The Telegraph, 16 June, 2018
The arrest two days ago of a Rolls Royce engineer for allegedly spying on his employers on behalf of China did not shock many in aerospace. It’s no secret that China is attempting to develop an indigenous aerospace industry and will do everything it can to get its hand on modern Western-designed jet engines. Such is the complexity of these engines that they are virtually impossible to reverse-engineer.
But this story has become a bit of a motif of late. Nearly every week, we hear of another story of alleged hacking of corporate secrets by some Chinese entity – or, worse, resorting to outright robbery, as might have happened to Pelamis Wave Power, a Scottish alternative energy company that saw a Chinese start-up appear only months after its offices were burgled.
So what’s behind it all? What is driving these stories? Well, to some extent, China is a driver of its own success and a driver of its own reputation. Over the past two decades, China has been implementing policies that some say unfairly help its firms to acquire foreign technology, either at home in the Chinese market, or abroad, when they invest in overseas markets, including the British one.
Rather than developing indigenous technologies, they prefer to steal, beg or borrow those of others, leapfrogging up the technology ladder. And they don’t mind stooping to different means: China’s current domination of solar energy technologies is alleged to have come after Chinese hackers stole files on panel technology from Solar World America. The subsequent government support for Chinese firms to build solar panels at much cheaper prices than US and European firms put many Western solar power companies out of business.
Are these policies illegal according to the World Trade Organisation? Indeed, they are, but getting them to that stage takes political support from their own governments.
The Chinese government policy most associated with this issue is Made in China: 2025, which has been widely criticised by the US government, the German government, among many others. According to James Lewis, a technology expert at the Washington-based Center for Strategic and International Studies (CSIC), the policy seems to have three stages.
The first is to require foreign firms attempting to enter China’s market to hand over their intellectual property in critical sectors such as robotics, alternative energies, quantum, and new energy vehicles. The second is to provide government subsidies to Chinese firms to go out into the international market and sell these newly-acquired products for cheaper prices. The third is to dominate these sectors by driving out foreign competitors.
According to Peter Navarro, an economic advisor to Donald Trump, these sectors have a strategic implication for the future of Western security, as national governments look more and more to the high-tech sector for the next generation of military technologies.
The news this week that the European Council and European Parliament have passed investment screening mechanisms shows that Western governments are seeking to maintain a level playing field for their own firms and stopping buy-outs that either seem driven purely by the desire of China to gain intellectual property with military connotations. Germany passed legislation last year screening investment and the US has also tightened up its own Committee for Foreign Investment in the United States (CFIUS), making sure that Chinese firms cannot simply swoop in and buy high-tech firms and give their IP to Chinese competitors.
The May government is current considering a White Paper on investment-screening, having already tightened up the current Enterprise Act (2002) and broadened the remit of the Competition and Market Authority (CMA). Given China’s voracious appetite for British high-tech and the impact its theft has on British companies, this is a welcome and appropriate response. Britain is open for business, but in a fair way that gives all sides a level playing field.