Business

Hiawatha Bray | Tech Lab

The real China trade issue? It’s stealing, not steel

A Chinese company built the Sinovel wind turbine in Charlestown using software it stole from a Massachusetts company, but the turbine's operator said it replaced the software with an authorized version in 2014.
Jessica Rinaldi For The Boston Globe
A Chinese company built the Sinovel wind turbine in Charlestown using software it stole from a Massachusetts company, but the turbine's operator said it replaced the software with an authorized version in 2014.

To understand the simmering trade war between the United States and China, forget about tariffs on aluminum and steel. Instead, look to the giant wind turbine in Charlestown — which a Chinese company built using software it stole from a Massachusetts company.

AMSC was almost driven out of business when its software was stolen eight years ago by its onetime business partner, Sinovel, a Beijing windmill maker partially owned by the Chinese government. In January, a US federal court convicted Sinovel of the theft, which cost the Devens company, also known as American Superconductor, $1 billion in revenue and 700 lost jobs.

Sentencing is scheduled for July 6 in federal court in Wisconsin. Prosecutors have indicated Sinovel is on the hook for nearly $916 million in restitution and fines, most of which would go to AMSC.

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AMSC’s near-death experience illustrates the massive stakes in the Trump administration’s effort to stop China from swiping US technology. In March, the administration filed a complaint with the World Trade Organization, arguing that China’s policies cost the US economy as much as $50 billion a year. The United States contends that China’s policies requiring foreign companies to share technology with Chinese partners and its weaker patent protections leave US intellectual property vulnerable to theft and piracy.

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Few US companies have fought back as aggressively as AMSC. “The level of destruction to our company was so severe and so instantaneous that we had to be totally transparent about it,” said chief executive Daniel McGahn.

American Superconductor followed a familiar path to its original partnership with Sinovel. Beijing requires foreign firms to partner with a Chinese company, if the foreigners want access to the vast Chinese market. US officials say the Chinese government uses this requirement as cover to scoop up the best foreign technologies and eventually kisses the foreign partner goodbye, much as what happened with Sinovel.

After Sinovel dissolved its partnership in 2011, American Superconductor learned the company had stolen its source code and used it to run its wind turbines, including one in Charlestown, another in Scituate, and two in Fairhaven — and thousands more in China. The Massachusetts Water Resources Authority, which operates the Charlestown turbine, said it replaced the software with an authorized version in 2014. Prosecutors say Sinovel lured an AMSC employee in Austria, Dejan Karabasevic, with promises of cash and beautiful women.

“They used Cold War-era spycraft to literally turn him into an asset for them,” McGahn said. In 2010, Karabasevic gave Sinovel an unlocked version of AMSC software; he was later convicted of theft by an Austrian court.

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Hundreds of other US companies, according to computer security firms and federal officials, have been the victims of cyber break-ins by hackers in China. In 2017, the US Justice Department indicted three people in China who had allegedly broken into computers belonging to the navigation company Trimble, the financial services firm Moody’s Analytics, and a German technology titan, Siemens. This after Chinese President Xi Jinping promised to President Obama in 2015 that China would halt all such commercial spying.

Many other US companies suffer similar assaults without a public murmur, unwilling to acknowledge they’ve been fleeced. Roy Kamphausen, deputy director of the Commission on the Theft of American Intellectual Property, said he has heard many such stories, including one from a Boston-area biotechnology company that refuses to go public. The usual reason? “We’re still very much in the China market, and we don’t want to face retribution,” Kamphausen said.

The Trump administration was recently bolstered in its trade complaint by the European Union, which filed its own WTO case against China last week.

But now, to the dismay of trade hawks, the White House has taken away a powerful bargaining chip that could bring the Chinese government to the table. The Trump administration was in a position to effectively issue a corporate death penalty against ZTE Corp., China’s state-controlled electronics giant, for violating US sanctions against selling high-tech equipment to Iran and North Korea.

ZTE. one of the world’s largest maker of gear for cellphones, is heavily dependent on microchips from US companies such as Qualcomm, Intel, and Massachusetts’ own Analog Devices. In May, the Commerce Department ordered US chip makers not to sell anything to ZTE for seven years. But last week, Trump cut a deal to prevent the shutdown of ZTE. It will pay a $1 billion fine, broom out upper management, and promise to sin no more.

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Maybe Trump struck a bargain with China, after all, but hasn’t yet revealed it, or maybe the master dealmaker decided he couldn’t lower the boom on ZTE while he needs China’s help with our North Korea problem.

But barring any breakthrough in China’s relentless raids on US intellectual property, more US companies will inevitably see their breakthrough technologies branded “Made in China.”

This story has been updated to correct an error about the status of the software running the Charlestown windmill.

Hiawatha Bray can be reached at hiawatha.bray@globe.com. Follow him on Twitter @GlobeTechLab.