A deep dive into how China “systematically pries technology from U.S. Companies” by the Wall Street Journal gives essential context to President Trump’s rising trade war with Beijing at a moment that both Chinese and American mainstream media relentlessly bash the president for his unprecedentedly tough stance on China.
And yet such a bombshell story exhaustively documenting multiple major instances of China caught in brazen acts of theft of American technology and trade secrets has barely made a splash in the rest of major media, and likely won’t hit the network news shows with so much as a whimper: after all it may confirm that Trump is right, and admitting this will certainly not gain ratings.
Foremost among Trump’s demands after he announced tariffs on about half of all US imports from China while threatening to impose tariffs on the second half, is that China cease requiring American companies turn over trade secrets in order to do business there. Trump has consistently blasted China’s “unfair trade practices” which includes stealing US intellectual property.
In fact the Commission on the Theft of American Intellectual Property, an independent US body including representatives from the public and private sectors, has recently estimated that $600bn worth of US intellectual property is stolen every year, led by China, and the bipartisan body has called for a “decisive response”.
But the WSJ story gives flesh to prior allegations and statistics, including shocking instances of raids on American offices in Chinese cities, revealing that Beijing authorities have erected an entire system geared toward prying the most innovative technologies and secrets from American companies while passing it off merely as the fair and routine cost of tapping into a new market of over a billion people.
The report begins by recounting a raid on DuPont’s Shanghai offices, which interestingly the Chinese have since tried to pass off as but normal procedure and their prerogative:
DuPont Co. suspected its onetime partner in China was getting hold of its prized chemical technology, and spent more than a year fighting in arbitration trying to make it stop.
Then, 20 investigators from China’s antitrust authority showed up.
For four days this past December, they fanned out through DuPont’s Shanghai offices, demanding passwords to the company’s world-wide research network, say people briefed on the raid. Investigators printed documents, seized computers and intimidated employees, accompanying some to the bathroom.
The WSJ describes this as one of the multiple tactics that “reveal how systemic and methodical Beijing’s extraction of technology has become” event while Chinese officials consider the complaints against such coercion “unfair”.
Reports the WSJ further, “China’s tactics, these interviews and documents show, include pressuring U.S. partners in joint ventures to relinquish technology, using local courts to invalidate American firms’ patents and licensing arrangements, dispatching antitrust and other investigators, and filling regulatory panels with experts who may pass trade secrets to Chinese competitors.”
With DuPont, its former Chinese partner, Zhangjiagang Glory Chemical Industry Co., continues to sell chemicals used to make fibers that it allegedly ripped off from the American conglomerate. Yet China stacked the deck against it in local courts over years of the company seeking remediation over the technology theft, and its antitrust board has further warned DuPont to drop its lawsuits.
This is one of many examples of a whole system of “coerced technology transfer” which the White House says inflicts $50 billion yearly in damages to US companies, and more broadly disincentivizing American innovation and crippling US economic growth.
But China pitches what it sees as up-front and voluntary technology sharing as the cost of lucrative expansion into its markets, though White House officials hold this up as clear evidence of China’s economic aggression.
A formal Chinese government statement to the WSJ in response to allegations of systematic technology theft reads as follows: “American companies in China have received huge returns through technology transfer and licensing, and are the biggest beneficiaries of technical cooperation.”
Chinese officials have further long claimed that “U.S. companies enter partnerships voluntarily,” according to the WSJ.
White House trade adviser Peter Navarro, meanwhile, described “The combination of naiveté and hubris on the part of U.S. companies seeking to enter the Chinese market, coupled with a sophisticated Chinese effort to extract technology has been a lethal combination.”
But another Beijing policy maker cited in the report claimed, “China’s offer to the world has been straightforward,” and that “Foreign companies are allowed to access China’s markets but they would need to contribute something in return: their technology.”
Other examples of such “straightforward” practices outlined by the WSJ report are as follows:
- About one in five members of the American Chamber of Commerce in Shanghai say they have been pressured to transfer technology, according to a survey conducted in the spring. Of those companies, 44% in aerospace and 41% in chemicals report “notable pressure.” China considers both industries strategically important.
- China mandates that foreign companies wanting to open or expand in 35 sectors do it through joint ventures, though it announced a plan in April to phase out rules requiring foreign auto makers to share factory ownership and profits with Chinese companies by 2022.
- When China set out to build its first large commercial passenger jet in 2008, state-owned Commercial Aircraft Corp. of China made clear it would buy components only from joint ventures whose foreign partners would share technology. General Electric Co. agreed.
- Chinese leaders see innovative technologies as forces to propel its industries up the value chain into more sophisticated sectors and the country into rich-nation ranks. To ensure foreigners bring their best, phalanxes of regulatory panels scrutinize foreign investments to make sure they meet government goals.
The report cites Texas-based chemical producer Huntsman Corp as being recently targeted by such “regulatory panels” which ultimately was able to procure “enough information to duplicate the product” under the guise of “approving” chemicals prior to production in China, which required the US company to submit its own chemical formulas and production process for review.
And likely there are many dozens more of such technology thefts within a “trade partnership” system designed from start to finish to ensure American secrets flow into Beijing’s hands.
Amidst the ratcheting trade war, chances are growing that over the next year we will hear of more sensational raids on American company offices in Chinese cities – perhaps even Apple which the local propaganda press recently threatened with “anger and nationalist sentiment” – and heightened threats against them from anti-trust and regulatory committees.