1. TECHNOLOGY TRANSFER TO CHINA The Experience to Date Howard Davies

2. Recognition of Technological Backwardness was a Major Reason for the Opening of China n What is ‘technology’? n What are the different types of technology which exist? n What channels are available for technology transfer? n What has been China’s experience to date?

3. Recognition of Technological Backwardness was a Major Reason for the Opening of China n What is ‘technology’?

4. What Is ‘Technology’? n A LONG DEFINITION n ‘a perishable resource comprising knowledge, skills and the means for using and controlling factors of production for the purpose of producing, delivering to users and maintaining goods and services for which there is an economic and/or social demand’ –Robock 1980 n A SHORT ONE n ‘information and the capability to use it’ –Davies and Whitla 1995

5. What Are The Different Types of Technology Which Exist? n “advanced” or “high” tech versus “low” technology n “appropriate” versus “inappropriate” technology n “Hardware”/”Software” /Liveware” n “proprietary” versus “non- proprietary” n “codified” versus “tacit” A much misu- used term!

6. Advanced or High Technology versus Low Technology n High technology is the result of recent research n Often confused with computer technology - assembling comuters is not hi-tech n Almost all high-technology is in the US, Japan and Europe

7. Advanced or High Technology versus Low Technology

8. Appropriate versus Inappropriate Technology

9. n Labour-intensive in low-wage, surplus labour situations n Lowest cost when taking full account of all costs e.g. pollution, non-renewable resources, etc.

10. Proprietary or Non-proprietary?

11. n Private property or in the public domain n Proprietary technology may be kept private by: –patenting, copyright or other intellectual property laws –secrecy –confidentiality agreements with staff

12. Tacit versus Explicit

13. n Explicit technology can be codified –written down in some physical form design or specification drawing formula –passed to someone else by transferring the physical form n Tacit technology is not codified –only transferable through extended human contact –can you play tennis or ride a bike after reading the manual?

14. Hardware, Software, Liveware,

15. n Hardware - technology may be embodied in machines n Software - technology may be emobied in computer software but also designs, drawings, routines n Liveware - embodied in people

16. What Channels Are Available for Technology Transfer:1 ? n Migration of Skilled People –but not useful for ‘corporate’ knowledge n Contracts Between Independent Firms –equipment supply –licensing agreements –turnkey projects But note the limitations of contractual transfers!

17. What Channels Are Available for Technology Transfer:2 ? n Through the Wholly-Owned Activities of Multinational Firms –the most effective and flexible channel n Though Joint Ventures: ‘Hybrid’ Channels –equity JVs –contractual JVs Elements of both internalisation and contracts

18. The China Experience Pre- Reform n 1949-58: Soviet Help - ‘the most comprehensive technology transfer in history’ n 1958-60: Great Leap Forward: a disaster n 1960: Soviets leave, taking vital information with them n 1967-76: Cultural Revolution: systemic collapse of economy and society

19. Problems with Technology Transfer Pre-Reform n Stalinist Planning, focussed on heavy industry n Huge, irrational projects, n Industries located in the interior for military reasons n Skilled labour not available n Plants built away from raw materials and markets

20. What Has Happened Since Reform? n Some of the old approach remains: State Council Projects Importing “Key” Plants n Shift towards a more market-driven approach –Different industries: light manufacturing –Eastern seaboard –Technology recognised as a proprietary good –Intellectual property legislation put in place (though still very weak)

21. Recognition that China Needs to Learn from Other Countries But Complete Freedom to Import Not Given to Enterprises n Regulations require that imported technology must be ‘advanced’ and ‘appropriate’ n Restrictions placed on contract terms –special approval needed if technology supplier wants to tie in purchases of inputs –imported technology becomes the property of the Chinese buyer –ten year limit on contracts n Not all Chinese enterprises are allowed to import technology - they need the Foreign Trade Operations Right (FTOR)

22. Technology Import Contracts 1981 -95: Total Value ($USbn)

23. Foreign Direct Investment (US$bn)

24. Can We Measure the Relative Importance of FDI and Contracts for the Transfer of Technology to China? n Difficult - the value of contracts includes different things - payment for equipment as well as payment for technology itself - values for FDI are for investment n Can roughly estimate the ‘output associated’ with each channel n Output anticipated from technology imported 1984-92 –Complete equipment $US102.2bn –Licensing contracts $US63.1 bn –FDI $US162.7bn

25. Can We Evaluate Technology Imports to Date? n CRITICISMS have included: –emphasis on importing plant for production, not increasing technological capability –‘unnecessary’ repeated imports of production lines - TV sets in early 90s, VCRs today. –technology import projects which never reached the production stage (32%in one 1986 survey) –too much emphasis on ‘hardware’, not enough on ‘software’ –‘too much’ FDI in low-tech sectors –imported technology not to ‘international ‘ level –limited local content and linkages –design and R&D takes place elsewhere

26. Concerns From Technology Suppliers n Chinese officials and managers tend to believe that technology comes in a simple package -plug in, switch on n Tendency to under-estimate the technological know- how needed to make technology work n ‘Advanced’ is often not ‘appropriate’ n Poor protection for intellectual property and restrictive regulations encourage limited transfers

27. Different Types of Technology Import n Hong Kong FDI low tech, little technological learning, little marketing learning limited linkages BUT appropriate, creates jobs, incomes, exports, foreign exchange, introduces factory culture to a peasant society n Western, Japanese and European FDI and Contracts no real ‘hi-tech’ but more complex and capital-intensive than HK involvement more linkages and therefore more development potential BUT less appropriate, fewer jobs created, limited exports

28. Can We Reach An Overall Conclusion? n It is foolish to seek “high-tech” for its own sake, especially when finding jobs for unskilled workers is a priority n At the same time, China needs to be able to adopt and adapt technology from elsewhere which requires significant technological capability n Perhaps the balance between the two types of technology import may be a good one n Foreign owners of technology will only begin to bring strategically important technology to China when they are confident that it is protected