It was, in all honesty, the inevitable outcome of the Chinese Communist Party’s decision to embrace a liberal market economy back in 1978: though ostensibly still the “People’s Republic” of China, both private and state-owned Chinese companies are acquiring assets, concluding partnership deals, and undertaking merger & acquisition (M&A) initiatives with companies and industries in Europe, the United States, and just about every other part of the world at a breakneck pace. 2015 proved to be a banner year for Chinese business partnerships abroad, with public and private firms working in partnership to ink over $100 billion (USD) worth of M&A deals. As of now, 2016 looks to be no different. Despite the stock market crash that shook Chinese and international markets and forced economic growth projections downward, the international ventures undertaken by Chinese companies will continue to be a component of the country’s expanding role in the global economy.
Unfortunately for Chinese firms doing business abroad, the eagerness of international partners to make deals continues to be tempered by the country’s reputation for state intervention, corruption, disregard for intellectual property rights, and flat-out corporate espionage. In one particularly embarrassing leak, 630,000 files pertaining to the new American C-17 transport plane were stolen from Boeing by two Chinese hackers linked to the People’s Liberation Army (PLA). Working with a Canada-based Chinese national with his own aviation company, the state-sponsored hackers obtained detailed files on the C-17 (whose research and development costs added up to $3.4 billion) that covered everything from measurements of various parts to flight test data. The primary buyer was eventually arrested in Canada, but the hackers themselves admitted that the stolen technology would be used to the benefit of state-owned Chinese companies—in this case, Xian Aircraft Industrial Corporation and its own Y-20 cargo plane project.
While both the Chinese government and individual Chinese companies have certainly done more than their fair share of corporate spying, it is worth remembering that the same “established” economic actors concerned about China’s dirty tactics all indulged in secret-stealing to cross the line separating “developing” and “developed.” France, for example, has a long and proud history of industrial espionage dating back to the 17th century. It was a French Jesuit missionary, for example, who took careful note of the precious “hard-paste” porcelain manufacturing process in China in the late 1600s and early 1700s. A few decades later, the same porcelain went into production at Sèvres, France, from where the knowledge was stolen (again) and further replicated in Britain.
When the British themselves began setting the pace of industrial innovations, their French competitors resorted to creative efforts to coax British experts (and their new technologies) over to the Continent. With the help of English businessman and failed Jacobite rebel John Holker, they stole plans from British factories and recruited skilled workers to emigrate to France. The early United States also felt the pressure to exploit the new country’s untapped resources and keep up with Europe. Founding Father and pioneering Treasury Secretary Alexander Hamilton urged the government to incentivize migration by skilled European workers to America. The entire American Industrial Revolution got its start when Englishman Samuel Slater used his intimate knowledge of British cotton mills and their machines to start his own mill in the state of Rhode Island (which was entirely illegal under British law).
China’s economic planners certainly enjoy sounder technological footing than Alexander Hamilton did, but the Middle Kingdom still occupies an awkward middle ground between a developing economy reliant on low-tech manufacturing and an innovative source for high-tech ideas and products. Research and development spending in China rose from 2.2% of the worldwide total in 2000 to 14.5% in 2011, but many Chinese companies are still low-cost producers of products designed abroad—Apple’s “Designed in California, Made in China” iPhone comes to mind. The Chinese government and its increasingly potent private sector are trying to break out of this role, but at least some Chinese officials and businesspeople still see stealing secrets as a viable means of bridging the technology gap. Conversely, revelations of cyberespionage and deceitful tactics only serve to make the international climate more hostile to Chinese business ventures as a whole.
Of course, electronics and defense equipment are not the only industries where accusations of Chinese theft have fueled hostility. Even patented GMO plant seeds created by companies such as Monsanto and DuPont have fallen victim to industrial espionage efforts, such as when Chinese-American dual citizen Mo Hailong and a group of accomplices stole $30-$40 million worth of intellectual property from Iowa cornfields and for smuggling to China. Such cases have a noticeable effect on the ability of other Chinese actors to do business; the China National Chemical Corporation (known as ChemChina) has seen its proposed acquisition of Swiss agribusiness giant Syngenta attract suspicion from business analysts and vocal opposition among Syngenta’s own shareholders. A dissident shareholder group in Switzerland has already condemned the potential sale as a “disaster” and de facto nationalization. On top of those objections, European and American economic officials will be subjecting any such deal to long and exhaustive scrutiny, in which overarching suspicions of Chinese motives are sure to play a role. The Committee on Foreign Investment in the United States (CFIUS), an inter-agency committee tasked with overseeing the national security implications of various foreign investments, has a long track record of scuttling deals with Chinese investors. In Syngenta’s case, the fact that several of its US facilities are dangerously close to military bases could be a major reason for CFIUS to kill the acquisition.
With Chinese policymakers and businesspeople feeling their globalizing economy is punching below its weight, stealing secrets from abroad may seem like a tempting shortcut to innovation. As China moves to “normalize” its role in the global economy and equal the United States as a base for successful corporations, China’s state-owned enterprises and burgeoning private sector will need to learn how to play by the rules of international business. Until they do, unsavory practices will sully their reputation and throw up barriers to deals that could have otherwise been avoided. Chinese companies may be succeeding overseas, but they will find the road to greater success much smoother once they establish themselves as honest business partners.