Can China Deliver?

I’m not really sure whether Martin Feldstein, writing in an op-ed in the Wall Street Journal believes that promises of change in their trade policies are enough or whether he thinks that China is actually willing to deliver on those promises:

The most important issue is the demand that U.S. companies transfer their technology to Chinese counterparts as a condition of doing business in China. American businesses that want to produce or sell in China are often required to enter into a joint venture with a Chinese firm that then has access to U.S. technology. Chinese companies then use that technology to expand their own production and sales at home and to displace American firms in the rest of the world. The result is a loss of income to the American businesses.

The Chinese government acknowledges that WTO rules forbid making the transfer of technology a condition for access to a nation’s economy. But it argues that the practice is “voluntary” because American firms aren’t forced to do business in China—their other option is to stay out of the country. American companies and officials say it’s a form of extortion because U.S. firms should have access to the Chinese market, as they do to markets in Europe and elsewhere, without losing their intellectual property.

Although the Chinese practice violates WTO rules, it is difficult to bring a successful technology-transfer case because American companies fear retaliation by Beijing if they complain openly or provide detailed evidence that the U.S. government can use in pursuing such a case. Even so, the U.S. government began an investigation in August 2017, as called for by WTO rules, and concluded last month that China does violate the rule that market access may not be conditioned on technology transfer. The U.S. then imposed tariffs and other penalties.

This is not the first accusation that China has taken intellectual property from American companies. The U.S. previously complained that Beijing was using sophisticated cyber tools to invade the computer systems of U.S. manufacturers, extract valuable technology, and transfer it to Chinese companies. The Chinese government denied it.

That’s not the only thing that the Chinese authorities agreed to in return for joining the World Trade Organization. They agreed to make the Chinese banking sector more transparent, open it up to foreign competition, and achieve a certain percentage of foreign ownership of Chinese banks. They have never lived up to any of those commitments.

Frankly, I’m skeptical that the Chinese government can live to up its commitments or, at the very least, that it’s willing to. China does not have a robust system of civil law. An American company can’t really sue a Chinese company for infringement. It would take an enormous commitment of resources either to change their system, something I can’t imagine their doing, or enforce its commitments in the absence of a robust system of civil law. A leopard does not change its spots.