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View from Manchester: China watches the wheels on Imagination

Image credit: Imagination

The IP company's owners have backed away from plans to move its domicile to China as the government seeks an urgent meeting.

Imagination Technologies’ Chinese owners have this morning relented on their controversial plans to redomicile the UK graphics-to-AI company in the Middle Kingdom. Culture secretary Oliver Dowden is seeking a urgent meeting with the CEO of the fund immediately involved, Canyon Bridge Capital Partners, so that the government can “as a matter of urgency… understand the facts”.

So, it’s all over, right?

Hardly.

Perhaps the most galling thing about this brief squall around Imagination is that it was entirely predictable that Canyon Bridge and its main investor, Beijing government-linked China Reform Holdings, could try to do something along these lines. And you can say that… because Beijing has told us as much. Repeatedly.

These comments by President Xi Jinping should perhaps replace former Intel CEO Andy Grove’s  ‘Only the paranoid survive’ sign on every ambitious tech executive’s desk:

“Only by mastering crucial core technologies with our own hands can we fundamentally safeguard our national economic security, national security and security in other areas.” (My italics)

They come from a speech Xi gave to a joint meeting of the Chinese Academies of Science and Engineering in June 2014. That is almost six years ago, and three years before Canyon Bridge’s bid for Imagination.

Xi has made the same call many times since, as have other ministers, with that phrase ‘core technology’ now even seen as a specific reference to semiconductors.

Here’s Xi in 2016: “The fact that core technology is controlled by others is our greatest hidden danger.” (Work Conference for Cybersecurity and Informatization)

And being still more direct, here’s Vice Premier Ma Kai in 2018: ““We cannot be reliant on foreign chips.” (National People’s Congress)

The objective has then been backed up and runs through a series of economic plans published since covering most key technology markets such as healthcare, autonomous driving, smart cities and – underpinning much of this – artificial intelligence.

On top of that has come the money. China’s latest public-private matched Big Fund for semiconductors closed at RMB204bn (£22.7bn) last October and there has been a further stream of investment from national, regional, private and semi-private sources flowing for many years. Much of that has gone locally, but a good chunk has found its way overseas as China has acquired companies, key technologies and expertise.

Regarding expertise, investments have largely been made to fill in technology gaps the country does not yet possess today and, importantly, then ascend relevant learning curves so that China can fill them with domestically-sourced alternatives. “With our own hands.”

In this context, and from a Chinese perspective, the attractions in Imagination are easily divined. As noted in yesterday’s analysis, the company contains a raft of technologies that fit well with China’s technological goals.

Another critical point here is that China is playing the game. There may still be accusations of IP theft, and inward investors remain antsy about obligatory Party representation within their Chinese operations. But by increasingly going down the mergers-and-acquisitions route, China is executing on its strategy in a distinctively capitalist and legal way. If regulators approve its deals, it’s hard to accuse the country and its avatars of acting nefariously.

Indeed, even the charge that China Reform has attempted to mount a sneaky raid exploiting the Covid-19 outbreak is problematic. Talk all you like about Sun Tzu and The Art of War, but the tactics it was about to deploy could equally be described as ‘classic Wall Street’. Capitalism with Chinese Digital Characteristics, if you will.

Finally, what China is doing makes absolute sense to China. As a global superpower, the country nevertheless remains largely dependent on foreign technology, with recent actions such as those the US has taken against Huawei further alerting it of the need to address that. As an example, Imagination can again fill specific needs here. Technological self-sufficiency is a paramount goal for Beijing (and, yes, I know I'm labouring that).

Meanwhile, as manufacturing matures and also becomes increasingly automated, China wants to accelerate its creation of a knowledge economy to compensate in terms of general economic growth and thereby continue to deliver social improvements and jobs. That is fundamental to the contract under which the Party retains the support of the vast majority of the people.

So, now put yourself in China’s place, and ask what you would do? Would it be that different? Would it be any different?

If the UK, and the West generally, is to frame a response to the competitive challenge that China represents in high technology, it needs to put more into analysing and understanding its actions. It also, as Malcolm Penn pointed out yesterday, needs to look at just how far China has already progressed. That must happen at both corporate and government levels, immediately.

The last four days of controversy around the future home of Imagination Technologies shows that is still not sufficiently the case. One unwelcome outcome – from a UK innovation perspective – may have been avoided for now. But this cannot just be seen a one of those ‘huge wake-up calls’. It needs to be one of the last.

China is doing what it needs to do – but is the UK?

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