China’s Efforts to Poach Top Tech Engineers Have the West on Edge
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Welcome to Tech News Briefing. It's Tuesday, December 3rd. I'm Danny Lewis for The Wall Street Journal. Coca-Cola's latest annual holiday ads are decked with festive Christmas trees and cuddly polar bears, but the commercials were made with generative artificial intelligence. Just ahead, we'll hear why Coca-Cola made this bet and how it's affecting the advertising industry.

And then, Western governments have been making it harder for China to get a hold of sensitive technologies like AI and advanced semiconductor chips. And one way that China has responded is by trying to hire top engineers from tech hubs like Taiwan, parts of Europe, and California's Silicon Valley. Our China tech reporter and editor, Lisa Lin, joins us to explain this latest front in the battle for tech supremacy. But first...

Coca-Cola has released its annual holiday ads. At first glance, they've got all the usual trappings. Big trucks with the Coke logo on the side, reindeer and polar bears and Christmas trees all lit up. But there's something different about them. They're a little too glossy in some places, and smeary in others. And if you look closely, some objects, like the Coca-Cola delivery trucks, are a bit wobbly, because the ads were generated by artificial intelligence.

WSJ reporter Katie Dayton covers marketing and the advertising business. Katie, some marketing professionals and others mock these ads because they appear AI-generated. What do they look like? The ads, they look a bit like the Coca-Cola holiday ads that we know and love. They have the lit-up trucks. They have the polar bears. But there's something about the edges to all of this that has that kind of glossiness, that shininess. And

And some people have pointed out that some of the proportions are a little bit off. It's just that uncanny valley that AI visuals tend to produce. One company I spoke to, System One, said that in the testing, they asked people to watch it and give their emotional response. And he said only one person out of thousands even commented on it looking like it was made with AI.

And that kind of begs the question of do consumers even care if they can tell it is AI? And maybe they can't tell a lot of the time what the difference is between an animated polar bear that someone's animated through a computer already and one that's been animated by an

Okay, so they were made with AI, but how exactly were these ads made? So Coca-Cola hired a couple of ad agencies with the brief of reinventing the famous holiday truck ads for the modern day. And both of these companies

companies came up with this idea that they will be using AI technology to do that. So, I mean, it took a long time from what they told us. You know, it wasn't a case of just dropping in some prompts into ChatGPT and spitting it out. They still took many, many months and, you know, spent a lot of time creating these. They're using technology, like pretty high-powered technology, to create the visuals and then editing to some degree afterwards.

And the cost of making the ads with AI versus, you know, going with more traditional animation was part of this, right? I mean, did they actually save money on these ads? They wouldn't tell us exactly how much they spent on them. I mean, for them, the cost was more because they could just recycle the same ads that they used a lot in the holidays, right? They didn't need to create this. But...

Generally speaking, you can say AI ads do save companies a lot of money. I mean, to shoot this in real life, you would have had to have the location scouted. You would have had to pay to clear out a road. You would have had to have actors, lighting, all the production that you would need to film a Hollywood movie. You can do that.

in a computer now. And that's really going to upend the way actually advertising agencies make money now because they're not really sure what to charge for if they're not charging for the time of all these people. How has Coca-Cola responded? Coca-Cola has been pretty open about discussing what they've done here.

They're very happy to say that you might not see this in the YouTube video, but when this goes out around the world, they can personalize very easily parts of this ad. So if you're watching it in India, for instance, you know, you might get a sign on a billboard that the trucks are driving past that says, oh, we're going past Bangalore or something like that. They can make these very quick changes.

And there's a tenet in advertising that the more personalized you can make an ad, the bigger the response you're going to get from consumers. That was WSJ reporter Katie Dayton. Coming up, China's efforts to recruit tech engineers from Western countries has officials in the U.S. and Europe worried about losing top talent and trade secrets. After the break, we'll hear what they're trying to do about it. Stay with us. Say this is your financial life. Overtime.

Things can get more complex. With a personalized plan, Merrill can help you navigate it all. Learn more at ml.com slash bullish. Merrill, a Bank of America company. What would you like the power to do? Investing involves risk. Merrill Lynch, Pierce, Fenner & Smith, Inc., Registered Broker, Dealer, Registered Investment Advisor, Member SIPC. A wholly owned subsidiary of Bank of America Corp.

As Western governments make it harder for China to access sensitive technologies, a trend expected to continue under the administration of President-elect Donald Trump, many Chinese companies are trying to get ahead by luring away top engineers in high-tech areas such as advanced semiconductors and AI. Chinese firms are focusing on several tech hubs, including Taiwan, parts of Europe, and Silicon Valley.

Lisa Lin is the WSJ's China tech reporter and editor. She spoke with my colleague Julie Chang about her reporting. Lisa, what are some Chinese companies allegedly doing and how do we know this? The phenomenon itself is pretty widespread, but many Chinese companies have hidden their identity behind a recruiter.

The only company that really actually openly names itself is Huawei. Huawei, for some reason, always, when they do the first approach to the talent, they actually tend to say that they're from Huawei and ask if the talent would like to join. My guess is they feel that they have name recognition that the other Chinese companies don't, or maybe because they have the reputation of being able to pay these generous salaries that you typically associate with China talent poaching.

Somehow, Huawei just always tends to be very upfront. How do we know about the other companies that are also doing this kind of poaching? Yeah, we tend to know that they're from a Chinese company because the recruiter will say that they're actually working on behalf of a Chinese company. And very often the recruiter tends to be ethnically Chinese. The most telling sign is that

that once the recruiter makes the outreach through LinkedIn or email, the next step is always to migrate the conversation to an app, a Chinese app called WeChat.

which is a chat messenger in China that's hugely popular. And which non-Chinese companies are the Chinese companies looking to recruit from? Yeah, so there are two big fish in the pond. The first is TSMC. TSMC is the world's largest contract chip manufacturer. It's also making the most advanced chips for players like NVIDIA.

The other big fish is ASML. ASML is a Dutch chip toolmaker. They make lithography equipment, and it's a very critical part of the chip making process. The reason why ASML is targeted is because ASML is currently the only company in the world that can produce the most advanced cutting edge lithography equipment. And lithography is an area that most analysts widely use.

agree on that that's China's Achilles heel when it comes to constructing its own domestic self-sufficiency industry. And what have the Chinese companies or the government said about the alleged poaching? The Chinese Ministry of Foreign Affairs, they said that they're not aware of the examples of talent poaching that we pulled out in our story. And they've also added that China's interaction with foreign talent is no different from other nations.

The other thing they've added is they've said that they really respect intellectual property rules and any reports of alleged intellectual property stealing are baseless. Huawei has not responded for any requests for comment. We should note that ASML has said they have had no indication of unusual recruitment activity towards its employees and that the attrition rate is very low. TSMC declined to comment.

Lisa, tell us more about the regions being impacted. Are there rules on working for competitors, particularly Chinese ones? The regions that have been the most impacted, that have received the most Chinese outreach, tend to be the regions that are very strong in chipmaking. And that would make it Taiwan, South Korea, parts of Europe, America. In terms of rules, this is a tricky one. Talent recruitment in itself is

isn't inherently illegal. Talent recruitment is really kind of part of the job industry. However, it does start to pose a problem when you have a country such as China, who's subject to export controls by the US and its allies. So they cannot actually get their hands on emerging technology. So what they're trying to do, if they can't buy technology, is trying to make their own. And they need talent to do so. Even though we don't have outdated figures, the shortfall of talent was significant.

at least in the semiconductor space, put in the range of 200,000 people as of last year by its chip industry association. So China needs this talent. The other reason why countries tend to be up in arms about it is because many countries now want to develop their own domestic semiconductor industry and their own competitive domestic semiconductor industry. And by losing talent, it takes away some of the itch and the competitiveness that you have.

And how are certain regions cracking down on recruiting efforts? Right now, we're at the point where only in Taiwan it is illegal. So what Taiwan did in 2022 was they imposed stiffer penalties on individuals or companies that were conducting economic espionage.

and on individuals that were transferring know-how in areas that Taiwan deemed as critical to their competitiveness and to the national security. So if you were in Taiwan and you were engaging in such activity, then the maximum penalty would be a long jail term and a fine of about $3 million. In countries such as South Korea and Germany,

lawmakers are worried about the issue and they're debating how to solve it. But at this point, we haven't seen any concrete action yet.

What's at risk for U.S. companies and for U.S. workers poached by China? The most immediate risk is reputational. A lot of people that I interview talk about how when you go and work for a Chinese company, you're essentially crossing to another side. And in some cases, it is if you're engaged in very high end chip products, it is actually illegal to be going off and helping China with such know-how.

That was WSJ China Tech reporter and editor Lisa Lin speaking with our producer, Julie Chang. And that's it for Tech News Briefing. Today's show was produced by Julie Chang with supervising producer Catherine Millsap. I'm Danny Lewis for The Wall Street Journal. We'll be back this afternoon with TNB Tech Minute. Thanks for listening. You want a straightforward path to your goals, but at Merrill, we know things may get in the way.

Or if new opportunities can put you at a crossroads, with the bull at your back, you get a personalized plan and a clear path forward. Go to ml.com slash bullish to learn more. Merrill, a Bank of America company. What would you like the power to do? Investing involves risk. Merrill Lynch Pierce Fenner & Smith Incorporated. Registered broker-dealer. Registered investment advisor. Member SIPC. A wholly owned subsidiary of Bank of America Corp.