China’s ‘Market for Tech’ Trap Breeds Corruption and Lost IP for Western Firms, Insider Warns

It laid bare how China’s flagship chip venture had devolved into a cash grab—and, one insider warns, offered a cautionary tale for any Western firm still courting the mainland market.

In an exclusive interview with The Epoch Times, Hsueh Tsung‑chih—a veteran procurement chief Zhao had poached from Taiwan Semiconductor Manufacturing Company (TSMC)—said Unigroup’s collapse followed a well‑worn Chinese Communist Party (CCP) playbook: Promise market access, demand technology, and let politically connected middlemen skim the profit.

“Working with them is like drinking poison to quench thirst,” he told The Epoch Times.

For three decades, analysts add, Beijing has lured foreign firms with access to the world’s second‑largest market, then used hard‑line joint‑venture quotas, patent‑court rulings, and hefty industrial subsidies to siphon their technology into Chinese hands.

When Zhao took the helm in 2009, his expansion plans aligned neatly with Beijing’s drive for semiconductor self‑sufficiency.

The push became concrete in 2014, when the regime launched the National Integrated Circuit Industry Investment Fund—known as the “Big Fund”—injecting 138.7 billion yuan (about $19.4 billion) into domestic chipmakers and adding another 204 billion yuan (about $28.5 billion) five years later.

Flush with state backing, Zhao boasted he would buy stakes in TSMC, the world’s leading chip foundry, and merge it with Taiwan’s MediaTek. Those deals never happened, but Unigroup went on a buying spree instead—acquiring France’s Linxens, China’s Spreadtrum and RDA Microelectronics, and stakes in several other semiconductor firms—while recruiting talent worldwide.

One of those hires was Hsueh. In 2016, Unigroup’s memory‑chip subsidiaries Yangtze Memory Technologies (YMTC) and Wuhan Xinxin Semiconductor Manufacturing (XMC) offered the longtime TSMC manager a $1 million salary, a driver, a secretary, and business‑class travel.

“They didn’t haggle over money,” Hsueh told The Epoch Times. “Who wouldn’t be tempted?”

The gloss soon wore off.

Supplier lists, Hsueh soon discovered, were hand-picked by Zhao’s girlfriend and friends, violating every bidding rule.

A chipmaking KLA metrology tool was quoted far above market price until a single call from Hsueh knocked millions off.

In another deal, “They paid 2.1 billion yuan (about $294 million) to acquire a firm worth 900 million yuan (about $126 million),” he recalled. “No one dared ask where the extra went.”

To get a contract, he added, vendors first had to buy two apartments in a complex managed by Zhao’s girlfriend—“a disguised rebate.”

When Hsueh asked how Unigroup would repay its high‑interest state loans, Zhao shrugged: “You only worry about the money if you plan to pay it back.”

Zhao’s bluntest admission came in a private conversation.

He compared state subsidies to the fabled “monk’s meat” of Chinese legend—said to grant immortality and irresistible to any passerby.

“If I don’t take it today, someone else will take it tomorrow,” he told Hsueh.

Those words sealed Hsueh’s decision to resign.

The spending spree ended in default: Unigroup missed bond payments in 2020, filed for bankruptcy in 2021, and was taken over by state‑controlled Zhiguangxin in 2022. The Big Fund itself unraveled, with managers Lu Jun and Ding Wenwu detained in 2022.

The tactic first took shape in the 1990s, when officials capped foreign ownership in rare-earth processing at 50 percent, said Lan Shu, a U.S.-based China affairs analyst, senior political commentator, and a former host of Sound of Hope TV, an international Chinese-language broadcast network.

After domestic firms absorbed proprietary methods and seized about 70 percent of global supply, regulators branded the technology a state secret and barred fresh foreign investment, he told The Epoch Times.

Today, the same leverage is being used the other way around.

He added that local courts routinely invalidate foreign patents, and regulators place officials inside foreign plants to observe proprietary processes.

Hsueh said Chinese firms often disregard market norms and ethics, reverse‑engineer foreign technology, and then flood the market with cheap knockoffs that crowd out the originals.

Joint‑venture rules amplify the pressure.

In 2015, Chinese authorities told Hewlett Packard (HP) it must sell 51 percent of its China business to Tsinghua Holdings or withdraw from the country. HP complied, receiving $2.3 billion for the sale, but lost control over its Chinese market and was compelled to share its technology and operations with the local partner, according to the report.

Cisco, Microsoft, and others struck similar deals to stay in the market.

Industrial subsidies add fuel.

A property slump and faltering consumer demand have dimmed China’s market sheen, he said, yet the machinery that swaps access for technology remains intact.

“Once you take the CCP’s bait, you always lose more than you gain,” he warned.

For many foreign firms, the dilemma persists, he added. Skip China and competitors may surge ahead on volume. Dive in, and hard‑won intellectual property can vanish overnight.

Even so, top executives such as Nvidia’s Jensen Huang and Apple’s Tim Cook still jet to China, Hseuh said, proof that short-term sales can outweigh strategic concerns.

Hsueh chose a different path. After quitting Unigroup, he built a start‑up he calls “100 percent non‑China,” meaning no Chinese investors, suppliers, customers, or yuan billing.

“I won’t trade 10 years of growth for two years of quick gains,” he said. Yet he admits the allure remains strong. “They do in three years what takes us 15. It’s almost impossible not to be tempted—but it always ends badly.”

His advice to foreign investors weighing the mainland: “Grit your teeth and decide for yourself.”