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China Tech Tactics Irk Trade Partners  05/20 06:27

   BEIJING (AP) -- For four decades, Beijing has cajoled or pressured foreign 
companies to hand over technology. And its trading partners say if that didn't 
work, China stole what it wanted.

   Communist leaders deflected demands for change until foreign frustration 
erupted into a showdown with President Donald Trump. He sent shockwaves through 
their export industries by slapping punitive tariffs of up to 25% on Chinese 
goods.

   Europe, Japan and other trading partners object to Trump's tactics but echo 
American complaints. They say Beijing's tactics violate its market-opening 
commitments under the World Trade Organization.

   American prosecutors go further. They say the Communist Party is the 
ringleader of a global industrial spying operation.

   Chinese leaders have promised stronger patent protections and other legal 
changes. Foreign experts say that will make little difference if the party 
won't enforce them.

   The share of companies in a survey by the European Union Chamber of Commerce 
that said they felt compelled to hand over technology doubled from two years 
ago to 20 percent.

   "It is unacceptable that this practice continues," a chamber vice president, 
Charlotte Roule, said Monday. "Ending its persistence needs to be a priority."

   Here are some tactics Beijing's trading partners complain it uses to 
improperly obtain foreign technology.

   ___

   JOINT VENTURES: The strongest tool in Beijing's arsenal is the longstanding 
requirement for companies in most industries to work through state-owned local 
partners.

   The goal is for the Chinese partner to learn and eventually displace its 
foreign competitor.

   Some balked but thousands of companies cooperated as the price of admission 
to the most populous global market.

   Many companies say Chinese partners abide by promises not to abuse their 
access to technology. But some say partners have copied chemical formulas, 
industrial processes and other secrets for their own operations, sometimes with 
local government support.

   Beijing denies it forces foreign companies to hand over technology, but 
joint ventures won't work without foreign technology and manufacturing 
expertise.

   In the auto industry, China has promised to lift requirements for joint 
ventures and allow full foreign ownership by 2023. Experts say that suggests 
they believe Chinese automakers no longer need foreign tutors.

   ___

   LEGAL PRESSURE: Pressure to hand over technology pervades Chinese law and 
action by regulators.

   Beijing promised when it joined the WTO in 2001 to treat Chinese and foreign 
companies equally. But 18 years later, business groups and governments say 
foreign companies still face special burdens, including sharing technology.

   The European Union filed a WTO challenge last June to Chinese laws on 
technology licensing it says discriminate against foreign companies. It said 
China's own companies are free to negotiate licensing terms, but Beijing 
dictates terms for foreign companies.

   A law approved in March bans using "administrative measures" to compel 
foreign companies to hand over technology. Business groups welcomed that but 
said Chinese officials can still use other pressure tactics.

   Business groups say Chinese regulators misuse a 2008 Anti-Monopoly Law to 
pressure foreign companies in negotiations on technology licensing.

   The law includes an unusual provision prohibiting "abuse of intellectual 
property right." Lawyers say that runs counter to the spirit of patents and 
copyrights, which are meant to encourage technology creation by giving the 
owner a temporary monopoly and the right to charge others for using it.

   Lawyers said Chinese regulators sometimes intervene in contract negotiations 
and push foreign companies to accept lower fees by threatening to launch an 
anti-monopoly investigation.

   ___

   REGULATORY PRESSURE

   Authorities also use "window guidance," or verbal orders given in secret, to 
compel companies to support Chinese technology development in ways the 
government doesn't publicly acknowledge.

   A decade ago, for example, global automakers agreed to help Chinese partners 
create new local brands.

   That injected foreign expertise into fledgling brands the Communist Party 
hoped eventually will compete in global markets in a way joint venture vehicles 
made under foreign brand names cannot.

   It made life harder for automakers by spreading their resources more thinly 
and adding to competition in a glutted market. Despite that, global automakers 
said they had commercial motivations and regulators denied they applied any 
pressure.

   The real reason? Industry researchers say regulators told automakers in 
private they had to cooperate if they wanted permission to expand production of 
their own brands.

   ___

   MORE REGULATORY PRESSURE

   Regulators also pressure foreign companies to help potential Chinese rivals 
develop technology.

   Global companies in engineering, software, pharmaceuticals and other fields 
have set up research centers with Chinese partners. Many say they are to take 
advantage of China's scientific talent pool, but such arrangements benefit 
potential Chinese competitors and are unusual abroad.

   This month, Microsoft Corp. opened an artificial intelligence research lab 
in Shanghai with the state-owned Zhangjiang Group.

   Other prominent examples include General Motors Co.'s Pan-Asia Technical 
Automotive Center with state-owned SAIC Motor. SAIC is the main Chinese 
manufacturing partner for GM and Volkswagen AG but also sells its own auto 
brands.

   ___

   AND MORE REGULATORY PRESSURE

   Companies complain regulators use patent, safety and other official 
examinations to learn about technology, often including employees of Chinese 
rivals in review panels.

   Companies are required to provide what they say is an unusually large amount 
of information about products and industrial processes, including competitive 
secrets, to obtain patents or approval for operations.

   The Wall Street Journal in September cited an employee of a foreign 
automaker as saying there was "clear evidence of collusion" between regulators 
and Chinese automakers.

   The employee said regulators asked for blueprints of components the company 
was trying to prevent its Chinese partner from seeing but ignored other parts 
of the vehicle.

   ___

   "LOCALIZING TECHNOLOGY"

   For decades, the ruling party has rewarded businesspeople, academics and 
others who "localize technology" --- a euphemism for unauthorized copying of 
foreign know-how --- with promotions, research grants, money and public praise.

   Security researchers say the government operates a network of research 
institutes and business parks to turn stolen technology into commercial 
products.

   In 2013, three Chinese scientists at New York University were charged with 
sending U.S. taxpayer-financed research on magnetic resonance imaging to a 
Chinese government-run institute.

   Other Chinese-born researchers in the United States have been charged with 
stealing chemical, seed, turbine and other technologies. Prosecutors say some 
had partners waiting in China to turn them into products.

   ___

   OUTRIGHT THEFT

   American prosecutors say when all else fails, top-level state companies 
steal foreign secrets.

   Pangang Group, a steelmaker owned by China's Cabinet, was indicted in 2014 
on U.S. charges it paid industrial spies to steal a process from DuPont for 
making titanium dioxide, a white pigment widely used in toothpaste, Oreo 
cookies and other products.

   Defendants including an industry consultant and a retired DuPont employee 
admitted working for Pangang. But the case stalled because prosecutors had no 
access to Pangang Group and Chinese authorities took no action.

   ___

   MILITARY SPYING

   U.S. prosecutors say the Communist Party uses its military wing's cyber 
warfare skills to steal commercial secrets.

   The People's Liberation Army is regarded as, along with the U.S. and Russian 
militaries, a leader in research on breaking into or disabling an enemy's 
computer networks.

   Security experts say hackers believed to be Chinese soldiers or military 
contractors have stolen secrets including product designs, chemical processes 
and details of commercial negotiations.

   In 2014, five members of China's military cyber warfare unit were indicted 
on U.S. industrial spying charges.

   The following year, President Xi Jinping agreed with President Barack Obama 
to avoid using military resources to steal commercial secrets. But the U.S. 
National Security Agency said in November that Beijing appeared to be violating 
its pledge.

   In October, an employee of China's main spy agency was charged with trying 
to steal trade secrets from U.S. aviation and aerospace companies.


(KA)

 
 
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