Photo: Reuters
Photo: Reuters

A handful of industry associations gathered at a hearing for the Trump administration’s probe into Chinese intellectual property theft on Tuesday, levying harsh criticisms of what many described as widespread abuses.

Comments ranged from cautious support for the investigation, acknowledging the beneficial role China plays in the US economy, to claims that, citing a senior US official, China’s IP theft represents the “greatest transfer of wealth in history.”

Despite the overwhelming condemnation of China’s practices, one witness defended China’s enforcement of IP protection laws. William Mansfield of ABRO Industries praised China for the strides they have made in combating counterfeit products.

“Too often events like this to gather information regarding China and intellectual property protection are unfairly skewed toward the viewpoint that there is no viable option for IP enforcement in China,” Mansfield argued. “We have found this to be completely untrue.”

Unfair practice of forced technology transfer has been instrumental in the development of China’s C919 passenger plane, argued one witness at the hearing. Photo: Reuters/Bobby Yip

While years ago counterfeit consumer products dominated the conversation about Chinese IP theft, the hearing reflected a shift towards concerns of theft and forced transfer of strategic technologies. Those fears prompted the Trump administration to launch the Section 301 investigation last August, a process that could result in unilateral retaliatory actions against Chinese companies.

Senior Vice President of the US-China Business Council, Erin Ennis, pushed back on some of the most aggressive claims of abuse in response to a question about the nature of forced IP transfer.

“Only about a third of companies report that they have actually been asked [to transfer technology] – either coming from a government entity, the central government, local, provincial level, or by their business partners,” Ennis said, citing USCBC surveys.

“Once you start drilling down… it appears to be that there is a minority of companies who are forced to transfer technology and who are not compensated.”

Others painted a much darker picture of the environment in China.

“So much is behind the scenes and the communist party pervades, and that is something really important to understand,” said Richard Ellings, Director of the Commission on the Theft of American Intellectual Property.

The Chinese government is spending almost $5 billion on a new fund to support the country’s microchip industry, as China moves to bolster what it has long considered a strategically important segment of its economy. The push has been criticized by foreign companies, which currently dominate the industry. Photo: AFP

Suggesting that there is no separation between private companies and the communist party, Ellings added “It’s a party state.” The party structure he says, “infiltrates everything. There is a shadow structure of implementing policies and enforcing them that is key. It’s not as helter skelter as many would like to characterize the environment in China.”

Addressing this disconnect between accusations of pervasive technology transfer practices, and the characterization of a modest scale of abuses, Ellings said that companies are afraid to report abuses.

“The reticence shown by companies is just smart business practice,” he said, adding that “if you share technology or technology is stolen, your stock price may plummet.”

“In quiet conversation, we find out incredible stories about the pressure and the few options companies have.”

“It’s also important to see these types of policies in a global context,” Stephen Ezell of the Information Technology and Innovation Foundation said regarding forced transfer. “Because often if a US company holds tight and refuses to disclose the IP or technology, then China will turn to a company from Europe or elsewhere in Asia, and play them off one another.”

The focus of much of the hearing was on information technology and the aerospace industry, with witnesses decrying that the goal of China’s Manufacturing 2025 strategy runs contrary to the spirit of international trade.

Owen Herrnstadt, Director of Trade and Globalization for the International Association of Machinists and Aerospace Workers, said China is one of the few countries that understands the great benefits that aerospace can offer a nation’s economy.

He argued that China’s accomplishments in the industry, demonstrated by the development of the country’s first commercial passenger jet, the C919, has been achieved in large part through forced transfer of technology. That has been accomplished in part, he said, by playing Boeing and Airbus off each other as they vie for a greater share of the growing Chinese market.

President Trump speaks before signing a memorandum on addressing China’s laws, policies, practices, and actions related to intellectual property, innovation, and technology in August. Photo: AFP/Chris Kleponi

The hearing comes several weeks before President Trump’s scheduled trip to China, during which the bilateral trade relationship is expected to be front and center, along with the North Korea crisis.

The launch of the Section 301 investigation was one of the first steps Trump has taken to follow through on his campaign promise to challenge China on the bilateral trade relationship. A decision on an antidumping duty investigation into Chinese aluminum foil imports was deferred last week.

Richard Ellings echoed some of Trump’s campaign trail rhetoric, saying the costs of China’s practices over the past fifteen years “are millions of American jobs.” Challenging China on such abuses requires policies “based not on hope and platitudes, but on strength and leverage.”