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China says “Trade your technology for our market”

According to WSJ,

China’s government is considering plans that could force foreign auto makers to hand over cutting-edge electric-vehicle technology to Chinese companies in exchange for access to the nation’s huge market…

China’s Ministry of Industry and Information Technology is preparing a 10-year plan aimed at turning China into “the world’s leader” in developing and producing battery-powered cars and hybrids, according to executives at four foreign car companies who are familiar with the ministry’s proposal.

The draft suggests that the government could compel foreign auto makers that want to produce electric vehicles in China to share critical technologies by requiring the companies to enter joint ventures in which they are limited to a minority stake.

The government figured out China’s market is too great for foreign auto makers to say “No”.   It’s a trade off both parties understood:  either losing some technology secrets to Chinese or completely being shut out of the market.

This is a strategic game.  And Chinese look smart.  The hope is that both parties still see there are mutual gains to be made.

But Chinese policy makers risk going too far.   Asking foreign auto makers to give away too much of their tech secrets will generate perverse incentives:  foreign auto makers may respond to this policy by only using the less advanced technology in China’s car manufacturing.  “Yes, we are going to share with you technology, but only the old dated ones”.

China’s domestic consumers may also suffer – cars equipped with the best technology may become unavailable to domestic car buyers, or only available through imports, but at a much higher price.

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