One of the most discussed problems with Chinese trade practices is forced technology transfer. U.S. officials allege China steals technological knowledge from the foreign companies operating in China.
However, this rarely comes up in WTO cases (it has been the focus of three out of forty-three total cases against China) because it is not always clear that China is actually violating any WTO rules.
How does it work? One way is through joint-venture partnerships: China often requires foreign companies entering the Chinese market to partner with Chinese firms, which is allowed under WTO rules. The terms of these treaties, which are negotiated outside the scope of the WTO, sometimes require foreign firms to share technology secrets with Chinese companies. But because many Chinese firms are owned or influenced by the government, the companies are effectively sharing their technological secrets with the Chinese government.
Particularly when it comes to forced technology transfers and state subsidies (providing direct support to Chinese industries through state funding and tax breaks), China is often breaking no explicit rules. But they are seen as violating the spirit of WTO regulations.
Sometimes China will take advantage of the lack of WTO regulations governing certain issues. For example, China was found to have undervalued its currency by 30 percent for years after joining the WTO, which made Chinese exports cheaper—but there is no WTO provision on currency manipulation, which makes tackling this issue more difficult for China’s trading partners.
IS CHINA CHANGING ITS WAYS? SHORT ANSWER: NO
When found guilty of WTO rule violations, China has taken steps to rectify its behavior (more than can be said for the United States and the European Union, which have ignored at least one ruling each). But, as it is responding to complaints, China has simultaneously announced plans to ramp up some policies that the United States finds fault with, such as state subsidies.
Why would China want to change the ways it works within the WTO? The country has reaped enormous benefits since joining: it now has an economy thirty times larger than it was in 1978, and its middle class is growing. It has increased its international involvement without conforming to the playbook of a Western, democratic world order, and it is becoming a leader in its own right.
Even if China was less influential, the WTO would unlikely be able to rein it in. The WTO’s relevance is waning, stemming from the fact that its rules have not been updated in nearly twenty-five years. China has learned, quickly and effectively, how to navigate the rules so the global economy works for it, not against it.