LETTER (SANITIZED) FROM MARTHA CALDWELL HARRIS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90B01390R000300350014-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 37
• Document Creation Date: December 22, 2016
• Document Release Date: November 9, 2011
• Sequence Number: 14
• Publication Date: April 8, 1986
• Content Type: LETTER

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TECHNOLOGY ASSESSMENT BOARD
TED STEVENS. ALASKA. CHAIRMAN
MORRIS K. UDALL, ARIZONA, VICE CHAIRMAN
OMAN G MATCH. UTAN GEORGE E. FROWN, J.. CAUWONSA
CNARUS MCC. MATTSAS. JR. MA YLAND JOHN 0. ASEGEtL MICHIGAN
EDWMG M. KENNEDY. MASSACNUSETTS CLA ENCE L M LLt . OHIO
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CASON* PILL MIOOE *LAND DON SUNDOMST. TENNESSEE
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Washington, DC 20505
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Office of Congressional Affairs
Central Intelligence Agency
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April 8, 1986
Enclosed are the trip reports you requested on issues relating to
Japanese perspectives on technology transfer to China, and the Chinese
decisionmaking process on technology importation. As you know, these reports
cover research carried out in Japan and China late last year.
I look forward to discussing these issues further with your analysts
working on these subjects.
Sincerely,
Dr. Martha Caldwell Harris
Senior Analyst
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TRIP REPORT:
JAPANESE PERSPECTIVES ON TECHNOLOGY TRANSFER TO CHINA
by Martha Caldwell Harris
US Congress, Office of Technology Assessment
As China's largest trading partner, a nearby Asian neighbor and a world
economic and technology power, Japan is in a position to importantly influence
Chinese modernization. From a US perspective, it is important to identify
complementarity with US approaches and to analyze the reasons for differences
in Japanese approaches to transfering technology to China.
This report summarizes research on Japanese policies affecting technology
transfer to China carried out in Japan in November, 1985. The goal is not to
review every interview, but rather to suggest interim conclusions, as a basis
for further research on supplier country policies. Interview data, as well as
relevant information from Japanese-language materials collected during the
course of the research, provide the basis for the analysis.
The report is organized as follows. First, tentative general conclusions
are presented. More detailed discussion of various perspectives on these
issues follows. (The purpose of this section is provide a flavor of the
comments I heard during the interviews.) Finally, a list of
interviewees/organizations visited is appended.
A. Tentative Conclusions
1. Assisting China in its modernization is a primary goal of Japan's
official foreign policy, but economic interaction is constrained by a number
of factors (some of them unique to this particular bilateral relationship).
According to officials in the MOFA (Ministry of Foreign Affairs), Japanese
policy is based on the recognition that China is a socialist country, but one
very different from the Soviet Union. Assisting China in its modernization
efforts serves Japan's interests because this will help to ensure that China
will not "become like the USSR."
There are a number of factors that underlie the recent expansion of Sino-
Japanese economic relations in recent years, in addition to US-China
rapprochement. These include Japan's geographical proximity to China, a long
history of cultural and technological exchange, as well as the desire to repay
the debt incurred during Japanese aggression earlier in the 20th century.
Japanese government officials say that cooperating with China serves to
counter Soviet expansionism in Asia. These factors mesh well with a growing
sense of pride in Japan's economic and technological accomplishments which may
allow Japan to take on a larger role as "teacher" and technology transferor in
Asia. In this sense, Japan's extensive programs of economic assistance to
China suggest a new style of leadership in Pacific.
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A number of factors, however, present problems for Japan as economic
interactions with China grow. The dark side of Japan's miracle is that it is
viewed with apprehension by many in Asia who remember Japan's earlier attempt
to establish a "coprosperity sphere" in Asia. In China, memories of Japanese
aggression were activated during 1985, and there is evidence that Japan may
remain the target of Chinese frustrations over foreign involvement. More
specifically, China may be in a better position than South Korea and some of
the other Asian countries to press Japan for more technology transfer and more
"balanced" trade. It is far from clear, however, that the Japanese government
will be able to resolve these issues in a timely fashion. As Japanese firms
are increasingly involved on the ground in China, moreover, they may be more
directly affected by domestic Chinese politics. For a variety of reasons,
then, it may not be an exaggeration to say that forging a viable partnership
with China may be one of the greatest foreign policy challenges Japan faces
during the next 15 years.
Therefore, China offers Japan clear and compelling opportunities: as a
potential market for both products and technology, a strategic counterpoint to
Soviet influence in the region, and as a modernizing economy where Japan can
potentially contribute aid and technical assistance in a unique fastion. But
the expanding Sino-Japanese relationship also holds potential pitfalls for
Japan. Growing Japanese involvement in China's modernization will be closely
watched both by Chinese leaders who have special expectations and by other
Asian countries so that Japan stands to gain a great deal if the economic
interactions are seen as "successful," but also to lose prestige if frictions
over trade and technology transfer grow.
2. In Japan, those who are closely following economic and political
change in China (particularly in the private sector) are conservative in their
evaluations of China's ability to meet its modernization goals in the next 15
years. Observers mention a number of obstacles to Chinese modernization and
importation of advanced technologies: lack of infrastructure to support large
projects; bureaucratic turf battles and delays in decisionmaking; employment
regulations and other official requirements that make it difficult for factoru
managers to improve the efficiency of productive facilities. From a
technology transfer perspective, the tendency of China to "undervalue" the
software portion of plant exports is seen as a critical problem. A number of
individuals described the Chinese approach as one of "take and take." In
addition, a number of people I talked to were sceptical about the ability of
China's leadership to make a smooth transition to more market-oriented
approaches in the years ahead.
3. There is an element of truth as well as some misperception
associated with the widely held view (in Japan and in China) that Japan has
not transferred very much technology, but has concentrated on sales of goods.
It is correct that Japanese exports of manufactured products dwarf exports of
technology through licenses and direct investments. During the past 5 years,
the general pattern has been for Japanese firms to focus on infrastructure
building and plant exports, generally involving "standardized" technologies
needed for manufacturing consumer products such as washing machines and TVs
rather than exports of "cutting edge" technologies.
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On the other hand, it would be a mistake to conclude that there has been
no significant transfer of technology from Japan to China. In Japan, where
technical and management training are considered elements of technology
transfer, transfer of technology to China has occurred through such mechanisms
although these exports have apparently often been undervalued in official
contracts. In addition, Japanese firms have established a strong presence on
the ground in China. Expanding exchanges of technical personnel also
contribute to technology transfer, but to a degree difficult to measure
precisely. During the last year, Japanese firms have also begun to establish
joint ventures in more advanced technology sectors.
4. The Japanese government supports product exports (in particular) and
technology transfer to China through a number of programs that involve
financing and aid. Such government programs include a large JETRO effort to
gather and disseminate market intelligence, extensive official financing
provided through the Export-Import Bank, and a rapidly growing aid program.
In the past, Japan's programs have placed more emphasis on trade than
technology transfer, but this is changing. A close examination of certain
programs (those of JICA aimed at renovating Chinese industry) indicates that
Japanese officials clearly prefer those that involve transfers of standardized
rather than new technologies.
Japan has no unilateral export controls for China, but it does
participate in Cocom. While some in the United States may believe that Japan
has not adequately stressed the national security aspects of technology
transfer, there are recent indications that the government of Japan is more
willling to prosecute firms that illegally export to the Soviet bloc.
5. Japan's private sector holds the key in technology transfer, and it
has shown reluctance to invest and to transfer advanced technology to China.
Trading companies whose special expertise has been in trade of raw materials
and large-scale equipment and machinery, have been more concerned in the past
to export goods than to transfer technology. Another problem has been that
Japanese firms complain that China has not been willing to pay for software.
By transferring standardized technology, Japanese firms may try to avoid a
boomerang in sectors where Japanese firms are increasing their
competitiveness. (Generally speaking, interviewees discounted the boomerang
as a vital immediate concern, but it seemed to me that Japan's technology
transfers are nevertheless structured to limit the boomergang.) The desire to
avoid a conflict of interest with their operations elsewhere in Asia is
another restraint on technology transfers to China.
While it seems unlikely that the Japanese corporate sector will quickly
revise its stratent and business sectors have established a number of
mechanisms useful in coordinating economic interactions with China. At a high
policy level, the 21st Century Committee allows Japanese and Chinese leaders
to freely exchange views (sometimes on sensitive issues) and to take new
initiatives (as in the area of youth exchange). At a working level, groups
like the Japan-China Association for Economics and Trade (with support from
both the government and industry) act as middlemen in technology transfer.
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Such mechanisms both reflect historic patterns of business-government
cooperation in Japan and make it possible to avoid direct public conflicts
between business and government (as have occurred in the United States).
6. From a US perspective, Japanese approaches to transferring technology
to China provide both complementarities and contrasts. Generally speaking,
differences in approaches are natural; they underlie and help to stimulate
healthy competition among major suppliers of technology. The past tendency of
Japanese firms to concentrate on exports of standardized technologies and
equipment may complement US exports in more advanced technology sectors. The
United States has encouraged Japan to take on a larger political role, and
participation in Chinese modernization may be a case where Japanese efforts
can importantly serve collective Western security intersts in Asia.
As Japanese firms transfer more advanced technologies, however,
harmonizing export control policies will be more important. Financing is
another area where contrasting approches may require additional US-Japan
policy coordination. To the extent that supplier countries are turning more
and more to mixed credits and other types of aggressive financing, they up the
ante for all the players and create a climate where buyers can play them off
against each other. As Chinese modernization proceeds and China's exports
grow, there will be increasing pressure on Japan to import more. Unless this
occurs, the burdens of trade adjustment will fall more heavily on the United
States.
The United States and Japan have interlocking but not identical interests
in assisting Chinese modernization. While competition will remain the name of
the game in transfers of noncontrolled items, consultation and cooperation may
be required in other areas for the definition and achievement of Western
security aims.
B. Japanese Perspectives on Technology Transfer to China
The summary that follows highlights differing Japanese views concerning
the appropriate speed and nature of technology transfer to China. While there
seemed to be universal agreement that cooperating in China's modernization
serves Japan's interests, I heard differing views about how best to accomplish
this. Underlying these differences in viewpoint are evaluations of China's
ability to meet its modernization goals and on differing assessments of issues
in Sino-Japanese relations.
1. Japanese Government Officials I spoke with MOFA officials in the
China Division, Economic Cooperation Division and the Economic Affairs Bureau.
They all stressed that the 3 principles of Japan's economic cooperation with
China are: cooperating with Western countries; balancing aid to China with
aid to ASEAN; and providing no military aid. These principles were
established at the time of the "first round" of Japanese aid to China, in
1979.
MOFA stressed that technology transfer is something that Japan's private
sector does, and the government can not make it happen. But Japan has
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established a large aid program for China, and MOFA believes that this is a
critical element of Japan's foreign policy. Under the Nakasone government
there has been a willingness not only to expand aid, but also to utilize it
more for political purposes to support countries whose foreign policies
complement those of Japan. In the case of China, this means support of the
moderate Deng regime as an alternative to the USSR.
MOFA officials expressed concern over China's complaints that Japan is
not transferring enough technology. China does have a "strategy" and it is to
link technonology transfer and trade. Actually, no one knows for certain
exactly how much technology transfer has occurred-- but according to some of
China's statistics as much as 40% of the technology that has been imported to
date comes from Japan. In reality, China complains to all suppliers that they
are not doing enough, but the fact that Japan has been singled out is a
concern. While China seeks more technology (and wants a better "balance" in
trade), the real problem is that they must be willing to pay for the
technology. Furthermore, in recent months the number of Japanese joint
ventures has grown.
MOFA's unofficial view on Chinese modernization is that we have to "wait
and see." China will pursue a zigzag course, but there will be no pendulum
swing in politics comparable to the days of the cultural revolution. It will
take 10 years before we can say with more certainty how China is faring. In
the meantime, the proper course is a cautious one. Cocom is on the right
track. Over the long run, Japan and China will become more interdependent
economically, but this does not mean that the result will be something
approximating the US/Japan relationship. The security alliance is a firm
foundation for the US/Japan relationship and no such strong security alliance
is likely with China. The technological gap between the US and Japan,
moreover, was never as large as that between Japan and China. One more
related point: I heard that Americans tend to "overestimate" China today, as
they have over more than one hundred years.
Discussions focused on the 21st Century Committee, a group of established
at the highest government levels to "look ahead" to the future of the Sino-
Japan relationship. There are 11 members from each side, and in the case of
Japan they come mostly from the private sector although they clearly advise
and are advised by the Japanese government. Interestingly, a major focus of
the meetings of the group has been youth exchnage, and the clout of the
committee is illustrated by the fact a Japan-China Youth Exchange Center is a
project now underway that the committee spearheaded. The members of the
committee speak frankly and off the record on issues as sensitive as the
recent anti-Japanese demonstrations in China. MOFA staff back up the
committee. It is clearly viewed as a key mechanism for exchanging views at a
very high level without the constraints of "official" discussions.
I spoke with Dr. Takashi Mukaibo, a member of the 21st Century Committee.
Dr. Mukaibo expressed his fears that China may be moving too fast. He
stressed the problems of young people in China, and noted that "Mao still
lives in the countryside." Mukaibo, who is Deputy Chairman of Japan's AEC,
believes that the Chinese need nuclear power, and stresses the "separation"
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between civilian and military nuclear research in China. The main reasons for
Japanese reluctance to transfer technology, he believes are fear of political
upheaval and limited Chinese ability to pay. In the case of nuclear power, he
added that it will be difficult for the Chinese to integrate technologies from
many different suppliers and that Japanese firms will be cautious because of
this.
I learned quite a bit at MOFA about the technical cooperation programs
sponsored by the Japanese government in China. Technical cooperation is the
smallest component of ODA (only about 3% in 1984), which also includes loan
and grant aid. In the case of China loan aid totaled 71.5 million yen in 1984
(about $250 million), according to MOFA data.
Japan's technical assistance programs are generally carried out by JICA
(the Japan International Coopertion Agency), and include a number of training
efforts. More than 200 Chinese have been trained in Japan for periods up to 1
year, and Japanese experts have been sent to China to provide technical
assistance. Materials and equipment are also provided in some cases. In late
1985, an agreement was reached to send volunteers aged 20-30 to China for a
period of 2 years. In addition, a new "silver volunteers" association has
been established with government support to dispatch retired engineers.
Japan's "project-type" technical cooperation is seen as the best method for
fostering technology transfer, and these programs are charted for expansion in
China. Current such programs include the following: a hospital, familiy
planning education, an enterprise management center, a wood utilization
project and a food research center. New starts include a telecommunications
training program in Beijing, a fish research center in Shanghai and an
agricultural research center in Mongolia. It is important to note that
Japan's aid is based on the principle that the request or initiative should
come from the recipient country.
I spoke with the director of JICA's industrial develpoment department,
who is responsible for programs involving plant renovation in China. JICA
provides only "surveys" of plants, and they confine their actitivites to
projects selected by the Chinese State Economic Commission that require
standardized (old) technologies. JICA consciously leaves "new" technology
transfer to Japan's private sector. During 1985, JICA carried out surveys for
3 steel plants, 1 piston factory, 1 electric cable factory, and others (for a
total of 8). Between 1978 and 1984 a total of 934 people have been involved
development survey programs of JICA. JICA believes that the major obstacles
to technology transfer to China have been inadequate patent protection and
payments, and (secondarily) underskilled technicians and quality control.
When queried about whether or not the SEC would like new technology, JICA
responded that "China can be persuaded" to import standardized technology more
appropriate at this stage.
The overall level of Japan's ODA has become an issue of national concern,
since commitments have been made to quickly expand aid. The MOFA, the EPA and
the MOF are the major agencies involved in annual debates on overall levels of
funding. (MITI must also approve all yen loans.) In the fall of 1985 during
my visit MOFA and MOF were engaged in a debate over ODA, with MOF arguing that
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ODA should be reduced by the same margin as the yen's appreciation against the
dollar. In September the government had committed itself to doubling ODA to
$8 billion by 1992. Japan's leadership, particularly in MOFA has committed
itself to a stronger aid program, but actual levels of aid are determined in
the complex bureaucratic politics associated with the budget process.
The OECF (Overseas Economic Cooperation Fund), responsible to the EPA,
acutally provides the loans and grants provided as segments of ODA. Officials
in the Economic Cooperation Division of EPA explained that between 1980 and
1984, 200.1 billion yen (about $800 million) was provided for projects in
China. In addition, commercial loans valued at more than $400 miillion were
extended to support 7 large key projects. During the second stage (1985-91),
the plan is to provide 400.7 billion yen (about $2 billion). The second stage
projects include some carry- overs, and a new telecommunications project to
extend telephone networks.
In general, MOFA took the lead in promoting the idea of expanded aid
programs in China, and some observers expressed doubts about the scope of the
programs envisioned. In fact, some ASEAN countries have criticized Japan and
asked for similar treatment.
The first stage projects are seen as successes, although one dam project
never was completed. (This "failure" was seen as caused by the size of the
project and opposition within China.) The goal has been to assist China in
improving its infrastructure. The Chinese provide a rank ordering of the
projects they want, but the Japanese government has upon occasion refused (as
with a chemical plant project). Japanese officials talked with pride about
some of some of the large projects carried out to build China's railroads,
etc. Local Chinese workers are employed and the Chinese government wants to
see as much local content as possible. Such factors can sometimes present
problems in the sense that they tend to raise costs.
China is seen more as an aid/ market opportunity than a commercial threat
at present. For the time being, Japan is being called upon to put up a lot of
money in advance to support technology transfer. Japan may be able to avoid
trade competition with China by exporting standardized technology, but this
has led to political problems in case of South Korea.
MITIs policies directly and importantly affect technology transfer. MITI
has triple roles in administering export controls, developing general trade
policy, and arranging the terms of large plant exports. To illustrate the
role of MITI in financing, it's worth noting the debate that took place
between MITI and MOFA during my visit. MITI attempted to support Japanese
firms hoping to participate in a Chinese coal-fired thermal power generation
plant in Tianjin by arranging mixed credits. The MOFA, however, blocked this
plan on the grounds that Japan's commitments have already been made through
the projects outlined in the second round. MITI lost this particular
argument, but will continue to search for creative ways to promote Japanese
exporters.
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The interview I had at MITI focused more on the export control process
than the other issues of trade and financing. The formal process is for all
applications for export applications to be submitted first to the Machinery
and Information Bureau where the contract is checked for "feasiblity."
Actually, it is important to note that most firms consult with MITI on a
routine basis before the stage when a contract is drawn up. In practice the
review often takes place quickly since problems have already been worked out.
The second stage of the review is handled by the Export Division of the Trade
Bureau. Here the legal aspects of the contract are reviewed and a detailed
payment schedule is attached. In the case of technology or know-how exports,
there is a third stage of review by the Foreign Exchange and Financing
Division of the Trade Bureau where technical review is carried out, depending
on the type of contract involved.
While it does not appear that delays are common, examples were provided
of controversial cases that took time to resolve. The obvious example was VCR
exports to China, which apparently took over a year of review. In the end,
the export was permitted but in such a way that it involved "black box"
exports of sensitive manufacturing process technology. The people I talked
to at MITI and at the US Embassy stress Japan's positive role in Cocom. In
recent months, apparently, Japan has begun to put more resources into export
administration and has taken a more aggressive policy of prosecuting
violators. In a country where public criticism of wrong-doers has been used
to set an example, these steps are seen as significant. It was also made
clear to me that Cocom and export controls more generally are sensitive
subjects-- the reponsible person in the Export Division declined an interview,
noting that the US government knows more about Cocom than anyone in Japan. He
stressed that Japan is fully complying with Cocom rules, but was unwilling to
discuss Japan's system in more detail.
In comparing US and Japanese policies affecting technology transfer to
China, export controls have been used more by the US and financing by Japan.
I spoke with China specialists at the Export-Import Bank who provide the
official credits and loans for large projects like Baoshan and offshore oil
exploration. Interestingly, the ExIm people I spoke with stated that in their
review of projects for support, they are particularly interested in the
"political preferences" of the government and the financing terms. Technology
transfer, in their view, is not really their concern. My own view is that
Japan's export promotion policies and institutions were established during a
period when the exclusive concern was product exports. Their choices
concerning projects for support strongly influence the nature and extent of
technology transfer, but they have no real strategy in this regard. During
our discussion, the ExIm people clarified that Japan's strategy on mixed
credits is not to use them unless other countries do so. (See above for
discussion of MITI-MOF disagreement on mixed credits.)
A host of other agencies are involved in various ways in technology
transfer, but the above appear to be the central actors setting policy. If
it's a question of nuclear cooperation, for example, the STA would be involved
and would carry out the programs. Similiarly, the MOE is involved in student
exchanges. The FTC (Fair Trade Commission) reviews technology export
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contracts to ensure that such contracts do not adversely affect free trade.
FTC officials told me that they have never denied a case on these grounds,
indicating the degree to which such powers are actually utilized. Of
particular interest to OTA, however, is an analysis of Japan's contracts
involving international technology transfer. This report is the first of its
kind, and while it does not include the values of such trade, it does indicate
that the number of contracts for technology exports to China rose from 4.6% of
the total in 1980 to 12.1% (106 cases) in 1984. In 1984 37% of the exports
were in the electric machinery sector, 22% in general machinery and 12% in
transport. FTC data also indicate that about 17% of the total number of joint
ventures established in 1984 with foreign partners were in China.
I did not have the opportunity to explore the role of political parties
in setting China policy. In the past, the LDP has played an important role on
key decisions such as normalization of relations. It would be useful to know
more of the views of various LDP and other politicians, since some of the
opposition parties are establishing stronger ties to China. Unfortunately,
time constraints precluded this although I was given introductions.
2. Japanese Businessmen OTA was fortunate to have an introduction from
Arthur A. Klauser who is on our advisory panel to Mitsui officials in Tokyo
and Beijing. Traditionally, the trading companies have been Japan's largest
overseas traders, in the case of China importing raw materials in exchange for
machinery and equipment exports. Dick Nanto (CRS) has outlined this
traditional pattern of Sino-Japanese trade. From a technology transfer
perspective, an interesting question is whether the trading companies will
come to focus more of their efforts in technology transfer, as opposed to
product trade.
The people I spoke with at Mitsui in Tokyo were cautiously optimistic
about the China market. While they believe that China will go through a
series of political changes in the years ahead, they stressed the effective
leadership of Deng and his allies. China may be able to "succeed" in certain
areas (perhaps space and military technology), but Japan and the United States
will remain at least a decade ahead of China in technology terms, and the
effects of the boomerang will be limited in Japan, but more serious problems
for developing countries such as Indonesia and Thailand.
Mitsui experts view the past five years as a period during which Japanese
firms suffered short-term losses, but where there were no "failures" from a
technology transfer perspective. The major problem that they mentioned is the
lack of ensurance that confidential information will be protected by Chinese
side, with the result that firms have been reluctant to transfer technology.
Other legal problems were also mentioned. Because of these and other reasons,
there have been cases where they have declined to transfer technology to
China.
The Mitsui people I talked with stressed the need for export regulations,
given the fact that so much advanced technology today has both civilian and
military applications. As Cocom regulations are loosened, more technology
transfer will occur. If China permits foreign firms to sell within China (not
just-for export), this will also improve prospects for technology transfer.
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I had a very good discussion with the general manager of Mitsui in
Beijing. Mitsui has 5 offices in China, with a staff 30 in the Beijing office
alone. According to Mitsui, what China really needs is technology transfer
associated with provision of machinery and equipment. This is the area where
Mitsui has been most active, and this is the area where technology transfer
from Japan to China is most likely to increase. Rather than rapidly expanding
high tech trade, we will see in the near future more transfers of know-how
associated with products, and in the form of technical services. Mitsui also
believes that its expertise in the worldwise leasing business will be an asset
of growing importance in China. This discussion suggested to me that some
leaders in trading companies believe that technology transfers from Japan to
China will expand, but that they will continue to be associated with plant and
equipment exports (rather than licensing, etc).
I talked with the general manager of the China department at C. Itoh, the
largest trader with China among the Japanese trading companies. The history
of Japan-China trade was reviwed, and it was noted that company officials
played roles in the early 1970s in helping to reopen trade. The fact that C.
Itoh's leaders have a strong respect for China and a good rapport was
emphasized. Over the long term, the prospects are good for the China market;
in the immediate term, "we must help China."
The major problem area that could stand in the way of economic
development is politics, and the question is whether the process of political
change and its speed are appropriate. About this there are many views within
in China. The technocratic leadership, of course, supports the current
program. There is reason to be optmistic about Chinese development, even
though its leaders are now groping for a new approach. The United States and
Japan should clearly decide where and how to support China's modernization and
do so in a positive way. (I had the impression, although it was never clearly
stated, that unclear policies have been obstacles in the past.)
Generally speaking, since trading companies themselves don't have
production technology, they work with Japanese firms that do. In some
instances, C. Itoh assists firms in selling technology, in other cases (truck
manufacturing) large packages with technology components are negotiated, and
in still other cases (factory renovation) the trading company may facilitate
participation by a whole group of Japanese firms. The boomerang problem is
overstated since China has such a large domestic market.
From the perspective of C. Itoh's top China expert, it is only natural
that Japan should sell China hardware, permitting China to export products to
Japan. Japan will continue to supply the Chinese with the needed software.
However, within conservative Japan there is no strong consensus yet that a
shift from exports of hardware to software is correct. My discussions with
trading company China experts left me with the impression that there is a
broad range of views concerning technology transfer to China, and no clear
agreement that this should be pushed across the board.
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I had an interesting discussion with Yukio Mizuno, senior vice president
and "Mr. Software" at NEC. NEC appears to be a firm that has developed a
fairly sophisticated technology transfer strategy. The discussion of NEC's
participation in the Japan-China Software Center highlighted this strategy.
The Center was established in 1982 and since then more than 1000 Chinese
technicians have been trained by NEC in software development and use. A
number of them are trained in Japan, and herein lies a plus for NEC. Since
Japan is suffering from a shortage of skilled software engineers, it is clear
that the firm has benefited from the use of Chinese trainees. Therefore,
while it would seem at first glance that the software center involves a one-
way flow of technology from Japan to China in reality NEC is benefiting from
the human resources that China supplies. The Center is now under expansion,
and the major problem is funding. Mizumo has a strong view that it will take
China 15 years before it will be able to be a significant exporter of
computers, and in the meantime participating in the development of China's
industry will push Japanese firms (and other Western firms) to maintain their
technological lead. (Mizuno is thus not worried about a boomerang, or so he
says. At the same time, it seems quite clear that NEC has developed a pretty
clear notion of what it will transfer now and what is not yet appropriate. In
other words, the technology transfer strategy seems to be aimed at staging
transfers in such a way that the boomerang cannot come back too quickly.)
During my discussions, I heard a good deal about factors that limit
technology transfer to China. As mentioned earlier, everyone mentioned
China's lack of infrastructure and other factors pertaining to its legal
system. In an interesting discussion at Toyota, I heard some other reasons.
Chinese factories have up until recently imported technology from different
foreign companies; this led to difficulties in integrating the technologies..
Each "group" such as taxi drivers that imports technology (for auto
maintenance, for example) wants to keep it to itself and therefore technology
diffusion is slow or non-existent. China's distribution system and its
bureaucratic sectionalism are major problems that make it unattractive for
Toyota to get involved in a big production enterprise in China. If the
Chinese would allow Toyota the authority to set up its own system of
production, then there might be an incentive for technology transfer but right
now the process is piecemeal and unlikely to result in efficient production.
In addition, the Chinese government has tightened up on assembly line imports
and additional reviews are required. In the meantime, Toyota is expanding its
servicing activities and next year there will be 20 Toyota service centers in
China.
JGC is a large construction and engineering firm that has been active in
China. JGC has been involved in 21 contracts with China over the past 12
years, but this still represents only about 10% of the firm's business. The
contracts include oil production, petrochemical production, fine chemicals,
gas production and one in the nuclear field. Generally speaking, transfers of
technology through know-how and patents involve JCG along with other foreign
suppliers who have the technology needed. JGC's China expert in Tokyo
stressed the following problem areas: China's undervaluation of technology;
insufficient numbers of appropriately trained technicians, particularly in
regional areas; and problems with inefficient production. Overall, however,
the projects are viewed as successful.
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JETRO is, of course, a government organization under MITI, but it works
closely with Japan's private sector. Since information provided by JETRO
highlights experiences of private sector firms, I choose to include it at this
point. Baoshan came up in a discussion of successes and failiures in
technology transfer. Here is a case where state-of-the-art technology was
sold. When questioned as to why this occurred, two reasons were given.
First, Japan's steel companies who have pretty much saturated market
opportunites in Japan, found in Baoshan a unique opportunity to train some of
their younger engineers and technical people with a full-scale project.
Secondarily, the fact that the project became a "national" project with
government support ensured that it would be a showcase. From the Japanese
perspective, problems that developed at Baoshan center around the site, which
the Chinese insisted upon. The Chinese say that Japan gave them dated
machinery, but this is incorrect, I heard. (While it was not specifically
mentioned in the Baoshan case, MOFERT's lack of technical expertise can also
be an obstacle to technology transer, since it reviews the contracts.) Despite
these problems, Baoshan is viewed with pride by many in Japan.
JETRO provided me with a report on the investment climate in China, which
outlines findings of a MITI-sponsored mission in early 1985. The report
includes short case studies of joint ventures in China. The Hitachi JV in
Fujian, established in 1980, is one of these. While the porject has not met
all expectations concerning exports, there are a number of factors that appear
to have contributed to a comparatively sucessful project. Some of these
factors include the high level political clout enjoyed by the Chinese partner,
the cooperative attitude of the party allowing the leaders of the corporation
considerable leeway in actual management and policy setting for the factory,
the ability of the firm to insist upon that Chinese components suppliers
attain quality standards comparable to those demanded by Hitachi in Japan,
availability of energy, and training programs in Japan. It is quite striking
that in this case there is apparently only one high-level (vice chairman) who
is Japanese and the rest of the management is Chinese. The JV was able to
turn a profit, in contrast to the financial troubles that the Chinese partner
had had in the past.
Other case studies are included in the report, but more important than
the details is the list of "problem points" at the end. These include:
contradictions between planning and market mechanisms (between the government
and the firm's leadership); the relationship between plant workers and the
party; inadequate infrastructure preparation; the short period covered by the
contracts; wage and land use costs; insufficient data to do a good feasibility
study; uncertainty about political stability. The report stresses the need
for China to allow enterprises more freedom to compete both in the domestic
and export markets.
The Industrial Bank of Japan is involved in technology transfer by virtue
of its financial functions, but even China experts at the bank note that
technology transfer is really a by-product rather than a goal of such
programs. The IBJ has turned down some requests for loans to projects that
were favored by local Chinese officials but did not have strong backing by the
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central government. There is a constant movement of people to and from China
who are involved in discussions on various projects. The IBJ is also involved
in transferring financial services technology through its training programs
and its biannual financing seminars which have apparently been well received
by the Chinese.
IBJ experts had some useful insights about the extent of technology
transfer from Japan. They argue that because US companies emphasize
technology transfer more than Japanese, contracts between China and Japan
include technology and training as part of a total package (with the software
component undervalued or not priced separately). In addition, some of
Japan's technical assistance is provided on a grant basis, making it
impossible to assess the value of technology transfer through these programs.
Statistics used by the IBJ in its latest report on China show that over
the 1973-84 period the value of technology transfer contracts from Japan was
14.6% ($ value) and 18.7% (number of cases). The respective figures for the
US are 33.6% and 26.6%. (chart 18, p. 22)
Part of the problem from the Japanese perspective is that firms tend to
rush forward in a group. Until one moves, they all hesitate. Then, when the
ice is broken, they all push forward. This causes the Chinese to resent
"Japan," rather than singling out particular firms for criticism. China
should be willing to pay more technology, should adopt a more staged approach,
and should show more flexibility. China faces, above all, significant
challenges in managing its reform program so that various groups (such as the
military) do not become resentful and so that the pace of change is not too
dissimilar in the cities and countryside.
Networking Groups that Link Japanese Public and Private Efforts A
characteristic feature of Japan's overseas economic diplomacy over the years
has been the key role played by trade and other specialized organizations that
help to provide information and coordinate government and business efforts.
In the case of Sino-Japanese trade prior to normalization of relations, more
than 200 "friendly companies" traded with China beginning in the 1960s. This
trade which eventually gained semiofficial status went through peaks and
troughs (during the Cultural Revolution), took place under the umbrella of
long-term agreements. After normalization of relations, the Japan Council for
the Promotion of International Trade became the coordinator for the old
"friendly companies." It has recded in importance in recent years, but is
still in existence and has strong political ties.
The Japan China Association for Economics and Trade (JCAET) was formed in
1972. It is partially financed by the Japanese government, and plays a key
role today in Sino-Japanese economic cooperation. I was fortunate to have an
excellent introduction to the JCAET through Dr. Nobuo Maruyama. During my
visit I met with JCAET people on many occasions, and they were extremely
helpful in making introductions to other individuals. The JCAET is chaired by
Mr. Inayama, head of Keidanren. It receives funding from its more than 400
corporate members as well as from government sources. To illustrate the
varied functions of the Association, it serves as a clearinghouse to
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facilitate exchange of views among Japanese government and business leaders
and Chinese leaders on trade, carries out surveys on China's investment
climate, sends missions to China, has specialized committees looking at
regional development in China, and opportunities for small and medium
enterprises. In addition, the Association provides advice on technology
transfer and factory renovation requirements in China, engages in trade-
related negotiations, and provides extensive services to its members. (In
November, it was reported that the JCAET had signed an agreement to cooperate
with the PRC on expansion of port facilities in Dalian.) In 1983 alone 18
specialized missions were dispatched to China (for example, one composed of
experts in electronics components technology).
There is a good deal of overlap between the JCAET, MITI and JETRO. One
of the people I spoke with at JETRO mentioned that he had spent two years on
detail to the Association. Another person I talked with who is a vice
director is a former MITI official. The JCAET also has ties with the
Institute of Developing Economies (see below), which was established by MITI.
The boundaries between these various groups are fluid, and this is a major
asset to the organization in coordinating activities and disseminating
information. I was much impressed by the JCAET people, both in the sense that
they are extremely knowledgable and that they were quite open to my questions
and willing to help.
As I discussed technology transfer issues with a number of people at the
Association I learned more about some dimensions of the process. One
discussion focused on the differences in US and Japanese negotiating styles.
Japanese firms, according to research recently carried out on the subject,
tend to send lower level technical experts to intiate negotiations, with the
result that they are reluctant to make commitments to transferring technology.
Instead, they examine the details and report back to Tokyo. Where the
Japanese tend to say "no" to Chinese requests for advanced technology, the
Americans say "yes, but..." Since US firms often send higher level people to
negotiate, this matches better with Chinese style. As a result, both sides
have the authority to reach a general agreement in principle, one that is
later filled in by lower level representatives. The point here is that US
firms may say yes in principle, but in the course of the negotiations that
follow they tend to moderate and refine the orginal technology request,
whereas the Japanese opt out early and earn resentment.
I heard many times that China undervalues software and technology, and
also that Japanese firms have a healthy respect for the considerable
commitments needed to make technology transfer work. These factors tend to
result in a slower approach by Japanese firms. (One example cited was a case
where the Chinese side felt that the training component for a project
involving printing technology should run about 2 months, and the Japanese side
thought it would take a year to bring the technicians up to the needed skill
level.) A number of people at the JCAET argued that China is not yet ready
for the most advanced technology.
I heard from one of the JCAETs more senior officials that the Chinese
have "great expectations" for Japan in technology transfer and that this issue
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has been raised at the highest levels of discussion. The problems arise
because Japan and China are so close, and there's more expected of Japan than
of some of the other countries. It is correct that the demonstrations and
criticism of Japan in China reflect some division within the leadership, but
these problems can be handled and should not be overemphasized. (This
contrasts somewhat with a more alarmist view concerning political friction at
JETRO.) Japan, and the US, should look at China as part of a larger picture--
the challenge to cooperate in the development of third world. There are ample
cases where it will be difficult for one country to carry out a project and
where international cooperation is needed (3 Gorges).
JCAET is the one organization that systematically tracks plant exports,
trade and technology transfer to China. According to a recent analysis,
during the period January, 1984 to March, 1985 there were 172 cases of plant
exports from Japan to China, the largest number (57) involving electrical
machinery production facilities. Ranking second and third were chemical and
food products. A close examination of the plant exports indicates that the
majority of those in the electric machinery area involved consumer products
(TVs, refrigerators, and washing machines). Many of these plant exports were
comparatively small scale (under $30 million), due to the growth of regionally
based projects of smaller scale.
According to the JCAET, during the same period there were 182 cases of
technology transfer reported in the press. The level of technology transfer
rapidly increased in 1984, due to the Chinese government's stress on
technological revolution through imports of "software" and technology,
articulated in the "gibo ketsugo" policy (linking trade and technology).
(This data does not include technology supplied along with large plants, but
rather includes licensing, software exports, consulting services, components
supply, etc.). The components supply-related exports were by far the largest.
About 75% of these technology transfers were by machinery producing firms. A
more detailed look at the transfers by electronics firms (comprising about 30%
of the total) indicates that the overwhelming bulk of them involved consumer
production know-how (TV, washing machines, etc). There was one case involving
computer technology for the period. The data are worth further study, but the
general impression one gains is that Japanese firms have been most heavily
involved in transferring standardized technology, particularly in the consumer
products area.
Another networking group active in technology transfer to China is the
Technology Transfer Institute, which has an office in New York. TTI has a
staff of 46 people in Tokyo and its programs and study missions focus on many
countries of the world. TTI's China staff does not compare with that of
JCAET. Perhaps the most interesting thing about the organization is its use
of study missions as a tool of technology transfer. The missions include one
company for each technology under discussion so as to avoid internal
competition. The study missions permit the Japanese experts to discuss
technology transfer opportunities with potential customers on a face-to-face
basis. In recent months TTI has sent missions to China to look at specialized
technology needs in the printing industry and technologies needed for regional
development. Reports are published.
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Mr. Idota, the president of TTI, believes that technology transfer must
be "industrialized" in Japan and that TTI has developed a unique process.
Idota, a very energetic person, calls himself a promoter and I see him as
representing a small but growing group in Japan. He believes that Japanese
management thinking must be revolutionized in order for Japan to take on a
larger role in this area. This, he argues, is in Japan's long-term interest,
but there are many forces resisting such a switch to exporting technology
rather than products-- especially some of the large trading companies.
Keidanren is beginning to pay lip service to the idea, but it has not yet
taken firm root. The top corporate leaders in Japan must become convinced
themselves, in order to make it possible for junior people to get more
involved in technology transfer. Idota's efforts (like those of the JCAET)
include consideration of a role for smaller firms in technology transfer. One
gets the strong feeling that Idota is an unsual personality who has been
waging a kind of one man campaign. It's important to note that Idota argues
MITI cannot take the lead in technology transfer -- that a new "revolution" in
thinking must occur in the private sector.
TTI China staff identifed examples of success and failure in technology
transfer to China. One kind of problem arose in the case of a gasification
project. Here the Japanese government got out ahead of industry to push the
project which ultimately came up against financing problems. Another kind of
problem is illustrated by a water treatment facility-- in that case the
transfer never occurred because the technology that Japanese firms have is not
appropriate (too sophisticated) for China's needs. An example of a success is
the Shanghai port facility. In this case mid-stream revaluation permitted
relocation to a better site, with the result that the project was then
successfully completed. TTI staff stressed, in particular, that the key to
success of a project is that it makes sense in economic terms.
Keidanren's economic cooperation department (which deals with developing
countries) advocates technology transfer and investment as a long-term
solution to trade dilemmas. They note that former Prime Minister Fukuda said
that China is a key to the world's future. But at a more concrete level, the
people I talked with noted a long list of reasons why Japanese business is not
so interested in investing in China. High costs, lack of infrastrucutre,
requirements to balance foreign exchange, export requirements, and domestic
content rules were all mentioned. The World Bank study is seen as too
optimistic. The immediate problem of the trade imbalance with China will not
be easily solved because Japan cannot import much more oil from China. There
is no China fever in Japan right now.
China Experts in Research Institutes As the above discussion indicates,
there is no clear line of demarcation between Japan's business community and
the think tanks that serve it and the government. The JCAET, for example,
could be seen as a think tank because of it research and information
dissemination roles, but it is also directly involved in the process of
technology transfer. The organizations covered here, however, are more
involved in research than in the actual process of transferring technology to
China.
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According to Masanori Moritani, an expert on technology transfer at
Nomura Research Inst., the pattern has been for Japanese firms to sell
products rather than transfer technology. But firms like Fujitsu are
beginning to understand that they must transfer technology, produce overeas
and import to Japan. Generally speaking, there is no consensus on technology
transfer or the imporance of technical services such as maintenance, but this
will have to change. With respect to China, the problem is that the factories
have to be built from the ground up and there is good reason to be sceptical
about the ability of the Chinese to provide the infrastructure and trained
people that are needed. Japanese firms are much more concerned than their US
counterparts that the factory actually works (US firms tend to stress contract
conditions and to separate out the technology or software components).
The fact that Japanese firms and organizations have a very good knowledge
of China's decisionmaking system was apparent both in Tokyo and in China. As
discussed in the China trip report, a number of Chinese officials told me that
the Japanese understand the system better than Americans. In Japan, I spent
some time with Dr. Sakurai, a leading expert on China's legal system. Dr.
Sakurai showed me a detailed chart that he developed of the contract approval
process for joint ventures in China. This chart is also published in a book
on joint ventures in China that I brought back.
China staff at the Mitsubishi Research Inst. stressed that Sino-Japan
trade has for years been characterized by politically-driven cycles.
Currently, a slight decline is occurring. We can expect another peak in 1988-
89. Unlike many of the people I spoke to who argued that the boomerang was
more an issue for the 21st century than an immediate problem, I heard that one
reason for Japanese reluctance to transfer technology is possible competition.
Another reason is that Japanese firms have investments in other Asian
countries that they have to protect. More generally, Japanese firms place too
low a value on technology transfer.
The Energy Economics Research Inst. has carried out exchanges with
Chinese counteparts since 1979, but in early 1984 the level of activity
expanded as the two sides began cooperative research to compare long-term
energy forecasts. The Inst. sees Chinese oil exports doubling during the next
5 years and believes that this will have strong impacts on Asian energy trade.
The problem is that Japan cannot rapidly increase its imports of Chinese
energy.
I had an interesting morning of discussions at the Institute of
Developing Economies, a research organization funded by MITI. On the staff of
the institute are some noted China experts. It was especially interesting to
hear about the history of technology transfer to China, dating back to period
when Japan occupied Manchuria. Dr. Kojima stressed the long experience that
some of Japan's leaders have had in China. In a sense, the US approach has
been to help China through teaching students, while Japan's "repayment" to
China has been made more in hardware and equipment.
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Right now China's plans are too ambitious. It will be very difficult to
attain the goals of the 7th plan and it would be better to proceed in a more
gradual fashion. Actually, Japanese tend to believe that Japan will forever
remain ahead of China in terms of technology, that this is natural. But such
a concept is alien to the Chinese.
I heard quite a bit about uneven development in China-- illustrated by
the construction of high rise buildings with faulty plumbing and no toilet
paper. While such examples sound mundane, the problem is that they can add up
to political unrest. It's important to make every effort to help China but to
be realistic about what can be accomplished. China is part of a larger Asian
picture. One of the senior scholars stressed that establishing a sound and
peaceful security climate in Asia must be pursued. Unless this is carried out
on a regionwide basis, countries like North Korea might become ostracized
"terrorists." Hence, the need to make efforts to build understanding.
As a final note, I should mention that I spoke with the staff of the
Japanese Studies Institute at the Chinese Academy of Social Sciences in
Beijing. Despite the fact that I had a personal introduction to one of the
young women researchers, this turned out to be a rather formal and large
meeting. I was surprised to hear such outspoken criticism of Japan's
unwillingness to transfer technology to China from this group, most of whom
did not appear to know much about technology. I was also struck by the fact
that the director of the institute seemed so able and willing to articulate
"China's interests" without probing why US or Japanese views are different.
The message there was that the US was doing a better job in transferring
technology than Japan, but everyone has to work harder in order to get a slice
of this fast growing market. The degree of resentment toward Japan was
surprising.
C. Selected List of Interviewees/ Organizations Visited
1. Masaharu Hishida, JETRO
2. Seiichi Yamamiya, MITI, Policy Bureau, North Asia Division
3. Tamaki Yokota, Japan-China Association on Economy and Trade
4. Takeshi Gamo, Coordination Bureau, Economic Planning Agency
5. Ryusuke Ikegami, Japan-China Association on Economy and Trade
6. Minoru Fukushima, China Division, MOFA
7. Toshikatsu Aoyama, Technical Coopertion Division, MOFA
8. Hiroshi Ota, Deputy Diretor General, Economics Bureau, MOFA
9. Isao Idota, President, Technology Transfer Institute
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10. Masahiro Hirano, China Specialist, Research Dept., Industrial Bank
of Japan
Dept.
11. T. Asoh, Manager, Corporate Planning Division, Mitusi (Tokyo)
12. Staoshi Muramatsu, Loan Division, Overseas Economic Cooperation Fund
13. Fumiaki Fujino, General Manager, China Department, C. Itoh and Co.
14. Takashi Mukaibo, Deputy Chairman, Atomic Energy Commission
15. Masanori Moritani, Technology Research Dept., Nomura Research Inst.
16. Tamio Shimakura, Institute of Developing Economies
17. Masatsugu Norimoto, Loan Dept., Export-Import Bank of Japan
18. Keiichi Takeda, Japan International Cooperation Agency
19. Dr. Sakurai, Aoyama University
20. Akira Okabe, Assistant Manager, Oceana and Asia Dept., Toyota
21. Kiyoshi Inagaki, Manager China Section, Mitsubishi Research Inst.
22. Hiroya Ichikawa, Keidenaren, Deputy Director, Economic Cooperation
23. Isao Matsumiya, Director, International Affairs, FTC
24. Shinji Suzuki, Associate Director, Inst. of Energy Economics
25. Yoshimitsu Kusaka, General Manager, Mitsui (Beijing)
26. He Fank, Director, Inst. of Japanese Studies, Chinese Academy of
Social Sciences (Beijing)
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TRIP REPORT:
CHINESE DECISIONMAKING ON TECHNOLOGY IMPORTATION
Martha Caldwell Harris
US Congress, Office of Technology Assessment
Flying into Beijing on November 30, 1985 I studied an aerial view of a
vast brown plain below. As I passed a series of low-lying settlements that
dot the landscape, I was struck in particular by the walls that subdivide and
encapsulate them. During my visit it became clear that, just as the rural
settlements stand as marking points that indicate how far China must go to
bring its peopel fully into the 20th century, the walls suggest obstacles to
horizontal communication characteristic of Chinese decisionmaking.
The major purpose of my visit to China (Beijing, Nov. 30- Dec. 7;
Shanghai, Dec. 7-11; returning through Hong Kong) was to learn more about
decisionmaking concerning technology importation. We knew beforehand that
during 1985 a series of important changes were made in China's regulations on
technology transfer, suggesting that the decisionmaking process is in flux. A
number of China experts in the United States told me prior to departure that
no one has a very good "map" of the structure of China's decisionmaking system
for technology importation. Hence, the hope that interviews might yield new
insights into the process.
Because I do not speak Chinese and have never visited China before, I
arrived with few strong predispositions either about the state of Chinese
technology or decisionmaking. In the words of the ancient Chinese philosopher
Lao Tsu, there may be advantages to beginning as an "unformed block." On the
whole, the Chinese officials I met were surpringly open and the discussions
quite useful to gaining a better understanding of the process.
Certainly, the trip would not have been as productive as it was without
the generally excellent assistance of the Departments of State and Commerce,
particuarly in Beijing. Most of the interviews were conducted in Chinese.
Although the Chinese officials often provided interpreters, my hosts from
State/Commerce were frequently called in to translate, in addition to managing
all the logistics. Generally speaking, it, seemed that the interviews provided
an opportunity for my US hosts to gain new insights into the organizations we
visited, and in this sense it was a mutually beneficial effort.
The report that follows begins with a brief review of some of the major
findings, followed by more detailed sections treating major actors in the
decisionmaking process. The conclusion highlights a number of areas of
uncertainty. I hope that we can pursue these questions in the months ahead.
(A list of major organizations interviewed is also attached.)
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A. Major Conclusions
1. The major Chinese central commissions and organizations involved in
technology importation have been experimenting with new procedures that often
involve a devolution of authority for some aspects of decisionmaking in order
to attract foreign technology and to encourage more market-oriented forces.
Examples of such experiments are the institutions of "technology markets" and
contract research by the SSTC (State Science and Technology Commission). In
many instances, however, the organizations may not have the staff or resources
to implement fully some of the measures that have been announced formally.
In addition, there are indications that during the past 6 months there
has been some "pulling back" of authority, particularly in the area of foreign
exchange controls. While such controls have been used primarily to control
excessive purchases consumer items such as color TVs and automobiles (and thus
affect Japanese firms most directly), I also heard that obtaining letters of
credit and final approval for some projects is taking some time. The bottom
line appears to be that the situation with regard to policy and actual
implementation of technology importation continues to change, and that such
modifications are likely to continue in the future.
2. It is more difficult to assess the relative weight and the
interactions of the major actors involved in technology importation than it is
to distinguish some of the changes that have been made within the vertical
areas of responsibility of the major commission-level actors. Not
surprisingly, each major actor has a natural tendency to inflate the
importance of his own organization and a natural uncertainty about what is
going on in elsewhere. Particularly significant limited mechanisms for
horizontal communication among the major players. At the same time leaders at
the highest levels appear sensitive to the need for better coordination (as
evidenced by the Leading Group on Science and Technology).
3. Generally speaking, while most of the people I talked to were quite
forthcoming and ready to discuss the process, much uncertainty remains about
key aspects of the process. Most of the people I spoke with seemed convinced
that by explaining how their system operates they can assist the process of
technology transfer. I should also note that most official documentation in
China remains "neibu" (confidential). Repeated requests for organization
charts yielded polite explanations that either they do not exist or would be
misleading if they did.
Key areas of uncertainty include: 1) who exactly has the power to
control foreign exchange and precisely how such controls are administered; 2)
when do major actors have the right to review or overule each other on major
projects and how often they do so; 3) exactly where do the lines of authority
and power lie between the central level officials and the localities; 4) is
there a significant competition for resources underway between the "older".
industries that aim to renovate their facilties and the "new"
industries/projects; 5) how do civilian and military sectors interact in the
technology importation process?
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One can speculate as to why these areas of ambiguity exist. In any
complex political system the formal responsibilities of major organizations
diverge somewhat from actual informal practice. China is no exception. In
some instances, the information may be considered sensitive. On the other
hand, it seemed to me that more often it was not possible for the actors
themselves to clarify how the organizations interact. The areas of ambiguity
may be the terrain of competition among the major actors. If so, it is
understandable that it may be difficult to neatly define responsibility.
4. Chinese officials were able to clearly articulate what they see as
their own interests in obtaining foreign technology. They generally indicated
that the major obstacles to technology transfer come from the foreign
suppliers. It was striking that interviewees universally argued that China
needs the most advanced technology, and that they volunteered criticism of
Japan for not doing more in this regard. Higher marks were given to United
States firms, but there was universal criticism of US export controls (and
what is apparently perceived as US influence on restrictive COCOM policies).
In addition, I heard repeatedly that the United States must provide more
financing or risk being left out of the picture in some projects. I should
also note that MOFERT officials and some others evidenced an understanding of
some of the problems faced by foreign firms supplying technology.
It was particularly striking that persons I interviewed were able to so
clearly articulate "Chinese interests," despite the fact that there seemed to
be no precise definition of technology transfer and an absence of aggregate
statistics to support some of the conclusions.
5. In contrast to these views, I gained the impression that many foreign
firms do not see China today as a particularly attractive investment market.
(The Japanese perspective is covered in my trip report on Japan.) Suffice it
to say that I heard from Embassy analysts as well as corporate representatives
that doing business in China is terribly expensive, sometimes quite
frustrating in terms of time required to finalize arrangements and to
implement management changes (particularly those involving employment) at the
enterprise level. Nevertheless, there is apparently a strong hope that
investments will pan out over the long term, and a clear desire to foster
China's development. It would seem then that foreign firms tend to see
factors within Chinese control as the major obstacles to technology transfer.
B. Major Chinese Organizations Involved in Technology Importation
Who makes decisions about technology imports to China depends on the kind
of project involved, its size, and its location. The system is complex, and
what follows is an outline of some of the major actors and their perspectives
as articulated in the interviews. It's important to note at the outset,
however, that the process differs according to an array of factors, including
those mentioned above.
My tentative conclusion is that the major central actors are MOFERT, the
SEC, SPC and the SSTC. The last three all have authority to actually carry
out certain types of projects involving technology importation. MOFERT's role
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is to screen technology contracts of certain types. There is a general
division of responsibility among the other three as follows: SPC handles new
large capital construction projects of the Baoshan types and also plays a
major role in allocating general levels of foreign exchange to other
ministries on an annual basis; SEC handles technology imports needed for
renovation of existing industry; SSTC is involved in technology imports for
some of its research projects and is the central organization involved in
formulating overall S and T strategy.
This sounds much more straight forward than may be the case in actual
practice. Localities have been given more and more responsiblity to
independently import technology of certain types. There is also a certain
amount of overlap in the areas of responsiblity, particularly in the sense
that the decisions to import technology for new projects (SPC area) and for
refurbishing enterprises (SEC area) affect the Chinese technology development
and absorption (SSTC concerns).
MOFERT. Technology Import-Export Department In China technology
importation generally requires some level of government approval. The
organization most directly involved in granting such approval in a technical
sense is the Ministry of Foreign Economic Relations and Trade, MOFERT.
MOFERT, for example, published the new regulations on technology import
contracts which were promulgated by the State Council (China's highest
governmental decisionmaking body) on May 24, 1985. MOFERT has responsibility
for planning and administering foreign trade, and its Technology Import and
Export Department is specifically charged with review of technology transfer
contracts.
We were fortunate to have an extremely productive meeting at MOFERT.
Stanley Lubman on OTA's advisory panel had met with the Deputy Director of the
Technology Import and Export Department, Cao Jiarui. Although Mr. Cao was in
New York at the time of the visit, he wrote a very cordial letter indicating
his willingnes to help with OTA research, and introduced Mr. Sun Peizheng,
Deputy Chief.
The main functions of the Department, as outlined by Mr. Sun, include:
1) drafting laws and decrees (such as the May, 1985 regulations) on technology
transfer; 2) examination and approval of contracts involving technology
transfer; 3) preparation of statistics and exchange of information with
provincial governments; 4) participation in international activities; 5)
implementing along with other departments provisions of foreign trade
agreements (for example, development of a program for implementing the US-
China agreement on industrial renovation); 6) acting as a counterpart to the
US Dept. of Commerce Office of Export Adminstration (which handles export
controls). (We were also told in advance of the meeting that this department
has interfaced with the US Trade and Development Program, although this did
not come up in the discussion.)
I asked Mr. Sun what his department looks for in their review of
technology contracts, and how long the process takes. Legally, MOFERT must
approve or a reject a contract within 60 days of receipt. Mr. Sun indicated
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that, while there is sometimes some prescreening, the review normally begins
with the formal receipt of contract and that it is often complete within as
little as 3 days. The following factors were included as major considerations
in contract reviews: 1) whether there is a clear statement of responsibility
for settling disputes such as infringement of property rights; 2) whether the
level of the technology is reasonably stipulated; 3) whether the price and the
means of payment are reasonable; 4) whether rights, responsiblities and
obligations of the parties are clear; 5) whether there are provisions that
involve exemption from tax or customs duties; 6) whether the contract includes
any provisons that violate PRC law; 7) whether there are any encroachments on
Chinese sovereignty.
MOFERT has come across a variety of problems in contract reviews. One
typical problem arises where the exporter asks for a contract valid for more
than 10 years. In a very few unusual cases such longer validation is granted,
but Chinese policy is to restrict contracts to a 10 year period. Another kind
of problem has arisen over arbitration, since China is not a member of the
international organization that often handles disputes. Prices have also been
points of dispute, and MOFERT generally does a comparison of prices from three
different suppliers in order to gauge the fairness of the contract terms.
Concerning future trends in technology imports, Mr. Sun indicated that a
high priority during the 7th Five Year Plan period will be renovation of
existing enterprises-- particularly in the machine buiding, pharmaceutical and
chemical industries. Energy (including energy saving equipment),
transportation and telelcommunications technologies were also cited as key
areas. From the Department's perspective, increasing imports of consulting
services and technical assistance will be important trends. During the 7th
Plan more stress will be laid on imports of software and they hope that the
value of licensing (payments) will be higher than the value of plant-related
equipment imports. They have no rigid guidelines on royalty payments.
According to MOFERT, the basic division of responsibility among central
actors is among MOFERT, the State Planning Commission (SPC) and the State
Economic Commission (SEC). The SPC sets plans for technology importation for
new large capital construction projects. The SEC, on the other hand, prepared
the list of 3000 projects targeted to refurbish existing enterprises during
the 6th Plan period. The SSTC, from MOFERT's perspective, is more a second-
level actor which (like many other government agencies) provides suggestions
to the SPC for new projects.
MOFERT has delegated some of its authority for contract approval to
localities and to industries. Specifically, projects costing less than $5
million can be locally decided upon, while those involving more funding must
be included in the formal SPC plan before they can be approved by MOFERT. I
gained the impression that while the SPC makes general decisions annually
about funding for its projects, MOFERT makes more technical decisions
affecting the level of foreign exchange funding for SPC projects, and that the
Bank of China then actually provides the funding for SPC projects. The SPC
list provides some general ballpark expectations about levels of expenditure,
but apparently more technical decisions are handled by MOFERT. In the case of
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SEC projects, apparently MOFERT consults the SEC directly on the level of
foreign exchange allocation, but it is not clear how this occurs or precisely
how much authority MOFERT has to determine levels of foreign exchange
allocations.
MOFERT agreed that the contract approval system is complex, but
questioned the utility of organization charts. Depending on the type of
project, different agencies play different roles. For machinery and
equipment, for example, the Machine Building Ministry and its Corporation of
Machinery Imports have key roles, while in the case of petroleum projects the
Ministry of Petroleum Industry and the Public Health Ministry (because of
safety and environmental concerns) may play key roles. In 1986 MOFERT intends
to publish a set of guidelines for technology importation that will include a
description of the roles of various departments and divisions. I indicated
that OTA would be most interested in receiving a copy.
China National Technical Import Corporation The actual negotiations on
technology transfer contracts are in many cases handled by the foreign trade
corporations (FTCs). The oldest and one which reports directly to MOFERT is
the China National Technical Import Corporatation (CNTIC). I met with Mr.
Dong Siqi, Vice General Manager of CNTIC who explained the role of the
organization in technology imports.
CNTIC officials stress that MOFERT sets the general policy guidelines and
does the screening of contracts. CNTICs role is to let foreign tenders and
negotiate contracts. Historically, it has been involved in some of China's
largest development whole plant import projects such as Baoshan. CNTIC
officials see their role as one of middlemen who keep Chinese and foreign
partners "informed" about joint venture and coproduction opportunities. In
recent months CNTIC has spun off new firms active in consulting, international
tendering and imports of components. Mr. Dong serves in the Technology
Trading Consultant Company, one of these firms which provides consulting
services on Chinese legal regulations, and provides price comparisons of
foreign technology for MOFERT. CNTIC has since 1984 established 10 reigonal
branches and has representatives overseas in six foreign countries. CNTICs
varied activities are illustrated by the fact that it now holds shares in
three leasing companies and has recently been active in imports of used
machinery.
The projects that CNTIC assists include some that MOFERT assigns and some
that are generated by local governments. Although the process remains
somewhat unclear to me, it appears that MOFERT screens projects at a stage
when CNTIC has obtained a list of 3 candidate foreign suppliers, and and that
it also finally approves the contract. CNTIC lets international tenders in
instances where projects involve foreign credits. In such cases, the tenders
are announced in the China Daily, and the information relayed by the FCS to
the US Dept. of Commerce which alerts US firms.
CNTIC officials stress that China puts a premium on getting the newest
technology. There was a good deal of discussion of problems that CNTIC has
encountered relating to US export controls, particularly for large computers
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and sophisticated electronics products. CNTIC would greatly appreciate
information clarifying changes in US and Cocom regulations.
CNTIC believes that its special advantage is its long 30 year experience
with foreign trade. Mr. Dong is himself an engineer and the staff apparently
includes a number of people with technical training. On the other hand, many
new FTCs and other organizations have been established and play roles in
technology transfer. SINOPEC, for example, is seen as a competitor of CNTIC,
as are other powerful FTCs of the Light Industry, Textile and Metallurgical
Industry Ministries.
State Planning Commission. Foreign Economic Affairs Bureau Seen from the
viewpoint of the SPC, the three most important organizations involved in
technology imports are the SPC, SEC and the SSTC. The SPCs major roles
include drafting the five year plans, identifying and carrying out large new
capital construction projects, and allocating foreign exchange to the SEC and
the SSCT. On a routine basis, the SPC coordinates more with the SEC than with
the SSCT. According to the SPC, the SSCT is primarily involved in scientific
and research-related projects and not directly involved on a routine basis in
technology importation outside those research projects.
It might be fair to say that the SPC was the most important actor in
years past when central economic planning was the keystone of China's economic
policymaking. As more market-oriented measures have recently been applied the
SPC may have logically relinquished some of its powers, but it still maintains
vast authority by virture of its continuing responsibilities in allocating
foreign exchange among the major commissions and ministries. SPC officials
noted that certain ministries and provinces may now approve contracts up to $5
million in value, and that certain cities such as Shanghai may independently
approve contracts up to $30 million in value.
The discussion revealed some interesting differences between the SPC and
the SEC. The SEC drew up the list of "3000 items" of technology needed to
renovated existing industries under the 6th Five Year Plan. The SPC spokesmen
were somewhat critical of the SECs definition of "technology," noting that the
term "item" is rather vague. These SPC officials believe that the UNCTAD
definition of technology transfer should be adopted so that the statistics
will more accurately reflect actual trends in technology transfer. When asked
about the number of SPC projects undertaken during the 6th Plan period, they
provided a number of 900.
According to the SPC, when an enterprise wants to import technology for a
new capital construction project, it sends a feasibility study to a local
government authority. After the study has been approved, the enterprise can
begin formal negotiations. Enterprises above the county level must obtain
approval directly from the SPC. The SPC provides MOFERT with a list of
approved projects, and MOFERT signs off on the contracts.
The SPC representatives agreed that foreign firms, particularly US firms,
do not understand the Chinese contract approval system very well. They cited
a cases where negotiations have continued for more than 7 months (with no
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conclusion reached) to set up a joint venture with a US firm to produce
refrigerators. The documentation apparently indicates that the US firm did
not understand that after the Chinese enterprise sends a report to the SPC and
the SPC approves the project in principle, the Chinese and US JV partners must
submit a feasibility study which the SPC reviews in order to determine the
level of foreign exchange allocations.) These steps must all be taken before
final approval of the contract. It appears that contracts often stall over
the question of financing. Even when projects are approved (in principle) by
the State Council, there can still be problems arranging foreign exchange--
this was the case for a West German partner in a tractor manufacturing plant
in Shanghai. From the SPC perspective, the Japanese understand the system
quite well-- better than the US firms.
State Economic Commission. Import- port Division The SEC plays the
major role in projects designed to upgrade existing enterprises, including
drawing up the list of 3000 target projects for the 6th Five Year Plan.
(According to the SEC the 3000 list covers projects- some of which involve
imports of a number of different kinds of technology-- rather than "items.")
More than is the case for the SPC projects, small and medium size firms are
included. During the 6th Plan, technology imports for the machinery and
electronics industries were prominent.
The SEC representatives interviewed such as Mr. Wang Yi, Deputy Manager,
were able to provide us with some relevant data. The following cover 1983
imports for SEC projects only:
# of projects % of total involving software
U S
95
54%
Japan
182
40.1%
FRG
146
40.4%
These officials of the SEC expect no great change from these trends when 1984
and 1985 data is available (in that overall shares of software are likely to
remain unchanged), but they do expect the overall volume of imports to
increase.
The SEC list of 3000 projects (valued at about $3 billion used to
renovate 400,000 factories) for the 6th Plan was adjusted during each year, as
more detailed plans for that particular year were prepared. The lists are
revised, based on China's development needs and foreign exchange availability.
The SEC process is for the ministries that want to carry out projects to
submit feasibility studies to the SEC. The SEC (or today often the ministries
or provinces) then approves some of the larger projects. The approved
projects are filed with the SEC and the contracts are approved by MOFERT. The
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SEC apparently allocates foreign exchange on an annual basis. The goal is to
simplify and speed up the process of technology importation. While the
general trend has been to give more authority to the local authorities, the
SEC began in 1984 a required approval process for all imports of assembly
lines. The reason given for this change was a dissatisfaction with the amount
of technology actually acquired via such imports.
Some coordination occurs with the SPC on a routine basis, and
significantly the SPC has recently established a bureau for coordination with
the SSTC. In order to better bridge the gap between the SSTC sponsored
research projects and the end-user factories (where the SEC exercises a more
leading role), plans were announced during my visit to establish "permanent
advisory centers" to handle technical services transactions-- in other words,*
to use the centers as "bridges" for technology diffusion within China. This
effort follows the decision made by the State Council about 6 years previous
to view technology as a tradable commodity rather than common property. It
reflects the fact that technology transfer within China's economy has been
impeded by a number of institutional obstacles, including weak horizontal
communications among ministries and commissions.
The SEC is now working to complete a list of target projects for the 7th
Plan period. We asked whether this list would be published, and the reply was
that it is not yet clear when this might occur or whether it might be
published in segments. As far as the 7th Plan is concerned, they expect to
target another 3000 or so projects, but more stress will be placed on export-
oriented projects, on improving quality control, and on supply of spare parts
and maintenance. I was left uncertain as to whether all of the 3000 projects
designatued under the 6th Plan have been completed to their satisfaction.
State Science and Technology Commission Thanks to the help of the S and
T office of the US Embassy, I had a number of very useful meetings with
Chinese science and technology policy officials. One of these meetings
involved a group from various departments of the SSTC.
The SSTC officials I talked to mentioned research on technology policy in
China that has been compiled in a written report to the State Council. This
report was the first of its kind, and the aim was to develop a long-term
strategy for technology transfer. Along with the SSTC, the SEC, SPC and
MOFERT also participated in this effort by exchanging views in a number of
meetings. (These meetings have now ended, but they indicate increased efforts
to coordinate at the highest levels.)
The SSTC alone has about 200 research projects in high technology areas,
some of which involve imported technology. It seems that the SSTC can
independently approve such projects (after foreign exchange is provided by the
SPC), but that MOFERT is notified. MOFERT, according to these officials,
checks for duplication of efforts.
The work of the SSTC includes: 1) a statistical survey on the performance
of imported technology by regions which provides the basis for a report to the
State Council; 2) preparation of a management module in order to optimize use
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of imported technology; 3) use of economic mechanisms such as prices to
influence technology importation and development; 4) study of relationships
between domestic research and imported technology; 5) development of a
technology import strategy on a fairly detailed sectoral basis covering
appropriate imports in the year 2000; 6) comparison of foreign government
policies. Assisting the SSTC in this work are specialized affiliated
organizations, in particular the NCSTD as discussed below.
In looking at past technology transfers, the SSTC has identified a number
of problems. A lack of attention to "digestion" of the technology is one.
Failure to look at long-term implications is another. In particular, they
stressed the pressing need to reform Chinese management in order to improve
technology absorption.
In an attempt to distinguish the types of technology transfer going on in
conjunction with SSTC projects, a few cases were cited. The 36 "key" projects
which the SSTC now supports all include some technology transfer. One example
cited was the develop of a computer system for the Harbin railroad station.
Such projects, it was suggested, involve applications of imported technology
needed for more efficient operations. It was nevertheless difficult for me to
assess how typical this case is of SSTC research projects.
SSTC officials noted that each of the big four organizations involved in
technology transfer have a certain independent authority, although they do
submit joint proposals through the Leading Group on Science and Technology to
the State Council. (See below.) They joked that there is "some chaos" in
this system, and that more central control of certain aspsects such as
financing may be necessary.
SSTC.National Center for Science and Technology for Development The
NCSTD is an organization affiliated with the SSTC, a kind of think tank. The
Center has four divisions involved, respectively in: 1) long-term research on
Chinese science and technology for development aimed at developing a
comprehensive strategy; 2) development of technology policies for 12 specific
sectors such as energy, computers, transport, and telecommunications (focusing
on a comparison of the state of Chinese technology and what China needs to
import and what it needs to develop indigenously in each of these sectors; 3)
analysis of management of Chinese S and T, including issues such as links
between research institutes and industries; 4) multidisciplinary study of
system engineering for key projects. These reports are not available to the
public. Major clients for these studies are the SSTC and State Council, as
well as local state enterprises.
NCSTD interviewees expressed the view that China really has no technology
transfer policy right now. In practice, the SSTC, SEC, SPC and MOFERT all
discuss these issues and work out answers for specific cases, but there is no
real strategy.
One illustration of the innovation that is underway within the SSTC is
the recent establishment of Venturetech, China's first venture capital company
under its auspices. The major goal is to involve more small and medium size
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firms. On a yearly basis, there are about 1400 applications for projects but
only about half of them can be funded by existing institutions. Venturetech
hopes to select just a few (perhaps 10 or 20) from that group and provide
guarantees and some financing. Their expectations are that these projects are
likely to yield a high rate of return (30-60% annually). Mr Zhang Xiaobing,
formerly with the NCSTD, will head up Venturetech. He believes that the new
venture company can provide (along with MacKenzie and Co. of Hong Kong which
will be a joint venture partner) advice on potential sources of technology
from abroad. He mentioned that Europeans, in particular, may be interested in
participating in some of the projects involving smaller Chinese firms.
Venturetech is one of a host of new organizations recently established by the
major actors in an attempt to experiment with novel approaches to technology
transfer.
Leading Group on Science and Technology The Leading Group is important
because it reports directly to the State Council and includes representatives
from all of the major organizations (SEC, MOFERT, CASS, SPC). Its importance
is indicated by the fact that the Premier himself is the director. Membership
also includes a representative from the National Defense Science, Technology
and Industry Commission. Representatives from financial institutions also sit
in on the meetings, according members of the staff of the Leading Group with
whom I spoke. The Leading Group itself meets fairly frequently, about once a
month.
The Office of the S and T Leading Group is chaired by Song Jian, SSTC
Director. Deputy Director Qian Zhenmeng, with whom we met, stressed that the
staff focuses attention on overall issues of national policy, leaving more
detailed issues to the ministries themselves. The staff is composed of
individuals from various ministries concerned and includes about 20 people.
Apparently, appointment to the staff of the Leading Group is much desired,
indicating that the qualifications and abilities of the staff are
considerable. These people apparently are up and comers, with technical and
managerial backgrounds that the ministries recommend but the Leading Group
itself chooses.
The staff of the Leading Group has been involved in analysis of critical
national S and T issues. Sometimes studies are initiated by the Leading Group
members themselves. In 1983, for example, the Leading Group organized three
committees to work on an overall national S and T plan. The staff took
responsibility for the study, coordinating with other agencies and preparing
the final report for submission to the State Council.
A contrasting example cited was a study, initiated by the staff itself,
dealing with possible improvements in use of S and T personnel. The general
issue was apparently raised at some point by Deng himself, but the staff of
the Leading Group (working with the Ministry of Labor in particular) took the
iniative in producing a document that ultimately became a national policy
document (#11).
Still another example cited to illustrate the various ways that the staff
works was a study on the use of gas in the cities. In this case, the staff
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brought together members of a large number of relevant ministries and
organizations and helped to coordinate. In some instances, then, the staff
responds to directives from above, but in others it takes more of an
initiative in introducing new subjects for discussion or in coordinating
exchange of views among a number of ministries.
The staff members we met with discussed the overall rationale for
technology importation under the "open" policy. Imports of technology should
be above the level of what's available within China, be of practical use, help
to increase China's self-sufficiency, stimulate economic and social
development, and help to general foreign exchange. Staff members indicated
that there is a need for a "plan" dealing with technology absorption, and a
need for coordination of science and economic plans.
Specifically, the basic division of responsiblity is that the SEC has the
lead in developing technology import policies involving production
technologies, while the S and T Leading Group is charged with policies for
research and other types of technology imports. I had the impression that the
definition of "technology transfer" used by SSTC staff is quite broad, and
extends well beyond know-how and knowledge needed for production of goods and
services.
Recently, the Leading Group and the SEC have both noted problems
involving technology transfer in industries, such as low quality of production
and overlapping technology imports. The SEC is in charge of actually
overseeing these imports, but the staff of the Leading Group apparently had a
role in the recent S and T Progress Meeting on Enterprises. At the meeting,
technologies were categorized as follows: 1) those that should no longer be
imported; 2) those that should temporarily not be imported; 3) those that
should be imported; 4) those that should be produced locally. We asked
whether we might receive these lists, but they apparently will not be made
public.
There are two important points to be stressed here. First, the staffs of
the Leading Group and SEC (which has the lead on industrial technology
importation) realize the need to work together to solve some of these
problems. Second, there is an understanding that China has entered a "period
of adjustment" concerning technology imports, and that imports of certain
types (such as color TVs) must be restrained in order to ensure that overall
goals are met with regard to use of foreign exchange and stimulation of
domestic industrial capabilities.
There was some discussion of the rationale for and approaches to contract
research, which has been an important recent development. Staff members
stressed that the SSTC has not really reduced funding for research, but has
rather changed the way it is allocated. They admitted that there are natural
tendencies for the institutes to resist the new trend because it means they
are cut off from their secure annual allocations. Among the many research
institutes in China, some will fail. The basic goal is to put the research
insitutes into closer contact with the user institutions. This is an area
where the Leading Group staff played a major role in developing a policy that
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was ultimately approved by the State Council. Of interest is the fact that
one contract research project involves a West German firm.
Shanghai and Technology Importation Shanghai provides an interesting
contrast to Beijing, and reminds one that China is an extremely big and varied
country. The general patterns of decisionmaking in Beijing are met with
significant variations elsewhere. In this regard Shanghai has the bustle of
entrepreneurialism and the aura of past Western influence that combine to give
the visitor an impression of a much more free wheeling place.
To sit by the window eating dumplings in the Peace Hotel restaurant is to
observe a major channel (the river) for technology trade. On the rainy, foggy
day I was there, long strings of small boats plied the river. Periodically, a
huge ship from some far off port interrupted the local traffic. The movement
seemingly never ends and one can only specualte on the volume of trade, the
foreign suppliers and the relevance to technology transfer. The roofs of the
Western buildings on the Bund reveal a history of varied Chinese experience
with technology transfer in the past century. The crowds of shoppers gathered
around the rather simple display of wares for sale in the Shanghai #1
Department Store make it clear that China is very much a developing country--
albeit one aiming to make up for lost time.
Shanghai officials (Planning Commission) have considerable leeway in
approving "productive" joint venture projects up to a $30 million level (and
up to $5 million for technology and training). City bureaus and districts are
said to now have negotiating authority for approval of investment up to $5
million in value. For large projects, the approval process still involves 5
or 6 levels of review. For computer-related technologies, the factory that
wants to import technology, the corporation with which the factory is
affiliated, the Shanghai S and T Commission, Foreign Economic Relations and
Trade Commissiion, and finally the Economic or Planning Commission/ Mayor's
office may all be consulted. If the decision is made at the highest level to
go ahead with a project, this process can apparently be carried out quickly.
If not, it can take quite a bit of time.
Shanghai aspires to become another silicon valley, but it also has a very
aged capital stock and exports have fallen recently. This can be explained in
part by the fact that while Shanghai used to be one of the few windows for
technology trade, today many other localities have the authority to
independently import. Shanghai must also contribute foreign exchange to the
national government. Estimates are that today about 75% of revenues must be
turned over (down from 90% a few years ago, but still substantial). Yet
Shanghai has a very gung-ho leadership who see advanced technology in
Shanghai's future. Observers note that these key leaders, many of them
technocrats (such as the new mayor who was formerly Minister of Electronics at
the National level) now more often "huddle together" to build consensus on
technology policy.
Shanghai Computer Factory A visit to the Shanghai Computer Factory is a
lesson in some of the problems associated with technology transfer. The
factory is seen as a showpiece, but it is really under construction and
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appears quiet. Since its establishment in 1966 factory has produced 18 kinds
of computers, but in the early period (up through 1975) these were not
compatible. Between 1980 and 1984, they began to produce computers compatible
with DEC, IBM, and NOVA primarily by importing components from Hong Kong and
Japan (originally US designs). Thus the factory moved from production of
mainframes to minicomputers and today microcomputers. While it does produce
several types of small calculators in large numbers, the annual production for
computers is said to be only about 1000 annually. The new construction that
is now underway is a microcomputer production facility to be completed within
the next two years.
To date, it appears that much of the technology transfer that has
occurred has been somewhat limited. Components imports have permitted "KD"
(knock down) assembly. In addition, there are many new and sophisticated
machines (machines for cutting and cleaning silicon wafers, test machinese and
other types of instruments from first such as Fluke, HP, and Ginrad), but none
of them are currently in use. About a quarter of the 400 technicians were
said to be involved in softwear, but most of the "testing" of programs that I
observed appeared to involve trial runs only. Softwear development is
obviously still a major problem.
Concerning the procedure for technology importation, the Deputy Chief
Engineer explained that the factory generally submits 3-4 applications
annually for new technology import projects, and that 1 or 2 are generally
approved. The first step is to submit a technical report with proposed
budget to the Shanghai Computer Corporation. The Corporation submits the
application to the Shanghai Economic Commission, which looks particularly at
the budget. The factory can proceed once the SEC has given its approval, and
can operate within a leeway of about 10-20% possible increase in expenses.
The factory is required to return to the local government about 508 of its
revenues.
The factory has not yet established any joint ventures with foreign
firms. One reason is that Ministry of Electronics' relationship with a
Japanese firm allows the factory to receive designs free of charge. Perhaps
the major reason, however, is that potential foreign partners are reluctant to
involve themselves in a joint venture, because the factory is required to
employ so many more people than technology needs dictate. Therefore, despite
the fact that discussions have been held with US firms a joint venture seems
unlikely.
Shanghai Federation of Commerce and Industry Meetings with the
Federation provided interesting insights into the process of technology
transfer. The Federation is composed of about 20,000 members, most of them
former ("retired") entrepreneurs who serve as middlemen in making
introductions for foreign partners. They are mostly leading figures in
Shanghai industry and trade, and those I met with are technically trained.
Vice President Charles Y. Wang, for example, is MIT trained. He and two
colleagues appeared on the February 18, 1985 cover of Fortune magazine as
representatives of a new breed of Chinese entrepreneurs.
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It is not surprising that foreign firms have trouble understanding the
contract system, my hosts said. Decisionmaking involves a large number of
people outside the end-user factory, and this can be confusing. The thing
that most facilitates technology transfer is to get the project included in
the plan. This usually involves a general statement about the project and a
general financial plan. Once a project is approved the appropriate ministry or
bureau designates a factory and the factory (along with bureau
representatives) begin actual negotiations on the technical aspects. The
Foreign Trade Commission then makes the financing decisions. The biggest
obstacle has been a lack of sufficient investment, because the government can
directly finance only so many projects. The Federation has played a role in
helping to find financing. Mr. Wang noted that Premier Zhao wants Shanghai to
develop to the level of Hong Kong within 15 years, but also expects it to
provide its own financing. A recent decision allowing them to borrow from
private international sources will be an important breakthrough, they hope.
In the past, Japanese firms have been eager to get involved, but they are
seen as less willing to provide technology than US firms. For example, GE was
able to sell locomotives primarily because of the technology and training it
was willing to offer. US firms, on the other hand, too often expect quick
results. The Federation sees itself as uniquely able to help potential
partners build a long-term understanding. It is primarily a networking group
that has worked in the past with some of the biggest US firms such as GE.
Shanghai Foreign Economic Relations and Trade/ Science and Technology
Commissions The big four organizations in Shanghai are the Shanghai
Federation of Economic Relations and Trade, the Planning Commission, the
Economic Commission and the Science and Technology Commission, mirroring the
situation at the national level. SFERT and the SPC generally approve non-
industrial projects and the SEC has a major role in industrial proejcts,
according the officials I met with. In the case of big projects the SSTC also
reviews. SFERT must review the contracts if they involve foreigners.
Approval must be given for imports of industrial property, know how or
technical services. If the funding comes exclusively from Shanghai, then the
SPC can make key decisions for most projects. Today, however, there is a need
to look to more sources of financing, including private financial
institutions. This is a significant development.
The SSTC (like its national counterpart) provides general policy guidance
in areas such as training in S and T fields, organization of technology
markets, coordination of major projects. The staff numbers over 100, and
includes a comprehensive planning divison. While the SSTC has primary
responsibility in research areas, it is also involved when major projects
involving new high technologies (such as IC production) are under
consideration.
C. Questions for Further Research
The discussions highlighted the transformation that continues as China
searches for ways to obtain foreign technology while at the same time
preserving it own autonomy. Practically speaking, these dual purposes create
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the need to involve foreigners more extensively but at the same time a concern
that that involvement be circumscribed so that Chinese organizations remain in
control.
Clearly, Chinese leaders have made significant changes that indicate
their willingness to respond to the requirements of foreign firms in such
areas as patent protection and increased transparency and devolution of
authority in the decisionmaking process.
et much remains uncertain about the functioning of the Chinese
decisionmaking structure on technology importation. I came to think of the
structure as resembling an accordian, where the power and resources of the
vertical organizations expand and contract along with changes in the external
political and economic environment. Each of the ribs or compartments
(vertical agencies) have begun to experiment with new approaches, but it is
extremely difficult to evaluate their relative positions unless you look at
particular cases. For certain types of technology imports, the vertical
actors each have extensive authority, but it is unclear when they can and do
overule each other or how this occurs.
The level of horizontal communication among the ribs (vertical agencies)
appears constrained, and possibly a major problem. Each agency has the
resources to move ahead with projects of certain types, but these various
projects at times overlap or run at cross purposes, and in such cases it may
be difficult to reach a consensus save at the highest levels and for the
largest projects that receive the attention of high level officials such as
the S and T Leading Group. In this sense, the experiments iniatiated by each
of the major actors may be difficult to implement because of limited resources
to carry them out and problems in coordination horizontally.
The appropriate conclusion to draw may be that, under these
circumstances, a foreign firm can best assume that approval must be gained
from a large number of agencies in a process that may be rather time
consuming. Even projects approved in principle at the yearly plan level may
be subject to foreign exchange constraints when contract terms are finalized.
An important question that remains unanswered is who controls foreign exchange
and how this occurs. In the current context, this is a key issue.
Other important issues concern the precise division of responsiblities
between the central and local officials, as well as between the new projects
and the older industries. In addition, it is far from clear how the civilian
technology importation process interacts with the military.
List of Organizations/ Persons Interviewed (Dec. 2-10. 1985)
1. China National Technical Import Corporation (MOFERT), Dong Siqi, Vice
General Manager
2. China Venturetech Investment Corporation (SSTC), Zhang Xiao Bin, President
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3. National Research Center for Science and Technology for Development
(SSCT), Bai Yiyian, Division Chief for Technology Transfer
4. State Planning Commission, Foreign Economic Affairs Bureau, Lu Dingwen,
Deputy Director
5. State Economic Commissin, Bureau of Import and Export, Wang Yi, Deputy
Chief of Division
6. MOFERT, Technology Import and Export Division, Sun Peizheng, Deputy Chief
7. Chinese Academy of Social Sciences, Inst. of Japanese Studies, He Fang,
Director (see trip report on Japan)
8. Leading Group on Science and Technology, Qian Zhenmeng, Deputy Director
9. Shanghai Science and Technology Commission, Zhang Qi Biao, Deputy Director
10. Shanghai Foreign Economic Relations and Trade Commission, Foreign
Investment Division, Wang Jianqing
11. Shanghai Computer Factory, Mao Tsung Chun, Deputy Chief Engineer
12. Shanghai Federation of Industry and Commerce, Charles Y. Wang, Vice
President
13. Mitsui and Co., Peking Office, Yoshimitsu Kusaka, General Manager (see
trip report on Japan)
Note: In most cases I met with a number of officials when I visited an
organization. This list includes one name from each of the meetings. In
addition, I met with US commercial, economic and S and T officials.
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