Formulating China Trade Investigative Criteria

It is fairly obvious from a report in the Wall Street Journal today that the US Trade Representative is close to formulating the bounds of an investigation into China’s theft of trade secrets from businesses operating in China.  I have talked to people who have been there and know the urgency of doing something.  China asks first, tries to establish business relationships that benefit both parties, then steals what they can’t get through legitimate means.  It used to be easier to say no than it is today and that kind of behavior is hard to quantify.

The Journal piece is looking at the balance between legitimate trade and theft of trade secrets, but there is a lot of grey between those two.  The article quotes Chinese business leaders this way:  ‘“Both U.S. and Chinese companies can enter into contracts or choose business partners freely and independently,” said Wang Guiqing, vice president of a Chinese business group.’.  Were it not for the unequal export rules of the two countries, that statement would be true.   That is the view that China wants us to have over the joint ventures formed between companies that have data China wants.  Those ventures are supposed to be able to protect trade secrets and proprietary lines of business, but cannot.  The Chinese know that, so encourage it.  In the rest of the world, it is pretty safe to do joint ventures because the parties don’t join together to steal each other’s secrets.  They have mutually beneficial business that benefits both parties.  Nobody in China should  trust that relationship.  It isn’t intended to be mutually beneficial for long.  It will benefit the Party in the end.  

The balance is between leadership that seeks short term profits for long term proprietary losses of technology.  Some are doing this without more than a tacit approval of Boards of Directors.  If the Board had to actually approve any new relationship with China, they would be fools to allow them to go through.  This is an area of due diligence that needs work.  Given the track record of the aircraft, electronics, and automobile industries we should be ready to say the technology to manufacture competitive goods will be bought, bartered or stolen in 3-5 years.  Are the short-term profits going to balance the loss of technology - in other words, can we out innovate China in the short time frame?  Our business leaders think they can.  

I’m glad to see this come to an issue with the US Trade Representative now.  A succession of government leaders have igorned the obvious disadvantage in dealing with a State that steals trade secrets as a part of its normal operations.