[New Chinese rules often force foreign tech companies into partnerships with local companies — in part to gain expertise, in part to assert control. Other guidance from the government has indicated that companies must invest more in China to continue to have access to the market. Apple has opened research and development centers in the country as part of a new charm campaign.]
By Keith Bradsher and Paul
Mozur
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The
Ford Motor plant in Hangzhou, China. China could penalize American
companies
operating there if a trade dispute broke out.
Credit
Giulia Marchi for The New York Times
|
WASHINGTON
— As the Trump
administration moves to take on China over intellectual property, Washington
will find it has limited firepower. Beijing has a strong grip on American
technology companies, and global trade rules could favor China.
Technology is proving a major battleground
for China and the United States, as both sides vie to protect their economic
and national security interests.
Beijing has forced a long list of American
companies to enter joint ventures or share research with Chinese players, part
of a broader push to create its own technology giants. From makers of
smartphones to chips to electric cars, American businesses have reluctantly
agreed, fearful of losing access to China, which has the second-largest economy
in the world.
China’s ambitions have set off alarms in
Washington, with concerns on both sides of the aisle. Robert E. Lighthizer, the
United States trade representative, is now preparing a trade case accusing China
of extensive violations of intellectual property, according to people with
detailed knowledge of the case.
But China can play a strong defense. The
country has broad latitude, under special rules it negotiated with the World
Trade Organization, to maintain restrictions within its market.
“The
problem is that U.S. trade negotiators agreed to provisions allowing China to
limit market access for U.S. companies unless they engaged in joint ventures,”
said Michael R. Wessel, a member of the U.S.-China Economic and Security Review
Commission, which Congress created to monitor the relationship between the two
countries.
“Potential Chinese partners demand the family
jewels,” he said. “Companies can say no, but too many give in to Chinese
pressure to make a quick buck.”
The current trade frictions trace back to the
Clinton administration.
When China was entering the W.T.O. in 1999
and 2000, American negotiators gave Beijing some leeway, a position later
supported by the administration of George W. Bush. As a developing country,
China was allowed extra protections, such as requirements that companies in
critical industries work with Chinese partners. China, in return, promised to
shed the extra rules gradually as its economy matured.
But Beijing did not open up, even as China
evolved into an economic powerhouse. Quite the opposite has happened under
President Xi Jinping, who has pursued a more nationalistic agenda than his
reform-minded predecessors.
China now sees the technology sector as a
critical piece of its industrial policy — a policy that Beijing is aggressively
enlisting American tech giants to support and that the leadership will most
likely go all out to protect.
Beijing’s demands have been partly driven by
security concerns, particularly after disclosures by Edward J. Snowden, the
former National Security Agency contractor, of electronic spying by the United
States on China’s rapid military buildup.
China has also been explicit about its
economic motives, seeking to dominate fast-growing global industries that could
create millions of well-paid jobs for a generation of increasingly
well-educated young Chinese.
In several cases, China’s strategy to control
technology approaches the kind of oversight most countries reserve for
industries serving the military or government.
New Chinese rules often force foreign tech
companies into partnerships with local companies — in part to gain expertise,
in part to assert control. Other guidance from the government has indicated
that companies must invest more in China to continue to have access to the
market. Apple has opened research and development centers in the country as
part of a new charm campaign.
In the chip sector, a major initiative
intended to lift Chinese capabilities has drafted America’s biggest makers of
the electronic brains that run everything from smartphones to driverless cars.
Over the past four years, America’s largest chip companies have entered into a
dizzying network of partnerships unlike anything they have anywhere else.
Qualcomm works with a company in southwest
China to develop server chips. In 2014, Intel signed agreements with two
Chinese chip makers, Spreadtrum and Rockchip, to give it a leg up in the market
for China’s smartphones and tablets. Last year, Intel agreed to a partnership
with the influential Tsinghua University in China as part of a bid to make
server chips that match local specifications.
IBM and Advanced Micro Devices have both
licensed chip technology to Chinese partners with ties to China’s military.
GlobalFoundries, a California-based company, joined forces with a local
government in central China to build a $10 billion chip manufacturing plant
there.
American technology companies can find
themselves at a serious disadvantage in China unless they agree to cooperate
with government-linked Chinese businesses.
Take cloud computing, the fast-growing
business of leasing computer power to companies. Chinese laws require foreign
companies to join with local partners and allow them only a minority stake.
International businesses are also blocked from branding such services under
their own names.
Both Microsoft and Amazon, dominant forces in
cloud computing in the United States, have local partnerships in China. By
contrast, China’s e-commerce giant Alibaba operates two data centers in the
United States without any partner.
Another rule calls for data about Chinese
consumers or business operations to be stored in China. Apple and Amazon
recently set up data centers in China, again with local partners, to store more
customer information in the country.
Against that backdrop, the call for trade
action is attracting bipartisan support.
Senator Ron Wyden of Oregon, the ranking
Democrat on the Senate Finance Committee, which handles trade issues, met with
Mr. Lighthizer Wednesday morning and gave him a letter supporting a challenge
to Chinese policies. “China’s forced technology transfer policies are among the
key challenges facing U.S. innovators operating in China or otherwise competing
with Chinese firms,” Senator Wyden wrote.
China can make its own play under global
trade rules. Beijing can quickly demand binding arbitration — and could have a
good chance of winning. China was allowed into the W.T.O. with very few limits
on its ability to regulate services or foreign investment, two categories in
which China was fairly weak when it entered the organization in 2001.
If China did win a W.T.O. case, it would then
have the right to restrict American exports to the same extent that the United
States restricts Chinese imports.
China consistently exports four times as much
to the United States as it imports. Even so, China could penalize American
companies like Apple and Starbucks that have very large operations that produce
and sell in China with minimal imports from the United States.
“U.S. negotiators, I think, basically dropped
the ball,” said Nicholas R. Lardy, a longtime trade expert at the Peterson
Institute for International Economics, referring to the rules on services that
were negotiated when China entered the W.T.O. “They didn’t think China was very
important.”
On Twitter follow Keith Bradsher,
@KeithBradsher, and Paul Mozur, @PaulMozur
Paul Mozur reported from Shanghai.
