Forced ‘Tech Transfers’ Gain Ground In China

According to the European Union Chamber of Commerce in China, incidences of European companies being “forced” to transfer technology in China are on the rise.

That’s despite the denials of Chinese officials and executives that such transfers – where companies wind up transferring their tech and know-how in order to do business in that country – are not a problem.

As reported in Reuters and elsewhere, the Chamber of Commerce has described the outlook toward the regulatory climate in China as “bleak.” The data form the chamber shows that, per an annual survey, 20 percent of its member firms report they have been “compelled” to hand over technology in return for access. That is twice the 10 percent tally reported two years ago. Of those who said they had transferred technology, a quarter said the practice still continued, and 39 percent said such transfers had occurred within the last two years.

As noted in a statement by Charlotte Roule, vice president of the European Chamber, the transfers “might be due to a number of reasons … either way, it is unacceptable that this practice continues in a market as mature and innovative as China.” Breaking down the data, the reports were relatively higher in chemicals and petroleum, at 30 percent, and 28 percent in medical devices.

The Chamber said the members surveyed had a “bleak outlook” on the regulatory environment in China, with 72 percent stating that obstacles would stay in place or increase over the next five years.

In reference to the tech transfers, the People’s Daily, the country’s top Communist paper, wrote this past weekend that complaints have been “fabricated from thin air,” and that there is no policy in place to force foreign firms to hand over technology. As Foreign Ministry Spokesman Lu Kang has said, if there were concrete evidence of such transfers, China would work to “resolve” those issues.

Earlier this year, as noted in this space, and as has been specific to tech companies – particularly U.S. tech companies – China had been gearing up to stop demands for such tech transfers, and overseas firms would be treated as “equals” in China. In March, the American Chamber of Commerce in Beijing – gathering the opinions of hundreds of U.S. firms operating in China – said that tech transfers, done across joint ventures, remain a “non-issue.”But as many as 53 percent have said that transparency and fairness tied to the regulatory environment are either “very” or “extremely” significant when gauging whether to invest in China.

Getting a bit more granular, at least one payments giant has been trying for a while – years, in fact – to more fully enter the Chinese market. As noted by Visa CEO Alfred Kelly in the company’s latest earnings call, “In China, we continue active dialogue with regulators and government to understand how to best move forward in the application process. But we have nothing new to share.”

In past years, both Visa and Mastercard had submitted applications to process payments in local currency. The transfer debate comes in the wake of a 2012 ruling by the World Trade Organization that China had been discriminating against foreign firms in the payments industry. The Chinese government had agreed two years later to open markets to those payments firms; the initial applications were submitted in 2017.