Germany’s Strategy on China: A Misguided Focus on Technology Transfer
In July 2023, Germany rolled out its much-awaited strategic document on China. The strategy highlights how Germany perceives China now (italics added) given China’s economic rise, as well as how Germany would want to interact now (italics added), bilaterally and multilaterally, with China. This takes into account China’s quest for economic leadership as well as China’s attempt to reshape the existing United Nations system of rules-based international order.
Vocal on Germany’s perceptional change towards China, the strategy sets out to recalibrate Germany’s complex relationship with China, albeit ‘(expectedly) on Germany’s terms, keeping German interest at the forefront, and upholding Germany’s values and interests. Still, the strategy cocoons itself in the EU's policy on China seeking global support through cooperation and collaboration with all countries, particularly those who share Germany’s social, economic, and political ideologies.
Despite an ambitious global outreach considering the geopolitical landscape, the strategy is sprinkled with vague policy ideas and instruments. A good example is how the strategic document perceives technological transfers mediates to China. Perturbed by China’s technological capabilities and capacities for technological catch-up and leadership, the strategy calls upon the need to reassess, reevaluate, and adjust existing policies, and policy instruments that might enable the transfer of technology to China. This, according to the strategy, is crucial because of two reasons. Firstly, China’s Military-Civil Fusion policy which seeks to diffuse the line between the use of civilian research projects to advance China’s military capacities and capabilities. Secondly, China has an ambition clearly outlined through various policies (including Dual Circulation and Made in China 2025) to wean itself off the dependencies on other countries. An empowered China, through political initiatives such as the Belt and Road Initiative, Global Development Initiative, and Global Security Initiative, would then, and has in the past too, systematically and systemically leverage its economic, political, and military weight across the global economy, thus determining the global fate fulcrum around China.
Therefore, to avoid unilateral, as the strategy says unwanted (italics added), technological transfers to China, the strategy argues for the need to reassess State Export Credit Guarantees, screen China’s Foreign Direct Investments (FDI) in Germany , and adjust export control lists, amongst other measures. However, the expectation that through these measures technological transfers to China can be restricted and/or curtailed, is not realistic for the reasons explained below.
Firstly, it does not necessarily hold that China depends on acquiring foreign technology through direct channels such as technological handovers and/or forced technological transfers. In fact, in the case of China, Lardy (2018) provides evidence that challenges the narrative around the magnitude of China’s forced technological transfers. To put it in perspective, Lardy (2018) shows that between 1997 to 2017, China’s payments of licensing fees and royalties for the use of foreign technology have had a four-fold increase, almost reaching USD 30 billion in 2017. In a global context, he argues that China probably ranks second in the amount it pays as licensing fees for foreign technology used within national borders. Therefore, victimizing in the narrative that German companies face an unequal level playing field in China resulting from forced technology transfer, is only a myopic viewpoint from Germany.
There are indirect channels such as technological spillovers that might have already played a significant role in transferring technology. These spillovers could be transmitted through channels such as cross-border movement of human capital, competition amongst firms, imitation of foreign technologies/reverse engineering, and integration of foreign technologies in domestic production, amongst others. While it is largely difficult to quantify the exact channel through which technology could spill over, research provides enough evidence to indicate that technological spillovers have been a catalyst in China’s technological growth trajectory. Certainly, the magnitude of technological spillovers largely depends on China’s absorptive capacities and capabilities to absorb and assimilate foreign knowledge, and it is a no close-door secret that China has been investing and evolving policies to develop the country’s absorptive capacities and capabilities such as the human capital, and infrastructural development, to name a few.
Take developing human capital capacities and capabilities, for example. China not only continues to emphasize deepening educational reforms such as reforms directed to provide basic compulsory public education at large, but also directs efforts to attract overseas Chinese. At the 11th National Congress of Returned Overseas Chinese and their Relatives, the contributions of returned overseas Chinese and their relatives, and Chinese diaspora abroad were acknowledged and hailed, calling upon Chinese nationals at home and abroad to proactively participate in creating new development patterns characterized by high-quality development. Accordingly, several policies and programs at the national, provincial, and, city-level, are being implemented to not only entice overseas Chinese to relocate to China but also are directed to ensure a seamless integration of relocated overseas Chinese back into the Chinese economy. Undeniably, the benefits of luring overseas Chinese are also that they inadvertently complement and eventually facilitate in enhancing the capabilities and capacities of the existing human capital of the country.
Besides directed efforts toward domestic human capital, China has also been going the extra mile to attract foreign human capital. For instance, on 3 August 2023, China’s Ministry of Public Security released a new set of measures wherein foreigners traveling to China for activities such as business negotiations, business exchanges, installation and maintenance, participation in exhibitions and conferences, investment and entrepreneurship, etc., could now, with a company invitation letter and other supporting documents, avail their business visa upon arrival in China. Moreover, individuals requiring multiple visits to China for commercial reasons could be reissued a three-year multi-entry business visa after entering the country. In another example, China permits foreign-funded research and development centres to apply, as a team, for a one-time work permit of up to five years, to attract and facilitate long-term residency of overseas talent in China.
In other words, technological spillovers through channels such as human capital could also facilitate technological transfers, and this is irrespective of the helicoptering Germany intends to do through various policies.
To summarize, it is important to understand that a globalized economy offers alternative avenues of technology transfer, including through the movement of labour and capital. All these avenues cannot be fully blocked and thus technological spillovers would find their way to seep through the national borders. For example, the movement of overseas Chinese scientists back to their home country and/or other welcoming host countries should be an indication for Germany of the intricate workings of globalization which could potentially facilitate technological transfers.