Where Industry and Security Intersect
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(WASHINGTON, D.C.) U.S. high technology firms investing in the Chinese market are under increasing pressure to transfer commercial technologies and know-how as a condition of market access and investment approval in the People's Republic of China, the Commerce Department's Bureau of Export Administration (BXA) said in a report released today.
"Technology transfer is both mandated in Chinese regulations or industrial policies (with which U.S. companies wishing to invest in China must comply) and used as a deal-maker or sweetener by U.S. firms seeking joint venture contracts in China," the report said.
These findings illustrate the dilemma facing industry between the short-term desire to gain access to Chinese markets and the long-term ability for U.S. companies to compete with Chinese companies that have obtained U.S. technology. Most companies surveyed in the study felt the technology transfer costs imposed by the Chinese to this point have not yet become excessive. The long term implications of these practices for U.S. industry and the availability of any effective remedies warrant further study and analysis, the study notes.
The technologies sought by the Chinese are not usually controlled for export by the U.S. or other industrialized nations because they do not pose national security risks. However, the cumulative effect of such business practices may, in the long term, pose economic risks to U.S. competitiveness.
DFI International, the consulting firm hired by BXA for this study, was charged with determining the degree to which technology transfers were required -- by law or practice -- by Chinese partners and the Chinese government as a condition of market access. DFI examined U.S./Chinese joint ventures in three industry sectors: automotive, aerospace and consumer electronics. Findings in each sector were similar. Establishment of "technology development centers" or similar facilities by U.S. companies were often the key to beating out foreign competitors. DFI also found that China's tariff and non-tariff trade barriers, as well as its stated desire to develop indigenous industries, make gains from investment difficult to realize. In addition, U.S. investors often find barriers to selling foreign-made products in the Chinese market. Often, the only way non-Chinese companies can gain a foot-hold in the Chinese marketplace is through joint ventures with Chinese firms.
The report concludes that the massive size of China's market makes it extremely difficult for U.S. and other foreign companies to ignore its commercial potential. As long as China is demanding technology transfers as a condition of doing business, and other countries are encouraging -- and in some cases actively participating in -- technology transfer schemes with Chinese entities, Chinese leverage in dealings with U.S. companies is enormous.
The Bureau of Export Administration, through authorities delegated under the Defense Production Act and other statutes, has a mandate to study the US defense industrial and technology base and to develop and administer programs to ensure the continued economic health and competitiveness of industries that support U.S. national security.
The Commerce Department, through this and other on going analyses of opportunities in China, hopes to contribute to a better understanding of the pressures faced by U.S. investors and prospective investors in this market.
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Executive
Summary of the China Technology Report
In April of 2002 the Bureau of Export Administration (BXA) changed its name to the Bureau of Industry and Security(BIS). For historical purposes we have not changed the references to BXA in the legacy documents found in the Archived Press and Public Information.