Perhaps the largest of these efforts is the Japanese government’s 1992 Green Aid Plan (GAP). The GAP includes cleaner coal demonstration projects in many Asian countries, including China. Despite an average expenditure of US$30 million per year, the GAP has only been partially successful in facilitating technology transfer. No follow-up orders for the equipment used in the demonstration projects have been placed, largely due to the high cost of the imported Japanese equipment. In response, there has been a shift in policy to favor equipment that can be manufactured (at least in part) by Chinese companies. There is also a recognition that Japanese equipment designs must first be simplified before they are “appropriate” for the Chinese market.

GAP has also been severely hampered by the complete absence of Chinese equipment manufacturers from the process. Equipment transfer, training, and design cooperation are targeted at user industries (for example, steel and cement) rather than those involved in the design and manufacture of equipment in China. When questioned about this aspect of the GAP, Japanese officials give two explanations. Some argue that Chinese companies do not possess the capabilities to assimilate Japanese technology. Another more convincing view, also put forward by Japanese companies, is that they are worried that technology transfer will weaken Japan’s commercial position and create future competitors.

A second example is the US Department of Energy program, which is more modest than the GAP. During the 1990s, the Department of Energy made several attempts to transfer technology from its domestic cleaner coal research and development program to China. These efforts increasingly focused on plans to finance and construct a demonstration power plant based on Integrated Gasification Combined Cycle (IGCC) technology. While there is much enthusiasm for the IGCC within China, the project has not proceeded beyond a series of feasibility studies. IGCC technology is considered to be too risky and expensive by commercial financiers even for deployment in countries who belong to the Organization of Economic Cooperation and Development. Meanwhile, the US Congress declined to contribute to this program in China because of political tensions over the Kyoto Protocol, human rights, and Taiwan.

A third example of a technology transfer effort is the World Bank’s program to improve the efficiency of industrial boilers. There are around 500,000 of these boilers in China. Most burn low quality coal with efficiencies much lower than the international average. The World Bank project aims to subsidize the acquisition of licenses for new boiling technologies by Chinese firms. Despite this laudable aim, the project has run into numerous problems and delays. It took six years to identify suitable technology licensors due to the reluctance of major international firms to take part on the World Bank’s terms. Furthermore, many international boilermakers were concerned about intellectual property protection because of the Ministry of Machinery’s insistence on covering all Chinese boilermakers.

Corporate Perspectives

These three examples of state-led technology transfer illustrate some of the challenges of achieving results. They show how governments and international agencies fail to note the motivations of private firms. Peter Evans, a Professor of Economics at the Massachusetts Institute of Technology, argues that “a sponsoring state must secure the cooperation of private firms to promote the transfer of technologies to areas where they are lacking. ... [Firms] generally have limited interest in sharing design, production know-how, or other capabilities that would increase a developing country’s ability to manufacture these technologies locally.” In addition to concerns about competition, firms have other reasons to be cautious about engaging in technology transfer to China. According to numerous surveys, unclear business rules and a lack of intellectual property protection in China continue to be sources for hesitation. This perception has prevailed despite a rash of new Chinese legislation that was introduced in the run-up to World Trade Organization (WTO) accession. As a recent report in The Economist puts it, “foreign multinationals are loathe to admit it, but doing business in China is far from easy—and often not very lucrative.”

The same article cites the case of the flagship West-East gas pipeline project, which was developed in partnership with Gazprom, Shell, and Exxon-Mobil. In June, the partnership fell apart after the Chinese government cut the rate of return for foreign investors to a much lower figure than expected. As The Economist observes, this project did little to allay the concerns of international firms: “after three years of fraught negotiations, they now walk away with nothing, leaving behind their designs, field-development plans, and technology.” Examples such as this do not tell the whole story. Conversations with managers from foreign and Chinese firms show numerous examples of successful technology transfer.

On the whole, Chinese firms have found that the easiest way to gain some expertise in new technology is to buy a new piece of cleaner energy equipment from a foreign firm. Because of the high cost of imported equipment, there is strong incentive for foreign firms to subcontract the manufacture of large components to Chinese firms. Although this means that “high-tech” component design and manufacture is often retained by the foreign firm, the Chinese recipient still gains a significant amount of new information from the arrangement. This is the case for those technologies that are developing rapidly where the foreign firm can afford to be more relaxed about its competitive position.

Many investment projects go much further than simple equipment imports and local sourcing. Foreign firms often offer operator training as well as design and management training as part of technology transfer deals. In some cases, the Chinese firm lacks the money to pay for these additional activities. In others, they are included in the overall package. Inclusion of these activities is more common in strategic partnerships such as joint ventures in which a foreign company is seeking to establish a base in China. In such partnerships, the foreign firm has a direct interest in ensuring that their technology is used as effectively as possible. The country obviously benefits from this arrangement as well.

One key issue that is often mentioned by both Chinese and foreign firms is absorptive capacity—the ability of a Chinese recipient firm to effectively utilize new technology. Chinese technological competence is world-class in some industries such as electronics, but many companies still lack the necessary skills and facilities. This is partly because of a separation in China between manufacturing, which is carried out by companies, and research and development, which is carried out by design and research institutes.