because obfuscation is relatively simple for an experienced hacker, entities such as the United St state actor was behind an attack. However, in the abovementioned paper to the U.S. China Economic and Security Review Commission, Northrop Grumman felt they could reasonably infer computer network exploitation targeting the US and many countries around the world coupled with the extremely focused targeting of defense engineering data, US military operational informati on, and China related policy information is beyond the capabilities or profile of virtually all organized cybercriminal enterprises and is difficult at best without some type of state 32 Evidently, the United States would consider the protecti on of its classified information a security priority, as well as the proprietary information stored on servers of other U.S. based entities, such as Google (its servers were hacked in 2009 from IP addresses in China, attempting to gain access to e mail acc ounts of known Tibetan dissidents). 33 Human Rights Another principal concern of the United States in the Sino American dyadic 34 The U.S. wants China to subscribe to their ideals of what constitutes human rights: namely through increased freedom of religion, speech, working conditions and imprisonment. While facets of human rights such as religious freedom and wrongful imprisonment are integral components of Sino American relations, they are of little pertinence to this paper;

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40 wards repression of free speech, respectively. Specifically, the United States has championed the notion of global internet freedom; for example, Hillary Clinton has spoken harshly towards governments who have restricted access to uncensored information t o their netizens. 35 Trade Dominant in any examination of American objectives in the realm of Sino American relations are issues pertaining to trade and related fiscal matters. American trade policy is frequently molded by the current political climate. A s posited by Gilpin, 36 American e such example is the recurring accusation from the American side that China is a currency manipulator. 84 In October, Congress debated whether to apply sanctions to countries whose currencies 37 although the Treasury Department late r declined to explicitly since June 2010 (although, the Treasury maintains that the RMB remains undervalued). 38 Further, Presidential candidate Mitt Romney has made high lighting 39 Politicians from both sides of the aisle maintain that, through having an undervalued currency, Chinese outfits are taking jobs away from American workers becau se a strong currency will ensure more difficulty for a given country to keep exports

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41 competitive. With unemployment at high levels, using China and its supposedly unfair trading practices makes for a convenient scapegoat. 40 While it is en vogue politically to loudly denigrate Chinese currency manipulation, large corporations seem to be far more reticent. It is reasonable to infer that their silence on the issue stems fr Mainland China. A number of American based MNCs take advantage of low cost labor in China as a method to increase profit margins. MNCs with a large manufacturing undervalued currency, and thus have little reason to protest. Conversely, one would assume that companies with large retail presences in China would prefer a stronger currency. However, one can reasonably infer that this is not necessarily the case becaus e a number American firms selling in the Chinese market are on the higher end and have demonstrated pricing power: companies like Boeing and Caterpillar that manufacture in the United States do not to sell to Chinese firms at a discount because of an under valued currency (the notion of pricing power will be addressed further when discussing Apple). Only American companies targeting lower and middle class consumers would see substantial currency appreciation as beneficial, and even in such a scenario, there would be significant trade offs (a lot of the goods that said retailers are selling are manufactured in China, and thus, the price of said goods would appreciate as a result). Evidently, currency concerns are an integral aspect of American concerns in Sino American relations in terms of political, economic, and corporate interests. China and U.S. D ebt Matters of fiscal importance to the United States in the Sino American dyad are not confined to currency issues; there exists an undertone of fearmongering am ongst

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42 populist politicians on the subject of the amount of U.S. debt controlled by China. While fiscal hawks are primarily concerned with the debt in and of itself, much has been made of the fact that China is supposedly subsidizing our debt fueled growth. In reality, this reductionist perspective largely obscures the reality of the situation. The vast majority of American debt is owned by domestic bondholders and the Social Security fund; China owns around eight percent of American debt. Further, China has recently reduced their holdings in American treasuries (shifting reserves to needy European countries), leading some market surveyors to posit that Japan will soon overtake China as our largest foreign debt holder; at the end of 2011, China owned $1.1 tri llion of Treasuries, compared to Japan's $1.04 trillion 41 Although the gravity of Chinese ownership of American debt is largely overstated, because it is a frequent refrain in American political discourse, its role in Sino American relations remains promi nent. Intellectual Property As 21st century American economic concerns rely more and more on proprietary knowledge and sophisticated information technology, the protection of American seemingly callous disregard for copyright protection, while imposing high barriers to entry for foreign companies into their domestic market (although, many of th ese tariffs accession treaty). 42 Although an announcement by the Office of the United States Trade settlement panel has found important aspects of China's intellectual property rights (IPR) regime to be inconsi stent with China's obligations under the WTO Agreement on

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43 Trade 43 the piracy problem in China persists. A study by the International Trade Commission and echoed by Gordon Chang indicates t hat if China only somewhat upheld preexisting intellectual property rights agreements, U.S. companies would retain an extra $48 billion and could restore another roughly million U.S. jobs. 44 As long as American companies and interests are disadvantaged by Chinese lax enforcement of piracy laws, the United States will contin ue to press China on this issue. Notes 1 The Washington Post, 30 July 2010, Internet, http://www.washington post.com/wpdyn/content/article/2010/07/30/AR2010073005664.h tml (date accessed: 14 January 2012). 2 Robert Gilpin, U.S. Power and the Multinational Corporation, 232. 3 Ibid., 232. 4 As economic history so manifestly demonstrates, artificially controlling is not as simple as it may appear; in fact, it can be fraught with severe economic consequences. Many of the repercussions stem from a straight currency peg; China obviates some of this concern by pegging the renminbi to a basket of currenci es. Further, artificially undervalued currencies are particularly susceptible to inflation, especially in the modern, globally connected economy where the regular exchange of print excessive money to sterilize the influx of dollars from their positive balance of trade. In the past, a number of countries that attempted to artificially determine the price of their currency found such practices unsustainable given their limited r eserves (such as Thailand in 1997) against the formidable prowess of Western hedge funds. China, because of its favorable balance of trade with the United States and the European Union, and the limited convertability of its currency, has little reason to f ret over foreign speculation in their currency (simply, en masse buying which would lead to the possible at this point); although, if the rate of growth in the global economy were to pick up over the next year, China could continue to face inflationary pressures as a result of its artificially undervalued currency, which could force the government to allow the RMB to appreciate in order to create a more balanced currency exchan ge mechanism with the U.S. Dollar and concomitantly minimize the effect of inflation on consumer prices.

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44 5 The Financial Times, 2 February 2009, Internet, http://www.ft.com/intl/cms/s/0/795d2bca f0fe 11dd 8790 0000 779fd2ac.html#axzz1j70Opuna (date accessed: 15 January 2012). 6 The New York Times, 12 September 2010, Internet, http://www.nytimes.com/2010/09/13/opinion/13krugman.html?ref=opinion (date accessed: 15 January 2012) 7 The Wall Street Journal, 12 September 2010, Internet, http://blogs.wsj.com/economics/2010/09/12/qa geithner on the economy tax cuts and china/?utm_source=feedburner&utm_medium=feed& utm_campaign=Feed%3A+wsj%2 Feconomics%2Ffeed+%28WSJ.com%3A+Real+Time+Economics+Blog%29&utm_cont ent=Google+Reader (date accessed: 15 January 2012). 8 Bloomberg, 17 June 2011, Internet, http://www.bloomberg.com/news/2011 06 17/greenspan says china currency mistakenly used to boost jobs 1 .html (date accessed: 15 January 2012). 9 The Financial Times. 10 China Divide, 11 May 2010, Internet, http://chinadivide.com/2010/kros nest end of days.html (date accessed: 15 January 2012). 11 http://dealbook.nytimes.com/20 11/07/29/yahoo and alibaba resolve alipay dispute/ (date accessed: 15 January 2012). 12 Businessweek, 27 Oct 2011, Internet, http://www.businessweek.com/magazine/chinas new protectionism 10272011.html (date acc essed: 15 January 2012). 13 Ibid. 14 http://factsanddetails.com/china.php?itemid=349&catid=9&subcatid=62 (date accessed: 15 January 2012). 15 ( Chamber of Commerce, 26 April 2010, 86, Internet, http://web.resource.amchamchina.org/news/WP2010LR.pdf (date accessed 13 January 2012). 16 Ibid., 108.

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45 17 Ibid., 204. 18 Financial Times, 1 July 2010, Internet, http://www.ft.com/cms/s/0/ed654fac 8518 11df adfa 00144feabdc0.html#axzz1j70Opuna (date accessed, 13 January 2012). 19 Arnaud De la Grange, Les Europ Le Figaro 8 September 2011, Internet, http://recherche.lefigaro.fr/recherche/access/lefigaro_fr.php?archive=BszTm8dCk78atG CYonbyzvkEI%2BHAX5XQGTrH3lmcLkVg%2FntGWnFdaR7MOgoH%2BHsLu2IGtjAq0 8M%3D (date access ed: 16 January 2012). 20 Ibid. Le march chinois est de moins en moins hospitalier pour les entreprises trangres...Dans son rapport annuel, la Chambre de commerce europenne en Chine estime que malgr les promesses, Pkin multiplie 21 (Washington, D.C., U.S. China Economic and Security Review Commission Hearing), Internet, http://www.uscc.gov/hearings/2006hearings/written_testimonies/0 6_06_08wrts/06_06_7 _8_chow_daniel.pdf (date accessed: 16 January 2012). 22 Reuters, 12 July 2011 http://www.reuters.com/article/2011/07/12/us china piracy idUSTRE76B1WH20110712 (date accessed: January 16, 2012). 23 24 Ibid. 25 The United States Treasury, 12 January 2012, Internet, http://www.treasury.gov/ resource center/data chart center/tic/Documents/mfh.txt (date accessed: 16 January 2012). 26 Reuters, 29 July 2011, Internet, http://www.reuters.com/article/2011/06/08/us china treasuries idUSTRE75721Z20110608 (date accessed: 16 January 2012). 27 Xinhua, 28 July 2011, Internet, http://news.xinhuanet.com/english2010/indepth/2011 0 7/28/c_131015312.htm (date accessed: 16 January 2012). 28 Ibid.

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46 29 U.S. China Economic and Security Review Commission, November 2009, iii iv, Internet, http://www.uscc.gov/annual_report/2009/annual_report_full_09.pdf (date accessed: 16 January 2012). 30 The Guardian, 22 May 2010, Internet, http://www.guardian.co.uk/world/2010/may/23/us appoints cyber warfare general (date accessed: 18 January 2012). 31 Bryan Kre Grumman Corp., 67 74, 9 October 2009, Internet, http://www.uscc.gov/researchpapers/2009/NorthropGrumman_PRC_Cyber_Paper_FIN AL_Approved% 20Report_16Oct2009.pdf (date accessed: 18 January 2012). 32 Cyber Espionage Information Warfare Monitor 29 Mar 2009, Internet, http://www.scribd.com/doc/13731776/Tracking GhostNet Investigating a Cyber Espion age Network (date accessed: 18 January 2012). 33 Grumman Corp. 34 The Official Go ogle Blog 12 Jan 2010. http://googleblog.blogspot.com/2010/01/new approach to china.html (date accessed: 18 January 2012). 35 It should be noted that the Chinese perceive American lecturing on human rights grievances as hypocritical. The Chinese release an annual White Paper outlining the human rights violations perpetrated by the United States, focusing largely on the U.S. faci lity in Guantanamo Bay and its role in the conflicts in Afghanistan and Iraq. 36 The Hill, 9 December 2011, Internet, http://thehill.com/blogs/hillicon valley/technology/1983 77 clinton urges countries not to clamp down on internet freedom (date accessed: 18 January 2012). 37 Robert Gilpin, U.S. Power and the Multinational Corporation, 61. 38 While there is compelling evidence that China is indeed a currency manipulator, the claim comes off as somewhat disingenuous and largely politically expedient when the even though both countries have explicitly manipulated their currencies in the pas t year as their central banks intervened to halt the rise in the Franc and the Yen, respectively. Eurozone, as traders moved assets into these perceived safe haven curr encies. Further, others have considered such labels somewhat hypocritical, as some view the

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47 the dollar, as a form of currency manipulation. 39 The Economist. 11 Oct 2011. 40 MarketWatch, 27 Dec 2011, Internet, http://articles.marketwatch.com/2011 12 27/economy/30895526_1_currency manipulator exchange rate flexibility economic dialogue (date accessed: 19 January 2012). 41 Wall Street Journal 16 Feb 2011, Internet, http://online.wsj.com/article/SB10001424052970204880404577225340763595570.html ?mod=googlenews_wsj (date accessed: 20 February 2012). 42 I would contend that such a monocausal assertion as to why manufacturing jobs are less abundant in the U.S. t han in previous decades. is intellectually disingenuous. While such a line of reasoning ignores the reality of 21st century globalization. The decline in U.S. jobs c an also be attributed to increased automation as a result of technological development and the movement of integral components of the supply chain abroad. paramount in American loss of jobs, it remains a political issue in the U.S. 43 The Motley Fool, 17 February 2012, Internet, http://www.fool.com/investing/general/2012/02/17/what happens when china stops buying our debt .aspx?source=isesitlnk0000001&mrr=1.00 (date accessed: 20 February 2012). 44 New York Times, 8 December. 2011, Internet, http://www.nytimes.com/2011/12/09/business/global/chinas 10 yea r ascent to trading powerhouse.html?pagewanted=all (date accessed: 20 February 2012). 45 Office of the United States Trade Representative January 2009, Intern et, http://www.ustr.gov/about us/press office/press releases/2009/january/united states wins wto dispute over deficiencies c (date accessed: 20 February 2012). 46 Yahoo! Finance: Breako ut 27 June 2011, Internet, http://finance.yahoo.com/blogs/breakout/chinese piracy costs u 1 million jobs gordon 131950276.html (date accessed: 20 February 2012).

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48 CHAPTER 5 GOALS OF APPLE AND GOOGLE Goals of Apple The primary, overarching goal of achieve a profit in order to reward shareholders. Modern multinational corporations without state ownership 1 will usually seek profits rather than restrict potentially profitable activities at the behest of their home government. 2 Hence, there exist myriad MNCs that have moved certain production and services abroad in order to gain or maintain a Evidently, both Apple and Goo gle share the long term goal of profitability; however, their goals for achieving profitability and how said profitability pertains to China, differs drastically. wo distinct sets of operations in the country: manufacturing and retail. Apple provinces while the company simultaneously strives to cater to the moneyed, urban class wit h its chic wares. Manufacturing For more than a decade, as pointed out earlier in this paper, Apple has shifted much of its manufacturing to Mainland China, the reasons for which are manifold. Unequivocally, a driving force behind this exodus was the cost advantages afforded by outsourcing production to Sino Taiwanese outfit Hon Hai (Foxconn) and their more cost efficient labor force found in Guangdong Province and, more recently, Sichuan Province. Factory workers make between $3,000 3 and $6,000 (not taki ng into account

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49 Purchasing Power Parity), 4 depending on level of experience and factory location Sichuan Province that allows Foxconn to employ workers at even lower wages t han at their plants in Shenzhen, Guangdong Province). manufacturing move to China would be overly reductionist. Simply, end product hat moved abroad; other components of the supply chain have shifted to China and other parts of East Asia, as well. 5 For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring tog ether components and services 6 For Apple to operate efficiently and profitably, it behooves the company to have its suppliers and manufacturers in close proximity, affording the supply chain increased efficiency and flexibility 7 Further, Apple has embraced Chinese manufacturing because of its abundance of engineers and semi skilled labor. According to a piece in the New York Times Apple needed 8,700 industrial engineers to supervise roughly 200,000 assembly line workers. To fi nd that number of skilled and semi skilled would have taken nine months in the United States; 8 unavailable in other developed countries. While the methods may be qu estionable, in the run 6 to 13 days straight in up to 12 hour work shifts. 9 Normative judgments aside, strictly from a supply chain efficiency standpoint, it would be difficul t to replicate such efficacy with more stringently enforced labor laws.

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50 The cost benefit of cheap labor, the flexibility of Chinese workers, and supply strategy. Part of Appl progressive urbanites worldwide; Apple does not want its brand to be tarnished by accusations of slave labor which could turn off some of its more hip customers. Apple has struggled with such a llegations recently as the result of multiple scathing pieces in Wired, The New York Times, the Huffington Post and others elucidating the less than ideal condition s (from a Western perspective) in which Foxconn employees work, as well as highlighting the 10 While I will refrain from passing judgment on the working conditions in China, the perception of these working conditions abroad is unequivocally important to Apple. 11 In the wake of these allegations, Appl e has made a concerted effort to ensure they do not appear complacent about the state of Foxconn labor. For example, in the wake of this backlash, the company ordered a thorough investigation of all practices by Foxconn, from hiring to overtime to pay. 1 2 I Apple has to be able to take advantage of labor cost efficiency and supply chain synergies without substantial backlash over working conditions from media outlets both foreign and domestic that could markedly change the perception of Apple. Although not an explicitly stated goal of Apple in China, the company tacitly supports a weak RMB for multiple reasons. Evidently, indirectly employing Foxconn workers with an undervalued currency, Appl e can compensate workers in China substantially less than they would have to pay employees in developed markets. Further, it is unlikely that Apple would support any United States government measure,

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51 such as labeling China a currency manipulator, that coul d catalyze a trade war, as was insinuated by former Republican Presidential candidate Jon Hunstman. 1 3 vast interests in China, the company understandably wants to avoid any potentially punitive, retaliatory trade barriers that the PRC could t heoretically enact as a response to American anti currency manipulation measures. Retail RMB, in theory, their Chinese retail operations should suffer as a result of an undervalued currency, because, once again in theory, Chinese consumers would be unable to pay inflated, developed world prices for tech gadgets. However, such a simplistic view would neglect the largely bifurcated nature of Chinese society. Wealthy urban residents ha ve disproportionately large purchasing power compared to their counterparts in the countryside. These consumers have demonstrated a propensity to purchase high end goods, from expensive cars to couture, and of course, Apple products. 1415 benefited from their global cachet, and as a result, developed world. 1 6 For example, iP ads are significantly more expensive in China (~$585) than in the United States ($499) or neighboring Hong Kong (~$500), and even slightly more expensive than more advanced regional economies like South Korea (~$568) and Japan (~$571). 17 From a retail per spective, it appears that the relative weakness of the RMB is largely irrelevant in its effect on domestic sales. 18 element of piracy and the issue of intellectual property rights are crucial to the efficacy

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52 rights in China are not unique to Apple: knock off designer handbags, pirated DVDs, and illegal software are ubiquitous on the streets of Chin Business Software Alliance (a group of multinational technology firms including Adobe, Apple, Intel and Microsoft) estimates that 78% of the software in use in China is pirated which has cost the industry roughly $7.8 billion 1 9 Although other multinationals struggle with piracy and intellectual property right infringement in China, few companies have inspired black market businessmen go to the lengths to copy their wares that Apple has. As was reported originally by blogger B irdAbroad, the city of Kunming possessed not only unlicensed distributors of Apple products, but entire fake outlets purporting to be real Apple stores (the stores were so convincing that some employees were even under the impression they were working for Apple). 20 A total of 22 unauthorized distributors (five of which were Apple exclusive) trademarks. 21 While Apple did not make detailed statements on the issue, other than confirmin g that the stores were indeed unauthorized, 22 it is reasonable to infer that Apple petitioned the Chinese government to shut them down as the preponderance of unauthorized retailers would certainly diminish the value of the Apple brand in China. 23 Goals of Google However, unlike traditional MNCs, Google does not consider maximizing profitability to be sacrosanct; Google has repeatedly shown that it will forsake some profi tability in order to maintain its corporate ideals. 24 Google, more so than Apple, is a multinational

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53 25 as state centric realists like Gilpin characterize multinationa ls. Ideals Although Google obviously wishes to make a profit, they are unwilling to do so by in the and censor searches in order to merely enhance its profitability. Google outlined their perspective on this dilemma when they first opened their Chinese offices in 2006, in the belief that the benefits of increased access to information for people ll make a meaningful though imperfect contribution to the overall expansion of access to simply attaining profitability; it is an amalgamation of corporate succes s and the upholding of its core values like freedom of information and freedom of speech. 26 Cybersecurity As addressed in the Goals of America section, cyber security is a prominent concern not only for nation states, but for multinational corporations as well. In particular, companies that store vast amounts of private information are particularly concerned with the protection of their proprietary and personal information. In detected a highly sophisticated and targeted attack on (t heir) corporate infrastructure originating from China that resulted in the theft of intellectual 27 Google was able to determine that the goal of these attacks

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54 had been to gain access to the Gmail Tibetan dissidents. 28 While the hackers were unable to infiltrate these accounts, this attack U.S. China and Europe based Gmail users who are advocates of human righ ts in China appear to have been routinely accessed by third parties (probably through 29 information is inaccessible to potentially prying eyes, be they independent hackers or a came to light, it is reasonable to assume that Google considers keeping its information safe an integral component of both its global and its Chinese objectives. Business Model Go and throughout the world. Google relies heavily on search related advertising revenue to bolster its bottom line. Because Google has largely retreated from search in Chin a, the company has to rely on ventures that are not beholden to government censorship in order to exploit the Chinese market. As the company indicated earlier this year, Google will be opening an Android Market store for the Chinese domestic market in ord er to increase the profitability of its widely adopted Android mobile platform. Further, Google has introduced additional internet services that compete with entrenched Chinese internet firm Baidu that cater to the Chinese consumer without running afoul o f the internet censors. Last year, Google introduced Shihui which allows Chinese

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55 important advertising revenue a Mainland boost. 30 In addition to internet based offerings, Googl e expanded its asset base last year with its acquisition of Motorola Mobility. Although the $12.5 billion takeover was given Google a small manufacturing footprint i n China. Interestingly enough, even though both. U.S. and European regulatory authorities have already approved the deal, According to Chinese law, those enterprises that has business in China and earns 10 billion yuan ($1.55 billion) yearly revenue globally and 400 million yuan in China must have 31 However, as of now, Google intends to operate Motorola as a separate entity; it remains to be seen what will happen with its manufacturing unit and if the company will decide to make their own Google phone. 32 changing course from an internet firm to a predominantly manufacturing based one) as a result of this acquisition. Intellectual Property Although Google has temporarily ceded the Chinese domestic search market in order to maintain its ideals pertaining to freedom of speech and information, as a result of its ot biggest competitors in the Chinese domestic internet space. 33 Both companies have similar profit models, collecting advertising revenue from their search engine functions. As well, both companies offer a wide ranging portfolio of internet platforms, from specified search portals to smart phone operating systems (Baidu recently created

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56 BaiduYi OS). While Google is no longer a ctively promoting itself in the Chinese search space, if the CCP ever were to decide to ease censorship requirements, Google would likely return with between these two internet giants. Globally, Baidu is actively staging a challenge to Google in a number of new markets, such as Brazil. However, analysts see Baidu as little competition to Google outside of Mainland China. Baidu is able to maintain a dominant position in the Chinese search market because of its willingness to censor internet search results and to condone internet piracy, 34 as well as the patriotic pride in inspires in ordinary Chinese citizens, 35 orithms are Watch, Baidu tends to rely on quantity of links as opposed to the quality of links, as Google does. 36 As a result, Google, in both English and Chinese, tends to p roduce more accurate, more desired results. The reason why Google did not surpass Baidu before its pull out of the Chinese market in 2010 is that, simply, most Chinese netizens are young and searching primarily for entertainment like music and movies (Baid u, because it allows for easy access to pirated music and movies, has a definitive advantage over Google in this area) and less frequently for information. It is reasonable to infer that Google ideally would like to re enter the Chinese search market witho ut having to compromise its ideals, while being able to compete on a level playing field in accordance with WTO guidelines on piracy; until then, Google will look to maintain its

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57 visibility to the average Chinese consumer by competing with Baidu in interne t service s indirectly related to search. Notes 1 Coincidentally, in China, such definitions do not apply to a number of state owned enterprises, as their neo Mercantilist system renders them beholden to the state as well as shareholders. However, these exceptions are not of great importance in our compa rison between Google and Apple. 2 Here, I slightly disagree with Gilpin. He implies that those who subscribe to state are essentially national firms...MNCs are actua lly deeply embedded in and very much a wrote in Global Political Economy on pages 288 factors helped mold companies and their products, unbounded creativity are unequivocally American, but that its supply chain tactics are not a reflection of the values of their home country. On the other hand, I feel that ch embodies inherently American values, such as freedom of speech. Again, this is why it is important to unpack the reflective of disparate American values. 3 Gethin Chamberl The Guardian, 30 April 2011, Internet http://www.guardian.co.uk/technology/2011/apr/30/apple chinese workers treated inhumanely (date accessed: 10 February 2012). 4 Charles Duhigg and Dav New York Times, 25 Jan 2012, Internet, http://www.nytimes.com/2012/01/26/business/ieconomy apples ipad and the human costs for workers in china.html?pagewanted=7&_r=1&sq=Apple%20China&st=cse&scp=4 ( date accessed: 10 February 2012). 5 Certainly, the initial move of certain component manufacturers abroad can be traced to lower wages, as well as de facto Chinese government subsidies. However, now that created an ecosystem that is self sustaining, independent of the lower wages provided. 6 New York Times, 21 January 2012, Internet, http://www.nytimes.com/2012/01/22/business/apple america and a squeezed middle class.html?_r=1&pagewanted=all (date accessed: 10 February 2012). 7 Ibid.

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58 8 Ibid. 9 Ibid. 1 0 It should be noted that the suicides themselves were largely blown out of proportion because it fit in with the easy narrative el suicide rate is well below that of both the Chinese and U.S. national rates. Further, there were a spike in suicides over a few month span in the summer of 2010; however, these numbers dropped dramatically aft er Foxconn stopped paying a death benefit to the 1 1 13th, 2012 the company was named as number one Harris Interactive Poll of corporate images. http://www.bloomberg.com/news/2012 02 13/apple tops google for no 1 image as buffett s berkshire slips.html 1 2 Bloomberg, http ://www.bloomberg.com/news/2012 02 14/foxconn says apple assessment begins.html (date accessed: 15 February 2012). 1 3 Washington Post, 11 October 2011, Internet http://www.washingtonpost.com/blogs/election 2012/post/jon huntsman on china currency i dont want to find ourselves in a trade war debate video/2011/10/11/gIQAamUudL_blog.html (date accessed: 20 September 2012). 1 4 na totaled $3.8 billion in 2011, representing an increase of 600% year over year. 1 5 Bloomberg, 22 July 2011, Internet, http://www.bloomberg.com/news/2011 07 21/apple s urpasses lenovo revenue in china on strength of iphones.html (date accessed: 14 February 2012). 1 6 Interestingly enough, the only country that has a substantially higher iPad premium than China is fellow BRIC, Brazil, where an iPad costs about 1600 Reais, or 950 USD apiece. However, this is mostly due to onerous tariffs on technology imports. 17 Prices courtesy of Apple.com. Currency conversions as of February 14, 2012. All prices are for the basic iPad2 1 8 That being said, an y currency related shock to the economy would probably have an effect on sales. Said effect on sales would not be a product of currency manipulation, but rather a reflection of consumer perceptions towards the economy.

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59 1 9 Financial Times, 24 October 2011, Internet, http://www.ft.com/intl/cms/s/2/1e8c65ba fe27 11e0 a1eb 00144feabdc0.html#axzz1nVqepzvy (date accessed: 15 February 2012). 20 BirdAbroad, 20 Jul 2011 Internet, http://birdabroad.wordpress.com/2011/07/20/are you listening steve jobs/ (date accessed: 15 February 2012). 21 BBC Online 12 August 2011, Internet, http://www.bbc.co.uk/news/technology 14503724 (date accessed: 15 February 2012). 22 k/news/article 2016885/Fake Apple store China convincing staff fooled.html (date accessed: 15 February 2012). 23 Interestingly enough, the goods in the stores were actual Apple products and not pirated. Likely, the goods had been smuggled in from Hong Ko ng where, as discussed previously, the iPad is significantly cheaper. 24 George G Brenkert, Journal of Business Ethics, July 2008, Vol. 85, No. 4, 453 474. 25 Robert Gilpin, Global Political Economy, 288. 26 The Official Google Blog, 15 February 2006, Internet, http://googleblog.blogspot.com/2006/02/testimony internet in china.html (date accessed: 18 February 2012). 27 The Official Google Blog 28 Ibid. 29 Ibid. 30 Wall Street Journal. 31 IT Pro Portal, 20 February 2012, Internet, http://www.itproportal.com/2012/02/20/chinese anti monopoly bureau reviewing googles motorola acquisition bid/Chinese (date accessed: 18 February 2012). 32 Reute rs, 16 February 2012, Internet, http://www.reuters.com/article/2012/02/16/us google motorola china idUSTRE81F0GW20120216 (date accessed: 18 February 2012).

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60 33 Interestingly enough, Google was actually one of the initial investors in Baidu. However, the co mpany sold its stake in the company in 2006 when it decided to start its own venture in the Chinese market. 34 Baidu makes it inordinately easy for the average Chinese internet user to download pirated material. The U.S. Trade Representative claimed that Baidu intentionally guided users to third party websites where illegal downloads were available. 35 Search Engine Watch 22 July 2009, Internet, http://searchenginewatch.com/article/2048562/Baidu A Sleepin g Giant Awakens (date accessed: 18 February 2012). 36 Ibid.

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61 CHAPTER 6 NEXUS Convergence and Divergence The goal of this paper is to evaluate Google and Apple's operations in China and discern what ramifications they have on Sino American rela tions. This paper has already outlined the goals of each of the four entities, providing a foundation for understanding how certain interactions between these two companies and two countries would produce tension and how others would not. In order to eluc idate which elements could potentially be agents of stress in Sino American relations, this paper will now explore the operations of both companies in five areas of particular interest to China and the U.S. The five areas that comprise the nexus where over lapping interests or incongruous objectives occur are as follows: manufacturing, piracy, competition, censorship, and cyberwarfare. By depicting in which areas the interests of the companies dovetail or diverge with those of the United States and/or China, it will become evident why Apple and Google have different effects on Sino American relations. Manufacturing Apple: Chinese Perspective The manufacturing sector serves as a great example of how Apple and Google have disparate effects on Sino American relations: both cause tension, but in different ways. As discussed previously, the PRC maintains a relatively weak RMB so as to ensure that their export sector remains competitive. Given that manufacturing is the 1 and the emphasis that the PRC has put on attracting MNCs to move various stages of supply chain production to China (through

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62 manufacturing environment conducive to multinationals lookin g to produce their wares cheaply. A number of technology hardware firms have duly followed suit; companies like Microsoft, Dell, IBM, and, of course, Apple, have moved device manufacturing to China. cely: Apple is able to take advantage of a cheaper, more flexible, and more abundant labor force, while the PRC is able to create millions of jobs for its semi trained workers, bolstering government coffers through increased tax receipts, and enriching own ers and other investors. Apple: American Perspective While this relationship clearly benefits Apple and China, on the other hand, it produces tension on the U.S. side towards China. Although there are some positives for the U.S. and its citizens in this relationship, 2 this is overshadowed by the more prevalent narrative in U.S. domestic politics that emphasizes the loss of manufacturing jobs to China. 3 As the U.S. has struggled to create jobs in this most recent recovery, any policy that is perceived to h ave cost America jobs 4 will be a stress producing agent in Sino American relations. This is evident through bills presented in Congress pertaining to Chinese currency policy and through presidential candidate Mitt Romney who says that he would label China a currency manipulator on his first day of office. 5 Because many American politicians do consider China to be a currency manipulator which affords them an unfair advantage in the export manufacturing sector, it unequivocally causes tension in this relationship. While Apple is by no means the sole cause of this row, it is perceived as complicit, as is evident by the explicit references to it having moved its manufacturing abroad.

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63 In addition to the physical relocation of technological manufacturing, the working conditions in th Sino American dyad. Because of the American commitment to promoting human rights abroad, Sino American relations have stumbled over issues relating to labor conditions, specifically the previously mentioned factories that produce Apple goods. Specifically, the Congressional Executive Commission on China, in their annual report last year, explicitly chided the Chinese for condoning the working conditions (including child labor) at fact ories where Apple goods are produced. 6 While the PRC largely regards American claims of Chinese human rights abuses as hypocritical, 7 this still remains a stress inducing agent in Sino American relations, stemming mostly from the American side. Google: Ch inese Perspective have relied little on manufacturing and therefore do not antagonize American interests in this dyad. While the acquisition of Motorola will result in Google producing some Illinois or its hardware division). the unfettered dissemination of intangible information. While such a strategy may be lucrative for Google, this method of enterprise is not part icularly compatible with the business climate espoused by the PRC. The PRC, through its manufacturing subsidies and its weak currency, fosters an environment ideal for export focused multinational firms that are more congruent with its neo Mercantilist a

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64 it employs far fewer people than the manufacturing sector does and the appropriate taxes due to the Chinese government remain unclear, as was evident in an incident in March 2011 where th e Chinese government accused Google subsidiaries of deliberate tax avoidance. 8 side in Sino tensions from the Chinese per spective. Not only does Google provide far fewer capitalism that relies heavily on the control of information. 9 The full ramifications of American relations will be discussed later in the section pertaining to privacy, censorship, and information. Piracy and Intellectual Property Apple and Google both have qualms pertaining to the pervasive nature of piracy and intellectual property theft in the PRC, although some of the manifestations of their discontent vary. Apple predominantly faces piracy issues in the hardware space, whereas Google encounters piracy c recognize the intellectual property of content producers. Apple and Intellectual Property 2011 in the international media with the disc overy of multiple fake Apple stores in Kunming, Yunnan Province. Knock offs are pervasive in China (although their quality belies their lack of authenticity), however, as stated previously, the Apple goods being sold at the fake stores in Kunming were real Apple products. At some point, these goods were purchased from a legitimate licensed Apple retailer (many have been

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65 smuggled from Hong Kong). There are other concerns for Apple, such as the lack of t is derived from its exclusive nature. The revelation that five fake stores in close proximity in a second tier Chinese aspects of their branding. Further, the notion t hat fake stores could operate so openly in China and not The existence of these stores did not exactly inspire confidence in other multinationals operating in China. However once the fake stores in Kunming came to international attention, the government shut them down quickly. While piracy of goods undeniably remains a problem, evidently, the Chinese government did not want to be associated with such callous infringement on intellectual property rights, in particular, one that dismayed such an important manufacturer in China. The recent row over the iPad trademark with Sino Taiwanese hardware maker Proview also illustrates the undue influence of Apple in the PRC. While Appl e was under the impression that they had purchased all worldwide trademarks for iPad from Proview Taiwan, subsidiary Proview Shenzhen claimed that the original agreement did not include Mainland China. Proview has subsequently sued Apple, asking the PRC t o remove iPads from store shelves throughout China and ban all iPad exports from China because of trademark infringement. 10 Although some iPads were removed, according to China Law Blog, many cities continued to sell iPads politic 11 Further, while a few lower level courts in the southeast of China upheld the lawsuit, a more influential Shanghai court threw out the case. The

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66 China Law Blog later posits that almost any company other than Apple would have seen a ban on their exports upheld in a similar situation. 12 What is most telling about the above incidents in terms of Sino American relations is how minimal of an effect they had. One can reasonably infer that there has been no significant row as a result be cause of how quickly the Chinese government has intervened. As depicted earlier, the manufacturing sector is incredibly important for fueled growth; naturally, the PRC would want to mitigate any mishaps that could inspire technology firms to look elsewhere for their manufacturing needs. This reaction differs significantly from what was depicted in the released Wikileaks cables on the subject of Apple piracy in China. Information from 2008 2009 indicated that Apple felt that China was dragging its feet in shutting down the fabrication of illicit goods. 13 For example, in 2009, it refused to investigate a plant that Apple said was supplying fake Apple goods and, also in 2009, refused to shut down a Guangdong electronics shopping center, for fear of supposed lost jobs as a result. 14 According to the cable, Apple countered that fakes could cause serious injuries and would result in substantial lost tax revenue. 15 What could explain the difference in responses from the Chinese government? It likely s tems from the international attention that resulted from these two incidents. It would appear that China still has few qualms allowing smaller enterprises like street vendors to sell fake wares, but the potential ramifications from worldwide attention to p iracy in China were too great. Simply, the long term gains of having companies like Apple manufacture in China and perpetuating their neo Mercantilist economic model

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67 outweigh t he potential local backlash of shutting down fake Apple stores or supporting a Chinese company, Proview, over Apple. Because the PRC quickly shut down the fake stores and (for now) has thrown out the Proview lawsuit, 16 in this case, the U.S. had little rea son to antagonize China over this iteration of the issue. The U.S. continues to press China to enforce intellectual property rights for hardware companies like Apple and to press China to follow WTO bylaws. While the crackdown of the fake Apple stores and the dismissal of the Proview case could be construed as a step forward for China, towards the upholding of intellectual property rights. Google and Intellectual Property W hile Google also has piracy concerns in China, they differ from those of Apple prom ulgation of tangible, pirated goods (although Apple does have concerns pertaining to pirated software globally, but in China, they are more preoccupied with hardware). intell der attitude towards enforcing intellectual property rights. As Barboza indicates, because the majority of Chinese internet users are disproportionately young and preoccup ied with entertainment as opposed to accessing information, Google was always at a disadvantage in its efforts to overtake Baidu. 17

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68 Both America and Google share concerns over the callous dissemination of intellectual property without proper credit (and, o f course, royalties) due to their respective owners. In the past, America has intervened on behalf of corporations and organizations like the Movie Picture Association of America in an attempt to eliminate copyright infringement rampant in other countries neglect the rights of copyright holders. However, Baidu was removed from said list in December 2011 because of an agreement to pay royalties to music content owners through a paid music sharing service through its website. Although the U.S. has competitor in an area in which it had an unfair advantage. While the U .S. was primarily trying to ensure the rights of copyright holders abroad, one can infer that the U.S. had 18 In sum, both companies have had problems with piracy in China. Prominent amongst the goals of the U.S. in Sino American relations is to ensure that the protection of trademarks and intellectual property for American individuals and multinationals abroad is enforced. Evidence of these efforts include range from a formal complaint to the WTO, which found in the uphold intellectual property laws as a WTO member, 19 to recent criticisms of the lack of concern for intellectual property in China by Vice President Joe Biden during a recent trip to the U.S. by Vice President Xi Jinping -and heir apparent to be Premier of China. 20

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69 Intellectual property and piracy is clearly a concern shared by both Apple and Google, In fact, going forward, the U.S. sees both Apple and Google playing a major role in the elimin ation of piracy through their cloud services (neither of which are currently available in China). 21 Thus, in regards to piracy and intellectual property, there is little difference between Apple and Google in terms of their effects on Sino American relatio ns. Competition In terms of competition, Apple and Google differ drastically in regards to their effects on Sino American relations. Because Apple has little domestic competition in American relations. However, because Google, as well as other American internet based firms, face fierce competition from Chinese start ups, perceived protectionist measures by both China and the U.S. have a discernible effect on Sino American relations. Apple and Competition in China Apple faces minimal competition from Chinese technology firms. China does have a multitude of computer and telephone producers, however, most operate substantially lower on the value chain. For example, Lenovo is one of the manufacturer of computers, but their computers are universally cheaper (usually around 20 30%) than their comparable Apple model. 22 In the mobile phone space, Chinese companies Huawei and ZTE have become important cell phone manufacturers and are growing their share of the low to mid end smartphone market However, because Apple resides in the high end of the smartphone market, and Huawei and Z TE are more focused on the mass market consumer, 23 the companies are not particularly competitive.

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70 23.8% of global smartphone sales in 2011, while Huawei and ZTE controlled only 7% of the market. 24 Apple tends to compete with Korean chaebol Samsung for the high end market, while Hu awei and ZTE target lower and mid end models from incumbents like Nokia. 25 While Samsung has a substantial lead over Apple in the high end smartphone segment in China 24% to 7% 26 -this rivalry has little bearing on Sino American relations. However, the recent introduction of a competing high end model by neophyte Chinese firm Xiaomi could hypothetically produce tension in the future. The tablet space has a similar dynamic to that of the mobile phone space. ZTE has recently introduced two Android tablets that compete on the lower end of the line is firmly on the higher end of the spectrum. Like in the mobile phone space, Apple dominates the global table t market with 57% of market share, 27 (ZTE only recently released their tablets, so reliable market share data is not yet available). Further, no other company globally, including Samsung, has been able to compete with Apple in the realm of the chic. Apple and an association with worldliness assures that, at least compared to domestic Chinese technology firms, it is without parallel. Thus, in terms of competition, Apple has little effect on Sino American relations because Appl e does not have any true peers in the space. Google and Competition in China Conversely, internet firms like Google, as well as Twitter and Facebook, face substantial competition from Chinese companies in the domestic internet space. ine and various other internet platforms compete with Baidu; Sina provides a service called Weibo that is, for all intents and purposes, like Twitter; Tudou and Youku are video sharing sites like YouTube; and Renren, Tencent, and Kaixin host

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71 social network ing platforms like Facebook. Aside from some callous patent infringement 28 under normal market conditions, it would be difficult for these Chinese firms to excel because of the existence of entrenched players an d the inability for Chinese outfits to innovate quickly in this dynamic field. Chinese firms have trouble innovating because they supposedly lack Schumpeterian style entrepreneurship. As author Panos Mourdoukoutas posits: th at is the discovery and exploitation of new market opportunities and the introduction of products and process to exploit them does not stablished order saved little respect for inventors, 29 well known for copying and mass 30 In a field that is constantly evolving like search and soc ial media, this is a formula for a rapid demise. Chinese protectionism In order to ensure the survival of this potentially lucrative industry for pliant domestic firms, the CCP intervened on the behalf of Chinese internet companies in 2009. The CCP shut down Facebook, YouTube (now a part of Google), and Twitter under the auspices that it was attempting to stifle certain forms of free communication. However, this excuse rings false. For example, in March 2009, YouTube was blocked because it contained a vid eo of harsh treatment of Tibetan dissidents. Although, as Chinese censors had always been able to block specific author contends that this was a

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72 Chinese competitors Youku and Tudou. YouTube remains blocked; Youku and Tudou 31 Political censorship as protectionism Further, in June 200 9, the CCP placed Facebook firmly behind the Great Firewall after an incident involving rioting Uyghurs in the western Xinjiang Province. The CCP claimed that young Uyghurs were using Facebook and Twitter to communicate and plan their illicit activities. 32 However, such claims seemed disingenuous because the internet in Xinjiang had been shut down for months prior to this incident. Further, Facebook was lucrative, upwardly mo bile middle classes) and not in the regions of the country most commonly associated with dissidents. 33 Yet, Chinese social networking sites like Weibo, Kaixin and Renren were not shut down, even though these sites facilitated the same sort of communication which the CCP supposedly wished to eliminate. Like Tudou and Youku, Weibo, Kaixin and Renren are thriving without the competition of social media juggernauts like Twitter and Facebook. 34 egy shift in even those that did not run a foul of Chinese censors. Google services, including Gmail and Google Docs, were available reportedly 90% of the time (and oth er services not available at all). 35 For companies attempting to do business in China using Google services, such outages are simply unacceptable. Further, in 2009, China admonished Google over what they considered to be insufficient curtailing of searche s pertaining to pornography which resulted in the blocking of said searches. 36 However, similar searches for inappropriate material on Baidu were not subjected to similar

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73 criticisms. 37 Google...has been systematically fo rced out of the market by a Chinese government determined to purge all foreign competition from its Internet industry, which is expected to bring in $8 billion in advertising revenue 38 algorithms are market share would likely grow at the expense of Baidu. Thus, in order to shield Baidu from more advanced foreign competition, the CCP actively interfered w ith Google to bolster its own domestic internet market. The abovementioned interventions by the PRC on behalf of their own companies under the guise of censorship (although the prevention of free flowing information was actions) provoked shouts of protectionism from (i)n a country well known for copying and mass producing the ideas and products of other countries, from automobiles to movies, a new eco nomic tool has been invented: an insidious, uniquely 21st and Communications Industry Association, told the U.S. Congressional Executive Commission on China, the censorship by the PRC is skewed towards foreign companies while remaining lax on domestic ones. 39 standard strongly suggests that the motivation here is protectionism rather than morals." Protectionism and Sino American relations Perceived protectio going forward have provoked reactions from both the U.S. and China. Directly in the aftermath of the incident, Secretary of State Clinton, White House Press Secretary Gibbs, and President Obama al l defended Google in the dispute (although accusations

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74 of protectionism were largely muted, as the remarks focused on the more pressing then rinciples that Google is trying to uphold are not just important in a moral or human rights framework but are also of very considerable 40 Further, recent evidence indicates that the U.S. Trade Representative is preparing to take a cas e to the WTO on the issue of protectionist sites in China, creating commercial 41 Black explains the actions as follows: By using mechanisms available under the WTO, the USTR has put China in a position where it could face repercussions if it fails to share more specifics notoriously cloaked censorship strategy. While the WTO allows exceptions to its rules for matters of public morals and national security, the boundaries of such exceptions need to be tested. The WTO also requires that all restrictions be transparent, pro vide due process, be minimally restrictive and apply equally to foreign and domestic entities. As of today, China complies with none of these requirements. 42 Complaints of protectionism in the Google issue were not confined to the American side; in fact, China also voiced concerns over supposed American response to the treatment of Goo gle in China. 43 should be expected. 44 Zhao Kang of th e Chinese Association of Social Sciences claims that this constitutes protectionism because the U.S. spoke out against China on behalf

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75 Google's having a hard time accepting its current failure in the Chinese market, but there is nothing the search 45 While such an analysis is largely undermined by the facts mentioned in this paper (and has more than a hint of Chinese preoccupation with face), it does nicely encapsulate the Chin ese perspective that the U.S. also engaged in trade protectionism on behalf of its own company. Further, Xinhua, a Chinese government backed news agency (as reported via the BBC), claimed that "Google's high level officials have intricate ties with the US 46 Evidently, in terms of competition, American relations are quite stark; Apple causes minimal friction, whereas Google causes accusations of protectionism from both factions. Privacy, Censorship, and Information Technology The U.S. and China evidently have different conceptions of the validity of freedom of speech and information. Whereas the U.S. strives to ensure that citizens are able to freely articulate their thoughts, the PRC tout s the merits of censorship as it actively curtails freedom of expression in order to maintain their grip on power. These separate stances manifest themselves when the U.S. or the PRC broach the subject of Google; on the other hand, Apple does not produce m uch friction in Sino American relations on the subject of freedom of information, privacy, and censorship. Apple and Privacy, Censorship, and Information Technology American relations with regards to censorship and freedom of inform and the iPad do allow users to communicate more efficiently and effectively, this functionality is not unique to Apple hardware; any company that produces a mobile

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76 device provides similar capability to spread information. Further, because Apple operates in mostly tang ible products and does not peddle in ideas, the company is less sensitive to the detriments of censorship compared to internet companies. In areas where its products have run afoul of Chinese censorship, for example, certain applications in the App Store t hat feature the Dalai Lama, Apple has had no qualms removing material that the PRC deems unsuitable. 47 Further, while the U.S. promotes the freedom of information globally, they have not chided Apple for their censorship of certain applications. Thus, Appl e has little effect in Sino American relations in terms of censorship because it does not exacerbate either the Chinese or the American side. Google and Privacy, Censorship, and Information Technology On the other hand, internet firms by their nature are more problematic for authoritarian countries like China. For many internet firms like Google, their business models are contingent upon the ready availability of information; authoritarian mation, as the free exchange of information limits the efficacy of propaganda. For Google itself, the roots of their tension with the PRC stem from a discrepancy in ideology. Google believes in a free internet, ideally free of censorship. When they first e ntered the PRC, they belief that the benefits of increased access to information for people in China and a more open Internet outweighed our discomfort in agreeing to cen 48 However, along with the January 2010 cyber attacks and increased protectionist measures, Google decided it was no longer comfortable upholding these restrictions on information. Google felt that this variety of information suppression compromised one of

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77 49 Conversely, the PRC has censorship firmly entrenched in their legal apparatus, with over sixty regulat ions pertaining to internet censorship alone. PRC censorship laws are far reaching, from specific regulations pertaining to terrorism and fomenting unrest, to more vague values 50 Government authorities are charged with not only monitoring web content, but individual citizenry, as well. The size of their internet police is thought to be more than 30,000 strong. 51 Evidently, there exists a substantial gulf in ideology between Google and the PRC which factors heavily into this tens ion producing relationship. As the world becomes more connected and access to information becomes more and more available to average citi zenry, authoritarian governments find controlling information flow to be a progressively more difficult task. This is why twenty first century Western tech companies are problematic for the PRC: they deal in information, interaction, and ideas all of which all had the ability to foment instability and antipathy towards the Communist regime. Because of the existence of more pliant Chinese companies, the PRC has been able to play hardball with Google without fear of t search platforms. Companies like Alibaba, Sina, and Baidu have all signed a pledge to aid the government in upholding censorship by making a concerted effort to disseminate positive messages and eliminate gossip mongering. Their willingness to stifle inf ormation on behalf of the government was demonstrated during the Arab Spring when a search for pertinent topics like Egypt yielded this result:

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78 52 These complicit firm s allow the PRC to maintain control over information accessed by its citizens without having to relent to pressure by multinational firms or foreign governments. Google and the U.S. on censorship As discussed previously, the PRC and the U.S. have divergent opinions on the merits of internet censorship. The U.S. maintains a similar ideology to that of Google in regards to internet censorship and privacy. The U.S. is committed to freedom of expression and the freedom of information, considering them basic human rights. This was eviden ced in a speech by Secretary of State Clinton in the aftermath of the attacks 5 3 Given the polar opposite positions on internet freedom espoused by the U.S. and the PRC, it is unsurprising that this issue produces significant tension in the relationship. t giant is frequently embroiled in the controversies of the Sino American dyad. The U.S. side has often chastised the PRC for censoring search results, such as those of Google, as impeding internet freedom. 54 The United States Trade Representative has peti tioned the WTO for the PRC to clarify what rules it applies for censoring information on the internet. 55 Congress has debated passing the Global Online Freedom Act, 56 a piece of legislation that Google has vocally supported. 57 The bill would make every sea rch company disclose any politically or religiously sensitive material that it has censored at the behest of a foreign government to the State Department. Evidently, the United than that of the PRC.

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79 The actions that both the United States and Google have taken in pursuing their internet ideals have caused a hostile reaction from the PRC. The PRC has singled out Google and its deeper motivations on multiple occasions. The PRC ha s denigrated Google as a cultural imperialist, with the a PRC controlled news outlet, claiming that U.S. multinationals could be responsible for attempting to indoctrinate foreigners with American values. 58 should take the Chinese people's feelings into consideration and stop using Chinese customers as 59 As well, the also the 60 This is not the only accusation by the PRC of Google being a U.S. government lackey. State run news agency Xinhua accused Google of having intri cate China search pull out, and claimed that Google provided the U.S. government with archives of search engine results. 61 in the realm of information sharing, Google has substantially more influence on Sino American relations in this aspect. American relations produces discernibly more tension than Apple.

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80 Cyberwarfare Apple and Cyberwarfare In regards to cyberwarfare, Apple is not particularly relevant. Like any mul tinational corporation, it is reasonable to assume that Apple would not like any of its proprietary information compromised. However, as primarily a hardware producer, as opposed to operating primarily with intangible information, cyberwarfare is not a pri mary concern for Apple. It should be noted that Apple does offer a basic email service and is making initial overtures in the cloud computing space which will put more and more information online, and, thus, potentially at the mercy of hackers. However, un til these services either become more robust or more pertinent to Chinese interests, they are of Gmail services. Although Apple surely wishes to protect its proprietary information from prying eyes, as of right now, their internal interests have little to do with Sino American relations. Google and Cyberwarfare Conversely, Google is firmly on the forefront of the murky world of cyberwarfare. As mentioned previously, Google, along with dozens of other multin ational corporations, was the victim of a cyber attack in late 2009 known as Operation Aurora that could be traced back to Chinese servers; the e mails of dissidents and officials were repeatedly attacked. Stemming from this attack, concern over cyber sec urity has become paramount for Google, especially with regards to Chinese initiatives in the field. Cyberwarfare as modern warfare Governments and militaries are becoming more and more cognizant of the ramifications of cyber attacks. As a result, world po wers have placed an increasing

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81 exactly from where cyber attacks come, but logical conclusions and reasonable inferences allow observers to discern the extent to wh ich governments are preparing for cyber encounters. Unlike more secretive governments, the U.S. has been relatively open about their cyber initiatives. The Pentagon announced in 2010 the creation of a Cyber Command post; 62 FBI Director Robert S. Mueller II I has repeatedly warned of the danger of cyber attacks, claiming the threat will be equal or greater than that of terrorism in the near future. 63 remain largely unknown to those outside the Politburo Although multiple outside observers have pointed the finger at the Chinese government as being behind the denies such accusations. 64 After the attacks on Google were traced back to servers in Jinan, Shandong Province, there exists reasonable suspicion that Beijing is not being Red Army. 65 This conjecture has been supported by footage from a PLA documentary that rather blatantly demonstrates how the army targets foreign websites. 66 U.S. reaction to Chinese cyberattacks The attack and subsequent Chinese denials of involvement in the incident irked American officials, but their initia l response was somewhat muted. Immediately after the attacks, Secretary Clinton called on China to thoroughly investigate what exactly transpired, 67 but did not go as far to admonish the PRC. Secretar y Gates and President Obama both called on China to be more transparent, but also refrained from explicit criticism. 68 However, after the Wikileaks cables revealed that sources confirmed to the U.S. that the Chinese Politburo was behind Operation Aurora, 69 American criticisms of

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82 increased. In October 2011, Representative Mike Rogers, the head of the House Intelligence Committee, testified about the existential threat of Chinese cyber attacks affecting both the government and private companies. He claims that Beijing is going to 70 (companies, includ ing Google) describe attacks that originate in China, and have a level of sophistication and are clearly supported by a level of resources that can only be a nation 71 An ex director of the Central Intelligence Agency and National Security Ad visor Michael Hayden also breadth, depth, sophistication and persistence of the Chinese espionage effort against 72 with an emphasis on C hinese prowess in cyberspace. Further, the Office of the National Counterintelligence Executive issued a report warns that, in addition to the national security threat of transfer of military technology to rogue states, certain nation state cyber divisions are continually attacking American military, government, and corporate computers. The report explicitly names 73 while pointing Chinese economic espionage. 74

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83 The PRC has not responded positively to th e numerous American accusations over the past two years of engaging in cyberwarfare after having consistently denied American opprobrium over censorship; namely, the PRC fee ls that such admonishment constitutes hypocrisy. The first accuses the U.S. of introducing the concept of cyberwarfare in the first place; 75 the PRC backed paper then claims that came under attack on multiple occasions from servers based in the U.S. 76 Further, the accused the U.S. of engaging in cyberwarfare with Iran by supposedly being behind demonstrations and fueling their efficacy through internet rumor mongeri ng on microblogging sites like Twitter. 77 As well, state owned Xinhua indicated that the U.S. U.S. government permission to spy on its own citizens under the guise of ant i terrorism, yet berates other governments for using the internet to monitor its own netizens. 78 Google, Cyberwarfare, and Sino American r elations Evidently, cyber security is a tension producing agent in Sino American relations, causing explicit criticis ms from both sides. While Google is not directly responsible for the row between the two countries, prominent position as a victim of cyberattacks by (presumably) the Chinese places Google at the forefront of any discussion of cyber security between China and the U.S; 79 on the other hand, Apple is scarcely involved in the debate.

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84 Notes 1 New York Times, 13 January 2010, Internet, http://www.nytimes.com/2010/01/14/technology/companies/14baidu.html (date accessed: 18 February 2012). 2 The U.S. China Business Council, Internet, https://www.u schina.org/statistics/tradetable.html (date accessed: 19 February 2012). 3 It should be noted that plenty of ordinary Americans have benefited from the emigration of Apple manufacturing to China, through cheaper phones and mp3 players, to individual inves in such terms, and thus, is not as relevant as the more tension producing rhetoric pertaining to worker condition s in Shenzhen, or manufacturing jobs leaving the U.S. 4 As noted in a previous footnote, the departure of American jobs overseas can be attributed to multiple factors in addition to a weak RMB. 5 W all Street Journal 6 Congressional Executive Commission on China. http://www.cecc.gov/pages/annualRpt/annualRpt11/AR2011final.pdf (date accessed: 24 February 2012). 7 The PRC cites American human rights abuses in the wars in the Middle East and the detainment facility at Guantanamo Bay as reason enough for the U.S. to not lecture China on human rights. 8 Huffington Post, 31 March 2011, Internet, http://www.huffingtonpost.com/2011/03/31/china google linked firms broke tax rules_n_842970.html (date accessed: 24 February 2012). 9 OpenDemocracy 22 Jan 2010, Internet, http://www.opendemocracy.net/johnny ryan stefan halper/google vs china capitalist model virtual wall (date accessed: 24 February 2012). 10 Chi na Law Blog. 15 February 2012, Internet,

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85 http://www.chinalawblog.com/2012/02/apple_v_proview_so_much_to_learn.html (date accessed: 24 February 2012). 11 Ibid. 1 2 Ibid. 1 3 CNN, 29 August 2011, Internet, http://articles.cnn.com/2011 08 29/tech/apple.wikileaks_1_wikileaks documents apple beijing embassy/3?_s=PM:TECH (date accessed: 20 February 2012). 14 Ibid. 15 Ibid. 16 Venture Beat 24 February 2012, Internet, http://venturebeat.com/2012/02/24/backyard brawl after losing in china proview files lawsuit against apple in the u s/ (date accessed: 25 February 2012). 17 New York Times. 18 Bloomberg, 20 December 2011, I nternet, http://mobile.bloomberg.com/news/2011 12 20/china s baidu dropped from u s notorious markets piracy list (date accessed: 27 February 2012). 19 Over Deficiencies in http://www.ustr.gov/about us/press office/press releases/2009/january/united states wins wto dispute over deficiencies c (date accessed: 27 February 2012). 20 Chicago Tribune Editorial Bo ard, Chicago Tribune, 19 February 2012, Internet, http://www.chicagotribune.com/news/opinion/editorials/ct edit china 20120219,0,1568348.story (date accessed: 27 February 2012). 21 Reuters, 8 June 2011, Internet, http://www.reuters.com/article/2011/06/08/us usa intellectualproperty idUSTRE7573AW20110608 (date accessed: 27 February 2012). 22 vo T iStudioWeb. 31 May 2011, Internet, http://www.istudioweb.com/macbook pro vs lenovo t series feature and cost comparison 2011 05 31/ (date accessed: 27 February 2012).

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86 23 Forbes, 28 May 2012, Internet, http://www.forbes.com/sites/china/2012/05/28/chinas telecom giant aims to unseat smartphone rivals/ (date accessed: 20 September 2012). 24 Mobile Magaz ine, 15 February 2012, Internet, http://www.mobiletoday.co.uk/News/14027/gartner_q4_mobile_sales_samsung_apple.a spx (date accessed: 20 September 2012). 25 Forbes 26 Emerging Money 2 July 2012, Internet, http://emergingmoney.com/china/apple china aapl chl bidu cha/ (date accessed: 20 September 2012). 27 MarketWatch, 16 February 2012, Internet, http://www.marketwatch.com/story/apples global tablet market share falls to 57 2012 02 16 (date accessed: 3 March 2012). 28 CNNMoney, 20 Apr 201 1, Internet, http://tech.fortune.cnn.com/2011/04/20/how renrens ipo is setting the table for facebook/ (date accessed: 3 March 2012). 29 Forbes, 10 October 2011, Internet, http://www.forbes .com/sites/panosmourdoukoutas/2011/10/09/why china doesnt have its own steve jobs/ (date accessed: 3 March 2012). 30 Foreign Policy, 15 January 2010. 31 Ibid. 32 CNN: TechCrunch. 17 July 2009, Internet, http://techcrunch.com/2009/07/07/china blocks access to twitter facebook after riots/ (date accessed: 3 March 2012). 33 Foreign Policy. 34 Ibid. 35 Google: Official Blog, 27 Jan 2006, Internet, http://googleblog.blogspot.com/2006/01/google in china.html (date accessed: 3 March 2012). 36 Venture Beat, 19 Jun 2009, Internet, http://venturebeat.com/2009/06/19/nsfw google not baidu getting punished for china porn searches/ (date accessed: 3 March 2012).

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87 37 Ibid. 38 Foreign Policy. 39 IT Government 17 November 2011, Internet, http://itgovernment.computerworld.com/privacy/39278/us business leaders comp lain about chinas web control (date accessed: 3 March 2012). 40 Bloomberg, 15 Jan 2010, Internet, http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aYT3tkUMzeDU (date accessed: 3 March 2012). 41 The Of fice of the U.S. Trade Representative us/press office/press releases/2011/october/united states seeks detailed information china%E2%8 0%99s I (date accessed: 4 March 2012). 42 Forbes, 6 December 2011, Internet, http://www.forbes.com/sites/edblack/2011/12/06/chinas internet censorship harms trade us companies/ (date acces sed: 4 March 2012). 43 Bloomberg. 44 Ibid. 45 2010, Internet, http://www.china.org.cn/opinion/2010 02/01/content_19345264_2.htm (date accessed: 5 March 2012). 46 BBC Online, 21 March 2010, Internet, http://news.bbc.co.uk/2/hi/8578968.stm (date accessed: 5 March 2012). 47 Preston Computer World ,15 January 2010, http://blogs.computerworld.com/15412/apple_still_kowtowing_to_chinese_censorship (date accessed: 5 March 2012). 48 Google: Official Blog, 12 January 201 0, Internet, http://googleblog.blogspot.com/2010/01/new approach to china.html (date accessed: 5 March 2012). 49 Google: Official Website, http://www.google.com/about/company/tenthings.html (date accessed: 5 March 2012).

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88 50 Human Rights Watch 2006, Internet, http://www.hrw.org/reports/2006/china0806/3.htm (date accessed: 23 February 2012). 51 Propa The Guardian 13 June 2005, Internet, http://www.guardian.co.uk/technology/2005/jun/14/newmedia.china#article_continue (date accessed: 5 March 2012). 52 Government Censorship Venture Beat, 7 November 2011, Internet, http://venturebeat.com/2011/11/07/chinese tech censorship support/ (date accessed: 5 March 2012). 53 (the State Department, Washington, D.C., January, 2010), Inte rnet, http://www.state.gov/secretary/rm/2010/01/135519.htm (date accessed: 5 March 2012). 54 New York Times, 14 January 2010, Internet, http://www.nytimes.com/2010/01/ 15/world/asia/15diplo.html?_r=1 (date accessed: 5 March 2012). 55 Agence France Presse 19 October 2011, Internet, http://www.google.com/hostednews/afp/article/ALeqM5gotfR CBxYK4_BRXRX1_dW2iJy bg?docId=CNG.ec1cd1bbaf28dd037ab57c6e16087dc5.6f1 (date accessed: 5 March 2012). 56 The Hill 15 January 2010, Internet, http://thehill.com/blogs/hillicon valley/techno logy/76431 google reverses position on internet freedom bill (date accessed: 5 March 2012). 57 Google originally was against the bill, but after the cyber attacks and its pull out of the China search market, reversed its position on the bill. 58 Online, 19 January 2010, Internet, http://english.people.com.cn/90001/90780/91344/6873383.html (date accessed: 5 March 2012). 59 Ibid. 60 Ibid.

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89 61 BBC Online. 62 The Guardian 63 Washington Post 13 February 2012, Internet, http://www.washingtonpost.com/o pinions/a cyber risk to the us/2012/02/07/gIQA4q7M9Q_story.html (date accessed: 5 March 2012). 64 Agence France Presse, 5 June 2011, Internet, http://www.rawstory.com/rs/2011/06/05/china denies cyber attack on gmail accounts/ (date accessed: 5 March 2012). 65 Wall Street Journal 7 June 2011, Internet, http://online.wsj.com/article/SB10001424052702303657404576363374283504838.html (date accessed: 5 March 2012). 66 Malc Telegraph 25 August 2011, Internet, http://www.telegraph.co.uk/news/worldnews/asia/china/8722104/China broadcasts footage of cyber attack on state television.html (date accessed: 5 March 2012). 67 BBC Online, 21 Jan. 2010, Internet, http://news.bbc.co.uk/2/hi/8472683.stm (date accessed: 5 March 2012). 68 Treads New York Times. 69 New York Times 28 November 2010, Internet, http://www.nytimes.com/2010/11/29/world/29cables.html (date accessed: 7 March 2012). 70 Ellen N Washington Post, 4 October 2011, Internet, http://www.washingtonpost.com/world/national security/lawmaker calls for international pressure to stop chinas cyber espionage /2011/10/04/gIQAAR26LL_story.html (date accessed: 7 March 2012). 71 Ibid. 72 Ibid. 73 The Office of the National Counterintelligence Executive October 2011, Internet, http://www.dni.gov/reports/20111103_report_fecie.pdf (date accessed: 7 March 2012).

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90 74 Ibid. 75 Financial Times, 24 January 2010, Internet, http://www.ft.com/intl/cms/s/0/092d5ab6 08fc 11df ba88 00144feabdc0.html (date accessed: 10 March 2012). 76 Washington Times, 26 January 2010, Internet, http://www.washingtontimes.com/news/2010/jan/26/beijing accuses us of cyberwarfare/?page=all (date access ed, 29 September 2012). 77 Ibid. 78 Xinhua News Agency 23 January 2010, Internet, http://news.xinhuanet.com/english2010/china/2010 01/24/c_13148512.htm (date accessed: 10 March 2012). 79 Washington Times, 9 Mar 2011

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91 CHAPTER 7 CONCLUSION to the literature pertaining to the role of multinational corporation s in international affairs is unequivocally valuable to the field of political economy; however, in the twenty first century, evaluating the role of the multinational corporation may require more nuance. Treating the multinatio nal corporation as a monolithic entity does not allow observers to identify how different companies have disparate effects on international relations. As demonstrated in this paper by contrasting the influence of Google and Apple in different facets of Si no American relations, this paper has demonstrated the importance of un packing the multinational corporation in order to yield a more robust understanding of the influence of the multinational corporation on dyadic nation state relationships. In light of the points elucidated in this paper, it becomes apparent that the principal difference between Apple and Google is that Apple deals primarily in tangible goods and Google peddles in intangible ideas and information. The latter is inherently more problemati c because of the authoritarian nature of the Chinese government and the lack of international framework to resolve cyber disputes. In fact, Northrop Grumman posits that precisely because U.S. policy is currently ill equipped to deal with a massive cyber at tack that Beijing might intentionally take advantage of this gray area. 207 questionable actions in terms of protectionism, censorship, piracy, citizenry, will co sum approach to both the economy and power. Chinese neo mercantilist policies have brought untold riches to savvy

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92 investors and improved the lives of hundreds of millions of its own former peasantry; however, the model is unsustainable. As the PRC slowly guides its semi planned, export driven economy towards a consumption driven system, it is difficult to prognosticate how the transition away from neo mercantilism will affect the country and its leadership structure. As the richer coastal provinces start to lose manufacturing as a result of higher costs, unemployment will rise, which could foment instability. Because this swath of the Chinese population is, generally speaking, more cognizant of international norms as a re sult of both wealth and exposure to international entities, this could potentially pose problems for the PRC. While recent protests in Wukan were not directly related to rising unemployment (it stemmed from dismay over rampant urprise that the most effective Han anti government demonstration in decades came from coastal Guangdong Province. The long term stability of the Chinese Communist Party is contingent upon how they handle this transition and how they deal with the inevitab le increased availability of information as technology progresses. In other words, as the Apples of the world potentially leave for cheaper manufacturing locales, how will the PRC deal with the Googles of the world who want to bring information to their ci tizenry? While the PRC has unequivocally been successful with their censorship thus far, as technology becomes more advanced, it remains to be seen how long such an authoritarian regime can survive as its control over information subsides. Sadly, the futu re of Sino American relations is largely contingent upon the health of the current nascent economic recovery and the outcome of the 2012 U.S. Presidential Election. It is reasonable to assume that if the United States unemployment

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93 rate continues to drop, t he need to scapegoat lower cost manufacturing countries will relent, thus eliminating the need to engage in anti China fearmongering by populist politicians. However, if the economy were to slip back into recession (as a result of, say, a wave of European defaults), Sino American relations will surely suffer. In terms of security, as China continues to grow, the potential for a full fledged rivalry with the United States augments substantially. And, as technology becomes increasingly more sophisticated, the front lines of this strife are more likely to take place in cyberspace. Thus it seems as if the future of Sino American relations will revolve around the intangible, an area that has produced considerable tension between the two. Until China and the Uni ted States can develop a mutual understanding and legal framework to settle disputes pertaining to online interests, internet concerns will continue to exacerbate Sino American relation s

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94 LIST OF REFERENCES of Commerce, 26 April 2010, 86, Internet, http://web.resource.amchamchina.org/news/WP2010LR.pdf (date accessed 13 January 2012). http://ww w.apple.com/pr/library/2011/10/18Apple Reports Fourth Quarter Results.html (date accessed: 13 January 2012). BirdAbroad, 20 Jul 2011, Internet, http://birdabroad.wordpress.com/2011/07/20/are you listening steve jobs/ (d ate accessed: 15 February 2012). Balfour, Frederik Bloomberg, 10 December 2010, Internet, http://www.bloomberg.com/news/2010 12 10/foxconn says its china workforce exceeds 1 million employees.html (date accessed: 12 January 2012). Barber, Lionel, The Financial Times, 2 February 2009, Inter net, http://www.ft.com/intl/cms/s/0/795d2bca f0fe 11dd 8790 0000779fd2ac.html#axzz1j70Opuna (date accessed: 15 January 2012). Barboza, David, The New York Times 6 June 2010, Internet, http://www.nyti mes.com/2010/06/07/business/global/07suicide.html?pagewanted =all (date accessed: 14 January 2012). Barboza, David, New York Times, 13 January 2010, Internet, http://www.nytimes.com/2010/01/14/technolog y/companies/14baidu.html (date accessed: 18 February 2012). Bartlett, Donald L. The Philadelphia Inquirer, 20 November 2011, Internet, http://articles.philly.com/2011 11 20/news/30422175_1_elk grove p lant desktop computers power book (date accessed: 13 January 2012). Beatty, Andrew, Agence France Presse 19 October 2011, Internet, http://www.google.com/hostednews/afp/article/ALeqM5gotfR CBxYK4_BRXRX1_dW 2iJybg?docId=CNG.ec1cd1bbaf28dd037ab57c6e16087d c5.6f1 (date accessed: 5 March 2012).

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106 BIOGRAPHICAL SKETCH Sean Geary, an Orlando, Florida native, graduated from Georgetown University in 2006 where he specialized in political science and foreign languages. His interest in political economy, linguistics, and the developing world catalyzed his interest in emerging markets. He currently writes for a blog on the subject entitled Emerging Money and prepares Chinese students for the SAT.