White House Office of Trade and Manufacturing Policy, Chinese Economic Aggression Threaten US Intellectual Property, June 2018

China’s Strategies of Economic Aggression

“The Chinese government is implementing a comprehensive, long-term industrial strategy to ensure its global  dominance....  Beijing’s  ultimate  goal is  for domestic   companies   to   replace   foreign   companies   as   designers   and manufacturers of key technology and products first at home, then abroad.” U.S.-China Economic and Security Review Commission

The People’s Republic of China (China) has experienced rapid economic growth to become the world’s second largest economy while modernizing its industrial base and moving up the global value  chain.  However, much  of this  growth  has  been achieved in significant  part through aggressive acts,  policies,  and  practices that fall outside of global norms and rules (collectively, “economic  aggression”). Given  the  size  of  China’s  economy  and  the  extent  of  its  market-distorting policies, China’s economic  aggression4now threatens not only the U.S. economy  but also the global economy as a whole.

In  some  respects, China has been transparent about its aggressive acts, policies, and  practices. They are revealed in Chinese government documents,through behaviors of Chinese State actors, and from reports produced by business organizations, think tanks, and government agencies. Four categories of such economic aggression which are outside the scope of this report include:

• Protect China’s Home  Market From Imports and  Competition: This category features high tariffs, non-tariff barriers, and other regulatory hurdles.
   
• Expand China’s Share of Global Markets: Industrial  policy  tools include  financial support to boost exports and the consolidation ofS tate-Owned Enterprises into“national champions” that  can  compete  with  foreign  companies  in  both  the  domestic  and  global markets. Chinese enterprises also benefit from preferential policies that lead to subsidized overcapacity in China’s domestic market, which then depresses world prices and pushes foreign rivals out of the global market.
   
• Secure and Control Core Natural Resources Globally: China uses a predatory “debt trap” model  of  economic  development  and  finance  that  proffers  substantial  financing  to developing countries in exchange for an encumbrance on their natural resources and access to markets. These resources range from bauxite, copper, and nickel to rarer commodities such  as  beryllium,  titanium,  and  rare  earth  minerals. This predatory model  has  been particularly  effective  in  countries  characterized  by  weak  rule  of  law  and  authoritarian regimes.
   
• Dominate Traditional Manufacturing Industries: China has already achieved a leading position  in  many  traditional  manufacturing  industries. It has  done  so  in  part  through preferential  loans  and  below-market  utility  rates  as  well  as  lax and  weakly  enforced environmental and health and safety standards. As the European Chamber of Commerce has documented: “For a generation, China has been the factory of the world.” By 2015, China already accounted for 28 percent of global auto production,  41percentof global ship production, more than 50 percentof global refrigerator production, more than 60percent of global production of color TV sets, and more than 80percentof global production of air conditioners and computers.

In addition, China pursues two categories of economic aggression that are the focus of this report. These include:

• Acquire Key Technologies and Intellectual Property From Other Countries, Including the United States
• Capture the Emerging High-Technology Industries That Will Drive Future Economic Growth and Many Advancements in the Defense Industry

This report will document the major acts, policies, and practices of Chinese industrial policy used to  implement these  two  strategies.16Through such  implementation,  the  Chinese State seeks  to access the crown jewels of American technology and intellectual property.(A compendium of the acts,  policies,  and  practices used to implement China’s six strategies  of  economic  aggression is presented in the Appendix.)

How China Seeks to Acquire Technologies  and Intellectual Property and Capture Industries of the Future

Chinese industrial policy seeks to “introduce, digest, absorb, and re-innovate”17technologies and intellectual property (IP) from around the world. This policy is carried out through: (A) State-sponsored  IP  theft through  physical  theft,  cyber-enabled  espionage  and  theft, evasion of U.S. export control laws, and counterfeiting and piracy; (B) coercive and intrusive regulatory gambits to force technology transfer from foreign companies, typically in exchange for limited access to the Chinese market; (C) economic coercion through export restraints on critical raw materials and monopsony  purchasing  power;  (D)  methods  of  information  harvesting that  include  open  source collection;  placement of non-traditional  information collectors at U.S. universities,  national laboratories, and other centers of innovation; and talent recruitment of business, finance, science, and technology experts; and (E) State-backed, technology-seeking Chinese investment.

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