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Amid escalating trade friction with the United States, China appears to be courting Europe to fill the gaps in providing opportunities for technology transfers. Analysts, however, are urging Europe to be wary in its dealings with China. They say it will be political and economically unwise for Europe to take advantage of the Sino-U.S. dispute and allow China to continue unfair trade practices that include forced tech transfers and intellectual property theft.
The U.S. has accused China of using “state-led efforts to force, strong-arm and even steal U.S. technology and intellectual property.”
Rob Atkinson, who heads the Washington, D.C.-based Information Technology & Innovation Foundation (ITIF), says Europe should stop cutting deals with China that he says will offset the Trump administration’s efforts to punish Beijing.
In early July, the U.S. launched a first round of tariffs on $34 billion of Chinese goods. China’s tariffs on $34 billion of U.S. imports, including soybeans, also took effect at the same time. U.S. President Donald Trump last week vowed to impose tariffs on all $505 billion worth of Chinese imports. China has vowed to retaliate if the U.S. slaps more tariffs on Chinese goods in the coming months.
The U.S. and China are the world’s two biggest economies.
Made in China 2025
China’s tech ambition, unveiled in its “Made in China 2025” program, is believed to be at the core of its trade war with the U.S.
To avoid upsetting Washington, China has downplayed the initiative, which was first introduced in 2015 with the goal of comprehensively upgrading China’s high-tech industries at home. A recent official report, however, concluded that China is still far from being a global tech leader.
According to the South China Morning Post, China’s Ministry of Industry and Information Technology recently learned that 30 of the country’s largest conglomerates rely heavily on imported components used in industries that produce rockets, large aircraft and even automobiles.
Exaggerated tech prowess
“The Chinese leadership wants to have it both ways. They want to tell their domestic population that they are [tech] leaders and they want to tell the rest of the world that they are not because they are afraid that, if they are seen as really big technology leaders or close to leaders, other countries will more actively push back against its unfair trade practices,” ITIF’s Atkinson said.
Chris Dong, director of China research at market intelligence firm IDC, called the tech gaps between the two economies “significant” in not only components, but also innovation competency, fundamental engineering and business-sector transformations. Dong says China focuses its IT spending on hardware and infrastructure buildouts while the U.S. spends mostly on software and service in transforming digital technology.
“The prosperity of China’s Internet economy, fueled by vast consumer technology adoptions, abundant capitals, and government’s policy and financial support, should not mislead domestic perception away from the true fact that China has an overall growing but weak technology strength,” Dong said in an email to VOA.
Forced tech transfer to continue
The U.S. boycott, however, is unlikely to stop China from advancing technological developments, according to an industry insider.
“China for sure will continue its technology development regardless, if [the U.S.] has turned hostile. We still hope to seek cooperation, whether it is cooperation between China and the U.S. or Europe. Collaboration will lead to a win-win situation,” the insider said on condition of anonymity.
“China still keeps a certain level of R&D capacity. [The trade dispute] will only slow down its pace of catching up. The U.S. is unfriendly now. But Europe still looks friendly. China may turn to Europe for [coveted] tech transfer as long as Europe isn’t as hostile as the U.S.,” said Kuo-yuan Liang, president of Taiwan-based Yuanta-Polaris Research Institute.
The economist said he expects China to continue its forced technology transfer practices from foreign investors to Chinese operations, using its market access as an incentive to achieve its technological goal.
Recent statistics released by the Baker McKenzie and Rhodium Groups also supported the trend.
China’s pivot to Europe
The firms’ research found that the value of China’s merger and acquisition activities in Europe reached $22 billion in the first half of this year – nine times of that in North America during the same period.
Adam Dunnett, secretary-general of the European Union Chamber of Commerce in China, believed the sharp ratio has more to do with a decrease in capital flows to the U.S. than an increase into the EU.
He added that investment intended to acquire technology isn’t problematic, but that what is at issue is the degree of state involvement and the true motivation behind certain investments.
“If these decisions are demonstrably driven by market forces, then Europe welcomes them; however, due to the lack of transparency of many Chinese investments, even perfectly legitimate capital flows are increasingly being scrutinized,” Dunnett wrote in an email to VOA.
He added that European businesses shared similar concerns with the U.S. about China’s “market-distorting actions” including forced tech transfer and infringements of intellectual property rights.
“China has …taken some action to improve the situation, but the overall actual impact has been very limited. Tensions will remain, and potentially worsen, until results are felt by international firms on the ground,” he concluded.