China's Economic War - Stealing Jobs and Technology From America

Charles R. Smith

Tuesday, Sept. 14, 2004

According to GM China, the similarities between its Spark minicar and Chinese Chery Automobile Corp.'s QQ model are more than just mere coincidence. In fact, if you examine the automobiles, they are virtually identical.

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Thus, General Motors recently filed a complaint with the Chinese government that the QQ was an illegal copy of its Spark.

Despite the GM charges, Chinese officials quickly denied that State-owned Chery had illegally copied U.S. auto technology. A top Chinese Commerce Minister stated that General Motors Corp. did not provide enough evidence to prove that Chery had copied the GM Spark.

"Unless GM provides further evidence to prove that Chery acquired such technology and designs through certain means, just simple similarity in terms of exterior design isn't sufficient enough to prove that the Chinese company is guilty," said Deputy Commerce Minister Zhang Zhigang. This is not the first time that China has been accused of stealing auto designs and copying them for fun and profit. For example, a failed Chrysler "joint venture" was cited by the U.S. Commerce Department report as a demonstration of Chinese honesty in business.

According to the Commerce Dept. report, in 1995 Chrysler had an exclusive deal with the Chinese Army making Jeep Cherokee 4-wheel drive vehicles at a People's Liberation Army (PLA) owned auto-plant. The Chinese Army auto plant also produced 4-wheel drive vehicles for the PLA.

"Despite almost a decade of relative success in producing both the Jeep Cherokee and a wholly locally produced military style jeep (the BJ2020 series), by 1995 Chrysler had pulled out of its bid to build a new minivan joint venture in Shanghai out of complete frustration," states a January 1999 U.S. Commerce Dept. report on technology transfers to China.

"Chrysler executives were expressly concerned over licit and illicit technology transfers," noted the 1999 Commerce report.

Illegal Jeeps

"Chrysler's concerns were amplified when Chrysler CEO Robert Eton was made aware that knock-offs of Chrysler's Jeep Cherokee had been seen on the streets of Beijing. When complaining about this to Chinese officials, he reportedly was told that this (the ability to copy Chrysler's Jeep Cherokee) was a good sign of progress in China's auto industry, about which he should be pleased. Apparently, he was not, and Chrysler soon canceled plans to go ahead with the Shanghai plant," states the report.

In addition, the Chrysler deal with Beijing had a further twist that sent it over the edge. The Chinese Army interest in advanced vehicle manufacturing technology from Chrysler was a special indication of the reality of doing business with Beijing.

"Chinese officials were demanding more advanced technology than seemed appropriate or necessary to Chrysler," concluded the Commerce report.

Chrysler was at that time the maker of the U.S. Army M-1 tank.

Chrysler officials quickly realized the advanced assembly and manufacturing technology demanded by the Chinese was far more applicable to making armored vehicles such as the U.S. Army M-1 tank than vans for soccer moms.

"According to interviews conducted for this study, given the experience in Beijing, Chrysler executives were made even more wary of the technology transfers, proposed licensing deals and export quotas being requested as part of the Shanghai deal and decided that the risk was simply too great when it came to what was for Chrysler a relatively new (the minivan) and, therefore, advanced technology. Chrysler currently has no plans to expand its investment ventures in China," stated the Commerce Dept. report.

The failed Chrysler deal is not the only example. Audi, the German car maker, also had a sweet deal with China to manufacture its very popular 5000 sedan during the 1990s. However, once the terms of the deal expired, Audi was hustled out of China.

Suddenly, the same Beijing car maker began producing the "Red Flag" sedan. The Red Flag was identical to the Audi 5000 right down to the last nut and bolt - with the single exception of a plastic red-flag hood ornament.

Chinese officials scoffed at Audi's accusations of out-right theft and cited the red flag as proof the vehicle was different.

Nearly a decade has passed and things have not changed much. A recent study issued by the U.S.-China Economic and Security Commission warned of Beijing's policy of piracy and illegal technology transfer requirements.

Rampant Policy

"China continues to tolerate rampant piracy of copyrighted U.S. material, with rates running above ninety percent across all copyright industries for 2003. This will cost U.S. industries an estimated $2.6 billion in lost profits in 2004," noted the 2004 report by the U.S.-China Economic and Security Review Commission.

"U.S. companies are sometimes forced to transfer technology to Chinese partners as a condition in business deals. The Chinese government violates its WTO (World Trade Organization) obligations when it expressly requires technology transfers as a condition of doing business. It is also able to compel such transfers through use of its regulatory powers as well as its extensive role in the economy. These technology transfers pose substantial economic and security concerns for the United States," states the 2004 U.S.-China report.

China's ability to copy products and sell them illegally on the open market is not limited to commercial manufacturing. China currently sells copies of the Russian made AK-47 rifle on the open market. China has sold nearly a million such rifles around the world without making a single payment to Mikhail Kalashnikov, the designer of the AK rifle.

Another Russian example is the Chinese made illegal copies of the MiG-21 fighter jet. In 1961 the Soviet Union licensed the manufacture of the MiG-21F jet fighter and its engine to China. China began manufacturing the MiG-21, known as the Jianjiji-7 or J-7, in early 1964. By 1989 Chinese production was running at a rate of as much as 14 aircraft per month, primarily for export. Today, the J-7 aircraft is the most widely produced Chinese fighter. Nearly 1,000 J-7 fighters have been manufactured and sold worldwide. Chinese customers include Sudan, Iraq and Pakistan.

However, China has not paid on the MiG-21 manufacturing license since the fall of the Soviet Union, claiming that the aircraft deal expired along with the former Soviet state.

China is obviously not living up to its commercial expectations. Illegal copies and stolen technology are only a few examples of the economic policies of Beijing. The open economic warfare waged by China against America is in violation of its own agreements and treaty obligations.

The U.S. companies that so heartily supported open trade with China are now beginning to regret the deals they made with Beijing. Tyrants don't have to play fair or by the rules. GM, Chrysler and others are learning as they pay the financial penalty of a fools bargain.

RADIO AND TV SCHEDULE Charles Smith will be on: The Jeff Rense Show on Wednesday, 9/15/4 at 10 p.m. Eastern time. Show information at http://www.rense.com

The Right Balance with Greg Allen on Thursday, 9/16/4, at 10 a.m. Eastern time. Show information at http://www.therightbalance.org/index.html

The Jerry Hughes Show on Friday, 9/17/4, at 3 p.m. Eastern time. Show information at http://www.cilamerica.com.

The Charlie Smith Show on the American Freedom Network on Monday, 9/20/4, at 11 a.m. Eastern time. Show information at http://www.americanewsnet.com/