Technology Transfer to China

Technology Transfer to China July 1987
NTIS order #PB86-113008

Recommended Citation: U.S. Congress, Office of Technology Assessment, Technology Transfer to China OTA-ISC-340 (Washington, DC: U.S. Government Printing Office, July 1987).
Library of Congress Catalog Card Number 87-619823
For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, DC 20402-9325
(order form on p. 245)

Foreword
Momentous changes continue to occur in China. The high priorities now accorded economic modernization and improved global relationships present a sharp contrast to the years of the Cultural Revolution and earlier. Yet there is great uncertainty over China’s future course. China may be a constructive trading and strategic partner, or it may choose a more divergent path. U.S. decisions on technology transfer will be an important determinant of which path is followed and the implications for the world.
This report responds to requests from the House Committee on Energy and Commerce and the Senate Committee on Banking, Housing and Urban Affairs for an assessment of the economic and strategic implications of technology transfer to the People’s Republic of China and of Congressional actions that would affect it. In addition, the Senate Select Committee on Intelligence endorsed the study request.
The first phase of this study focused on energy. A Technical Memorandum, Energy Technology Transfer to China, was released in September 1985, and proved useful in the Congressional debate on the nuclear cooperation agreement.
This document analyzes the factors in China that affect technology transfer and will be affected by it. The experiences of U.S. and foreign companies in the China market are described. We discuss the evolution of China’s economy, polity and foreign policy, and how different expectations suggest different policies for the U.S. Government.
In the course of this assessment, OTA drew on the experience of many organizations and individuals. We appreciate the assistance of the project contractors who prepared much of the background analysis, the U.S. Government agencies and private companies who provided much valuable information, the Chinese institutions which facilitated the visits of our researchers, the project’s advisory panel and workshop participants who provided guidance and review, and the many additional reviewers who helped ensure the accuracy and objectivity y of this report.
Director
/./,/.

International Security and Commerce Program Technology Transfer to China Advisory Panel

Robert Dernberger, Chairman
Director, Center fo~Chinese Studies The University of Michigan

A.DoakBarnett Professor, School for Advanced
International Studies The Johns Hopkins University
Gareth Chang President McDonnell Douglas China Inc.
Chauncey Chu Vice President of Manufacturing Wang Laboratories, Inc.
Bo Denysyk Vice President, International Affairs Global U. S. A., Inc.
Basil K. Fox Bechtel China Inc.
Admiral Thomas Hayward, USN (ret.) President Hayward Associates
Richard Holton Professor, School of Business
Administration University of California
Morton Kaplan Professor, Department of Political Science University of Chicago

Arthur A. Klauser Senior Vice President Mitsui & Co. (USA) Inc.
Stanley Lubman, Esq. Heller, Ehrman, White & MacAuliffe
Charles Lucy Director, International Operations Corning Glass Works
Bruce Lusignan Professor of Electrical Engineering Stanford University
Leo A. Orleans China Consultant Library of Congress
Professor William Parrish Director, Center for Far Eastern Studies University of Chicago
Vaclav Smil Professor of Geography University of Manitoba
Roger Sullivan President National Council for U.S.-China Trade

NOTE: OTA appreciates and is grateful for the valuable assistance and thoughtful critiques provided by the advisory panel members. The panel does not, however, necessarily approve, disapprove, or endorse this report. OTA assumes full responsibility for the report and the accuracy of its contents.
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OTA Project Staff

Lionel S. Johns, Assistant Director, OTA Energy, Materials, and International Security Division

Peter Sharfman, International Security and Commerce Program Manager

Alan T. Crane, Project Director

Eric O. Basques: U.S. Commercial Experiences, Military Technology Martha Caldwell Harris: U.S. Policy, Multinational and Strategic Issues
Richard Peter Suttmeier: China’s Context, Trends, and Foreign Policy

Craig Allen

Contributors Matthew J. Bryza Joanne Seder Alan Shaw
Administrative Staff Jannie Coles Cecile Parker Jackie Robinson

Franklin Zweig

In Memorium Dottie Richroath

Contractors
Thomas Fingar William A. Fischer
Paul Folta Thomas W. Robinson
Denis Simon Kathryn Van Wyk China Business Development Group Global Associates, Ltd. Midwest China Center Rock Creek Research, Inc. Science Applications International Corp.

Workshop on China’s Future Course, July 28-29, 1986

Parris Chang Professor of Political Science Pennsylvania State University
John Davie Economic Analyst Central Intelligence Agency
David Denny Assistant Director of Research National Council for U.S.-China Trade
Professor June Teufel Dreyer Director of East Asian Programs Graduate School of International Studies University of Miami, Coral Gables
Michael Field Central Intelligence Agency
Thomas Fingar U.S. Department of State
Harry Harding Senior Fellow The Brookings Institution
Ambassador Arthur W. Hummel (ret.) Consultant
Albert Keidel President Rock Creek Research
Acknowledgments
Government Agencies
The Department of Commerce The Department of State The Department of Defense The Department of Transportation The Export-Import Bank The Congressional Research Service The General Accounting Office
Companies
General Electric RCA-Astro Electronics American Motors Corp. Hewlett Packard Control Data Corp. Foxboro Co. McDonnell Douglas Corp. The many companies which responded to the
OTA survey.

Martin Lasater Director, Asian Studies Center The Heritage Foundation
Bruce Lusignan Professor of Electrical Engineering Stanford University
Ramon Myers Curator/Scholar, East Asian Collection Hoover Institution
Douglas H. Paal Director of Asian Affairs National Security Council
Melvin Searles Deputy Assistant Secretary for East Asia and
the Pacific U.S. Department of Commerce
James Stoll Defense Intelligence Agency
Jeffrey R. Taylor Chief Economist, China Branch Center for International Research U.S. Bureau of the Census
Lt. Col. Eden Y. Woon, USAF Office of Joint Chiefs of Staff U.S. Department of Defense
Institutes
The Committee on Scholarly Communication with the Peoples’ Republic of China
The National Council on U.S.-China Trade The East-West Center The American Society of Mechanical Engineers
Embassies and Foreign Governments
The People’s Republic of China Japan Federal Republic of Germany France United Kingdom

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Contents

Chapter

Page

I. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2.The Chinese Context for Technology Transfer: The Economic Issues . . . . 21

3. The Chinese Context for Technology Transfer: Strategies and Issues for Technology Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

4.The Role of the United States in Technology Transfer to China . . . . . . . . . . 69

5. Policies of Other Supplier Countries: Japan, France, West Germany, and Britain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .115

6. China’s Economic and Political Trends . . . . . . . . . . . . . . . . . . . . . ...........147

7. Strategic Implications of a Modernizing China . . . . . . . . . . . . . . . . . . . . .167

8.U.S. Policy Choices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......197

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Chapter 1
Summary
Photo credit: Er{c Basques Bronze Crane in the Forbidden City in Beijing. The crane is a legendary symbol of long life,

CONTENTS

Page
China’s Need for Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The U. S. Role in Technology Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Economic and Political Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Strategic Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 U.S. Policy Choices.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Figures

Figure No.

Page

I. Processing Time For Referred (Closed Out) Cases . . . . . . . . . . . . . . . . . . . 15

Z. Average Processing Times: China Nonreferred All China Cases . . . . . . . 15

Table

Table No.

Page

l. Anti-Submarine Warfare Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Chapter 1
Summary

A billion people! If they each buy just one . . . If we give them technology, they’ll be just like Japan . . . In a country that can launch satellites, why is the plumbing so bad . . . All they want is technology, and they expect miracles from it . . . It’s completely different now. It’s hardly even Marxist . . . So where are all those Red Guards now? Aren’t they just waiting . . .
If we don’t sell it to them, France or Japan will . . . They’ll pin down the Russians on the Eastern front . . . How do we know they won’t use it against Taiwan-or us . . .
There’s a lot we can learn from them . . .

China evokes countless, often contradictory, expectations and impressions. What is clear is that China will become increasingly important to the United States over the next several decades. Its impressive economic growth in recent years, if continued, will propel it into the ranks of the newly industrialized economies of Asia—Taiwan, South Korea, Hong Kong, and Singapore—but eventually on a much larger scale. International trading patterns are likely to change dramatically as China increases both imports and exports. China will also acquire increasing political influence in world affairs as its economic, technological, and military strengths grow. U.S. interests in Asia will be profoundly affected by China’s international role, including its relations with the Soviet Union, Taiwan, and other neighbors.
As important as these developments are, the U.S. ability to influence them is limited. China’s economic growth is much more dependent on internal Chinese factors than on any U.S. actions, and China will play its international role on the basis of its own perceived best interests. What the United States can do is reinforce China’s constructive choices and trends, and protect itself against the risk that Sine-American interests will again diverge.
One of the most important influences that the United States has is technology transfer. China recognizes the need to acquire new technology and new capabilities in its efforts to modern-

ize and expand its economy. This need was one of the main reasons for ending its self-imposed isolation and for opening itself to the West in the 1970s. The United States benefits insofar as China is a strategic asset, if not an ally, in the global competition with the Soviet Union. Technology transfer helps build these ties and increases China’s strength vis-a-~vis the Soviet Union. It also can lead to important commercial ties and to the export of American products. In addition, China is still a very poor country, and technology transfer can be an important element in humanitarian efforts to help a billion people move out of poverty.
U.S. policy toward China for the past 10 years has been predicated on the assumption that closer relations are generally beneficial but that caution must be exercised in the transfer of advanced, sensitive technology. This policy has had some success: China has played a more constructive international role, and many areas of common interest (reportedly including sensitive intelligence gathering) have been found. Trade has also become significant. With so much gained, some ask whether further steps are warranted—in particular, whether the United States should make greater efforts to help China modernize through technology transfer.
However, the reasons for caution have not been eliminated, and some observers feel that U.S. policy has gone too far: that China is a

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