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Chinese engineers headquartered in the heart of Silicon Valley have produced a dual band mobile phone chip that's sure to cause more heated debate when trade delegations from the two superpowers next meet.

Spreadtrum Communications says it already has contracts from four manufacturers for its 'superchip' - as the state news agency calls it - based on its own TD-SCDMA 3G air interface. China has encouraged development of this standard, an alternative to both the WCDMA specification used in European and Japanese 3G networks and Qualcomm's CDMA2000, hoping to nurture the domestic market. It also has another reason for seeing TD-SCDMA prosper: it hopes to bypass the complicated royalty agreement that 3G chip makers must pay.

Ironically, much of the engineering for the chip was carried out by Spreadtrum's Sunnyvale office, in the heart of California's Silicon Valley.

But China is deadly serious about its home grown innovation. In a gritted-teeth compromise declared by the United States Trade Departement after trade talks in April, the Chinese pledged not to steer government-awarded 3G contracts to TD-SCDMA suppliers. But rejoicing Stateside was short-lived. A fortnight later the PRC's MII - the Chinese Ministry of Information Industry - was again touting the cost savings from the Spreadtrum superchip. Reports suggest that by favoring its own manufacturers and bypassing royalties it can produce phones a third cheaper than foreign rivals and save the country $10bn in import costs.

What's not in dispute is that it's the PRC's first homegrown chipset; the silicon was helped along by investment from MII. Spreadtrum says Lenovo, Amoi Electronics, Hisense Electric and the Ningbo Bird Company have agreed to use the 3G chip.

The trade dispute is sure to be watched with interest far beyond the world of cellular semiconductor companies. When Western "technological superiority" is based on the licensing of intellectual property, and when China refuses to play ball, advocating its own better and cheaper technology, what do companies that want access to the burgeoning Chinese market do? Grin and bear it, and lobby like ferrets, we reckon. ®

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Trade Wars II: China shuns Qualcomm – no CDMA tax!
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