Forced technology transfer is one of those U.S.-China economic issues that’s chronically neglected by the U.S. government and the mainstream media – primarily because the leading short-term victims fear the consequences of voicing major complaints. So for decades, American and other foreign multinational corporations generally have agreed to transfer critical knowhow to Chinese partners (almost always meaning “the Chinese government’). In return, Beijing has allowed them to do business in a China market they consider actually or potentially “TBTI” (too big to ignore).
Washington’s decision to follow the companies’ lead has created major longer-term risks for the future of America’s productive economy – due to the wholly unnecessary and non-market-related fostering of foreign rivals to key domestic industries. But with the multinationals and their half-a-loaf perspective calling the shots, American leaders have been content to secure Chinese promises to end the practice, and then blithely watch Beijing’s extortion continue. Other foreign governments have often turned blind eyes as well.
Now, however, it looks like the longer term is arriving for the companies themselves. An eye-opening new article in Japan’s Nikkei Asian Review describes how forced technology transfer – along with equally shortsighted genuinely voluntary transactions – is already starting to boomerang on U.S. and other foreign multinationals and their domestic economies.
For example, China’s State Nuclear Power Technology Corp. has used knowhow developed by Westinghouse to build state-of-the-art competitor reactors that are already being sold in China and that reportedly are being readied for foreign markets. China is also now selling small passenger jets to foreign customers, thanks to technology extorted from Boeing and Airbus. The current U.S.-Europe duopoly will surely control the immense global market for wide-body passenger jets for the foreseeable future, but China is planning to start delivering a larger, narrow-body jet in three years, and is working with Russia to enter the wide-body business. And although the Nikkei piece didn’t mention it, foreign automakers like General Motors have been victimized by forced technology transfers as well.
Literally for decades, America’s approach to China has pretended that serving corporate interests ipso facto serves the domestic economy’s interests. With these policies now backfiring on its offshoring multinationals as well, the case for staying the China course looks weaker than ever.
RealityChek 
China, the second biggest user of H1-B visas, targets all American sites of value for cyberespionage.
Our dear leaders have a plan on cybersecurity. They want to bring in many more Chinese engineers and programmers under greatly increased H1-B quotas, as part of ‘immigration reform.’ We know they are expert at breaking cybersecurity, so our leaders think this will work out great.
Apparently China has been complaining that cyberespionage is getting more difficult: they need more boots on the ground.
But seriously folks, having trusted insiders on site who don’t wish you well is much more dangerous to your systems than remote cyberespionage.
http://www.washingtonpost.com/world/national-security/chinese-citizen-sentenced-in-military-data-theft-case/2013/03/25/dc4567fa-9593-11e2-ae32-9ef60436f5c1_story.html?hpid=z1
‘In the past four years, nearly 100 individual or corporate defendants have been charged by the Justice Department with stealing trade secrets or classified information for Chinese entities or exporting military or dual-use technology to China, according to court records. A number of other cases involving China remain under seal, according to the Justice Department.’
This comment very usefully highlights an important feature of China’s technology policy. Beijing also of course takes advantage of the educational opportunities provided by American colleges and universities — which are only too happy to accept any students who can pay “full freight.”
Beyond the Western technology that is transferred to China, even if reluctantly, by its owners, China is the country most adept at stealing and copying technology.
The best source I’ve seen on ‘Chinese’ technology is ‘Chinese Industrial Espionage,’ 2013. This is not a polemic, it is a painstaking and penetrating analysis, part of a scholarly series ‘Asian Security Studies’ of 30+ books.
It begins: ‘This new book is the first full account, inside or outside government, of China’s efforts to acquire foreign technology. Based on primary sources and meticulously researched, the book lays bare China’s efforts to prosper technologically through others’ achievements. For decades China has operated an elaborate system to spot foreign technologies, acquire them by all conceivable means, and convert them into weapons and competitive goods–without compensating the owners.’
The authors quote numerous internal Chinese government documents that denigrate original technological research as chancy and expensive, and point out the advantages of copying others’ work. The bureaucracy that supports this is mind-numbingly huge. They are right about research too for China, where the Communist dictatorship presides over a science / technology sector that is bureaucratic, and riven with cronyism and factionalism.
China’s acquisition of modern Western military technology has led it to invite its neighbors to join a new Greater East Asia Co-Prosperity Sphere with Chinese Characteristics.
Thanks so much for the excellent comment, Bill! I agree that the Chinese fully recognize the value of stealing and copying technology. But I also believe that China’s drive for technological autonomy leaves a considerable role for original R&D as well.
Thanks Alan,
Yes, I agree that they’re increasingly trying to emphasize original research, and making some progress. There’s no question they have the ability; it’s the Chinese system that stifles originality.
‘Singapore’s prime minister, Lee Hsien Loong, noted during a speech to a senior Communist Party school last year, “all eight Nobel Prize winners in science who are of Chinese descent either were or subsequently became American citizens.”‘
http://online.wsj.com/article/SB10001424052702304795804579099640843773148.html
Norm Matloff has a post on how they are trying to increase research, but in a typically bureaucratic way – they’ve started a paper drive, or paper chase.
http://normsaysno.wordpress.com/2014/07/12/why-are-we-worried-about-chinas-paper-chase/
Bill — I think you’re right to call the Chinese system an obstacle to progress on original research. That’s why China has tried by hook and crook to secure foreign technology. As I see it, the main immediate question facing America is at what point will China have acquired so much U.S. and other foreign technology that it becomes capable of making significant further progress on its own — despite the roadblocks that the system wll continue to create. Of course, I don’t have any definitive answer. But I do feel confident that the more technology China secures — through continued voluntary corporate transfers, as well as through theft and extortion — the closer it gets.
It will be daunting for China-Russia consortium to catch Boeing and Airbus in widebody jets. However, given that Boeing and Airbus have become ultraconservative in developing brand new widebody jet models, it may give China-Russia consortium an opening to develop state-of-the-art widebody jets surpassing those incrementally improved widebody jets from Airbus and Boeing.
Thanks for the very intriguing point about Boeing-Airbus conservartism — and the prospect of leapfrogging. One other advantage that the China-Russia consortium could enjoy — the two governments could conceivably turn into a standards-setting cartel that enables some circumvention of US and/or EU safety standards.