Why issue of forced technology transfer is so vital for China and the United States
- Dominance of leading-edge technologies is imperative in today’s world, and crucial to China’s growth targets
- Bargaining over the ownership of technology blurs the line between trading and transferring it
Technology transfer is of tremendous interest, since technology is the key to value creation and competitive advantage – even more so if the theory of total factor productivity is taken into account.
The factors of overall productivity include labour, land, capital and technology. Previous industrial revolutions shifted the major factors gradually from land and labour to capital, and then to technology and human capital.
The more the world economy breaks down its internal barriers, the greater the role technology assumes in total factor productivity. Technology and other intangible factors such as research and development, and education are defining economic patterns and development models today, whereas factors such as labour and capital have retreated.
This shift has been happening in China as well. In the past, China relied heavily on its comparative advantages at the lower end of the supply chain: a large working population, cheap labour, and low environment and land costs.
However, with its industrial and social advancement, Chinese companies have been taking a bigger share of the value and prosperity created.
With a slowing economy and escalating trade conflicts, China’s export-oriented development model, relying heavily on those traditional factors, cannot be sustained. The next critical factor that can advance China’s economy further, or at least avoid a loss of speed, is technology.
Without a firm grip on leading-edge technologies, China’s economic growth targets will not be met. Unlike in the first phase of reform and opening up from 1978 onwards, swapping technology for a market is no longer the norm, and in the new paradigm epitomised by digitalisation, nothing-but-technology is the true name of the game.
Therefore, like their foreign peers, Chinese companies will need to own leading-edge technologies, either by developing their own or by obtaining them from others. Entering a cross-border partnership or joint venture is one way to go. In business negotiations, parties involved should be in no doubt that the technology is the most sought-after productivity factor and undoubtedly the focus of bargaining.
The old guard often lament that consumer loyalty to products and brands is weaker than it used to be – examples are everywhere, from the near-disappearance of Nokia handsets to the bankruptcy of bricks-and-mortar retailer Toys ‘R’ Us. However, customers are unprecedentedly loyal to advancing technologies rather than time-honoured names.
This also partly explains why tech giants are achieving market monopolies: people are confident that they are equipped with the necessary technologies to set trends for the future. This is techno worship, but a quite positive one.
Moreover, technology transfer is increasingly a prerequisite for businesses in the digital era. In the context of the internet of things, those transfers are bound to be done at the speed of light through data, cloud and so on.
What is the difference between technology trade and technology transfer? If technology is traded in line with rules, the process of transfer can, theoretically, be forced.
At first glance, trade disputes appear to be about numbers, rules and disciplines. However, the real issue underneath is competition to lead technological development. Given the indispensability of technology, these tensions might well continue.
Liu Jun is a member of the China Finance 40 Forum
