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.”
Closing Borders to Fair and Equitable Trade
On one hand, China is actively acquiring foreign companies and technologies, while closing its own markets from foreign competition.
But many multinational corporations are all too eager to outsource technologies and production without realizing the long-term ramifications, according to testimony before the recent U.S.-China Economic and Security Review Commission Hearing.
“The outsourcing of aerospace and related work to China poses a threat to U.S. aerospace workers and the U.S. industrial base,” said Owen E. Herrnstadt, director of Trade and Globalization International Association of Machinist and Aerospace Workers, in his testimony.
Herrnstadt went on to say that not only are jobs lost, skills in producing aerospace products will be lost, and innovation will stagnate. The transfer of technology will lead to China developing its own aerospace industry and competing against the United States in world markets.
He referred to Japan as an example. The Japanese used the same techniques as the Chinese use today, namely replication and reverse engineering. At the time, no one would have believed the rise of Japan in the world’s commercial markets. Yet within a few years, Japan became a major competitor, and America lost much ground in world markets.
Global companies claim that China has a long way to go to be able to compete effectively with the United States. But according to Herrnstadt, “Skeptics made the same argument years ago with respect to Japan, only to see the ‘made in Japan’ label become sought after by consumers who believed it represented high quality, technologically advanced goods.”
China the Competitor
China’s aviation manufacturing industry has grown out of infancy. As of today, there are 200 firms that produce almost every part needed in the production of aerospace products, including aircraft engines, aircraft bodies, and helicopters. Two of China’s leading aerospace companies, China Aviation Industry Corporation I (AVIC I), and AVIC II, together employ 491,000 people.
Companies forming joint ventures in China include Airbus, Boeing, and Eurocopter. United Airlines has contracted China to perform maintenance for 52 of its Boeing 777s and 24 of its B747 commercial aircrafts.
China subsidizes its aerospace and civil aircraft industry, but the extent is not known. In her testimony before the commission, Mary Saunders, deputy assistant secretary for the Manufacturing International Trade Administration, aired concerns about China’s connections between civil and military manufacturing firms and the lack of transparency on the support of such industries.
Herrnstadt quoted an Airbus representative as stating that the “A320 assembled in China unquestionably demonstrated the same quality and performance as those assembled and delivered in Hamburg or Toulouse,” which shows clearly that China’s aerospace industry is not in its infancy, but has caught up rather quickly to the West.
In 1985, a joint venture between a Chinese company and McDonnell Douglas experienced “apparent lapses in the process, including the transfer of a commercial machine tool technology to a Chinese firm by McDonnell Douglas which was apparently diverted to a Chinese plant that manufactures military aircraft and cruise missile components,” Herrnstadt quoted the U.S. Government Accounting Office.
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.”
Closing Borders to Fair and Equitable Trade
On one hand, China is actively acquiring foreign companies and technologies, while closing its own markets from foreign competition.
But many multinational corporations are all too eager to outsource technologies and production without realizing the long-term ramifications, according to testimony before the recent U.S.-China Economic and Security Review Commission Hearing.
“The outsourcing of aerospace and related work to China poses a threat to U.S. aerospace workers and the U.S. industrial base,” said Owen E. Herrnstadt, director of Trade and Globalization International Association of Machinist and Aerospace Workers, in his testimony.
Herrnstadt went on to say that not only are jobs lost, skills in producing aerospace products will be lost, and innovation will stagnate. The transfer of technology will lead to China developing its own aerospace industry and competing against the United States in world markets.
He referred to Japan as an example. The Japanese used the same techniques as the Chinese use today, namely replication and reverse engineering. At the time, no one would have believed the rise of Japan in the world’s commercial markets. Yet within a few years, Japan became a major competitor, and America lost much ground in world markets.
Global companies claim that China has a long way to go to be able to compete effectively with the United States. But according to Herrnstadt, “Skeptics made the same argument years ago with respect to Japan, only to see the ‘made in Japan’ label become sought after by consumers who believed it represented high quality, technologically advanced goods.”
China the Competitor
China’s aviation manufacturing industry has grown out of infancy. As of today, there are 200 firms that produce almost every part needed in the production of aerospace products, including aircraft engines, aircraft bodies, and helicopters. Two of China’s leading aerospace companies, China Aviation Industry Corporation I (AVIC I), and AVIC II, together employ 491,000 people.
Companies forming joint ventures in China include Airbus, Boeing, and Eurocopter. United Airlines has contracted China to perform maintenance for 52 of its Boeing 777s and 24 of its B747 commercial aircrafts.
China subsidizes its aerospace and civil aircraft industry, but the extent is not known. In her testimony before the commission, Mary Saunders, deputy assistant secretary for the Manufacturing International Trade Administration, aired concerns about China’s connections between civil and military manufacturing firms and the lack of transparency on the support of such industries.
Herrnstadt quoted an Airbus representative as stating that the “A320 assembled in China unquestionably demonstrated the same quality and performance as those assembled and delivered in Hamburg or Toulouse,” which shows clearly that China’s aerospace industry is not in its infancy, but has caught up rather quickly to the West.
In 1985, a joint venture between a Chinese company and McDonnell Douglas experienced “apparent lapses in the process, including the transfer of a commercial machine tool technology to a Chinese firm by McDonnell Douglas which was apparently diverted to a Chinese plant that manufactures military aircraft and cruise missile components,” Herrnstadt quoted the U.S. Government Accounting Office.
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