The West has more to gain from allowing Chinese tech into its markets than from seeking to block it

At the pace China is developing, the West may soon be seeking technology transfers from China and not the other way around. Why not follow the Chinese playbook and impose a joint venture requirement for Chinese tech companies at the gate?

Andreea Leonte

Published: 1:00am, 25 Nov 2019

Why you can trust SCMP

Amid heated debates over the size of China’s share in the digitised economy, an idea that is gaining ground in Western markets is to block out Chinese technology. This, however, may be a bigger strategic blunder than leaving its doors wide open. Protectionism provides a mild feeling of security, but it also demonises economic rivals and pushes away innovation and valuable learning opportunities.

A much healthier approach would be to do what China has done over the past three decades, which is to create enough room for foreign investments with technological input and use joint ventures to draw insights and inspiration from them.

China’s emergence as one of the world’s biggest research and development investors threatens the United States’ and the European Union’s technological and economic advantage over the rest of the world, and foreshadows important changes in the global political landscape.

The outstanding pace at which China is developing entitles us to believe that, not too far in the future, the West will be the one seeking technology transfers from China and not the other way around.

Against this backdrop, sabotaging China in key industries will only temporarily hamper the development of Beijing’s technological clout, while adding to its motivation to become less dependent on foreign supply chains. Closing doors to China now will stoke unnecessary anti-Chinese sentiment in the world and create an environment of hostility and mistrust.

The US should be aware that its attempt to isolate Beijing from the world economy might just turn China into the iceberg that the “America first” ship is sailing towards, with the whole world on board. To avoid such a disastrous scenario, it is essential to preserve China’s reliance on the West, for supplies and exports.

Beijing’s “Made in China 2025” plan will make it difficult to keep the Chinese dependent, but not impossible. The West can counter the Chinese policy by insisting it will not accept technology that is 100 per cent made in China, thus fostering continued interdependence.

Donald Trump should remember the advice of Abraham Lincoln, one of the greatest US presidents in history: “Do I not destroy my enemies when I make them my friends?”

On that premise, the US president should focus on maintaining America’s peaceful economic leverage against China. Instead of allowing technological rivalry to disrupt the free market, it should let the world have more than one technological leader.

How China’s WeChat is rewriting globalisation

China’s experience in dealing with foreign investments can teach the West a few things about how to stay in control, while still embracing foreign technology. One of the greatest tools, in this regard, was the joint venture requirement, carefully tailored for China’s economic conditions.

Chinese investments, however, never faced the same level of scrutiny abroad, mainly because its technology was neither sought nor feared. This allowed China to nurture, unfettered, its own innovation capacity, using the best models available in its own yard.

But China now has the world’s attention, thanks to its remarkable technological progress. The first step in addressing China’s capability to become a major security threat is to do one’s homework on the Chinese approach to technology.

Specifically, the joint venture requirement that has served China so well for decades must be studied. Its design, however, can be improved, so as to allow for more market dynamism.

In closely interlinked markets such as the EU, instead of requiring a Chinese company to form a partnership with a business entity from a specific EU country, a broader choice of partners could be allowed from a list of approved countries.

The list could include EU member states, the US or other countries with the rule of law and reliable enforcement mechanisms, as well as the technological capacity to correctly assess security risks.

This would improve the trustworthiness of Chinese companies and their products. For the same purpose, Chinese companies that develop software technology for export could team up with an approved business partner, with whom they would share any applicable patent rights, as well as responsibilities.

Such measures would add a necessary layer of transparency to Chinese technology investments and encourage a higher degree of trust and cooperation among business actors in various sectors. Also, such measures would stimulate healthy market competition from which everyone could benefit.

The chances of being taken by surprise by an unfamiliar technology would remain low as long as innovation from all around the world is free to enter Western markets.

The West should stop projecting its fears onto China

One thing is certain: in a world that’s in a continuous process of digitisation and automation, data protection is of critical importance. But at the same time, with so many challenges ahead, most bigger than one nation, the last thing we need is to create a hostile environment and seclude our markets. Our combined innovation capacity is needed to swiftly answer the global challenges ahead.

In dealing with Beijing, we need not overlook the fact that China, home to 1.4 billion people, is an essential partner in resolving key issues, such as climate change. Without China's participation, tackling these issues will be extremely difficult, if not impossible.

Andreea Leonte is a fellow for China studies at the Romanian Institute for the Study of the Asia-Pacific (RISAP)

Post