TECHNOLOGY TRANSFER TO CHINA

The Experience to Date

Howard Davies

Recognition of Technological Backwardness was a Major Reason for the Opening of China

What is ‘technology’? What are the different types of technology

which exist? What channels are available for technology

transfer? What has been China’s experience to date?

Recognition of Technological Backwardness was a Major Reason for the Opening of China

What is ‘technology’?

What Is ‘Technology’?

A LONG DEFINITION ‘a perishable resource comprising knowledge, skills and the

means for using and controlling factors of production for the purpose of producing, delivering to users and maintaining goods and services for which there is an economic and/or social demand’– Robock 1980

A SHORT ONE ‘information and the capability to use it’

– Davies and Whitla 1995

What Are The Different Types of Technology Which Exist? “advanced” or “high” tech

versus “low” technology

“appropriate” versus “inappropriate” technology

“Hardware”/”Software” /Liveware”

“proprietary” versus “non-proprietary”

“codified” versus “tacit”

A much misu-used term!

Advanced or High Technology versus Low Technology High technology is the result of recent

research Often confused with computer

technology - assembling comuters is not hi-tech

Almost all high-technology is in the US, Japan and Europe

Advanced or High Technology versus Low Technology

Appropriate versus Inappropriate Technology

Appropriate versus Inappropriate Technology

Labour-intensive in low-wage, surplus labour situations

Lowest cost when taking full account of all costs e.g. pollution, non-renewable resources, etc.

Proprietary or Non-proprietary?

Proprietary or Non-proprietary?

Private property or in the public domain Proprietary technology may be kept

private by:– patenting, copyright or other intellectual

property laws– secrecy– confidentiality agreements with staff

Tacit versus Explicit

Tacit versus Explicit Explicit technology can be codified

– written down in some physical form• design or specification• drawing• formula

– passed to someone else by transferring the physical form

Tacit technology is not codified– only transferable through extended human contact– can you play tennis or ride a bike after reading the

manual?

Hardware, Software, Liveware,

Hardware, Software, Liveware,

Hardware - technology may be embodied in machines

Software - technology may be emobied in computer software but also designs, drawings, routines

Liveware - embodied in people

What Channels Are Available for Technology Transfer:1 ?

Migration of Skilled People– but not useful for ‘corporate’ knowledge

Contracts Between Independent Firms– equipment supply– licensing agreements– turnkey projects

But note the limitations of contractual transfers!

What Channels Are Available for Technology Transfer:2 ?

Through the Wholly-Owned Activities of Multinational Firms– the most effective and flexible channel

Though Joint Ventures: ‘Hybrid’ Channels– equity JVs– contractual JVs

Elements of both internalisation and contracts

The China Experience Pre-Reform

1949-58: Soviet Help - ‘the most comprehensive technology transfer in history’

1958-60: Great Leap Forward: a disaster

1960: Soviets leave, taking vital information with them

1967-76: Cultural Revolution: systemic collapse of economy and society

Problems with Technology Transfer Pre-Reform

Stalinist Planning, focussed on heavy industry

Huge, irrational projects,

Industries located in the interior for military reasons

Skilled labour not available

Plants built away from raw materials and markets

What Has Happened Since Reform?

Some of the old approach remains: State Council Projects Importing “Key” Plants

Shift towards a more market-driven approach– Different industries: light manufacturing– Eastern seaboard– Technology recognised as a proprietary good– Intellectual property legislation put in place

(though still very weak)

Recognition that China Needs to Learn from Other Countries But Complete Freedom to

Import Not Given to Enterprises

Regulations require that imported technology must be ‘advanced’ and ‘appropriate’

Restrictions placed on contract terms– special approval needed if technology supplier wants to tie

in purchases of inputs– imported technology becomes the property of the Chinese

buyer– ten year limit on contracts

Not all Chinese enterprises are allowed to import technology - they need the Foreign Trade Operations Right (FTOR)

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

0

10

20

30

40

50

60

70

80

% of Contracts % of Value

Complete PlantKey EquipmentTechnical LicensingConsultancyTechnical ServiceCo-production

Foreign Direct Investment (US$bn)

0

2

4

6

8

10

12

1416

18

20

1989 1995

EJVCJVWOFEJDev

Can We Measure the Relative Importance of FDI and Contracts for the Transfer of

Technology to China?

Difficult - the value of contracts includes different things - payment for equipment as well as payment for technology itself - values for FDI are for investment

Can roughly estimate the ‘output associated’ with each channel

Output anticipated from technology imported 1984-92– Complete equipment $US102.2bn– Licensing contracts $US63.1 bn– FDI $US162.7bn

Can We Evaluate Technology Imports to Date?

CRITICISMS have included:– emphasis on importing plant for production, not increasing

technological capability

– ‘unnecessary’ repeated imports of production lines - TV sets in early 90s, VCRs today.

– technology import projects which never reached the production stage (32%in one 1986 survey)

– too much emphasis on ‘hardware’, not enough on ‘software’

– ‘too much’ FDI in low-tech sectors

– imported technology not to ‘international ‘ level

– limited local content and linkages

– design and R&D takes place elsewhere

Concerns From Technology Suppliers

Chinese officials and managers tend to believe that technology comes in a simple package -plug in, switch on

Tendency to under-estimate the technological know-how needed to make technology work

‘Advanced’ is often not ‘appropriate’ Poor protection for intellectual property and restrictive

regulations encourage limited transfers

Different Types of Technology Import

Hong Kong FDI• low tech, little

technological learning, little marketing learning limited linkages

• BUT• appropriate, creates

jobs, incomes, exports, foreign exchange, introduces factory culture to a peasant society

Western, Japanese and European FDI and Contracts

• no real ‘hi-tech’ but more complex and capital-intensive than HK involvement

• more linkages and therefore more development potential

• BUT

• less appropriate, fewer jobs created, limited exports

Can We Reach An Overall Conclusion? It is foolish to seek “high-tech” for its own sake, especially when

finding jobs for unskilled workers is a priority

At the same time, China needs to be able to adopt and adapt technology from elsewhere which requires significant technological capability

Perhaps the balance between the two types of technology import may be a good one

Foreign owners of technology will only begin to bring strategically important technology to China when they are confident that it is protected