China Continues to Encourage IP Theft Practices, US Business Groups Say

A driverless aircraft with 5G technology by EHANG is in display at a 5G innovation park in Hangzhou, a city in eastern China's Zhejiang province, on Jan. 20, 2019. STR/AFP/Getty Images

Two U.S. business groups recently issued a report detailing how China has forged ahead with its industrial plan “Made in China 2025” despite recent international criticism and internal instructions for state media to tone down mentions.

They also provided suggestions for what U.S. trade delegates can negotiate during ongoing Sino–U.S. trade talks.

The U.S Chamber of Commerce and the American Chamber of Commerce in China, in a joint report dated Jan. 16 to the U.S. Trade Representative (USTR)’s office and first obtained by The Wall Street Journal, identified more than 100 regional government policies in 24 Chinese provinces that either “set targets, create rules, or provide normative guidance” for the industrial plan.

Beijing rolled out the “Made in China 2025” plan in May 2015 for the goal of transforming China into a high-tech powerhouse by 2025 by aggressively developing manufacturing in fields like information technology (IT), robotics, and semiconductors.

Findings about the industrial plan’s ambitions—documented in a Section 301 investigation conducted by the USTR in March 2018—prompted the U.S. administration to impose punitive tariffs on $250 billion worth of Chinese imports and precipitated the current trade war. The investigation concluded that the Chinese regime conducted state-sponsored theft and forced transfer of U.S. intellectual property.

Made in China 2025 Continues

The new Chambers of Commerce report concluded that regional government policies continue to pursue “a deep, concerted” campaign to “carry out and take advantage of incentives tied to Made in China 2025 plan.”

For instance, one of the policies is “Supporting the Development of the Robot Industry” issued by the provincial government of Anhui in July 2018. Under the policy, the Anhui government would provide financial incentives such as subsidies to Chinese firms involved in the robotics industry, in addition to offering companies tax reductions for carrying out research in robotics.

Another policy linked the industrial plan to China’s chief foreign policy project, “One Belt, One Road” (OBOR). The provincial government of Gansu, located in north-central China, issued a policy called “Gansu Action Plan for Made in China 2025” in June 2018. The action plan calls for “integrating Made in China 2025 with OBOR and take advantage of OBOR,” with the goal of transforming Gansu into “a communication hub providing services and support to central and western Asia, central and eastern Europe, and Mongolia.”

China launched the OBOR initiative in 2013 to build up geopolitical influence around the world by partnering with more than 60 countries across Asia, Europe, Africa, and Latin America on massive infrastructure projects.

The joint report explained that the U.S. Chamber of Commerce has continued to monitor China’s economic policies because of concerns raised about “Made in China 2025” in a 2017 report.

Titled “Made in China 2025: Global Ambitions Built on Local Protection,” the report explained how China’s industrial plan is different from other countries’ manufacturing plans, such as Germany’s Industry 4.0 for integrating automation and IT with manufacturing.

The 2017 report highlighted how under the plan, the Chinese regime provided state funding to Chinese companies to help them “promote their indigenous research and development capabilities, support their ability to acquire technology from abroad, and enhance their overall competitiveness.”

It was part of a broader strategy to give China a competitive edge in technology sectors “on a global scale.”

Trade War

The new joint report stated that members of the organizations “strongly support the Trump Administration’s Section 301 investigation, and the need to address endemic forced technology transfer and technology theft concerns with China.”

The two business groups especially highlighted the challenge U.S. companies face when doing business in China: China’s legal system provides little recourse in the event that Chinese authorities or commercial partners violate legal agreements or regulations.

After gathering extensive input from their collective members, the groups recommended three objectives to guide U.S. delegates in the ongoing trade talks.

First, the joint report stated negotiators should address structural issues in the Chinese economy “that result in unfair competition and non-market outcomes,” including the aforementioned discriminatory policies and subsidies—but also topics less often in the limelight, such as hefty taxes enacted by different level of government; biased bidding processes; and delays in approving patents filed by foreign entities.

These “are harming U.S. companies, workers, and consumers,” the report said.

Second, the two business groups urged U.S. negotiators to push for China to eliminate policies that require technology transfer as a condition for doing business in China.

Third, it called on trade negotiators to persuade China to remove “all forms of localization policies,” such as China’s data localization regulations that require companies to store all “important data” and “critical information infrastructure” on servers inside China. The joint report argued that these policies “limit access” to the Chinese market for U.S. digital products and services.