In an attempt to justify outsourcing US employment to China, companies and China apologists allege that China is a technology leader, thus we must send our R&D there.
They do not want us to know the truth.
The reality is that it is the foreign-owned companies and not the Chinese that are leading the innovation in China. The net effect of this is that companies are building a technology base in a country that has paltry talent for indigenous innovation.
“And while China’s scientists, prodded by the state, are making gains, significant discoveries and inventions are still few and far between given the enormous sums of money spent and China’s impressive and fast growing talent pool.” (32)
1 - How Many Chinese companies have Time Magazine deemed to be innovative?
2 - How Many Americans Can Name a Chinese Brand or Company? (answer in footnote) (33)
While it seems avant garde to extoll all that is China, often-times perceptions do not equate to realities.
Take, for example, following question: which country has the largest economy?
When USA Today asked this, most Americans answered that China is the largest economy in the world, yet they were wrong (34). The largest economy is the US with 14.5 trillion, and China is snuggled in at number two, earning 5.835 trillion.
Yes, how many of you knew that the Chinese economy is equal to a mere 40% of the USA?
As to question number 1 above, only one Chinese company has ever made it onto the list (36). That company, BYD, got much of its cred from the funding of Warren Buffet.
It is this same BYD whose shares have flopped due to over-promising and under delivering on its battery 'technology', which is allegedly a knock off of a similar technology anyway (37).
Perhaps even Mr. Buffet drank the China 'Kool aid'?
The Media Lies About China's Economy and Innovation
The reason for this is that Chinese companies are technology laggards, with little brand appeal.
But we don't hear it that way in the media. What we are told is that China is the world's biggest economy, and innovating right and left. And companies like Adobe, Equifax, and Fluor are moving there just to stay alive.
The fact is that while it may make for nice headlines to say that China is the center of innovation, this is nothing more than a ruse in order to offshore American jobs.
Are these facts shocking to you?
Probably so. For how would Cisco and Intel stand to admit that they have - in 2005 alone - invested between U$200 million to U$500 million in "innovative" Chinese companies instead of investing in the future of America (38)?
Rather than focus on these 'little details', big business and our own government chooses to laud the "good" of China, lest we begin to wonder where all our jobs have gone.
The sad reality is that much of what we hear about China is overblown. Scads of press about "the incredible state of doing business in China" is nothing more than a ruse to offshore American jobs to a more convenient and less-regulated, but non-innovative country.
Foreign Companies Bring in Innovation - And China Steals It
While Research and Development in China is on the rise, it has come, in part, from forced technology transfer, or worse.
Consider the fact that when Hu Jintao, the communist party leader and President, stated that China would be an innovation-oriented country by 2020 (39), foreign firms jumped to take advantage of incentives provided to move there (40).
In addition, in 2006, China implemented a 15 year science and technology plan aka the MLP. The plan was heralded by the communist party even though foreigners considered it a form of techno-nationalism.
Consider the following about the plan (41):
- It is considered anti-foreign and regressive
- It is born from fear of foreign firms
- It is considered by foreigners as a "blueprint for technology theft on a scale the world has never seen before"
The plan explicitly states that:
"..a key tool for China to create its own intellectual property and proprietary product lines will be through tweaking foreign technology."
Indeed, the MLP defines indigenous innovation as "enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies." (42)
No Foreign Technology In China Without a Plan to "Re-Innovate"
I wonder if this Chinese movement sounds as scary to GM as it does to me?
I wonder if these companies have really thought about the deals they are making? Do they truly know what lurks behind China's R&D push?
Do they realize that forced technology "transfer" is mandatory just to enter the Chinese market? One has to wonder how U.S. companies can rush so quickly to put trust in a country that is responsible for six out of every seven U.S. Economic Espionage Act cases last year (44).
Suffice it to say that these inconvenient truths are best hidden from the estimated 2 million Americans who have lost their jobs to China. (45)
For, if those people that are now struggling to make ends meet really knew what was going on between big business and China, they would be very, very upset.
China's Innovation Roadblock
China is facing a similar problem that the former Soviet Union did. They have hit an "innovation roadblock".
What China is experiencing today was what Soviet Nuclear Scientist Andrei Sakharov warned what would and did happen to the former Soviet Union:
"[ A] society that restricts intellectual freedom and prevents the free exchange of ideas would be unable to compete with societies that unleash the creative potential of their people. (46)"
He then explained that when and if it appears that a dictatorship is catching up, in reality, "it is only because they follow in the tracks already smoothed out by democracies. Lack of freedom consigns 'fear societies' to the role of followers, never leaders since a fear society must parasitically feed off the resources of others to recharge its batteries." (47)
The fact is that China cannot innovate under its current system of governance, but they they need to innovate to grow.
Inflation is driving them from the 'low hanging fruit' of the low-end manufacturing world (48). The Chinese must move on to higher-end manufacturing, but cannot.
Thus, the Chinese are looking for Westerners to bolster their indigenous innovation by any means possible.
How Chinese Technology-Transfer Works
Aside from allocating funding for patents, the Chinese demanded that in order for foreigners to do business in China, the foreigners must transfer valuable technology to local companies, even at a loss to their own intellectual rights (50).
This is how, faced with an "innovation dilemma", the Chinese are just forcing Westerners to innovate for them, out of greed - out of the need and desire to access the booming Chinese marketplace.
Technology transfer is nothing less than forcing a firm to pass over its patented or secret technology to the host country.
Think of it like telling KFC that in order to sell chicken in China, then the company must hand over the Colonel's secret recipe.
This means that all the time, energy, and money that went into developing technology for cars like the Volt, from GM, must be given to China, our so-called partner.
In addition to turning over the secrets to our success, these companies have even built the very factories for future development for the Chinese.
To make matters worse, not only are we outsourcing our competitive advantage, but high-skilled jobs as well. For each R&D lab set up on foreign shores, more than 95% of all researchers are hired locally in China (51).
"Don't Worry," Big Business Tells Us
These American companies are telling us that the Chinese are not pushing the issue of 'tech transfer' strongly. This is corporate speak for "Lets shelter our people from the truth".
For instance, one of the biggest sticking points for producing the Chevy Volt in China, was that absent some form of "technology sharing" (53), Chinese buyers of the car would not enjoy a rebate of U$ 19,000 per car (54) (55).
Without that rebate, the Volt would be dead in China.
According to GM, we should not worry however, for all of that technology that was developed with US taxpayer dollars will be completely safe at its new factories in China (56).
Eventually, a deal was struck so that GM could send more work to the Chinese, while people in places like Flint, Michigan - a former GM center of technology and jobs - now count on food stamps to get by.
While I would like to believe in GM's confidence that they will not be turning over their technology, I have my doubts.
China has demanded that in order to qualify for car subsidies, companies should turn over one of the following (57): electric motor technology, complex electronic controls and power storage devices for batteries or fuel cells, a thing Ford Motor has already done (58).
I guess those executives from GM and Ford are just glad to provide advanced hybrid technology to go along with all of the American jobs they've already outsourced - at least they will have some access in the Corporate gold-rush to the growing Chinese marketplace.
Selling out America is apparently a small price to pay.
(39) Pharma Investing in China
(40) Companies like:Astra Zeneca, Eli Lily, Johnson & Johnson, Wyeth and a host of others have uprooted R&D facilities from the west and opened them in China
(41) US Chamber of Commerce #1
(42) US Chamber of Commerce #2
(43) US Chamber of Commerce #3
(49) US Chamber of Commerce #4
(50) BIS.Doc.Gov “ Comparative analysis of China’s rules and regulations regarding domestic and foreign investment...reveals discriminatory provisions regarding the rights and obligations of foreign partners. As a result, US companies currently engaged in collaborative research under the aegis of these state plans risk losing the monetary and technological gains from their investments.”
(51) Wall Street Journal
(53) NY Times
(55) NY Times
(57) NY Times
(58) NY Times
(59) Deccan Chronicle