Forced Tech Transfers Are on the Rise in China, European Firms Say

Date : 05/20/2019 @ 10:53AM
Source : Dow Jones News

Forced Tech Transfers Are on the Rise in China, European Firms Say

By Julie Wernau 

European businesses in China say forced technology transfers to local firms have become more common over the past two years as foreign firms battle for access in the world's second-largest economy.

Such technology transfers have continued to take place despite official assurances that this practice would be stopped, according to an annual survey by the European Union Chamber of Commerce in China, with 20% of the survey's 585 participants saying they have felt compelled to transfer technology to maintain market access, up from 10% in 2017.

"This is a key issue driving tension between China and its trade partners and ending its persistence needs to be a top priority for the government," said Charlotte Roule, the chamber's vice president.

Foreign ministry spokesman Lu Kang said the foreign-investment law stipulates that no administrative measures can be taken to force technology transfer.

"If those companies truly have such concerns, I hope they can provide concrete evidence. If their concerns are legitimate and fact-based, it can be totally addressed, because we clearly have this policy. But without any proof, you cannot just invent that from thin air," he said.

Forced technology transfer is a central sticking point in the continuing U.S.-China trade fight. U.S. executives regularly complain that they are pressured to share or give away crucial technology in exchange for access to China's market, and claim it undermines the competitiveness of foreign firms.

China's reliance on foreign technology remains considerable, according to S&P Global Ratings. More than half of suppliers to China's tech-using sectors are foreign-based. Most of those foreign suppliers supply intermediate goods China finds hard to produce. China's largest goods import by value is semiconductors--more than 12% of total imports.

Due to investment restrictions on some industries in China, many European firms' only choice is to operate through joint ventures with domestic partners where the European partner can't hold a controlling stake. Some respondents reported they were forced to hand over sensitive technology to partners that later became competitors.

The chamber noted that technology transfer requirements were particularly apparent in joint ventures with state-owned enterprises as partners, and that the problem affects companies making everything from chemicals to medical devices. Government metrics reward local companies for attracting new international technology, while rules sometimes require a foreign company to produce its product in China to sell it, making such transfers "a requirement of doing business in China," respondents told the chamber.

"This is something that's taking place now," said Carlo D'Andrea, chairman of the chamber's Shanghai chapter, noting that a ban on such activity in China's new foreign-investment law is essentially an acknowledgment forced transfer happens.

One-quarter of European companies polled have entered into a partnership with a state-owned enterprise in China in the past 24 months, according to the chamber. About 70% of those European companies said state-owned enterprises were present in their sector. Chamber officials said the spike in reporting about tech transfers partly reflects sensitivity to the issue.

Companies that are in high-value, cutting-edge industries have felt compelled to transfer technology at higher-than-average rates, the chamber said. Some 30% of chemicals and petroleum companies, 28% of medical-device companies, 27% of pharmaceutical companies and 21% of automotive companies reported such transfers.

The World Trade Organization has long encouraged technology transfer from developed countries to developing ones. But European firms have argued that the competitive landscape in China has shifted dramatically in the last two years, with 62% of respondents reporting that Chinese firms were just as innovative as European firms, or even more so.

In the survey, 63% of respondents that have felt compelled to transfer technology said it happened within the last two years, and a quarter of those polled said the transfer was still taking place at the time of the survey period in January 2019.

"The days of China needing to force technology transfer from foreign companies are long gone," said Jacob Gunter, the chamber's policy and communications coordinator. "Back in the '90s when China was very much a developing country, this sort of thing made sense...that's no longer the case in China."

James T. Areddy and

Xiao Xiao

contributed to this article.

Write to Julie Wernau at Julie.Wernau@wsj.com

 

(END) Dow Jones Newswires

May 20, 2019 05:38 ET (09:38 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.


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