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International Business Machines Corp. (NYSE:IBM) Caves In To Chinese Pressure

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The Obama administration is trying hard to persuade Beijing to drop new rules that require American companies to transfer technology in exchange for market access. But China, it seems isn’t budging an inch, amid reports that International Business Machines Corp. (NYSE:IBM) is providing blueprints of its servers to a Chinese company, with close ties to its defense establishment.

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In the past 16 months, IBM has agreed to provide Teamsun, with a partial blueprint of its higher-end servers and related software as part of the Chinese company’s plans to build a full chain of computers and software atop International Business Machines Corp. (NYSE:IBM)’s technology.

Chinese Push towards Reliance on Domestic Technology

Beijing has been pushing hard to incorporate indigenous technology into sensitive sectors, like banking and energy following revelations that the U.S. National Security Agency tried to break into key Chinese systems in 2013. Analysts in that country have for long warned of the perils of reliance on American technology.

Teamsun’s deal with International Business Machines Corp. (NYSE:IBM) is part of a larger strategic need to create a robust domestic technology industry that in the long run will no longer depend on American products, thus avoiding the prospect of security breach.

IBM is being Short Sighted

Critics say that IBM’s caving in to Chinese pressure is driven primarily by short-term business gains. They further warn that the company’s actions may force other American corporations to bend to the new Chinese regulations, out of concern that International Business Machines Corp. (NYSE:IBM) will derive undue advantages by cooperating with the country’s administration.

IBM has many active projects in China. Besides the Teamsun deal, the company has also agreed to license an advanced chip technology to a separate Chinese company, Suzhou PowerCore. Further, sensing that a proposed Chinese anti-terror law might requires domestic companies to use local encryption standards, IBM has initiated talks with Chinese clients to let them build local encryption over its mainframe computer.

When queried, International Business Machines Corp. (NYSE:IBM) said it was simply being open with its licensing technologies as part of its global Open Power program. The company has been grappling with declining revenues, and is trying to move away from its traditional hardware and services businesses to new cloud and mobile offerings.

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