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Survey: EU companies compelled to transfer tech in China

One-fifth of EU companies operating in China said they were compelled to transfer technology to maintain access to the Chinese market in 2019.

In the annual business confidence survey from the European Union Chamber of Commerce in China, 20% of members suggested they had been forced to transfer technology in 2019, double the figure from 2017.

Compelled technology transfers are defined as those taking place when firms unwillingly have to hand over technology as part of a joint venture agreement or to comply with a regulation in order to gain access to the Chinese market.

The EU report comes amid fierce international disputes about trade, technology transfers and systemic competition led by US President Donald Trump, but with US and European businesses and other politicians also increasingly concerned.

In recent weeks, the German business federation the BDI has warned about systemic competition and urged the EU to develop a strategy to cope, while US economic thinktank the Peterson Institute has also warned about forced technology transfers.

Voluntary or compulsory transfers

The EU report says: “European companies often choose to voluntarily transfer technology to local firms, for reasons such as making their suppliers more reliable or to produce higher-quality products.

Compelled transfers take place when firms unwillingly hand over technology through a joint venture agreement or regulations in order to gain access to the Chinese market.

The organisation also warned that the figure may be even more significant than it appears at first.

High value, cutting-edge tech

It adds: “Not all companies—for example, many in service industries—have technology to transfer, so the percentage of companies that are in high-value, cutting edge industries have felt compelled to transfer technology at higher than average rates.”

The survey reports that 30% of chemicals and petroleum companies, 28% of medical device companies, 27% of pharmaceutical companies and 21% of automotive companies report this to be the case.

The report notes that China’s State Council Document 19, published in June 2018, prohibits government officials from forcing technology transfers through administrative means but it argues that “the phrasing used has left plenty of scope for transfers to be forced through alternative methods.”

It also suggests that in many industries which are still closed to foreign investors, European firms’ only choice is to operate through joint ventures with domestic companies, where the European partner cannot hold a controlling stake.

Some companies says they have been forced to hand over sensitive technology to partners that later compete with them in China and other markets.

The report also suggests that state owned enterprises also play a prominent role, as they may demand technology transfers from foreign companies to their local suppliers in exchange for the SOE purchasing products from them.

The report adds: “It is highly concerning that 63% of respondents that have felt compelled to transfer technology said it happened within the last two years, and a quarter say the transfer is currently taking place.”

The report also notes that although China’s ambition is to become an international hub for innovation and R&D, it says this goal is not very realistic while it continues to impose restrictions on internet access.

More than half of European companies evaluate internet access for R&D purposes as unfavourable. Another quarter rate their ability to access their company’s intranet negatively.

The European Chamber invited its members to take part in the 2019 survey over a four-week period during January and February 2019. The survey was conducted in cooperation with consultancy Roland Berger and was published in May 2019. There were 1,326 eligible entities with 585 respondents completing the survey.

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