Technology Transfers in China Likely to Continue Despite Proposed Law

By Nicole Hao
Nicole Hao
Nicole Hao
Nicole Hao is a Washington-based reporter focused on China-related topics. Before joining the Epoch Media Group in July 2009, she worked as a global product manager for a railway business in Paris, France.
December 25, 2018Updated: December 25, 2018

The Chinese Communist Party’s rubber-stamp legislature discussed the draft of a new foreign investment law during a meeting session on Dec. 23, in an apparent move to appease growing criticism of China’s economic policies.

The draft discussed by the National People’s Congress includes a provision that allows foreign investors to transfer money out of China in either Chinese yuan or foreign currency. Previously, the central government had imposed a number of restrictions on the amount of money that could be transferred out of China, making it difficult for foreign businesses to operate.

The draft also stipulates that Chinese authorities “cannot use administrative means to force technology transfer.”

China’s state-run media Xinhua reported that China’s justice minister, Fu Zhenghua, said the new foreign investment law would replace previous regulations on foreign investments, such as the Sino-Foreign Equity Joint Venture Law.

The item about technology transfer was thought to be a response to U.S. President Donald Trump’s request. Amid the current trade dispute between the United States and China, the U.S. administration has continually criticized the Chinese regime for treating foreign investors unfairly—and cited policies that force technology transfers to Chinese joint-venture partners and other methods of intellectual property theft as the reasons for imposing punitive tariffs on Chinese goods.

The U.S. ambassador to the World Trade Organization (WTO), Dennis Shea, said in May that forced technology transfer was an unwritten rule for companies trying to access China’s burgeoning marketplace.

“This is not the rule of law. In fact, it is China’s laws themselves that enable this coercion,” Shea told the WTO.

Although the Chinese regime has rejected the criticism, even Chinese employees at foreign-invested companies confirmed that such policies exist.

“If you don’t agree with a 100 percent technology transfer, you won’t win any project…Everybody knows this. It’s a rule that has existed in China for more than 10 years,” Shi XL, an employee at a German industrial company based in Beijing, told The Epoch Times in a Dec. 25 interview.

“It’s impossible that you win a project without technology transfer,” Wang K., an employee at a U.S. company’s Beijing office, told The Epoch Times.

Neither provided their full names, citing fear of reprisals for speaking to the media.

While the Chinese regime appears eager to mend its ways with its new law, China experts are skeptical that the law can be effective in stopping technology transfer.

“It’s not that the Chinese Communist Party (CCP) doesn’t have laws. The CCP has many laws, which includes a very beautiful constitution. But the Chinese people cannot enjoy any of the protected rights and freedoms that are defined in the constitution,” Dr. Frank Tian Xie, a business professor at University of South Carolina Aiken, told the Chinese-language Epoch Times on Dec. 24.

Xie doubts that Chinese authorities will follow the new law after it is rubber-stamped.

“The whole of China does not have an independent judicial system,” Qin Weiping, a U.S.-based China-affairs commentator, told Radio Free Asia on Dec. 24. “To me, what is most concerning is whether the judicial system will execute this law or not.”

Qin explained that the CCP has an agency, the Political and Legal Affairs Commission (PLAC), that oversees the country’s security and judiciary systems. The commission could influence a judge to give a verdict in favor of a domestic company, or choose to reject a lawsuit brought by a foreign firm—since the court reports to the commission.

Xiang Songzuo, a Chinese economist and professor at Renmin University in Beijing, also hinted at such problems with enforcing laws, during a speech given at an economics conference in Shanghai on Dec. 15.

While his speech was censored by Chinese authorities, netizens managed to circumvent the internet firewall and published a video of his speech on YouTube. Xiang noted that Chinese leader Xi Jinping has recently talked about protecting the safety of entrepreneurs and their property. “This shows that how seriously the problem was—how flawed was our judicial system and state governance” that company executives’ safety could be endangered when doing business in China.

Japanese business magazine Nikkei also published an analysis on Dec. 24 about the proposal, noting that at the state level, it’s possible that authorities wouldn’t force foreign companies to transfer technology, but their Chinese joint-venture partners are likely to continue pressuring foreign firms in exchange for giving them market access.

“Amid intensifying pushback abroad, Beijing has shifted the onus to the corporate sector, which, in turn, has forged arrangements that nudged foreign businesses into voluntarily handing over technologies to Chinese partners,” Nikkei reported.

Shi told The Epoch Times that, in her experience, a foreign company must find a Chinese joint venture as a partner in order to win contracts for Chinese projects.

Nicole Hao is a Washington-based reporter focused on China-related topics. Before joining the Epoch Media Group in July 2009, she worked as a global product manager for a railway business in Paris, France.