The smarter way to exploit China’s technical expertise

Western countries such as Australia have long complained that China steals their technology, which raises the obvious question: why can’t we steal theirs?

I’m joking – Australian rules prohibit state espionage for commercial gain, but only just.

So let me politely rephrase the question. Instead of stealing Chinese know-how, how can we transfer and absorb it into our industrial systems?

Australia’s domestic spy chief, Mike Burgess, set me thinking about this when he called out Chinese theft of Western technology and the like after a meeting of the Anglosphere’s intelligence chiefs.

“The Chinese government are engaged in the most sustained, sophisticated and scaled theft of intellectual property and expertise in human history,” the ASIO chief said after the Five Eyes meeting in California late last year.

Burgess’s frankness was welcome but, taken alone, his statement gives less than a full picture of the challenges facing Australia in the global battle over technology leadership.

Headline-grabbing announcements about Chinese IP theft largely assume that the US, Europe, Japan and the like have a stranglehold on the best technologies.

But that is no longer the case. In several fields of endeavour, the Chinese are ahead of Western countries or, at the very least, are peer competitors.

We are kidding ourselves if we think China’s dominant position is all down to skulduggery.

The Australian Strategic Policy Institute’s team in Canberra benchmarks global leadership in 44 technologies. In its latest iteration, it says China is ahead in 37 of them. Moreover, China is now home to many of the world’s most impactful research institutions.

However sceptical you might be about such rankings; those figures don’t capture how far China has come over the past decade.

Its secret sauce is not just in any technology but the unsurpassed ability of its businesses (state and private) to use this know-how at scale, and in all manner of high- and low-tech production.

Even advanced manufacturing nations such as Germany have been forced to confront this reality.

Rather than cutting Beijing off from various technologies, as the US is doing, German automakers are doubling down in the mainland as they see no other way to combat China’s advantage in electric vehicles than to learn by working alongside them.

In the words of a European industrialist, the Germans have decided they have to toil in China’s industrial “fitness centres” to learn how to catch up in modern car making.

For sure, German car makers have been politically compromised by Chinese pressure, but, as a strategy to beat China, they might be right.

The Chinese have moved fast and slow to become technology leaders.

The Chinese state, as Burgess says, has sanctioned the large-scale theft of foreign technology. That’s the shortcut to a rapid catch-up with the industrialised world.

But Beijing has also moved methodically and slowly in absorbing foreign technologies, by forcing multinationals to transfer them into joint ventures in China and then gradually learning how to match them in output and quality.

Moreover, they have invested heavily in homegrown engineering talent and research. We are kidding ourselves if we think China’s dominant position is all down to skulduggery.

Geopolitics the prime driver

In the case of Australia, the government has signalled that it will restrict Chinese investment in mining and processing critical minerals.

The prime driver is geopolitics. Australia’s partners – the US, Japan, South Korea and Europe – don’t want China to solidify their overwhelming dominance in minerals used to make high-tech components in mobile phones, cars and many other products.

The restrictions are perfectly justified on anti-monopoly grounds alone. China has captured as much as 98 per cent of the mining, processing and marketing of many critical minerals, and can manipulate prices accordingly.

But if we want to gain the know-how and technologies to build these industries ourselves, not just in mining but processing and refining critical minerals as well, how much more difficult and costly will that be without Chinese partners?

Could our governments and companies have the guile and patience to use state-enforced joint ventures in Australia with the Chinese to absorb their know-how instead, enabling us to then stand on our own?

The same goes for research co-operation, through universities. Much of the focus is on the Chinese theft of IP through such ventures. Are we incapable of exploiting such co-operation in our favour?

The general narrative, of gormless, short-term-focused Australians being constantly outwitted by the wily, strategic party-state in Beijing, would tell us that the answer is no.

In military and dual-use technologies (admittedly, an ever-widening category), Australia’s choice is clear – to adhere to US controls and gain benefit from tech spillovers. AUKUS has cemented this choice.

Elsewhere, Australia as a country could never match the subsidies being thrown around by Beijing and increasingly now by Washington and other developed and developing countries.

Is the sole path for middle powers such as Australia to keep widening what the Americans call “the small yard and high fence” of technologies to be protected from the Chinese?

Or is there a more proactive path, to narrow down and manage the risks of economic engagement, to maximise the benefits of importing tech from the US and its allies, and, where possible, China too?

Without a strategy to seize the gains that economic ties with Beijing offer, Australia risks passively accepting the losses of superpower competition.