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China Learns From The Past

The U.S. Defense Department views China as a potential threat. In its most recent annual report on defense planning, the Defense Department notes that as China has grown economically it has spent more and more on military modernization. The report concludes that China is the only power that challenges U.S. interests in East Asia, particularly in Taiwan and the surrounding waters.

Since the Defense Department does not want U.S. companies to add to China's military capabilities, it pushed for a new policy that attempted to officially deny high technology U.S. exports to Chinese companies if that technology might be incorporated into products destined for military end-use. This "China Catch-All" went into effect in late June.

Based on the history of U.S. technology transfer policy since World War II, this was a perfectly logical policy change. Nevertheless, it is likely that this new policy will have little, if any, effect on Chinese military capabilities, because the 20th Century policy of technology denial that helped the United States prevail in the Cold War with the Soviet Union is no longer possible in a 21st Century global economy where the rest of the world – with the possible exception of Japan, which has tied its defense policy inexorably to ours – views China as a market and not a threat.

Let me explain the reasoning behind my assertion. From the beginning of their contacts with the West, the Chinese seem to have learned from the mistakes that left the Soviet Union an economic basket case when it finally dissolved in 1991. Instead of isolating themselves and their scientific and commercial sectors, for the past two and one-half decades the Chinese have sent tens of thousands of students to the United States and other Western countries to study. The Chinese tooka calculated risk that they might lose these students after graduation, but nevertheless put few restrictions or demands on those studying abroad. Many have stayed to work for high tech firms in the West. But many of those have been lured back to China by the economic boom, after having spent years and even decades working at some of the best companies in the U.S. and Western Europe.

This Chinese approach to education and apprenticeship has itself become a significant source of technology transfer as sophisticated, Western-trained scientists and technicians return home. Additional technology transfer has occurred as a result of the significant opportunities for learning while working at Western firms that have set up shop in China, drawn by the huge internal Chinese market, the lure of an undervalued yuan serving as an export subsidy, and the inexpensive and well-trained technical talent available to Western companies that choose to set up research and manufacturing facilities in China. Finally, the Chinese have benefited from, for example, some of the best Japanese and Taiwanese machine tool joint ventures that have been initiated in recent years to respond to the ever-increasing internal demand for sophisticated machine tools.

All of this adds up to a process of technology transfer that does not require the strategy of technology theft employed by the Soviets in the postwar years. The Chinese Government does not have to focus on individual transfers of specific technology when it is benefiting from a process of technology transfer inherent in joint ventures, high tech apprenticeships, and access to education at the best universities and technical professors in the West.

By isolating themselves, the Soviets had none of these benefits. The Chinese observed the Soviet failure and learned that lesson well. Unfortunately, the latest version of the U.S. "China Catch-All" regulations is based on a strategy that would have been effective with the Soviet Union but not with modern China. Not only is the technology cat out of the bag, but he has been studying at MIT and following up with an apprenticeship at Intel!

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