Ties That Bind - Bay Area Council Economic Institute

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Ties That Bind
Technology transfer has set China up to become a global
manufacturing and IP powerhouse. Ever since China opened
its doors to foreign investment, the Chinese government has
consistently demanded technology transfer to its own manufacturing
sector from foreign companies that have a presence in
the country. The goal is to continue China’s rapid economic
growth, and eventually achieve independence from foreign investors,
by appropriating commercially proven technology as
well as creating new technology on its own.
Much sponsored research in China is not dedicated to scientific
discovery or true innovation. Rather, the focus, in
many cases, is on developing derivations of patented products
to circumvent royalty fees. China spent less than 6% of its total
R&D budget on basic research in 2003, compared to 19% for
the U.S. Stated economic development goals notwithstanding,
government-sponsored R&D in China is primarily dedicated to
developed and applied—rather than basic—research. Funding
priorities continue to favor larger SOEs or former SOEs, and
investment is largely focused on commercially-proven endproduct
level innovations, cost reduction, and incremental
improvements rather than more innovative and basic, higher
risk IP.
China continues to place the balance point more to the
benefit of public good than to private owners. The country’s
current position on public versus private needs is consistent
with its ideological history and social and economic development
philosophy. While official Chinese policy at the national
level is to maintain a reasonable balance, recent publications
by the National Standards Administration of China and draft
language in the anti-monopoly laws confirm the emphasis on
the public good, with the former requiring concessions from
patent owners if their IP is to be included in an approved
national standard.
Commercial operations of state-funded companies continue
to be unduly influenced by the requirements and directives
of the State. Despite moves toward privatization and
market-based corporate governance and decisionmaking,
China’s 200 largest enterprises are experiencing more intense
central government intervention than they have in many years
through the recently established State Asset Supervisions and
Administration Commission (SASAC). In November 2004