The Chinese Cheating Playbook
The Chinese government has paid lip service to protecting foreign companies’ intellectual property rights. Its actions show it follows a different playbook.
Step 1. Entice foreign companies to China with the allure of a giant consumer market, while forcing foreign companies to share their intellectual properties with a selected few large Chinese companies (so-called “national team”) through ruinous laws and regulations.
For example, according to a Harvard Business Review analysis, “Since 2006 the Chinese government has been implementing new policies that seek to appropriate technology from foreign multinationals in several technology-based industries, such as air transportation, power generation, high-speed rail, information technology, and now possibly electric automobiles. These rules limit investment by foreign companies as well as their access to China’s markets, stipulate a high degree of local content in equipment produced in the country, and force the transfer of proprietary technologies from foreign companies to their joint ventures with China’s state-owned enterprises.”
In 2015, China passed a new cyber-security law, which requires any telecom and Internet companies operating in China to provide Chinese law enforcement with assistance such as decrypting user data when deemed necessary to fight against terrorism. Despite objections from U.S. and European trade groups, the law became effective January 1.
Step 2. Punish foreign competitors to aid domestic companies. For example, Qualcomm, a U.S. technology company, had to pay the Chinese government $975 million to settle an anti-monopoly charge in 2015. In addition to the fine, Qualcomm had to “agree” to offer licenses to some of its cutting-edge technology at a sharp discount to what it charges companies elsewhere.
Step 3. Replace foreign goods and services in key industries with homegrown products and services after Chinese companies obtain the technical know-how. China just announced it has built a supercomputer that performs five times faster than a comparable U.S. one, with 100 percent made-in-China processor chips. Chinese leader Xi Jinping pronounced a goal to replace foreign technology in key strategic areas with homegrown ones by 2020.
Step 4. Shut foreign competitors out of strategic sectors. For example, Facebook is completely blocked in China despite CEO Mark Zuckerberg’s persistent charm offensive””Zuckerberg learned to speak Chinese and jogged through Tiananmen Square without a mask in the midst of suffocating air pollution.