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Made in China 2025 As a Challenge in Global Trade Governance: Analysis and Recommendations CIGI Papers No. 183 — August 2018 Made in China 2025 as a Challenge in Global Trade Governance: Analysis and Recommendations Anton Malkin CIGI Papers No. 183 — August 2018 Made in China 2025 as a Challenge in Global Trade Governance: Analysis and Recommendations Anton Malkin CIGI Masthead Executive President Rohinton P. Medhora Deputy Director, International Intellectual Property Law and Innovation Bassem Awad Chief Financial Officer and Director of Operations Shelley Boettger Director of the Global Economy Program Robert Fay Director of the International Law Research Program Oonagh Fitzgerald Director of the Global Security & Politics Program Fen Osler Hampson Director of Human Resources Laura Kacur Deputy Director, International Environmental Law Silvia Maciunas Deputy Director, International Economic Law Hugo Perezcano Díaz Director, Evaluation and Partnerships Erica Shaw Managing Director and General Counsel Aaron Shull Director of Communications and Digital Media Spencer Tripp Publications Publisher Carol Bonnett Senior Publications Editor Jennifer Goyder Publications Editor Susan Bubak Publications Editor Patricia Holmes Publications Editor Nicole Langlois Publications Editor Lynn Schellenberg Graphic Designer Melodie Wakefield For publications enquiries, please contact [email protected]. Communications For media enquiries, please contact [email protected]. @cigionline Copyright © 2018 by the Centre for International Governance Innovation The opinions expressed in this publication are those of the author and do not necessarily reflect the views of the Centre for International Governance Innovation or its Board of Directors. This work is licensed under a Creative Commons Attribution — Non-commercial — No Derivatives License. To view this license, visit (www.creativecommons.org/licenses/by-nc-nd/3.0/). For re-use or distribution, please include this copyright notice. Printed in Canada on paper containing 100% post-consumer fibre and certified by the Forest Stewardship Council® and the Sustainable Forestry Initiative. Centre for International Governance Innovation and CIGI are registered trademarks. 67 Erb Street West Waterloo, ON, Canada N2L 6C2 www.cigionline.org Table of Contents vi About the Author vii About the Global Economy Program vii Acronyms and Abbreviations 1 Executive Summary 1 Introduction 2 Background and Motivations 5 Reactions to MIC 2025 6 Foreign Firms in China 11 IP Governance in China 16 China’s Industrial Policy Reconsidered 17 Global Industrial Concentration 18 Dual-Use Technologies in Global Trade 19 Recommendations for Canada 21 Conclusions: Renegotiating Global Trade 23 Works Cited 30 About CIGI 30 À propos du CIGI About the Author Anton Malkin is a CIGI research fellow in the Global Economy Program. His research focuses on China’s role in the global economy and in global economic governance. At CIGI, Anton has published works on capital account liberalization in China, China’s relationship with the International Monetary Fund and regional financial governance arrangements, the capital account liberalization in China and the impact of China’s high-tech industrial policies on global trade governance. From 2012 to 2013, Anton was a senior visiting scholar at the School of International Studies at Peking University. His past work on the internationalization of China’s currency has been widely cited in the field of international political economy. His Ph.D. thesis examined the role of foreign financial institutions in the transformation of China’s financial markets and state-owned enterprises. vi CIGI Papers No. 183 — August 2018 • Anton Malkin About the Global Acronyms and Economy Program Abbreviations Addressing limitations in the ways nations AI artificial intelligence tackle shared economic challenges, the Global Economy Program at CIGI strives to inform and CPTPP Comprehensive and Progressive guide policy debates through world-leading Agreement for Trans-Pacific Partnership research and sustained stakeholder engagement FDI foreign direct investment With experts from academia, national agencies, GGFs government guidance funds international institutions and the private sector, the Global Economy Program supports research IP intellectual property in the following areas: management of severe sovereign debt crises; central banking and IPRs intellectual property rights international financial regulation; China’s role in the global economy; governance and policies M&A mergers and acquisition of the Bretton Woods institutions; the Group MIC 2025 Made in China 2025 of Twenty; global, plurilateral and regional trade agreements; and financing sustainable MIIT Ministry of Industry and development. Each year, the Global Economy Information Technology Program hosts, co-hosts and participates in many events worldwide, working with trusted MNCs multinational corporations international partners, which allows the program to disseminate policy recommendations to an MOFCOM Ministry of Commerce international audience of policy makers. NDRC National Development and Through its research, collaboration and Research Commission publications, the Global Economy Program OECD Organisation for Economic informs decision makers, fosters dialogue Co-operation and Development and debate on policy-relevant ideas and strengthens multilateral responses to the most PCT Patent Cooperation Treaty pressing international governance issues. R&D research and development SEPs standard-essential patents SMEs small and medium-sized enterprises SOEs state-owned enterprises USTR Office of the US Trade Representative WIPO World Intellectual Property Organization WTO World Trade Organization Made in China 2025 as a Challenge in Global Trade Governance: Analysis and Recommendations vii Executive Summary Introduction This paper provides a reassessment of Made in When the State Council of the People’s Republic of China 2025 (MIC 2025) — China’s industrial policy China (the country’s central governing body) gave framework aimed at helping the country overcome its endorsement to the MIC 2025 manufacturing the much-maligned middle-income trap — in the and informational technology policy framework context of global trade governance. It suggests — consisting of a collection of research and that China’s industrial policies have been viewed development (R&D) funding packages, venture too narrowly — without sufficient attention to capital funds and public-private partnerships — longer-term global governance issues — by a large the foreign business community, policy makers segment of the global business and policy-making in the United States and the European Union, as community. To be sure, some of the critiques well as many researchers, insisted that China is of MIC 2025, in particular those surrounding trying to implement a large and inefficient import- persistent formal and informal regulatory barriers substitution plan, squeeze out foreign investors to foreign direct investment (FDI) in various and unfairly acquire foreign technology. These sectors of China’s economy, are valid. However, grievances are perhaps the most recent iteration claims made by policy makers and business of long-standing complaints from advanced, associations regarding the unfairness of China’s industrialized economies that China is, in effect, joint-venture-based technology transfer regime, not playing by the rules of global trade in various and its attempts to sideline foreign firms in favour respects. How do we square the circle of China’s of their Chinese counterparts at the pinnacle of rhetorical commitment to open trade with its global value chains, are too simplistic. In the face of increasing reliance on state-driven support for arguments that China is unfairly acquiring foreign indigenous innovation and technology transfer? intellectual property (IP), China’s leaders have taken significant steps to improve protection and achieve This paper will argue that much of MIC 2025 has sustainable commercialization of IP rights in China. been viewed too narrowly — without sufficient attention to longer-term global governance issues The paper argues that the general aims of MIC — by a large segment of the global business and 2025 and the policies that underpin them are not policy-making communities. In the context of unreasonable, given the increasingly prevalent foreign-invested firms’ dominance in China’s high- dilemmas in global trade that China’s leaders tech export sector and China’s gradual liberalization are grappling with. These include problems of of its FDI regime more generally, joint-venture international development arising from growing requirements and the technology transfers that global industrial concentration — driven by the accompany such partnerships are fundamentally growth of the intangible economy — and China’s not unreasonable for a middle-income economy shrinking access to importing and developing attempting to raise industrial productivity and technological components (such as semiconductor move up global production value chains. Similarly, chips) that are increasingly characterized as common assumptions that China’s IP regime is “dual-use” by China’s trading partners. This inherently ineffective at safeguarding intangible suggests that resolving the concerns of China’s assets and skewed toward domestic firms is not trading partners regarding China’s industrial borne out by the latest available data and research. policies requires global trade governance reform Moreover, it will be argued that China’s trading to ensure an equitable,
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