2011 September 02 Friday
China Coerces Technology Transfers

The purpose of Western free trade agreements with China: to allow the Chinese government to force technology transfers to China as part of the price of doing business in China.

GRAND RAPIDS, Mich. — At a General Electric flight simulator here, the visibility has been set at near zero to mimic thick rain and clouds. But a video console near the pilot shows a vivid picture of nearby mountains precise enough to allow a plane to take off or land despite the conditions. The system is one of several highly valuable next-generation technologies that GE has developed — and that the company has passed along to China as part of a joint venture with the state-owned Aviation Industry Corporation of China (AVIC).

It is the price GE pays for getting business in China. What's the long term cost? Easy enough to see. Harder to guess the exact timeline. When does GE's business partner become a competitor? When does China's government pressure Chinese buyers to only buy from the pure domestic supplier?

Why didn't the US Chamber of Commerce tell US Congress this would be the ultimate outcome of "free trade" with China back when America's business elite was busy lobbying for Most Favored Nation status in a trade bill back when Bill Clinton was in office?

The naive view that we were going to design and make products to sell to China is a "colonial" model that is so passe.

The number of jobs to be created in China would be much higher. GE executives say it is difficult to imagine otherwise. The “colonial” model — of multinationals making products in the developed world and selling them to the developing world — is long outdated, they argue.

So not only do we have to give up hope of selling manufactured goods to China but we also have to give up hope of doing the design and engineering work in the United States and other Western countries. What's next?

The Chinese mercantilist policy has a few major components:

  • Local content requirements, both acknowledged and hidden.
  • Get technology by theft, purchase, coerced transfers, and from open sources.
  • Use a fixed currency exchange rate to get factories shifted to China.
  • Use the rest of the world as commodities sources. The US has a big future as a food supplier and a lumber supplier for China.

Update: Some of our elites are thrilled to help China's rise. The competition for natural resources is making industrial development into a zero sum game. But our economic elites have been trained to believe all trade and all economic development comes as a net win for everyone.

Share |      By Randall Parker at 2011 September 02 08:10 AM  China Mercantilism

Black Death said at September 2, 2011 9:18 AM:

This country is so screwed up. Clearly, the US peaked about a decade ago and has since then been in steep decline. From the WaPo article you cite:

The Obama administration, seeking to create jobs at home, has put a priority on boosting U.S. exports. The White House has tapped corporate leaders such as Immelt and Boeing chief executive James McNerney to help develop a strategy.


But what have Jeffrey Immelt and GE been doing lately?

As the administration struggles to prod businesses to create jobs at home, GE has been busy sending them abroad. Since Immelt took over in 2001, GE has shed 34,000 jobs in the U.S., according to its most recent annual filing with the Securities and Exchange Commission. But it's added 25,000 jobs overseas.

At the end of 2009, GE employed 36,000 more people abroad than it did in the U.S. In 2000, it was nearly the opposite.


And how about some "green jobs" -

The last GE factory in the U.S. that made light bulbs closed last September. The transition to the new CFL light bulbs was supposed to create a whole bunch of those "green jobs" that Barack Obama keeps talking about, but as an article in the Washington Post noted, that simply is not happening....

Rather than setting off a boom in the U.S. manufacture of replacement lights, the leading replacement lights are compact fluorescents, or CFLs, which are made almost entirely overseas, mostly in China.


Plus, GE is moving the headquarters of its medical imaging business to Beijing. And, of course, GE pays no federal taxes.

Boeing remains one of the few bright stars in American manufacturing. Yet Obama's NLRB is hammering them over the opening a non-union plant in South Carolina. Maybe Boeing will start building aircraft in China too, where uppity unions (and Barack Obama) aren't much of a problem.

The US has lost about a third of its manufacturing jobs in the last decade. This has occurred under Democrats and Republicans. Soon we'll be a substance agricultrural ecomony, growing food for China.

solaris said at September 2, 2011 9:52 AM:

>"The “colonial” model — of multinationals making products in the developed world and selling them to the developing world — is long outdated"

Then I guess we need a new term to describe the current model - of multinationals making products in the developing world and selling them to the developed world. Suggestions, anyone?

WJ said at September 2, 2011 10:34 AM:

"Use the rest of the world as commodities sources. The US has a big future as a food supplier."

Selling food and natural resources to other countries is not necessarily a bad deal. Many countries where natural resources are a major component of their economies manage to remain quite rich - Norway sells a lot of oil, and it's richest of all. Canada and Australia don't do poorly, either. The trick, of course, is making sure your population doesn't get too large to swamp the per capita GDP contribution of natural resource production, which is exactly what we're doing in the US by letting Third Worlders migrate here in droves - 27 million new people in a single decade, according to the last census.

The real contributor to these sellouts is the fact that CEOs today are only looking to boost short-term profits. I think a large portion of their pay needs to be tied to longer time horizons, by requiring them to keep some of their earnings in company stock for a decade or so.

Lou Pagnucco said at September 2, 2011 12:59 PM:

Clearly, there is some misunderstanding about GE's policies.
Cetainly, there must be a silver lining for U.S. workers - just not an obvious one.

After all, Obama appointed GE's CEO Jeffrey Immelt to head his Jobs Council to increase U.S. employment.
He wouldn't risk his reputation by doing something flagrantly dishonest, would he?

Claudia said at September 23, 2011 4:15 PM:

I think what each country should have its own natural resources and food so there are no problems, otherwise U.S. ran out of resources by selling them to China.

On the one hand it is OK to use GE as many people but that does not cause others to lose their jobs.

It's a good idea what China is doing in terms of technology because so all aircraft may land in more places with the new devices are tested.

stitch said at September 25, 2011 9:36 AM:

I think that what these countries currently are doing a good thing, because the U.S. spends to sell products to China, but this has concecuencias since you can run out of resources.
China is now investing in new teconolgia that encourage development and employment

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