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Allegations in 301 report about ‘mandatory tech transfer’ unfounded - Chinese foreign trade experts
Allegations following the US Trade Representative Office's 301 investigation that China has used foreign ownership restrictions to force technology transfer and steal intellectual property rights from US companies operating in China are unfounded, Chinese foreign trade experts were quoted by the media as saying.

The Trump administration has proposed to impose 25 percent tariffs on $50 billion of Chinese exports, citing reasons that China's problematic IPR policies and practices had incurred the companies a loss of at least $50 billion annually. The accusations and estimates all derive from a seven-month investigation led by the US Trade Representative Robert Lighthizer, under President Trump's direction.

In the controversial 301 report, the US contended that China has adopted joint venture requirements, foreign equity limitations and other foreign ownership restrictions to coerce US companies into tech transfer. China also resorted to administrative reviews and licensing processes to steal technology, which compromised the value of American investment and tech advantage and then undermined its global competitiveness.

Chinese international trade experts countered the claims, saying that there is no mandatory technology transfer to Chinese partners of joint ventures regulated by China's foreign ownership rules and policies. “We (China) would review foreign investments but during the process there is no forced tech transfer,” Tu Xinquan, president of the China Institute for WTO Studies at the University of International Business and Economics, said in an interview with cnr.cn, a Chinese news portal.

Tu analyzed that the accusations may be voicing individual businesses' complaints and are merely conjectures. “The reckoning is basically caused by China's related governmental policies which grant foreign investment review body relatively big discretionary power,” he said.

Regulating a proportion of foreign investment in some sectors is in compliance with China's commitments to the World Trade Organization. Dong Yan, the international trade director of the Institute of World Economics and Politics, Chinese Academy of Social Sciences, told the People's Daily, a Party mouthpiece, that only a few sensitive sectors limit the proportion of foreign equities. She emphasized the restrictions have been diminishing in recent years with some industries planning to lift requirements on joint ventures.

In the core areas concerning national security, the opening up is done in accordance with “timetables and roadmaps”, while for most sectors, there are no limitations on foreign ownership. Zhang Monan, a researcher with the China Center for Economic Exchanges, cited data to prove the point. “The Catalogue for the Guidance of Industries for Foreign Investment amended in 2017 reduced the original 93 restrictive measures in 2015 to 63. And the 93 measures were actually cut from the 117 rules in 2011.”

Chinese foreign trade experts noted that the US focal point has diverted from trade to China's high-tech and core industries, with the 301 investigation pointing a finger at China's industrial policies and initiatives like Made in China 2025. “The US is quite concerned about China's progress in tech sectors. With China on track of moving up the global industrial chain to mid-to-high end, it is posing competition with tech-intensive industries in the US,” said Zhang.

According to data released by the World Intellectual Property Organization, China applied for 48, 882 patents in 2017 in total, taking the second place in the world. In 2017, China's R&D investment amounted to 2.1 percent of the overall GDP, only next to the ratio of the US, the No.1 innovator in the world. Chinese foreign trade experts insist the achievement comes from the government's mounting input into innovation instead of alleged “theft of technology”.

The US allegation of China's failure to protect IPR was based on unilateral judgment of the US administrative departments. Without substantial proofs, obscure phrases like “it's reported” and “interested parties believe” were used in the report, which in experts' opinions, made it clear that the US had been blind to China's progress in IPR protection and innovation.

Dong Yan indicated China has been perfecting laws related to IPR, and now a systematic regime of IPR regulations has been formed. Wang Shouwen, the vice minister of Commerce, cited a case at an earlier press conference. “(A senior executive of an) US multinational company told me the company's China operation filed 31 IPR related lawsuits in China and won 28 of them,” said Wang, noting among all IPR cases filed by US companies, Americans won in 80 percent of the cases.

“Being a developing country, we're not perfect in protecting IP rights, but we're making progress. When China joined the WTO in 2001, the country merely paid $1.9 billion for using IPR, while last year, the fee surged to $28.6 billion. And we still need to ramp up efforts in the field,” said Wang, adding China's President Xi Jinping had pointed out IPR protection is key to cultivating a favorable business climate.

Dong Yan noted that even if there was technology transfer, it would be contractual, not forced, which should be beneficial to both parties. “A (foreign) company equipped with certain technology would want to strengthen its control over the host country's market and production factors. Due to uncertainties in the tech markets and competition, the company may choose to transfer the technology for better use. It's up to the company's choice with no government intervention.”

Back in 2010, China had been accused of drafting industrial policy to force technology transfer in the electric car sector. It's reported by the Wall Street Journal that China's Ministry of Industry and Information was proposing a 10-year development plan for the industry, considering to mandate all foreign manufacturers producing lithium battery and energy-dense electromotor to set up joint ventures with Chinese partners with an equity of no more than 49 percent.

Chen Yanguang, a project manager with the Center for Auto Research, told the media that the key goal of the plan is to cap foreign ownership at 49 percent. In his view, if foreign partners control 50 percent of shares, their interests could be represented by votes on the board of directors, while if the Chinese partners own a bigger share, things would be out of control.

“Shareholders with 50 percent ownership or beyond make the call about corporate operation. So, if foreign companies' equity was lower than 50 percent, there is no way for them to prevent the technology from being transferred.”    

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