How China is taking technology away from American companies

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China uses a variety of leverage to acquire, sometimes forcibly, technology from American companies. They have long voiced their grievances, but their fears have grown lately as China strives to become a leader in industries such as chemicals, computer chips and electric vehicles. Documents and interviews with dozens of businessmen and officials from both countries show how Beijing systematically and methodically applies pressure on companies through local courts, antitrust authorities and other regulators.

Forced technology transfer is one of the main contentious issues in the US-China trade conflict. The White House estimates that Beijing is thus damaging US companies $ 50 billion annually. American businessmen complain that technology transfer reduces the competitiveness of their companies and deprives them of the incentive to innovate.

They benefit the most from technology collaboration. ” The State Council also noted that US companies enter into partnership agreements voluntarily.

“China has made it clear to the world that foreign companies can gain access to its market, but they have to give something in return – their technology,” says an official from Beijing.

How it all began

Beijing began to pursue such a policy during the reign of Deng Xiaoping. In 1978, during a visit to China, General Motors managers proposed a joint venture with a local company to help develop a backward local industry. This idea suited Dan, who wanted to get technology, but limit the influence of the West. “[China] must give up some of its market in exchange for the advanced technology we need,” he said in 1984.

Foreigners began to provide investment, technology, management know-how and intellectual property, while their Chinese partners provided land rights, financing, political connections and market knowledge. This practice became more and more popular, and Beijing reacted very restrainedly to the calls of the US presidents to soften the requirements for technology transfer. Only the Donald Trump administration announced its desire to “change the paradigm” and imposed duties on imports from China. In April, Beijing even went forward, promising to end rules by 2022 that would oblige foreign automakers to set up joint ventures in China.

However, for some American companies, such cooperation really brought benefits. For example, a joint venture involving General Electric (GE) has become the main supplier of avionics for state-owned Comic, which is creating China’s first large passenger liner, the C919. The JV has helped GE maintain its avionics division, according to GE employees.

Chipmaker Advanced Micro Devices (AMD) formed a joint venture with the Chinese Academy of Sciences, private and public companies in 2016. AMD raised about $ 140 million in licensing in 2017, helping it to profit for the first time since 2011. “We created a joint venture. which has brought significant benefits to both parties, ”said AMD CEO Lisa Su in 2016.

Spy commissions

To ensure that foreign companies help Chinese industry move to the next level, special commissions in China are scrutinizing their investment plans. The chemical company Huntsman considers such commissions to be a way of industrial espionage.

They are composed of many experts who must approve chemicals before they can be produced in China. To do this, they require detailed information on chemical formulas and manufacturing process. “This information is enough to make a copy of the product,” notes the American Chemicals Council. According to people close to Huntsman, soon after these experts finished their work, Chinese competitors began to use its technology in their products.

Huntsman is now trying to defend a very important patent for a black ink used in the textile industry. In 2007, she sued a Chinese company that infringed the patent in Shanghai. In 2011, she complained to the US Department of Commerce about a commission that the court appointed to help resolve the case. The commission consisted of three people, including an engineer from a local rival company and an engineer from a company that Huntsman was suing. The trial dragged on and Huntsman asked the Trump administration to ban Chinese companies from doing business in the United States if they used its technology.

DuPont raid

Chemical giant DuPont partnered with Zhangjiagang Glory in 2006 to manufacture and distribute Sirona textile fiber made from corn. But in 2013, the company did not renew its license to Glory due to suspicions that it was stealing its intellectual property in order to manufacture products similar to its fiber. Sirona’s sales in China by that time reached $ 70 million per year.

DuPont went to arbitration in China, accusing Glory of patent infringement. The proceedings lasted for over a year, until 20 antitrust investigators came to DuPont’s Shanghai office in December 2017. For four days, they demanded passwords from DuPont systems, according to people familiar with the situation, printed documents, confiscated computers and intimidated employees, even escorting some to the toilet. According to the sources, the antitrust authorities have demanded that DuPont withdraw the lawsuit, considering its reluctance to license the technology to the Chinese and the lawsuit against Glory as a monopoly.