China: Runs with scissors

Shanghaiist has a hard time keeping quiet whenever our favorite American politician, Senator Charles Schumer, starts up with his unattractive whining about China, and how "US companies are affected by China's unwillingness to play fair." While Shanghaiist will be the first to admit that China has a serious problem when it comes to reining in rampant intellectual property rights violations across a number of industries, Shanghaiist has to cry foul when Schumer's rant begins to enter the realm of specific restrictions against US investors in China:

"In industries from aviation to steel China demands that U.S. firms give up their technology and know-how to the joint venture as a condition of entering into the market place," the report said in what amounts to making U.S. technology "hostage" to any bid to enter China's market.

In Shanghaiist's experience, foreign investors' complaints have almost always been related to restrictions on the size of investments allowed -- percentage of foreign ownership -- when it comes to Chinese companies and joint ventures. We have heard of deals going awry with Chinese partners running off, illegally, with intellectual property. (China also has a history of obtaining, illegally and legally, and subsequently squandering technology, never actually building upon this know-how to develop its own advanced technology.) But we can't imagine that any American companies in industries involving technology would ever come to China if giving up all of their trade secrets was required to do business here ... especially not companies in the aviation industry where sensitive technology could have implications for China's own military capabitilies.

At the forefront of American aviation in China is Boeing ... and, Shanghaiist has a hard time feeling sorry for a company posting booming sales reports in the realm of $6 billion. Boeing is also pretty aware of the tremendous opportunities it has in China, estimating that China will be needing 2,400 new airplanes worth $197 billion over the next 20 years. As far as we know, nobody's holding Boeing hostage in China. Shanghaiist gets the feeling that the company might even like it here.

Obviously Senator Schumer has also conveniently forgotten about some recent news in China's heavily state-controlled banking sector involving major American investments. One of these deals even gave an American company a controlling stake in a Chinese bank. While it is true that currently, foreign investors are not allowed to hold greater than 25% in a single Chinese financial institution, and no more than 20% per foreign entity, there are already rumors that the Chinese government is considering an experiment involving foreign majority (51 percent) ownership of a Chinese bank. Considering China's economic situation -- growing fast but still in need of tremendous development -- the country's reforms and liberalization of its economy are notable. China just joined the WTO at the end of 2001. But perhaps these developments aren't happening quickly enough not to give American politicians a target for blame and complaints on behalf of suffering, slighted American investors.

Shanghaiist would love to see Schumer's compilation of Beijing's methods used specifically against U.S. investors (do any of these methods include "claiming threats to national security?"). We have a hunch other countries in the world could make the same complaints. And we also have a hunch that China is a little more subtle in its rebuffs than America was when it came to its vitriolic protests over CNOOC's failed bid for Unocal, and the 0.6 percent of America's oil interests represented by the deal.

Schumer needs to brush up on the details of China's gradual implementation of WTO regulations before he has the right to complain about how evil he thinks China is as an international economic force. Yes, the process is supposed to be "gradual." Like it or not, and despite how scary China must seem to vast swaths of American politicians, China is still very much a developing country with a long ways to go. (Shanghaiist won't even get into the worrisome subject of China's struggling banking sector.) Sudden, drastic changes would be devastating to any developing country, and especially one moving as quickly as China. Despite some of its outward muscle flexing, the Chinese economy is not as stable as it may seem.

Oh, and as far as Shanghaiist knows, any of China's violations of WTO regulations also affect countries other than America. In fact, we have always assumed that the "W" in WTO stood for "World."

Sometimes it isn't all about America, Senator.

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