2011 report to congress - U.S.-China Economic and Security Review ...

99panies account[ed] for fully 7 percent of [R&D] spending [by largeandmedium-sized enterprises], spread among nearly 1,500 R&Dcenters established by multinational companies.’’ 373 This includesmajor American firms like General Electric (GE) and Caterpillar.374Witnesses at the Commission’s June 15 hearing disagreed aboutthe threat to U.S. technological leadership and competitivenessposed by China’s efforts to move up the value-added chain. Commissionwitnesses Ralph Gomory and Leo Hindery viewed Chineseefforts with alarm. Philip Levy, another witness, contended thatChina’s industrial policies are self-harming and will sabotage China’sgrowth because ‘‘state-sponsored attempts to grab technologicalleadership’’ stifle the competitive environment, often generatingsales but not real innovation.According to Mr. Hindery, China’s demands that the UnitedStates and other developed countries’ advanced technology companiesseeking to do business in China make massive transfers oftheir intellectual property ‘‘will, because of their perpetual rippleeffects throughout our economy, ultimately . . . be an even biggerdrain on our economy than the direct offshoring of millions ofAmerican jobs over the last 15 years.’’ 375Dr. Levy, on the other hand, concluded that the governmentdominatedapproach to technological development and innovationfavored by the Chinese state was ‘‘stultifying’’ and ‘‘unlikely toachieve its objective of vaulting [China] to the forefront of globalinnovation.’’ 376 He cautioned, however, that while China’s policiesdo not threaten U.S. technological leadership in the long run, theydo have the potential ability to impose substantial costs on U.S.businesses in the short run.Outsourcing of ManufacturingChina’s 12th Five-Year Plan is the latest example of China’sefforts to upgrade its technological capabilities and encourageproduction in China. There is considerable debate about whetherChinese industrial policies and outsourcing of manufacturingand R&D to China harm the United States. At the Commission’sJune 15, 2011, hearing, the Commissioners heard testimony onChina’s efforts move up the value-added chain and their implicationsfor the United States.According to Dr. Gomory, it is a ‘‘dangerous delusion’’ to maintainthat Americans do not need manufacturing jobs and will insteadfocus on ‘‘design and innovation and let other nations dothe grunt work.’’ 377 Dr. Gomory also cautioned that U.S. corporationsare increasingly locating their R&D in China, whichcan have a further detrimental effect on U.S. economic growth.The ‘‘interests of our global corporations and the interests of ourcountry have, in fact, diverged,’’ Dr. Gomory said.Echoing this argument, Willy Shih wrote in the Harvard BusinessReview with Gary Pisano that:dkrause on DSKHT7XVN1PROD with $$_JOBVerDate Nov 24 2008 13:46 Nov 10, 2011 Jkt 067464 PO 00000 Frm 00111 Fmt 6601 Sfmt 6601 G:\GSDD\USCC\2011\067464.XXX 067464