China does not need to steal technologies from the U.S.

 2018-07-09  51


In a recent CNBC interview, Larry Summers, the former Clinton Treasury secretary, and an ex-economic advisor to Barack Obama, said Chinese companies’ leadership in some technologies are not the result of theft from the U.S. “You ask me where China's technological progress is coming from. It's coming from terrific entrepreneurs who are getting the benefit of huge government investments in basic science. It's coming from an educational system that's privileging excellence, concentrating on science and technology,” said Summers. “That's where their leadership is coming from, not from taking a stake in some U.S. company.”

This argument by Mr. Summers contrasted with the recent White House report, titled "How China's Economic Aggression Threatens the Technologies and Intellectual Property of the United States and the World", which tries to demonize China by painting a picture that China’s incapable of inventing anything and China’s technological advancements are the result of so-called “aggressive acts, policies, and practices” that the report billed as falling “outside global norms and rules (collectively, “economic aggression”)”.  

The report grossly catalogued ways of “economic aggression” by China against the U.S. and untruthfully documented them in ways that are not based on facts, but a collection of false assumptions based on paranoia and prejudice. It tries to establish a common denominator with the rest of the world with narratives designed to change both perceptions and realities.

Two notorious accusations to footnote the “China Threats” rhetoric were the so-called IPR theft and forced transfer of technologies, which constitute the premise behind President Donald Trump’s trade actions against China. There are more to it: distortion of truth and facts and contortion of them into threats not only to the U.S. but also to the world.

However, anyone that is not blinded by radical ideology would admit the remarkable progress China has made in its science and technology, and see through the falsehood of the U.S. accusations. Here are some of the facts that speak loud and clear about the legitimacy of China’s IPR development, which does not pose any threats to anyone in the world.   

1.  China is now the world’s second largest patent filer and will become the top patent filer in three years’ time. According to the recent report by World Intellectual Property Organization (WIPO), Chinese companies and individuals filed a total of 48,882 international patents last year (2017), marking a hike of 13.4 percent from a year earlier. The US kept the top ranking, which it has held for the past four decades, with American-based companies and individuals filing 56,624 applications. However, China has picked up its speed of innovation and is the only country to record double digit growth in its patent applications in 2017. Since 2003, China has posted growth higher than 10 percent every year. WIPO forecasted that China will “overtake the US within three years as the largest source of applications filed under WIPO's Patent Cooperation Treaty”.

2. China’s spending on R&D was 2.15% of its GDP in 2017. About RMB 1.76 trillion (roughly US$ 270 billion) was invested in innovation-driven R&D, an increase of 11.6% over 2016. The investment in basic science was RMB 92 billion, 5.3% of China’s total R&D outlay. The spending by business enterprises registered 13.1% increase in 2017, the second year of 2-digit growth, totaling RMB 1.37 trillion. The R&D outlay by government-sponsored research institutions was RMB 241.8 billion in 2017, an increase of 7%, while expenditures by colleges and universities stood at RMB 112.8 billion in the same year, an increase of 5.2%. The investment has fueled China’s development of science and technology. 

3. China is in the top ranking of payments for use of foreign IPR within its borders. Nicholas Lardy of the Peterson Institute for International Economics notes that China ranks fourth in the world in payments of licensing fees and royalties for the use of foreign technology, well behind Ireland, the Netherlands, and the United States, but ahead of economies including Japan, France, UK, Canada, Germany, Singapore, South Korea, and India, as depicted by Mr. Lardy in the chart below. China’s payments reached nearly US$30 billion last year, a four-fold increase from a decade ago.  


4. China is also a licensor of technologies. According to the latest data as released by the State Administration of Foreign Exchange (SAFE), foreign payments for Chinese IPR licensing fees and royalties reached a record high of US$ 4.77 billion in 2017, an increase of 311.5% over 2016. Manufacturing technologies contributed nearly 80% of China’s revenue from IPR licensing and royalties, totaling US$3.79 billion. As WIPO chief Francis Gurry explained to journalists at time of WIPO report release, "One cannot but notice that there has been a remarkable transformation in the Chinese economy, and that China has gone from a position of being largely a user of technologies to a producer of technologies.”  

5. Chinese companies are the key players and drivers in China’s IPR development.  Chinese companies are playing a critical role in China’s innovation. In some areas, Chinese companies have developed their competitive edges over their American counterparts. A McKinsey Quarterly report said, “A wide range of companies have begun mounting challenges in sectors traditionally the preserve of US, European, Japanese, or South Korean businesses. Beijing Genomics Institute (BGI), for example, the world’s biggest genetic-sequencing company, now claims to account for roughly 50 percent of global capacity and probably sequences more genetic material than Harvard University and the Massachusetts Institute of Technology combined, while developing some of the world’s most advanced biologic-computing models”. Huawei was the top corporate filer of patents globally in 2017, filing 4,024 patents, followed by ZTE Corporation, which filed 2,965. Huawei and ZTE combined accounted for 14.3% of China’s international patent filings.

The above facts of truth about China’s IPR developments prove that China has independent system of R&D and innovation, and China does not need to steal from the U.S. or anywhere for its technological development. China has now become a major contributor to science and technology. 

The other accusation of China on forced technology transfer is once again a fake story with evil culpability and does not hold water. First, the report has failed to produce a single piece of evidence, and all it claims to be the cases of “forced technology transfer” were manufactured on the flimsiest evidence and “distortions of both history and reality”. Second, as China’s WTO Ambassador Zhang Xiangchen pointed out at a session of WTO s Dispute Settlement Body : the U.S. "Section 301" investigations provided no evidence that transfer of technologies is part of legal requirements in China's laws, nor did it provide evidence that China has used technology transfer as a precondition for market access. 

The fact is: in the process of China's reform and opening up, foreign companies came to China with ambitious plans to develop the vast market. Technological cooperation is naturally brought to the table of negotiation, and the deals have been made on the basis of business assessment and evaluation, with due considerations for their own interests and benefits. It is typical of market-based decisions with goodwill and spirit of contract. A Deutsche bank report revealed that the subsidiaries of U.S. companies record sales revenue up to US$ 223 billion through their operations in China. Foreign firms have gained bountiful rewards, as is known to all.

As with many issues in China, the U.S. plays “blame game” with China, scapegoating China for its economic problems. Demonizing China has become the bipartisan correctness during election cycles. In his article “The Quest to Demonize China” published on China-US Focus (https://www.chinausfocus.com/) in 2013, Mr. Dan Steinbock, founder of Difference Group, said “Ultimately, these treatises are less about facts and more about political persuasion, .….the strategic goal of China’s demonization is, first, to convert those who already hold negative views on China into a harder line and, over time, to increase negativity among those who see China as potentially friendly”. 

The hard-line position by the U.S. against China does not seem to be a political posturing, but a real effort to contain China. Some in the U.S. are mongering fears across the world by propaganda of U.S. “moral superiority” vs. China’s ulterior motives in everything China does, which, by American standards, is evil and threatening to the world. They have clear motives to hold China down. But, demonizing China will not deter China’s rise, nor will it improve America’s influence and credibility in the world. 



By Li Yong, who is the Deputy Chair, Expert Committee, China Association of International Trade.

Source: China Plus