China Tells Us to Deposit Our Technology at Their Door

One of the first things Mitt Romney said he would do on Day One in the Oval Office had he won the election was to “declare China a currency manipulator, allowing me to put tariffs on products where they are stealing American jobs unfairly.”

Actually, while still undervalued and still a problem, the yuan has been allowed to rise against the dollar some 30% since 2005. And the President has imposed tariffs and filed protests with the World Trade Organization (WTO) in defense of a number of industries. We suggest to the President that he take Mitt Romney's advice about cracking down on China and look at another Chinese practice that will pose still greater economic damage to the U.S. over time.

We have already covered currency manipulation’s hollowing out of American manufacturing in this article and followed that piece with “We Create It, They Steal It”, about China’s piracy, counterfeiting of goods and trade secret theft. What this country should take steps to constrain is the willingness of U.S. companies to hand over their technology to the Chinese as the price of admission to the Chinese market.

Mitt Romney knows about this, of course. He has taken a strong stance against Chinese trade practices, most publicly in a Washington Post op-ed a year ago, one charge being that China “misappropriates intellectual property by coercing ‘technology transfers’ as a condition of market access”.

The U.S. had led the way in developing wind turbines and solar panels until China’s appropriation of that technology, coupled with government subsidies, rapidly overwhelmed U.S. producers, which have been compelled to shutter one after another American plant to such an extent that the Obama administration has had to file actions with the WTO accusing China of dumping solar panels in the U.S. for less than it costs to manufacture and ship them.

In 2010, China put forth what masqueraded as an anti-monopoly law that would compel the licensing of technologies by foreign companies to Chinese counterparts in certain industries and make technology transfer a requirement for a foreign company seeking to merge with or buy a Chinese company. Companies that hoped to sell security-related digital products to government agencies such as routers, smart cards and firewall software were henceforward required to turn over data-encryption keys, encryption algorithms, and design specifications.

But that only codified a practice of mandatory technology transfer that has been going on for decades, a strong factor in China’s rapid rise.

Technology transfer is in keeping with China’s top-down government-directed industrial policy that decides which industries are to be developed for world dominance. No longer content with supplying the world with household items and assembling iPhones, the country’s successive 5-year plans now call for becoming an aggressive player in major industries such as aircraft and autos, and some of America’s biggest companies are kow-towing.

flight risk

So at the beginning of 2011, General Electric signed on to share its most sophisticated airplane electronics with a state-owned Chinese company. The avionics it will share extend even to the ultra-high-tech computer system that went went into Boeing’s cutting edge new 787 Dreamliner, governing the plane’s navigation, communications, cockpit displays and controls. GE is not alone in helping China to build an advanced civilian aircraft, the C919, as the Wall Street Journal reported:

Several other American companies have also been chosen [to provide] power generators, fuel tanks, hydraulic controls, brakes, tires and other gear. The roster of United States suppliers includes Rockwell Collins, Honeywell, Hamilton Sundstrand, Parker Aerospace, Eaton Corporation and Kidde Aerospace. The Chinese government…had made it clear to Western companies that they should be “willing to share technology and know-how.”

Of concern is how much of this technology will migrate to China’s military.

Another tactic is for Chinese companies to buy American-based manufacturers with desirable technology, close up shop and move production to China.

To a country that sells 17 million autos a year — almost all of them gasoline-powered $#0151; General Motors wants to introduce its Chevrolet Volt. The plug-in hybrid is very costly for the Chinese market, but mindful of the rising pollution problem, there are government subsidies for electrics up to $19,300 a car. That is, if GM manufactures the car entirely in China and turns over a third of the decades-long research that culminated in the Volt.

But GM plans to import from Michigan. And the Chinese restrictions are, of course, in violation of the WTO. As Romney wrote in the Washington Post op-ed, “Having embraced free enterprise to some degree, the Chinese government and Chinese companies have quickly divined the benefits of ignoring the rules followed by others.”

The question is whether GM will cave. The other question is why the U.S. government has not stepped in to block any such transfer of what is now partly taxpayer funded research, owing to the Detroit bailout.

Meanwhile, Ford announced that it would capitulate to China’s demands, turning over a core technology to a joint venture, once it decides to sell an electric in the country. That partner is civilian but affiliated with a major contractor to the People’s Liberation Army named China Weaponry Equipment.

American companies don’t seem to care. Their focus is on the enormity of the Chinese market, not the damage their giveaways will do to their companies in the years to come. Under the all-purpose bromide of maximization of shareholder value (foremost among those shareholders being themselves and their board members), short-term profits are all that matter to today’s corporate chieftains. Selling out the future of their companies is of little concern to these CEOs, who wouldn’t dream of missing the party by refusing to hand over their technology at the door.

And so we have John Rice, vice chairman of GE saying, “We can participate in that or sit on the sidelines. We’re not about sitting on the sidelines.” That their companies may find themselves sidelined in the future once we transfer their technology to China to manufacture our aircraft, our cars, our trains, our electronics is of no moment to his sort. He’ll be rich and content to leave the consequences behind.

And our government? It stands aside and does nothing, even though an economically weakened country is a national security risk. A Congressional advisory panel concluded that forced technology transfer and the close connection between China’s state-owned companies and the military only “bears watching”. For that matter, there is the question of just what the government could do. Globalization has put “our” multinational companies out of reach and made them answerable to no country.

“We can’t just sit back and let China run all over us,” Gov. Romney said. “People say, well, you’ll start a trade war. There’s one going on right now, folks.”

This is a popular, vote-getting position. There is the question of whether Romney will actually follow through should he make it to the White House.

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