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Definition and Channels• International technology transfer (ITT) is a comprehensive term covering
mechanisms for shifting information across borders and its effective diffusion into recipient economies.
• it refers to numerous complex processes, ranging from innovation and international marketing of technology to its absorption and imitation. Included in these processes are technology, trade, and investment policies that can affect the terms of access to knowledge.
• Channels– One major channel is trade in goods, especially capital goods and
technological inputs.– A second is foreign direct investment (FDI)– A third is technology licensing– non-market channels of ITT: the process of imitation through product
inspection, reverse engineering– temporary migration of students, scientists, and managerial and technical
personnel
Policies impacting ITT• Host country policies
– Absorption of ITT and its translation into greater competition depend on having an adequate supply of engineering and management skills.
– Backward spillovers from ITT appear to be strongest in countries where multinational firms are capable of working with competitive suppliers in order to increase their productivity and standards. Reducing entry barriers in supplier industries can assist ITT.
– Important factors include, among others, an effective infrastructure, transparency and stability in government, and a reasonably open trade and investment regime.
– Governments may reduce the "technological distance" between their firms and foreign firms in order to encourage ITT.
– attention should be paid to selecting IP standards that recognize the rights of inventors but encourage dynamic competition.
Policies (cont)• Source country policies
– Governments in developed countries could increase their technical and financial assistance for improving the ability of poor countries to absorb technology and trade.
– Governments could agree to offer identical fiscal benefits to firms transferring technologies to developing countries as to developing home regions.
– Developed countries could offer the same tax advantages for R&D performed abroad as for R&D done at home.
– Governments could ensure that tax deductions are available for contributions of technology to non-profit entities engaged in ITT.
– Fiscal incentives could be offered to encourage enterprises to employ, at least– temporarily, recent scientific and engineering and management graduates
from developing countries. – Universities could be encouraged to recruit and train students from LDCs in
science, technology, and management.
Case: Auto Industry in Chinese Economy
• 1.6 million Chinese were directly employed by this industry as of 2003 (not counting the employees of industries that supply the auto industry (i.e. steel, rubber), which are estimated at approximately 36.4 million workers). Auto industry is 3 percent of total manufacturing employment.
• The value added by the Chinese auto industry represented 6.3% of the total value added of manufacturing in China in 2003, a tripling of this percentage from its level in 1990 (CATARC 2004).
History of Chinese Auto Industry• Little to no manufacturing experience prior to WWII• Tech transfer from Soviets before Sino-Soviet split in 1960• After Cultural Revolution, no technological capabilities in this sector• Decision to “make or buy” – forced to buy because of weak technological
capabilities• Formation of many joint ventures with foreign firms and licensing of
technology from them as well, but without formal industrial policy• 1994 Auto Industry Policy – intention to create national industry• Consolidation of industry, but currently 118 manufacturers; all the major
ones have formed joint ventures with foreign auto companies• Joining WTO in 2001 effectively reversed many previous policies, but
increased competition• 2004 Auto Industry Policy – auto industry as “pillar” industry; create better
technological capabilities and consolidate industry
Chinese Automakers• Currently 116 automakers in China• Vast majority of output comes from the firms that
have formed joint ventures with foreign companies (quasi-exceptions are Chery and Geely)
• High profitability• Skills in manufacturing, parts and components, and
business development• Weak design and innovation capabilities, especially
for advanced engines and system integration
Terms of WTO for Chinese Auto Industry• Import tariffs for complete vehicles are to be reduced from the current 80
to 100 percent to 25 percent by July 1, 2006 • Import tariffs for parts and components are to be reduced from 35 percent
to 10 percent by the same date • Import quotas on vehicles will be decreased 15 percent per year until they
are cancelled in 2005 • Import licenses will also be phased out by 2005. • Majority ownership limits on foreign manufacturers for engines will also be
eliminated • Also, provincial governments will be given the authority to approve foreign
direct investment projects up to $150 million by 2005 (used to be $30 million)
• All of the Chinese government’s requirements regarding technology transfer, maintaining a foreign exchange balance, maintaining a trade balance, and meeting localization standards were eliminated upon China’s entry to the WTO in 2001.
2004 Auto Industry Policy
• 10-year update to 1994 policy• Emphasizes need for consolidation of industry
(i.e. FAW-Tianjin-Toyota)• Urges more capacity-building and innovation• First articulation of concern about environment
and oil imports• More emphasis on (and incentives for) exports
11th 5-Year Plan for Auto Industry
• 依托现有基础加快产业自主发展。– Speed up autonomous development based on the
current conditions (Chinese branding)• 依靠技术进步推动产业可持续发展。
– Promote sustainable development by using advanced technologies
• 利用市场机制促进产业结构优化升级。– Optimize and upgrade the industrial structure
using market mechanisms
Comparisons
United States China
Total Oil Consumption, 2005
20 million bbls/day 6.5 million bbls/day
Percent Oil Consumed by Motor Vehicles
50 percent 40 percent
Percent Oil Imported, 2005
60 percent (12 million bbls/day)
43 percent (3 million bbls/day)
Total Number of Passenger Cars
228 million (approx.) 20 million (approx.)
Passenger Car Production in China (1991-2005)Data Sources: CATARC, 2005 Auto Industry of China; China Auto (Jan. 2006)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Production Mix is Changing
64 59 60 5850 47 42 41 41 36 34 34 28 30 27
2526 23 23
2827
28 28 28 34 36 33
27 2422
11 15 18 19 22 27 31 31 31 29 30 3446 46 51
0%
20%
40%
60%
80%
100%
1991 1993 1995 1997 1999 2001 2003 2005truck bus car
Source: CATARC, 2006
Vehicles Per Capita
0
1000
2000
3000
4000
5000
6000
Total
Beijing
Tianji
nHeb
ei
Shan
xi
Neimen
ggu
Liaon
ing Jilin
Heilon
gjian
g
Shan
ghai
Jiang
su
Zheji
angAnh
ui
Fujia
n
Jiang
xi
Shan
dong
Henan
Hubei
Hunan
Guang
dong
Guang
xi
Hainan
Chong
qing
Sichu
an
Guizho
u
Yunn
an
Xizan
g
Shan
xi
Gansu
Qingha
i
Ningxia
Xinjia
ng
GD
P/p
erso
n(U
SD
/per
son)
0
20
40
60
80
100
120
140
vehi
cles
in u
se(in
uni
t/100
0 pe
nson
s)
GDP/person(in 1 USD/person) vehicles in use(in 1 unit/1000 persons)
EIA Projections of Motor Vehicles in China 1999-2020
Data: EIA, "International Gross Domestic Product, Population, and General Conversion Factors Information," 2002 and EIA, "International Total Primary Energy and Related Information," 2002.
0
10
20
30
40
50
60
70
80
1990 1998 1999 2005 2010 2015 2020
Nu
mb
er
of
Ve
hic
les (
mill
ion
s)
Historical
Chinese Oil Reserves, 2003
21%
2%
77%Rest of WorldChinaOPEC
BP Statistical Review of World Energy, 2004
Shanghai Auto Industry Corp.
First Auto Works
Tianjin Auto Works
Guangzhou Auto Works
Dongfeng Auto Works (former
SAW)
Beijing Auto Industry
Holding Co.
General Motors
VW
Toyota
DaimlerChrysler Hyundai
Nissan
Honda
Geely
CheryChang’An
Ford
Citroen
Suzuki
Foreign Investment in China’s Auto Industry: A Complicated Network
?
Shenyang Brilliance
BMW
Kia
Comparative Analysis
Beijing Jeep Shanghai GM Chang’An Ford
Technology or R&D Center?
Internal, but no joint work (all Chinese engineers)
Yes (PATAC) Internal, but very small for product adaptation
Capability level of Chinese partner accord. to US firm
product adaptation, localization
product adaptation, localization
Too new to characterize
U.S. firm funds other research in Chinese univ. or institutes?
No Yes Yes – In coordination with National Science Foundation of China
Number of Chinese vs. U.S. engineers
200 Chinese
1 U.S.
400 Chinese
>20 U.S.
n/a
Management of Tech Centers
1 Chinese,
1 U.S.
7 of 11 dept’s managed by U.S. engineers
n/a
Funding 30,000 RMB per year ($3,600)
For PATAC, GM put $25 million in cash and SAIC put $22 million (“in kind”)
n/a
Seven Main Findings• U.S. FDI did not substantially contribute to improving
Chinese vehicle technological capabilities because little knowledge was transferred along with the product.
• Chinese government failed to design and implement an aggressive, consistent strategy for the acquisition of technological capabilities from foreigners in the automobile industry.
• U.S. companies in JV’s are purely profit-motivated – Chinese also seek profits in short term, but most want skills for long term.
Findings (cont.)• Chinese firms have acquired good manufacturing skills and
also acquired some product adaptation capabilities. Parts suppliers appear to have more advanced capabilities due to local content requirements.
• Technologies that were transferred by U.S. firms in the period studied were rarely, if ever, updated once a model was in production, with the emerging exception of SGM. This is now changing due to competitiveness.
• Even though technology transfer was purely product, the FDI has contributed to the growth of the industry, which has benefited the Chinese economy in terms of jobs and spillovers.
• U.S. firms did not transfer pollution-control technology until required to do so by the Chinese government.