China must learn that tech transfer two-process deal

By Doug Young Source:Global Times Published: 2016/6/13 23:48:01

Illustration: Peter C. Espina /GT

The story of China's rapid modernization through the use of Western technology took an unusual twist last week when a US firm aiming to build America's first high-speed rail line abruptly cut its ties with a Chinese partner over technology transfer issues. XpressWest, the US builder of the line connecting Los Angeles and Las Vegas, was quite frank, blaming its decision on Washington's requirement that rail cars for the project be locally manufactured.

While XpressWest wasn't more specific, its brief announcement strongly implied that its Chinese partner, China Railway International (CRI), was unwilling to make the necessary technology transfers for the project to go ahead.

Most cross-border technology transfers to date have flowed from the West to China for the simple reason that the former was far more advanced than the latter, which had little to offer in return. But high-speed rail is one area where China may finally have an advantage over many of its Western peers, after gaining a wealth of experience from building a national rail network costing hundreds of billions of dollars.

Companies with cutting-edge technology are almost always wary of sharing that knowledge out of concerns over intellectual property theft and helping to foster the development of new rivals. But technology sharing is also part of doing business, and policies requiring such transfers have been liberally used by Beijing to help China develop competitive high-tech sectors in areas like telecoms equipment and computers.

Such transfers also create competition that keeps the market healthy and fosters innovations that ultimately benefit the entire global economy. Accordingly, China should be prepared to accept the same conditions that it often imposes on the West and should encourage its emerging field of State-run leaders like CRI to enter into similar technology transfer arrangements that ultimately benefit everyone.

China has emerged over the last decade as a global leader in high-speed rail, following Beijing's decision to invest heavily in the area as part of a broader drive to build up the nation's transport infrastructure. China currently has nearly 20,000 kilometers of high-speed railway, and 10,000 more are planned by 2020, easily surpassing the extent of all such rail networks in the rest of the world combined. The total cost of the network is estimated at a staggering $300 billion or more.

Having invested so much money in the technology, Beijing is understandably eager to export some of that know-how by building high-speed rail lines for other countries through CRI, the main builder of such projects. It has scored a few contracts in developing markets like Indonesia, though many have relied on project financing from China.

CRI achieved a major breakthrough last fall when it formed its partnership with XpressWest to build a high-speed line connecting Los Angeles and Las Vegas, covering a distance of about 300 miles (480 kilometers) at an estimated cost of around $5 billion.

But the landmark agreement was suddenly terminated last week due to Washington's requirement that rail cars be locally manufactured, since the line was being funded with federal money.

It wasn't immediately clear why CRI declined to agree to build rail cars for the project locally, and higher costs in the US were probably a factor. Such technology transfer also could have ultimately trained US workers in the field, giving them the experience and know-how to eventually set up their own rival companies.

Such a process is an important part of the healthy development of emerging high-tech sectors, and China has made liberal use of it to help build up some of its biggest corporate names like telecoms giant Huawei, PC leader Lenovo and new-energy carmaker BYD. Western high-tech leaders like Ericsson and IBM willingly bring their technology to China, often in the form of joint ventures, partly with the understanding that the engineers and professionals they train will ultimately go to local companies or even start up rival firms.

The collapse of the CRI-XpressWest partnership represents a big lost opportunity for both sides, since it would have given CRI a foothold in the West while also helping to nurture related technologies in the US. In the future, Beijing should encourage big State-run players like CRI to be more open-minded about exporting not only their products but also their technology, in a process that will ultimately advance the companies' own interests while also promoting the development of cutting-edge global industries.

The author is an associate professor with the School of Journalism at Fudan University. He also writes about China's notable companies at

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