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Chinese rules deter imports Few U.S. firms profit, study shows

By: MICHAEL DORGAN Knight Ridder Newspapers
Date: 03/09/99

A new Commerce Department report reveals that few U.S. companies are making a profit in China. Worse, the report says, many American companies may be trading away their futures by swapping advanced technology for a toehold in a market that may forever remain closed to them.
The study, along with allegations of widespread Chinese espionage in the United States, underscores the extent of China's efforts to obtain advanced American technology, ranging from nuclear weapons designs to the specifications of machine tools used in making aircraft.
It also raises questions about one of the underpinnings of the Clinton administration's China policy: the assumption that what's good for China frequently is good for American businesses.
``Despite several years of high-level investment in China ... survey data and press reports indicate that relatively few U.S. companies are realizing profits or even a return on their investments in China,'' said the report, published by the department's Bureau of Export Administration and released with little fanfare in January.
``The potential effects of this on the U.S. economy include loss of jobs, loss of capital or revenue that could be reinvested in the United States, decline in or loss of basic industries critical to the U.S. defense industrial base, and the potential for creating or enhancing foreign competitors where they might not otherwise exist,'' says the 99-page report, titled ``U.S. Commercial Technology Transfers to the People's Republic of China. ''
For example, says the study, the Big Three automakers - DaimlerChrysler, General Motors and Ford - have tried different approaches to the Chinese market. Although each has spent a great deal of money, the three have succeeded mostly in helping to teach China how to build its own cars.
According to the study, Chinese statistics reveal that by imposing high taxes and other trade barriers, the nation has reduced auto imports from 80 percent of cars sold there in 1986 to just 10 percent today. By 2010, China hopes to eliminate all auto imports - and to export 10 percent of its own production.
More worrisome is the study's finding that the transfer of advanced technology is the price U.S. high-tech companies must pay for access to China's market, and the market is often closed to foreigners once China has obtained the technology it wants.
The study says the future of U.S. computer companies in China also may be limited, although companies such as Intel, Hewlett-Packard and Motorola seem to be doing well now.
``Although China lags behind its neighbors as well as the United States, there are indications that China is catching up in some electronics-related sectors as a result of technology transfers,'' it said. ``Most technology transfers are in the form of component
co-production and assembly as well as access to 'soft' technologies (processes, management techniques, accounting methods) derived from foreign technical assistance and training. ''
In 1997, high-tech goods accounted for 5.9 percent of China's exports.
Beijing's goal is to make high technology 15 percent of China's exports by next year, and 25 percent by 2010.
The Commerce Department study warns that transferring American technology to China may have a profound effect on U.S. competitiveness and national security.
But given the rapid pace of development in many high-tech industries, ``it may be too late by the time U.S. industry or the U.S. government as a whole realize there is a problem emerging in either of these areas. ''

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