The Technology Transfer Issue in Sino-US Relations, 1981-2006: Some Reflections, Thoughts and Perspectives: The Technology Transfer Issue in Sino-US Relations, 1981-2006: Some Reflections, Thoughts and Perspectives Dr. Denis Fred Simon Levin Graduate Institute, SUNY “US-China Forum on S&T Policy” Xiyuan Hotel Beijing, China October 16-17, 2006


The Technology Transfer Issue: The Technology Transfer Issue Technology transfer has been one of most visible, but also one of most controversial aspects of Sino-US relations The sources of the controversy stem from multiple factors, but the issue of export controls has been the most vexing and challenging—joined most recently by the issue of IPR Underlying the difficulties in resolving continuing problems is a fundamental sense of political mistrust and uneasiness surrounding intentions, goals objectives Assessments of China’s military intentions and defense objectives Perceived US efforts to limit or constrain China’s growth/sovereignty New emerging competitive concerns about China’s economic growth


Channels of Access to Technology: China has built an extensive network for acquiring foreign technology: Channels of Access to Technology: China has built an extensive network for acquiring foreign technology Bilateral S&T Agreements Foreign Direct Investment Overseas Students & Scholars Technology Transfer Agreements Membership in Int’l S&T Bodies International S&T Conferences Defense Cooperation + Exchanges Foreign Technical Experts Illicit Acquisitions Reverse Engineering Taiwan Overseas Chinese Links


Three Most Critical Underlying Elements: Three Most Critical Underlying Elements China’s steadily enhanced understanding & sophistication regarding the dynamics of the international technology market: improved business environment and policy tools/instruments The continued lag and divergence between the thinking and behaviors of American firms and the US government regarding technology transfer to China The rapidly growing impact of globalization on the evolving dynamics of the Sino-US relationship regarding technology transfer


#1: China’s Perspectives & Approaches Regarding US Technology Transfer: #1: China’s Perspectives & Approaches Regarding US Technology Transfer Foreign technology acquisition has been a strategic element in China’s modernization program and open policy Foreign investment has been the main vehicle for bringing foreign equipment and know-how into China— departure from Japan and Korea Formal policies set up to regulate importation of technology to minimize use of restrictive business practices— learning from UN MNC Code of Conduct Use of access to China’s domestic market has been primary source of Chinese leverage: increasingly critical over time American firms have been a welcome partner for Chinese enterprises for joint ventures, licensing agreements, and more recently even wholly owned enterprises


China’s Technology Transfer Setting: China’s Technology Transfer Setting US firms often have felt perplexed by the complex policy and operating environment in China Complexities within/across bureaucracy Complexities between central & local govts Limited transparency: who has the final say? Uncertainties stemming from weak rule of law re: contracts and business cooperation Negotiation “trickery”—playing off tactics Preference for diversity of suppliers: legacy of Soviet experience Other issues derived mainly from China’s level of development has affected the nature of tech transfer ties Limited foreign exchangetalk quality, buy price Unwillingness to pay for software vs. hardware Imposition of tightly controlled review/approval processes Lack of management expertise & systems integration skills Uneven performance re: absorption and assimilation


The American Corporate Side of Technology Transfer Experience: The American Corporate Side of Technology Transfer Experience Trying to do too much too fast Lack of appreciation for the strategic nature of technology transfer Coming to China ill-prepared: “China fever” Wrong partner, wrong location, wrong deal “sleeping in the same bed with two different dreams” operating within a very fluid business setting Striking a bad business deal in China: the “China is unique” argument


Slide8: Identifying the “Best” Partner: US firms have not always been prepared Jurassic Park Leftovers Greedy Opportunists Lip-Service Bandwagoners True Globalists Who will become the Chinese HP, Samsung or Toshiba?


Normalization of the Commercial Business Environment re: Technology Transfer in 1990s and Beyond: Normalization of the Commercial Business Environment re: Technology Transfer in 1990s and Beyond Changes to the technology import laws Building out of the legal infrastructure for foreign investment Impact of WTO membership: greater transparency Moving up the learning curve: technology markets, life cycles, negotiating strategy Decentralization of decision-making: end-users tied in Emergence of new issues: IPR/tech standards Arrival of new forms of tech transfer: foreign R&D units Continued dissatisfaction with US export controls re: dual use technologies


China’s New Tech Import Law: Impact of WTO Liberalization and Transparency: China’s New Tech Import Law: Impact of WTO Liberalization and Transparency WTO engendered a radically revised set of tech import regulations as of January 2002, reflecting PRC commitment to reduce red tape and relax government involvement Spirit of new regulations is to promote free cross-border technology transfer with relatively few criteria and govt restrictions Role of government shifts from vigilant watchdog to quasi-impartial referee—more room for firm-to-firm negotiation Three category system created: unrestricted (largest), restricted, and prohibited. No prior govt approval needed for unrestricted technologies. Terms and length of contract also no longer imposed by govt regulation….open to negotiation and adjustment. No reqt for granting “free use” of the technology after agreement expires Uncertainties still remain, but the general approach is biased towards “approval” in contrast to the pre-WTO regulations, thus further facilitating ease of technology transfers to the PRC


#2: US Government Role: 7 Elements of US Technology Transfer Policy + Leverage: #2: US Government Role: 7 Elements of US Technology Transfer Policy + Leverage Five Aspects of Concern and Caution: Dual-use technologies Moderate PRC military modernization re: capabilities in case of conflict in Taiwan Straits Minimize PRC power projection capabilities: Asia and beyond Limit tech transfer that would make a demonstrable contribution to China’s nuclear weapons & delivery Limit or reduce potential for “internal” diversion of technology to unauthorized end-users Limit or prevent industrial espionage/military spying Two Elements of Cooperation and Collaboration Promote development of economically secure/stable China Promote the increased integration of China into world economy Political Leverage withhold/provide tech transfer to influence Chinese internal and external behavior(s)


Why is the tech transfer issue so complex from the US Government perspective?: Why is the tech transfer issue so complex from the US Government perspective? Challenge balancing commercial interests with so-called national security interests Close interactions between military and civilian organizations in China: end-user designation difficult Difficulty translating terms such as “promote stable, secure China” into actual policy re: tech transfer Poor coordination across US bureaucracy: Defense vs. Commerce vs. intelligence community China alleged using “strong arm” tactics to force technology transfer Continued underlying mistrust and uneasiness in political terms on both sides Cox Report published in 1998 brought worst fears in US on the table: China abusing access to US economy, universities, etc.


Cox Report and Beyond: Cox Report and Beyond Damning accusations of China’s behavior about illicit acquisition(s) of US technology Contributions to advanced weapons programs Diversion to other countries (“evil empire club”) Systematic espionage closed “comfort” gap US companies involved in “helping” Chinese and violating US controls: munitions/civilian: Loral and Hughes—satellites & McDonnell Douglas—advanced machine tools Fragile moment in Sino-US tech transfer: Has US policy been naïve and mis-directed?: Much innuendo/hyperbole Chinese perspective: is this really true? How dependent is defense Chinese R&D on the US—too dependent? Given current climate in DC re: rise of China, can Sino-US relations withstand another Cox-type Report?


#3: Globalization & Sino-US Tech Transfer Relations: A New Game with New Rules & Issues: #3: Globalization & Sino-US Tech Transfer Relations: A New Game with New Rules & Issues Globalization has been embraced by China because it brings with it a more open world economy and creates more opportunities for tech cooperation Technological leveling (Friedman) means that there are more alternative sources of technology: World is Flat Search for new “pools” of high end talent (S&Es) Re-configuration of global knowledge networks Transborder models of innovation But also….greater IPR concerns and Patent Wars Shifts in nature of foreign investment: offshore R&D + outsourcing Shifts in nature of leverage: from markets to markets + technology


The New “More Globalized” Playing Field: The New “More Globalized” Playing Field China no longer marginal player in terms of global supply chain or global innovation system: higher value-added player China new battleground for playing out of US-EU-Japan-Korea competition: more tech transfer at faster pace moving to PRC Competition for talent in China heating up: internal brain drain may be bigger problem than external one “Soft” tech transfer may have replaced hard tech transfer in many cases: still some emphasis on equipment Role of Chinese Diaspora—”amphibious” Chinese moving knowledge and capital through ethnic networks: new class of trans-Pacific high tech entrepreneurs MBA comes to China: advanced management training New opportunities for cross-border collaboration involving business with academia China and US potential for synergy increasing substantially


GE’s R&D Center in Shanghai: GE’s R&D Center in Shanghai "The center will be an integral part of our global research resources and will conduct multi-disciplinary leading edge research, development and engineering for GE's diverse businesses in China and around the world." Steven J. Schneider, chairman and CEO of GE China.


Whither Sino-US Technology Transfer Ties?: Whither Sino-US Technology Transfer Ties? Shift from a largely hierarchical relationship to a much more balanced one regarding technology transfer Transition to smoother processes and outcomes re: commercial technology cooperation: function of US/Chinese learning Potential for problems still remain: Export control challenges remain Legacy of Cox accusations + periodic reports of tech theft Concerns in US about economic/technology rise of China Misperception over China’s emphasis on “zizhu chuangxin”—indigenous innovation Technical standards—Chinese tech influence Shifting nature of global innovation model reinforces need and opportunities for broader technology transfer/cooperation IPR issue may have started to improve—mutual benefit Moving towards deeper, broader commercial collaboration re: tech development/R&D: will government be a facilitator or constraint?


THANK YOU XIE XIE: THANK YOU XIE XIE