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China Attempting to Assassinate Another US Business

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In April, Starbucks CEO Howard Schultz said he hoped to open “thousands of stores” in mainland China.

To date, the chain has opened approximately 380.

China, it seems, has followed its regular MO--it warmly welcomes US businesses into the country, then masters the idea, and comes out with its own, cheaper, homegrown version.

The announcement that Gourmet Master Co., China’s largest coffee-shop chain, plans to increase its mainland outlets to more than 1,000 locations--a six-fold increase--should come as no surprise to Schultz & Co. What is surprising, however, is that the Seattle-based behemoth didn't see this head-on challenge coming.

Businessweek reports that "Gourmet Master, whose...outlets sell coffee for about half the cost of Starbucks, will seek to gain market share by targeting 'high foot traffic' street corner locations and continuing to offer cheaper prices than competitors.

Meaning, if history serves as a guide, that Starbucks never had a chance to operate in those prime locations. Or, if they did, the shops will be replaced in short order by Gourmet Master now that enough time has passed for China to have perfected the Starbucks model.

This is nothing new. And it goes well beyond coffee. As Peter Navarro, a professor of business at the University of California, Irvine, wrote:

"China’s well-documented industrial espionage network is used to hack into Pentagon computers to steal military technologies. China also forces any American corporation wishing to produce on Chinese soil to transfer its technology."

Just a few weeks ago, the New York Times wrote about the very same situation.

Before he was fired from a Dow Chemical insecticide lab in 2008, Huang Kexue began sharing company secrets with Chinese researchers, then "obtained grants from a state-run foundation in China with the goal of starting a rival business there."

He has been brought up on US economic espionage charges.

It's not like the Chinese even make an attempt to hide any of this:

“In the new global economy, our businesses are increasingly targets for theft,” said Lanny A. Breuer, the assistant attorney general in charge of the Justice Department’s criminal division. “In order to stay a leader in innovation, we’ve got to protect these trade secrets.”

The Times added:

"Economic espionage charges are also pending against Jin Hanjuan, a software engineer for Motorola, who was arrested with a laptop full of company documents while boarding a plane for China, prosecutors said. Over the last year, other charges involving the theft of trade secrets — a charge less serious than espionage — have been filed against former engineers from General Motors and Ford who had business ties to China. And scientists at the DuPont Company and Valspar, a Minnesota paint company, recently pleaded guilty to stealing their employer’s secrets after taking jobs in China."

But it's the world's largest consumer market, right?

Absolutely. And it looks as if China itself is increasingly hesitant to share it with anyone else.
POSITION:  No positions in stocks mentioned.