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The Myth of China’s Forced Technology Transfer

One of the Trump administration's chief complaints against China is that its trade practices rely on what US authorities call “forced technology transfer.” But the impact of this policy on both foreign companies and China's economy – not to mention the amount of "force" it actually entails – is vastly overestimated.

BEIJING – Even as observers in developed countries criticize US President Donald Trump’s use of blunt tools such as tariffs against China, many believe that he is responding to a real problem. China, they argue, really is engaging in unfair trading practices. But is it?

One of the chief complaints against China is that it relies on what US authorities call “forced technology transfer”: foreign companies seeking access to the Chinese market are required to share their intellectual property with a domestic “partner.” But the word “forced” suggests a degree of coercion that does not make economic sense. American and European companies do not have to invest in China; if they choose to do so, knowing that it will require them to share their technology, it is because they still expect to earn a profit.

The technology-transfer requirement should help foreign companies secure better deals with Chinese firms, which will include the technology’s value in their overall appraisal of a foreign investor’s contribution to a joint venture. In exchange, the local partner and local government eager to foster growth would provide cheap land, infrastructure, tax exemptions, or loans on favorable terms.

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