Trade Imbalance: Western Companies Losing Know-How to China

May 31, 2010 Updated: May 31, 2010

WASHINGTON—Beijing, in an effort to become the world’s No. 1 economic player, is implementing many barriers of entry for foreign businesses, according to a testimony before the U.S.-China Economic and Security Review Commission this month.

In order to gain an upper hand in trade, China forces foreign companies to relinquish their technologies, engages in currency manipulation and cyber warfare, and is actively involved in intellectual copyright and patent thefts, as well as a slew of other activities that violate its World Trade Organization (WTO) commitments.

China is continuing to support its local industrial sectors that were afforded high-tech status, such as the civil aviation production sector, with a 15 percent preferential tax rate, which could be construed as a hidden subsidy in violation of WTO agreements.

“China continues to use trade-distorting measures in violation of its WTO commitments,” according to the U.S.-China Economic and Security Review Commission 2009 Report to Congress.

To acquire innovative technologies not mastered by the Chinese, the communist regime has developed methods, including replication and reverse engineering, to procure foreign technological know-how.

“China also continues to lag in enforcing international laws protecting intellectual property and continues to be identified by the U.S. government and private organizations as the world’s largest source of such thefts,” according to the report to Congress.

The most recent case was publicized by Google Inc., which led to the Internet giant closing its search operations in China.

At the same time, industry sources claim that the Chinese attacked more than 30 companies’ computers by exploiting flaws in software programs. Media reports claim that most companies that experienced Chinese cyber attacks were in what the Chinese consider “strategic industries.”

The 2009 Report to Congress quotes a May 2009 statement by the office of the Director of National Intelligence, “The Counterintelligence community considers the People’s Republic of China to be one of the most aggressive countries targeting U.S. military, political, and economic secrets as well as sensitive U.S. trade secrets and technologies.”

Stressing the severity of the problem, the statement continued, “For a number of reasons, we believe China poses a significantly greater foreign intelligence threat today than it did during most of the cold war era.”