Monday, April 9, 2018

9/4/18: Some evidence on Chinese tech & IP practices

Not being a fan of the current U.S. Presidential Administration (easy enough to confess to that, being a libertarian), and not being a fan of trade wars (even easier to confess to that, being a libertarian), I must note that the U.S. does indeed have a serious and legitimate problem with Chinese long-term industrial and economic development strategies.

And the U.S. is not alone in that, for Europe - a major engine of innovation, and to a lesser extent, Japan and South Korea, as well as pretty much every other nation injecting new technologies into the modern global economy - also have the same China problem. That problem is: Chinese State policy-linked practices of predatory technology transfers from the Western companies to Chinese markets and industries.

How do we know? Well, besides the Chinese own strategic approach to demanding technology transfers by global multinationals and other innovating firms alike as a ticket to accessing the Chinese markets, we also have empirical studies that attempt to capture data on the West-to-China technology leakages.

Here is one. "International Joint Ventures and Internal vs. External Technology Transfer: Evidence from China" authored by Kun Jiang, Wolfgang Keller, Larry D. Qiu, and William Ridley and released as the  NBER Working Paper No. 24455 (March 2018: used "administrative data on all international joint ventures in China from 1998 to 2007—roughly a quarter of all international joint ventures in the world".

The authors found that:

1) "... Chinese firms chosen to be partners of foreign investors tend to be larger, more productive, and more likely subsidized than other Chinese firms". In other words, your technology partner in China is more likely to be a State-connected firm.

2) "... there is substantial technology transfer both to the joint venture and to the Chinese joint venture partner". In other words, technology transfers leak within joint ventures - your partner in China is your first channel for losing intellectual property control.

3) "... with technology spillovers typically outweighing negative competition effects, joint ventures generate on net positive externalities to other Chinese firms in the same industry. Joint venture externalities are large, perhaps twice the size of wholly-owned FDI spillovers, and it is R&D-intensive firms, including the joint ventures themselves, that benefit most from these externalities". In other words, your technology feeds Chinese partners, although it benefits your joint venture too.

4) "... external effects from joint ventures are highest in R&D-intensive industries, and the largest externalities tend to arise in industries with a large concentration of joint ventures with a U.S. partner". In other words, if you are bringing into an joint venture an R&D intensive technology, your impact on diffusing your own intellectual property to broader Chinese markets will be greater.

To sum all of this up: over the period 1998-2007, China-based international joint ventures involving R&D intensive, technology-rich foreign partners acted as effective channels for diffusion of new, predominantly Western, but also Japanese and Korean, technologies into the Chinese markets. Which would be fine, if it were not driven by the direct dictate from Beijing.

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