U.S. experts and politicians are starting to hone into the ‘dangers’ of R&D and technology transfers to China, as the most serious long-term threat to the U.S. economy and national security. U.S. comparative advantage (innovation and new technologies) is being undermined by outsourcing of manufacturing to China, the relocation of R&D facilities to Chinese tech-parks, the forced technology transfers required for access to the Chinese market, and the continuing theft and lack of government enforcement of intellectual property rights (IPR)… all this according to witnesses testifying at a U.S.-China Economic and Security Review Commission (USCC) hearing last week. (Testimonies available at the USCC website - transcripts of the hearing to follow

The path to China’s industrialization is well documented, as is the role of foreign companies and the government’s industrial policy. Once China was the proverbial ‘wild west’ where multinational corporations could move production, use China as an export platform, and enjoy enormous profits. With time, Chinese officials have learned how to use multinational companies to advance the Communist Parties objectives for growth and technological development. First they forces multinationals to form joint ventures with national champions and transfer their latest technology to Chinese companies in exchange for current and future access to the domestic market. Now they demand that companies transfer to China their cutting-edge research and development labs (R&D) along with manufacturing and production.

The WTO has broad prohibitions on forced technology transfers and local content requirements, but these provisions are complex and easy to subvert. Couple that with China’s absence from the WTO Government Procurement Agreement (which requires that government companies and entities engaging in commercial activity do not discriminate on the basis of nationality) and the dominant role of State Owned Enterprises (SOE’s) in China, and Beijing can do whatever it wants in terms of innovation policy.

Most China experts in the U.S. believe that China’s hi-tech achievements are based upon foreign investment in the country, government procurement regulations, compulsory licensing of patents or improvements of existing foreign patents. However, Alan Wolff testified at the USCC hearing that China uses a variety of promotional measures to spur innovation, most of which do not differ that much from those of its trading partners. “It fosters STEM education, and graduates a prodigious number of engineers each year. It supports research consortia and builds enormous science and technology parks. It is increasing public spending on R&D.”

And then there was ‘Indigenous Innovation’ -

Even China’s ‘Indigenous Innovation’ policy is viewed with suspicion and objection, considered by most U.S. experts and politicians to be either forced technology transfer or technology theft. It originates from its National Medium- and Long-Term Program for Science and Technology Development (2006-2020), and it is identified as a guiding principle for China’s “great renaissance”. For China, “indigenous innovation” is defined as “enhancing original innovation, integrated innovation, and re-innovation based on assimilation and absorption of imported technology” through the creation and use of Chinese intellectual property owned by Chinese companies to improve China’s national innovation capability. (For more see: “China’s Perceived Threat to Transatlantic Security” by Mei Gechlik)

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