Lofty Beijing goals and access to unlimited capital shadow US-China trade war & IP

It is not wrong for China, the second largest economy, to strive for leadership in key industries – it is how it plans to get there that causes concern.

The U.S. and other nations have been vocal about Beijing’s unfair business practices, especially in the area of intellectual property, and they are dubious about how the government will achieve its goals, better known as “Made in China 2025.”

Beijing’s stated plan is to attain quickly global leadership in fields like robotics and electric cars. This is no easy feat even for nations with a history of economic prowess, let alone one relatively new to technology innovation and that restricts independent ownership. But that will not stop Beijing from trying.

China has at least two things going for it that other nations do not:

  • An enormous middle class marketplace (The size of the four largest European economies combined)
  • A growing legion of wealthy consumers (China is second only to the U.S. in the number of millionaires)

While Beijing is engaged in an organized campaign to dominate areas of technology and manufacturing, there is no denying that U.S. and other businesses will do almost anything to gain a foothold in this lucrative and growing market.

These nations charge that China’s policies rely on discriminatory treatment of foreign investment, forced technology transfers, intellectual property theft, and cyber espionage, practices. They have compelled the Trump administration to levy tariffs on Chinese goods (new ones started on September 1) and block several Chinese-backed acquisitions of technology firms.

State Capitalism

As a communist nation, China practices State capitalism. Private ownership is not entirely private, and businesses have access to the virtually unlimited resources of the government, which owns much, including the research and rights produced by universities and the resources of banks and financial institutions. The system has created the largest class of millionaires next to the U.S.

Opponents, including the U.S., Germany, South Korea and the UK charge that China has unfairly capitalized its own companies, hobbled foreign competitors and forced them to share IP rights. Some have accepted this as the price of doing business in China. Others believe that Beijing is being unreasonable.

What if the financial strength of the entire U.S. government, the banks and financial institutions was behind a single autonomous vehicle company? That technology would likely succeed faster, in more places and achieve bigger market share and more favorable margins.

Huawei, with the equivalent of over $100 billion in annual revenue, leads in 5G equipment. It got there by competing in the U.S. and elsewhere on a relatively level playing field. The same cannot be said for foreign companies doing business in China.

For a candid look at China and IP rights – “Of trade secrets, trade wars and trade-offs” – by Bruce Berman in the latest IAM Magazine, go here.

“70% Self-Sufficiency”

“Semiconductors are an area of particular emphasis, given their centrality to nearly all electronic products,” reports the Council on Foreign Relations. “China accounts for about 60 percent of global demand for semiconductors but only produces some 13 percent of global supply. China 2025 sets specific targets: by 2025, China aims to achieve 70 percent self-sufficiency in high-tech industries, and by 2049—the hundredth anniversary of the People’s Republic of China—it seeks a dominant position in global markets.”

The U.S. Department of Justice says that a former Coca-Cola engineer who is accused of stealing trade secrets worth $100 million was partly scheming to win the Chinese “Thousand Talent” award, as well as an award from Shandong Province for people who transport valuable technology to China.

The ten stated industry sectors targeted by China for rapid development:

1. New information technology
2. High-end numerically controlled machine tools and robots
3. Aerospace equipment
4. Ocean engineering equipment and high-end vessels
5. High-end rail transportation equipment
6. Energy-saving cars and new energy cars
7. Electrical equipment
8. Farming machines
9. New materials, such as polymers.
10.Bio-medicine and high-end medical equipment.

For a summary of what “Made in China 2025” states, go here.

Rules of the Game

The US and China are locked in an escalating trade war over secrets, patents and other IP rights for which there can be no clear winners.

Alexander Hamilton (yes, Alexander Hamilton) lead a similar campaign on behalf of the U.S. to steal inventions from the British in the 18th century. But whole industries and tens of thousands of jobs were not at stake.

China will not compete successfully with other nations by playing by rules that innovative companies and rule-of-law democracies cannot live with. It might prevail, however, by generating inventions, brands and business experience other nations value and establishing reliable IP rights and fair courts.

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