Technology transfer refers to the process of transferring new technology from a developed to a developing country out of efforts to enhance economies. It is a practice that the World Trade Organization (WTO) encourages for the benefit and advancement of low-income nations. This practice is prevalent in China, helping the country grow its domestic technological capabilities. However, some foreign companies have recently accused the Chinese government of excessively exploiting this practice.
According to the 2019 survey conducted by the European Union Chamber of Commerce in China, 20% of the 585 participants felt pressured to transfer technology to maintain market access, up from 10% in 2017. Such transfers took place in 30% of chemicals and petroleum companies, 28% of medical-device businesses, 27% of pharmaceutical businesses, and 21% of automobile firms.
Forced technology transfer was also a key issue in the trade war between the US and China during the Trump administration. A report by the Office of the US Trade Representative (USTR) claimed that:
- “China uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to require or pressure technology transfer from US companies;
- China deprives US companies of the ability to set market-based terms in licensing and other technology-related negotiations;
- China directs and unfairly facilitates the systematic investment in, and acquisition of, US companies and assets to generate large-scale technology transfer;
- China conducts and supports cyber intrusions into US commercial computer networks to gain unauthorized access to commercially valuable business information.”
This is possible since China uses various tactics to compel foreign companies to share their technologies. For example, since the investment area in China is not entirely open, to operate in specific industries that the government views as vital for its growth, foreign investors must partner with a local firm. The Chinese government thus forces foreign companies to share private, sensitive information or technology to create and maintain these partnerships or joint ventures. This can become a bigger issue later on, since the partner in the joint venture can always turn into a new competitor.
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