China Forced Tech Transfer Still A Problem, EU Firms Say
Executive Summary
One in five European pharma companies and medical devices makers has been forced to transfer technologies in China, a fact which is “highly concerning” says the latest business survey report from an EU trade group in the country.
The unwilling or compelled transfer of technology in China is increasing notably, particularly in R&D-heavy sectors such as oil and chemicals, pharmaceuticals, medical devices and the auto industry, which is a highly concerning trend, says the EU Chamber of Commerce In China (EUCCC).
Overall, one in five companies or 20% of the members of the chamber, a major foreign trade group, felt pressured over such forced tech transfers last year, double the rate in 2017.
For some strongly R&D-focused industries, the demands can be even higher. In the pharma sector, 28% of respondents cited pressure to transfer technology, second only to chemical firms (30%), with the medical device sector trailing closely (27%).
“Compelled transfers take place when firms unwillingly hand over technology through a JV [joint venture] agreement or regulations in order to gain access to the Chinese market,” the European group noted in its annual business climate survey report, released 20 May. The trend is "very worrying", EUCCC vice-president Charlotte Roule said during a press briefing in Beijing.
Since many industries in China are still effectively closed to foreign investors, the only choice for market entry may be to operate through joint ventures with domestic firms. Some companies have been forced to hand over sensitive technology to partners that then later compete with them in China and even other markets, noted the group.
The long-running issues of alleged intellectual property theft and forced tech transfer have again raised their heads amid renewed US allegations that China has done little to address the problems, which Chinese authorities claimed recently are fabricated. The issues forms part of a brewing trade spat which has seen the US impose new tariffs on $200bn worth of Chinese imports, against which China is expected to retaliate.
China's Cabinet, the State Council, issued an order (No.19) in mid-2018 that aimed to discourage compelled technology transfers, but 63% of survey respondents reported such transfers had still happened within the last two years and 25% that transfers are currently taking place.
Excessive Disclosure?
Disclosure of proprietary data or other trade secrets to authorities to gain a regulatory approval is one form of forced technology transfer in China, noted Dan Prud’homme, associate professor at Pôle Universitaire Léonard De Vinci in Paris.
According to the scholar, “excessive disclosure of trade secrets to government authorities is required in industries such as the chemicals and pharmaceutical industries in exchange for licensing and other regulatory approvals,” Prud’homme was quoted as saying by the South China Morning Post.
Despite China's drug regulatory agency, the National Medical Products Administration, streamlining its requirements since joining the International Conference on Harmonisation process, the amount of data and documents required for IND filings remains huge and complex compared to other Asian countries, noted BeiGene Ltd. senior VP and head of global regulatory affairs Wendy Yan, in a recent interview with the Drug Information Association.
Filing requirements for NDAs are better, but the data needs for factory inspections and testing need further improvement, she added.
Reluctance To Admit Problems
Despite the ongoing controversy over forced tech transfer in China, few companies openly admit the problems, which has complicated efforts by authorities to tackle the issue, noted experts.
According to the Peterson Institute, a Washington, DC-based think tank, few multinationals are willing to concede such transfers take place due to a fear of retribution and losing out in the competition with other companies.
“Multinational companies are reluctant to openly admit that they are being pressured by a Chinese customer or by the Chinese government to transfer technology that they do not want to transfer. Doing so raises the risk of reprisal or of losing out on the opportunity to access the Chinese market. This lack of information makes it difficult for foreign governments to intervene,” the institute stated.
The latest EUCCC survey painted a less than optimistic picture for regulatory reforms in China to tackle the challenge, with 41% of respondents believing regulatory obstacles will actually worsen over next five years, and 30% saying they also faced indirect market access barriers.