China Tech Tactics Irk Trade Partners 05/20 06:27
BEIJING (AP) -- For four decades, Beijing has cajoled or pressured foreign
companies to hand over technology. And its trading partners say if that didn't
work, China stole what it wanted.
Communist leaders deflected demands for change until foreign frustration
erupted into a showdown with President Donald Trump. He sent shockwaves through
their export industries by slapping punitive tariffs of up to 25% on Chinese
Europe, Japan and other trading partners object to Trump's tactics but echo
American complaints. They say Beijing's tactics violate its market-opening
commitments under the World Trade Organization.
American prosecutors go further. They say the Communist Party is the
ringleader of a global industrial spying operation.
Chinese leaders have promised stronger patent protections and other legal
changes. Foreign experts say that will make little difference if the party
won't enforce them.
The share of companies in a survey by the European Union Chamber of Commerce
that said they felt compelled to hand over technology doubled from two years
ago to 20 percent.
"It is unacceptable that this practice continues," a chamber vice president,
Charlotte Roule, said Monday. "Ending its persistence needs to be a priority."
Here are some tactics Beijing's trading partners complain it uses to
improperly obtain foreign technology.
JOINT VENTURES: The strongest tool in Beijing's arsenal is the longstanding
requirement for companies in most industries to work through state-owned local
The goal is for the Chinese partner to learn and eventually displace its
Some balked but thousands of companies cooperated as the price of admission
to the most populous global market.
Many companies say Chinese partners abide by promises not to abuse their
access to technology. But some say partners have copied chemical formulas,
industrial processes and other secrets for their own operations, sometimes with
local government support.
Beijing denies it forces foreign companies to hand over technology, but
joint ventures won't work without foreign technology and manufacturing
In the auto industry, China has promised to lift requirements for joint
ventures and allow full foreign ownership by 2023. Experts say that suggests
they believe Chinese automakers no longer need foreign tutors.
LEGAL PRESSURE: Pressure to hand over technology pervades Chinese law and
action by regulators.
Beijing promised when it joined the WTO in 2001 to treat Chinese and foreign
companies equally. But 18 years later, business groups and governments say
foreign companies still face special burdens, including sharing technology.
The European Union filed a WTO challenge last June to Chinese laws on
technology licensing it says discriminate against foreign companies. It said
China's own companies are free to negotiate licensing terms, but Beijing
dictates terms for foreign companies.
A law approved in March bans using "administrative measures" to compel
foreign companies to hand over technology. Business groups welcomed that but
said Chinese officials can still use other pressure tactics.
Business groups say Chinese regulators misuse a 2008 Anti-Monopoly Law to
pressure foreign companies in negotiations on technology licensing.
The law includes an unusual provision prohibiting "abuse of intellectual
property right." Lawyers say that runs counter to the spirit of patents and
copyrights, which are meant to encourage technology creation by giving the
owner a temporary monopoly and the right to charge others for using it.
Lawyers said Chinese regulators sometimes intervene in contract negotiations
and push foreign companies to accept lower fees by threatening to launch an
Authorities also use "window guidance," or verbal orders given in secret, to
compel companies to support Chinese technology development in ways the
government doesn't publicly acknowledge.
A decade ago, for example, global automakers agreed to help Chinese partners
create new local brands.
That injected foreign expertise into fledgling brands the Communist Party
hoped eventually will compete in global markets in a way joint venture vehicles
made under foreign brand names cannot.
It made life harder for automakers by spreading their resources more thinly
and adding to competition in a glutted market. Despite that, global automakers
said they had commercial motivations and regulators denied they applied any
The real reason? Industry researchers say regulators told automakers in
private they had to cooperate if they wanted permission to expand production of
their own brands.
MORE REGULATORY PRESSURE
Regulators also pressure foreign companies to help potential Chinese rivals
Global companies in engineering, software, pharmaceuticals and other fields
have set up research centers with Chinese partners. Many say they are to take
advantage of China's scientific talent pool, but such arrangements benefit
potential Chinese competitors and are unusual abroad.
This month, Microsoft Corp. opened an artificial intelligence research lab
in Shanghai with the state-owned Zhangjiang Group.
Other prominent examples include General Motors Co.'s Pan-Asia Technical
Automotive Center with state-owned SAIC Motor. SAIC is the main Chinese
manufacturing partner for GM and Volkswagen AG but also sells its own auto
AND MORE REGULATORY PRESSURE
Companies complain regulators use patent, safety and other official
examinations to learn about technology, often including employees of Chinese
rivals in review panels.
Companies are required to provide what they say is an unusually large amount
of information about products and industrial processes, including competitive
secrets, to obtain patents or approval for operations.
The Wall Street Journal in September cited an employee of a foreign
automaker as saying there was "clear evidence of collusion" between regulators
and Chinese automakers.
The employee said regulators asked for blueprints of components the company
was trying to prevent its Chinese partner from seeing but ignored other parts
of the vehicle.
For decades, the ruling party has rewarded businesspeople, academics and
others who "localize technology" --- a euphemism for unauthorized copying of
foreign know-how --- with promotions, research grants, money and public praise.
Security researchers say the government operates a network of research
institutes and business parks to turn stolen technology into commercial
In 2013, three Chinese scientists at New York University were charged with
sending U.S. taxpayer-financed research on magnetic resonance imaging to a
Chinese government-run institute.
Other Chinese-born researchers in the United States have been charged with
stealing chemical, seed, turbine and other technologies. Prosecutors say some
had partners waiting in China to turn them into products.
American prosecutors say when all else fails, top-level state companies
steal foreign secrets.
Pangang Group, a steelmaker owned by China's Cabinet, was indicted in 2014
on U.S. charges it paid industrial spies to steal a process from DuPont for
making titanium dioxide, a white pigment widely used in toothpaste, Oreo
cookies and other products.
Defendants including an industry consultant and a retired DuPont employee
admitted working for Pangang. But the case stalled because prosecutors had no
access to Pangang Group and Chinese authorities took no action.
U.S. prosecutors say the Communist Party uses its military wing's cyber
warfare skills to steal commercial secrets.
The People's Liberation Army is regarded as, along with the U.S. and Russian
militaries, a leader in research on breaking into or disabling an enemy's
Security experts say hackers believed to be Chinese soldiers or military
contractors have stolen secrets including product designs, chemical processes
and details of commercial negotiations.
In 2014, five members of China's military cyber warfare unit were indicted
on U.S. industrial spying charges.
The following year, President Xi Jinping agreed with President Barack Obama
to avoid using military resources to steal commercial secrets. But the U.S.
National Security Agency said in November that Beijing appeared to be violating
In October, an employee of China's main spy agency was charged with trying
to steal trade secrets from U.S. aviation and aerospace companies.