Foreign High-Tech R&D in China
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THE HENRY L. STIMSON CENTER L. STIMSON THE HENRY 11 DUPONT CIRCLE, NW • NINTH FLOOR • WASHINGTON, DC 20036 TEL (202) 223.5956 • FAX (202) 238.9604 • WWW.STIMSON.ORG Located in Washington, DC, The Henry L. Stimson Center is a nonprofit, nonpartisan institution devoted to offering practical solutions to problems of national and international security. From the beginning, the Stimson Center has been committed to meaningful impact, a thorough integration of analysis and outreach, and a creative and innovative approach to problems. The Center has four basic program areas, including: Reducing the Threat of Weapons of Mass Destruction; Building Regional Security; Strengthening Institutions of International Peace and Security; and Linking Foreign High-Tech Trade, Technology & Security. These four program areas encompass work on a wide range of security issues, from Chemical and Biological Weapons Nonproliferation to Regional Security in Asia to the Future of Peace Operations. R&D in China RISKS, REWARDS, AND IMPLICATIONS FOR U.S.-CHINA RELATIONS FOREIGN HIGH-TECH R&D IN CHINA: for U.S.-China Relations and Implications Risks, Rewards, Propelled by open markets and economic reform, the 1990s brought unparal- leled growth and economic development to the People’s Republic of China. At the same time, but less widely known, China has begun to assume an influential role in the globalization of high-tech research and development (R&D). Consequently, the PRC is poised to become not only Asia’s assembly line, but also one of the Pacific Rim’s — and the world’s — centers of innovation. A growing number of the world’s leading high-tech multinationals have established R&D programs or centers in China, raising many questions for US policymakers regarding the benefits and risks of overseas R&D in terms of near- and long-term US security and economic interests. Although there are clear mutual advantages in cross-national R&D collaboration, technology transfers to the PRC carry potential risks as uncertainty lingers about the future direction of Sino-US relations. This study examines in detail high-tech R&D programs in two key industry sectors — telecommunications and computer technology. Because most high-tech Kathleen Walsh R&D today is conducted by commercial enterprises and is a leading indicator of future industrial and technological capabilities, it is important for US policymakers to understand more about this growing trend. A greater under- standing of the true nature of these activities and a careful weighing of the benefits and risks of foreign-funded, high-tech R&D in China will aid policy- makers in crafting prudent and balanced policies serving both US national security and economic interests. Foreign High-Tech R&D in China RISKS, REWARDS, AND IMPLICATIONS FOR U.S.-CHINA RELATIONS Kathleen Walsh Copyright © 2003 The Henry L. Stimson Center All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior permission in writing from the Henry L. Stimson Center. Cover design by Design Army. The Henry L. Stimson Center 11 Dupont Circle, NW Ninth Floor Washington, DC 20036 phone 202.223.5956 fax 202.238.9604 www.stimson.org Table of Contents Foreword ...................................................................................................v Tables and Figures ..................................................................................vii Abbreviations ...........................................................................................ix Acknowledgments....................................................................................xi Executive Summary .............................................................................. xiii Chapter One Introduction...............................................................................................1 Terminology .......................................................................................7 Methodology.....................................................................................11 Chapter Two Globalization and High-Tech R&D ........................................................17 The Rise of Global R&D ..................................................................20 Influence of Global R&D on Industrialized and Developing Economies ........................................................................................23 Cooperation and Competition in Global R&D .................................31 Chapter Three Science, Technology, and High-Tech Development in China ................35 Evolution of the Chinese S&T System.............................................35 Looking Ahead: China’s S&T Objectives for the 21st Century........70 Chapter Four The Emergence and Evolution of High-Tech R&D in China: A Study of Two Industries ..................................................................................73 Research and Development: The Next Step in the Value Chain ......74 Dynamics of High-Tech Investing in the China Market...................76 The Evolution of Foreign High-Tech R&D Investment in China ....86 Characteristics of Present-Day Foreign R&D in China....................90 The Future for R&D Investments in China ....................................101 Chapter Five Conclusion: Risks, Rewards, and Implications for High-Tech R&D in China...............................................................................................103 The Impact of Globalization and Foreign-Invested R&D on the PRC.................................................................................................103 The Impact of High-Tech R&D in China on US Interests..............118 Implications for US-China Relations..............................................129 Recommendations for US Policy....................................................133 Selected Bibliography ...........................................................................137 About the Author...................................................................................141 Foreword am pleased to present the latest publication of the Henry L. Stimson I Center, Foreign High-Tech R&D in China: Risks, Rewards, and Implications for US-China Relations. This study explores the confluence of two key aspects of the architecture of international relations in the 21st century—globalization and an increasingly trade-oriented conception of national security—within the specific context of foreign high-tech research and development in China. As the study explains, global R&D is a relatively new mechanism of technology transfer with potentially great economic and security implications for all parties involved. The study examines the nature of this global trend and weighs the risks assumed and rewards conferred by this activity for both national governments and multinational corporations. The report proposes useful steps that the United States and other countries can take to better understand and monitor global R&D and avoid outcomes that could prove harmful to US national and economic security interests in the years to come. This study adds a new dimension to the Stimson Center’s core mission to examine national and international security issues by exploring the increasingly important linkages between trade and security. It also complements the Center’s ongoing work on China: its evolving role in the international system and its relations with the United States. While this study focuses its R&D story on implications for the US-China relationship, the issue is really broader and global in its potential impact. It is our hope that this study will be helpful in focusing attention on the nexus between trade and security and in deepening our knowledge of a new trend that will shape future trade and security policies. The Project Director, Kathleen Walsh, and I are grateful for the support we received from the Smith Richardson Foundation for this project. We will welcome hearing from you if you have any questions about this project or other work on Asian security issues at the Stimson Center. Ellen Laipson President and CEO The Henry L. Stimson Center Tables and Figures Figures 1: PRC High-Tech Manufactured Exports as a Percentage of Overall Trade (1990–2000) .............................................................................4 2: Definition of High-Tech Industry R&D..............................................14 3: Foreign-Funded R&D as a Proportion of Industrial R&D..................24 4: US R&D Flows—Incoming R&D Funding Outweighs Outflow .......26 5: US R&D Abroad (1997) .....................................................................28 6: An Evolving PRC National Innovation System..................................48 7: Rise in China’s Export of High-Tech Manufactures...........................61 8: PRC S&T Research Expenditures as a Percent of GDP (1953–1999)62 9: R&D Performance by Sector (2001)...................................................65 10: R&D Intensity in High-Tech Sectors (Late 1990s)...........................66 11: PRC Patent Applications and Certifications (1985–2000)................68 12: Number of Newly Announced ICT R&D Centers in China .............92 13: Estimates of ICT-Related Foreign R&D Centers in China ...............93 Tables 1: US and PRC Definitions of Types of R&D ........................................15 2: PRC Spending on Research and Development ...................................64 3: Asian Scientific Citations (1997–2001)..............................................66