Column : China’s strong-arm tactics

It is using its attractive markets to unfairly lure foreign companies into relinquishing valuable technology

China's growth and rapid development over the last two decades has been a monumental achievement. However, China's dash towards the summit of political, economic and military primacy has not occurred without its fair share of rule breaking. Humanitarian, environmental, labour and moral concerns aside, China has broken international trade rules that it accepted as a signatory to the World Trade Organisation (WTO) in order to build its domestic capability and capacity. Policies such as local content requirements, mandatory transfer of sophisticated technology, state subsidies to favoured domestic companies and so-called indigenous laws meant to favour homegrown businesses have hamstrung foreign multinationals hoping for a cut of the world's fastest growing market. Time and again, they have had to share proprietary technology and IPR with future rivals, and in some cases the Chinese military, to please the authorities and hold on to an increasingly smaller place at the table.

Two examples—the first from the aviation and the second from the renewable energy industries—demonstrate how China has used unfair rules and regulations to fuel its meteoric rise.

Last year's joint-venture between GE and the Aviation Industry Corporation of China, or Avic, is a prime example of firms trading prized technology for a piece of the booming Chinese market. In exchange for access to a commercial airline market estimated to be worth $400 billion over the next two decades, GE will share its most sophisticated technology—some of which is in Boeing's state-of-the-art 787 Dreamliner—with the state-backed Chinese company. Another point of concern highlighted by the US-China Economic and Security Review Commission (USCC) is that because Avic is state-owned, the Chinese may not hesitate to use GE's technology to play military aviation catch-up.

US companies like GE contributed $60.5 billion in FDI to China in 2010. The government shepherded that money into key industries by coercing foreign investors "into entering joint ventures or other technology-sharing arrangements," as the price for access. These companies face a grave commercial risk. Once Chinese companies acquire the technical prowess, it is only a matter of time before they start undercutting international competitors by sharply pushing down prices—with aid from the government and state-owned banks, and lower manufacturing costs.

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