Friday, January 22, 2016

Chinese lost its dominance in the last 3 centuries, but

"reluctance to provide advanced weapon systems due to Beijing’s illicit reverse engineering activities". Beijing's reverse engineering is actually pretty licit.

Despite media kerfuffle no-one has brought a suit against China's adaptation of foreign technology that I'm aware of. I cannot even recall a single official complaint. The reason the author believes, above, that China is behaving illicitly is because he read it in our media. But it's not true, for several reasons.

First, the Chinese have been the world's leading engineers for centuries. Cambridge University Press reminds us in its 27-volume 'Science and Technology in China', that Chinese engineers invented practically everything long before the West. China capitalizes on this native ability and invests billions in university and corporate grants for indigenous technologies.

Second, China spends big bucks licensing foreign intellectual property. For example, they shelled out $11.4 billion for High Speed Rail technology from companies like Siemans. Siemens professes to be delighted with the deal.

Third, foreign governments and corporations give their technologies to China. Strange as it seems, General Electric gave China all of its X-Ray and digital imaging technology. GE handed over a century of US taxpayer-sponsored research performed by thousands of US taxpayer-educated engineers. Why? Market access: “Over the next five years, China will be GE Healthcare’s most important growth market,” Rachel Duan, the China unit’s president and chief executive officer, said in Beijing. Another multi-billion dollar giveaway was GE's Avionics.

Fourth, China knows that stealing stuff is a long-term loser and the Chinese are long-term thinkers. To settle ambiguity around who owns what or what an export license specifies, they hold annual government-to-government compensation meetings. These are not legalistic; they're designed to air grievances and put a fair figure on any harm done. ("Why not?" as a Chinese friend said, 'We've got the money'). The last such meeting I heard of was in 2011 and the Russians walked away with $4+ billion. No doubt they were still grumbling, but they weren't suing. And they've sold billions more to China since.

I'm sure we'll hear more stories from our media about China's stealing stuff but China already leads the West in a dozen critical technologies, like supercomputing, and in future technologies – judging by its rate of international patent applications. Eventually the complaints will turn to grumbling and the grumbling will die away. We've already started licensing technology from the Chinese, anyway.


  1. Hi Mr's JB. KraneShares CSI New China ETF (KFYP) I am been looking at and believe this is a good ETF to research. Your thoughts?

    1. I traded FXI. I made a lot of money in my last trade but I lost it all with the collapse of Chinese stocks.