Behind myth of China’s great tech grab

For all the concern over China’s targeting of foreign intellectual property, how much forced transfer of leading-edge technology really happened?
By the looks of the Chinese auto industry, hardly any. If there has been, then Beijing has precious little to show for it in a market of 25 million cars a year.
Take the case of Brilliance China Automotive Holdings Ltd. The Hong Kong-listed company has lost 53 percent of its value since news broke earlier this year that BMW AG was taking a majority stake in their joint venture. The German luxury carmaker was the first foreign auto partner to jump in after Beijing removed ownership caps.
Their 15-year-old venture, BMW Brilliance Automotive Ltd., has been a lucrative business. Average daily unit sales rose 18 percent from a year earlier in the first two weeks of December, amid an auto market where demand has been plummeting. BMW Brilliance, which already makes some models solely for China, plans to produce more vehicles locally and import fewer.
None of BMW’s luster has rubbed off on its partner. Since the venture started, Brilliance’s non-BMW sales growth has been dismal. Sales of Brilliance-brand cars have slumped over the past couple of years to just a fraction of BMW sales.
Analysts now value the Brilliance business at next to nothing. Small wonder, then, that the company’s stock price tanked when BMW raised its holding in their venture.
This begs a question: How was Brilliance China not able to acquire the technology to produce a successful car itself, despite having a top-tier partner and majority control of their venture for 15 years?
The reality is that overseas automakers have a well-honed strategy to safeguard their most advanced technology and keep Chinese competitors at bay. BMW began construction of its joint-venture plant in Dadong, in the northeastern city of Shenyang, in 2003 – but didn’t build an engine plant in China until 2012. BMW’s eco-friendly light metal foundry, which does metal casting, came to China seven years after its Bavarian equivalent opened.
At the same time, BMW managed to cater to the local market, building China-specific cars and increasing the range of models it produces. The German automaker will now manufacture electric cars in the country.
Other companies have used a similar playbook. Toyota Motor Corp., for instance, is preparing to share its hybrid car-engine technology with China, Bloomberg News reported in September. While that may have looked like a scary precedent for carmakers, the fact is that hybrids are losing their sheen as the auto world focuses on an all-electric future.
China’s automotive policy may exacerbate pressure on overseas automakers, ignoring the fact that most have done well in the country. For those that haven’t, a flawed strategy rather than forced technology transfers has been the reason.
This isn’t to defend China’s practices or policies on trade and investment. However, there are important distinctions between alleged hacking, espionage, restrictions on foreign investment, unfair trade policies, and theft.
—Bloomberg

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal