To say China steals intellectual property is a flawed theory

For all the concern over China’s targeting of foreign intellectual property, how much forced transfer of leading-edge technology has really happened? By the looks of the Chinese auto industry, hardly any. If there has been, then Beijing has precious little to show for it in a market of 25 million cars a year.

Take the case of Brilliance China Automotive. The Hong Kong-listed company has lost 53 per cent of its value since news broke earlier this year that BMW was taking a majority stake in their joint venture.

Their 15-year-old venture, BMW Brilliance Automotive, has been a lucrative business. Average daily unit sales rose 18 per cent from a year earlier in the first two weeks of December, amid an auto market where demand has been plummeting. BMW Brilliance, which already makes some models solely for China, plans to produce more vehicles locally and import fewer.

None of BMW’s lustre has rubbed off on its partner. Since the venture started, Brilliance’s non-BMW sales growth has been dismal.

This begs a question: How was Brilliance China not able to acquire the technology to produce a successful car itself, despite having a top-tier partner and majority control of their venture for 15 years?

The reality is that overseas car makers have a well-honed strategy to safeguard their most advanced technology and keep Chinese competitors at bay. BMW began construction of its JV plant in Dadong, in the north-eastern city of Shenyang, in 2003 – but didn’t build an engine plant in China until 2012.

Other companies have used a similar playbook. Toyota Motor, for instance, is preparing to share its hybrid car-engine technology with China. While that may have looked like a scary precedent for car makers, the fact is that hybrids are losing their sheen as the auto world focuses on an all-electric future. Toyota has been losing global market share. What better way to squeeze out a few more years of returns on a technology that it mastered more than a decade ago?

Remarkably, such issues formed the basis of the trade dispute between the US and China. In March this year, the Office of the US Trade Representative published a report documenting China’s “unfair technology transfer regime for US companies”.

The report highlighted the auto industry as an example where it said forced technology transfers are rampant. China’s electric vehicle rules present “a clear case in the EV sector that you’re simply not going to be able to sell that product in China unless that local partner has mastered the ability to leverage the technology,” it said.

An updated November report said China’s automotive policy may exacerbate pressure on overseas car makers, ignoring the fact that most have done well in the country.

For those that haven’t, a flawed strategy rather than forced technology transfers has been the reason.

This isn’t to defend China’s practices or policies on trade and investment. However, there are important distinctions between alleged hacking, espionage, restrictions on foreign investment, unfair trade policies, and theft.

Much as with the Made in China 2025 plan, worries about China pulling ahead of its industrial rivals are misplaced.

If anything, the nation’s ham-handed approach is killing its ability to innovate and secure a place on the global technology stage.