That Blur In The Rearview Mirror Is China

The past decade has not been kind to our industry. The U.S. machine tool industry has lost 38.8 percent of its market share in China over the past decade. That loss has occurred during a period in which China has become the largest machine tool market in the world. As I have previously noted, it is hard to appreciate the enormity of the Chinese machine tool market growth. Chinese consumption of machine tools has dwarfed that of the United States. In 2000, China consumed half as many machine tools as the United States.

By 2002, China had drawn even. By 2004, China had doubled U.S. consumption. This year, it is likely that China's consumption of machine tools will be triple that of the United States.

Other nations have lost market share in China as well. But Japan has seen a market share gain of 35 percent, Taiwan 13.4 percent, and South Korea a whopping 124.4 percent.

What lies behind the U.S. decline? Obviously, export controls are not the sole factor in our market share losses. But one could not argue that the U.S. government's reputation for being the slowest in approving license applications and the most rigorous in its application of export controls to China is a negligible factor in the migration of Chinese manufacturers from U.S. vendors to those that have a reputation for less stringent application of the Wassenaar guidelines regarding technology transfer.

Taiwan and South Korea have hardly distinguished themselves as tough enforcers of the rules on technology transfer. Japan, on the other hand, does follow essentially the same guidelines as those imposed by the United States, but export license applications from Japan, while they are likely to be rigorously reviewed, are less likely to be denied or delayed, which can be a crucial factor in the purchasing decisions of a factory manager on a tight deadline for contract fulfillment or in urgent need of production increases.

Meanwhile, China has built up its indigenous machine tool industry significantly. The United States currently has approximately 175 manufacturers of metal-cutting machinery. By contrast, China has two and onehalf times that number, with 415 metal-cutting machine tool builders. During a June 2006 fact-finding trip to China, I found as many as 18 indigenous Chinese manufacturers of CNC controls, with eight manufacturing units for five-axis machine tools. As recently as four years ago, I had not found a single operational Chinese manufacturer of this technology. This year, I also found 13 companies selling five-axis machine tools (in addition to the aforementioned CNC control manufacturers).

For the past four decades, the U.S. government policy has been to keep five-axis machine tool technology and, to a large degree, products, out of the hands of the Chinese. My findings indicate that the effort has officially failed. The Chinese now produce ample numbers of five-axis machine tools, most of which have accuracies competitive with Westernproduced products. In addition, they also have multiple suppliers of five-axis enabling CNC controls.

Under U.S. law, these facts would lead to the conclusion that we need a new technology transfer policy governing the export of machine tools to China. I would call on our government to devise one as soon as possible. There is clearly no justification for the current approach.