Do not defame the practice of "market for technology"

By Zhang Qi / Luo Yuze

Recently, China-U.S. trade frictions intensified as the United States put in its crosshairs the practice of exchanging access to a domestic market with the opportunity to use the technology of a more developed nation. China is just one of the countries that have used this approach to attract foreign investment, but it has been recently singled out for criticism because of it, so it is necessary to set the record straight.

Car plant workers on production line. [File Photo: VCG]

The United States attaches great importance to international scientific and technological cooperation. As early as 1999, the National Science and Technology Council said in its annual report that the United States relies on international scientific and technological cooperation to maintain its national security and its position as a world leader. In addition to learning from other countries, the United States uses its capacity for innovation to consolidate its technological leadership by attracting intellectuals. It's well known that the United States accepted a large number of talented migrants who left Europe after the Second World War. For a long time, its policies have made it attractive to the world's technological elites. It is estimated that more than one-third of the frontline researchers in the United States are born overseas. One-fifth of the Nobel Prize winners from the United States from 1901 to 2015 were born outside of that country: that's 63 of them. As a result, American accusations that it's improper for China to try to attract foreign talent, and to encourage its overseas students to return home after graduation, are unconvincing.

It is a well-worn path for developing countries to use the capital, technology, and management experience of more advanced nations to accelerate their development. This is more often the case for late-developing countries during their early days stepping into global markets. The developing country gets access to the benefits of innovation. And the owners of this intellectual property maximize their returns from its widespread use. 

Japan and South Korea provide examples of this process. During their industrialization, Japan focused on learning about advanced technology from the United States and Europe, as it gradually developed its powerful world-leading manufacturing industry. And South Korea actively introduced advanced technologies from places like the United States, Europe, and Japan, and in doing so has become an advanced industrialized country in a short period of time.

In a modern globalized economy, it is necessary to share knowledge in order to create new things of value. But restricting the diffusion of new knowledge and attaching a price to its use by others provides a necessary motivation for innovation. This is why it is important to find the right balance between encouraging the use of new technology and protecting the intellectual property attached to it. This is why the World Trade Organization stipulate terms for the protection of intellectual property.  

China understands the importance of protecting intellectual property rights, and has been focused on boosting their protection by improving its relevant laws and regulations. But more than this, China believes that the strength of a country's intellectual property rights protections is an indicator of the health of its business environment. 

In accordance with its commitment to the rules of the World Trade Organization, China has revised more than 2,300 laws and regulations. In January 2005, China dumped all non-tariff measures such as import quotas and import licenses, in accordance with its accession commitments. By 2010, it had fulfilled all of its commitments regarding tax cuts associated with the trade of goods, and its tariffs on some bulk commodities are even lower than those found in some developed countries. 

And since its accession to the World Trade Organization, China has had no laws or regulations that make technology transfer a prerequisite for access to its domestic market. Rather, it has paid for the technology it needed for its development. Since 2001, China's external payment of fees for the use of intellectual property has grown at an average annual rate of 17 percent, reaching 28.6 billion U.S. dollars in 2017. It is time for the United States to recognize China's efforts to comply with international rules regarding the protection of intellectual property rights.

For more than 20 years, China has been the developing country that attracts the most foreign investment. According to the latest World Investment Report, China is still an important destination for investment by multinational companies, ranking second in the world. China has benefited greatly from, and deeply respects, its now decades-long history of economic and technological cooperation with the United States. 

And the United States has benefited from this cooperation as well. In a white paper issued this year by the American Chamber of Commerce in China, nearly three-quarters of the 411 member companies said they were profitable last year. And the U.S. Bureau of Economic Analysis reports that over the five years up to 2015, one-third of the total sales by overseas outposts of American companies were made in China, and their return on investment in China outpaced their investments in the United States. Some American companies have gone so far as to say that the steady growth of the market in China helped them to survive the 2008 financial crisis.

Meanwhile, from 2001 to 2017, China's goods imports grew at an average of 13.5 percent a year, 6.9 percentage points higher than the global average, and making it now the second largest importer in the world. China is also the world's second largest importer of services, accounting for nearly 10 percent of the world's total. In the face of recent anti-globalization rhetoric, China has unswerving and actively promoted openness. Measures such as unilateral large-scale tariff reductions and import fairs have been adopted to further expand imports. The number of items on this year's version of the special management measures for foreign investment access – more commonly known as the foreign investment negative list – has been reduced from 63 to 48. Access to industries such as agriculture, automobiles, ships, aircraft, rail lines, and power grids has been relaxed, and the degree of openness and transparency has been greatly enhanced.

China and the United States have forged a profound friendship and established a mutually beneficial economic relationship over the past 40 years. This has included working together to further the world's knowledge of science and technology, which are the keys to solving many of the difficult problems that humanity faces today. And the importance of international scientific and technological cooperation is only going to increase. China will continue to promote open innovation on the basis of strengthening intellectual property protection. And the world is hoping that China and the United States will recognize their responsibilities as major powers, respect each other’s differences, work earnestly to resolve conflicts, and not let their long-term bilateral cooperation be destroyed. 

(Zhang Qi / Luo Yuze are from the Research Department of Foreign Economic Relations, Development Research Center of the State Council, China)