Will China’s new forced technology transfer law satisfy US concerns?

  • Experts question whether draft legislation will be enforced
  • Pressure is building on China to act on major issue in trade war negotiations
PUBLISHED : Wednesday, 26 December, 2018, 9:46pm
UPDATED : Thursday, 27 December, 2018, 7:55am

Foreign businesses are sceptical that China's new legislation banning forced technology transfer will reduce confrontation with the US, saying the new laws may not change current practices.

The draft foreign investment law was revealed on Sunday as pressure mounts on Beijing to act on long-standing complaints from foreign governments and companies about forced technology transfers.

Chinese analysts said the new draft was a guarantee for multinationals intending to invest in China, but critics said it would depend on strong law enforcement.

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The new law, with a specific clause on protecting intellectual property, is an improvement on 2015 legislation which was drafted but never enacted.

The latest version states that forced technology transfer through administrative measures is prohibited, and technology cooperation should be “based on voluntarily agreed terms and business practices”, according to a Xinhua report.

Forced technology transfers are a key complaint by Washington in its trade war with Beijing, and a common issue for foreign investors, and pressure is building on China to act.

Steve Dickinson, a China lawyer with Harris Bricken, said the legislation would not resolve tensions.

“The system [of forced technology transfers] is not based on statutes. It is based on actual practice,” he said.

“This proposed statute will not address that fact. The US trade representative is very aware of this and will ignore this statutory effort,” he added.

The concerns of foreign companies and governments about China’s hunger for foreign technology go beyond forced technology transfers, Dickinson said.

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For years Beijing has been accused of violating the intellectual property rights of foreign companies and copying foreign technology in strategic fields like aerospace and high speed rail.

Last year, for example, Yoshiyuki Kasai, honorary chairman of Central Japan Railway Company, said the transfer of Japanese high-speed technology to China had been a “mistake”.

Dickinson said the law ignored critical industries like the internet sector, in which foreign companies are legally required to license technology to a Chinese company.

The country’s closed internet sector, and its effective requirement of technology transfer, were main issues in the Trump administration’s Section 301 case against Beijing, according to Dickinson, although he believes it remains unlikely that China will draft legislation to change them.

“If China wants to make a change, then China would open the entire network sector to foreign participation on the same basis as is the case in the US,” Dickinson said.

“The proposed statute is meaningless and the US trade representative and his team are acutely aware of that fact.”

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Matthew Murphy of MMLC, a Beijing-based law firm specialising in intellectual property issues in China, said the timing of the new law was directly related to trade war talks between the two countries.

“The draft law’s release at this time has everything to do with upcoming trade war negotiations with Washington – 100 per cent,” he said.

Murphy said the draft law was a “positive” development, “[but] enforcement will be key. I’m not sure they’ll stick at approval level”.

Tu Xinquan, a trade expert at the University of International Business and Economics in Beijing, said the law was long overdue.

“The new provision on technology transfer is a guarantee for multinationals intending to invest in China,” he said.

“I don’t think it is directly related to the negotiations. But it will help improve the image of the Chinese government among the US business community.”

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Ariel Briskin, general manager of the Israeli Chamber of Commerce in China, said the draft law was a sign that China was increasingly taking intellectual property more seriously.

“Awareness on the issue of IP has been developing for quite a while. People are much more aware of this issue, and this is progress. I believe that we will keep seeing better, more efficient, more transparent cooperation [on IP] in the future,” Briskin said.

He added that intellectual property was a crucial issue for any global business, inside or outside China, and that Beijing had made progress.

“I think China is doing well in general in enforcing IP, and we’ve seen improvement. I hope in the future we will see even more policies and enforcement.

“I hope this trend will keep going, and that everyone feels safe doing business in China.”