What is Forced Technology Transfer (FTT)?

Forced technology transfer (FTT) is a practice in which a domestic government forces foreign businesses to share their tech in exchange for market access. The practice is common in China. When a company wants to enter the Chinese market, the Chinese government can compel the firm to share its technology with Chinese companies.

How Do They Do It?

How can the Chinese government compel a firm to share its technology? Good question. China has some unique economic bureaucratic features that facilitate the enforcement of the practice. For one, foreign direct investment in China is still partially closed. This means that, in order to operate in certain industries in China, foreign companies must operate through joint ventures. The joint ventures partner with multinational and local companies, not allowing the multinational firms to hold a controlling stake in the partnership. These partnerships can force foreign companies to share their sensitive, private technology with local, domestic firms - firms they may end up competing with in the free market, later on.

State owned businesses play a significant role in forced technology transfers, too. In China, the Communist Party appoints top executives to companies in high tech sectors like transportation, air travel and telecommunications. The executives in these industries could be incentivized not just by profitability, but by the health and future of the sector in China. This can lead to deal-specific stipulations, which can include transfer of technology as a precondition for access to Chinese markets.

What's the Big Deal? "Made in China 2025"

China has ambitious plans to be the world's leader in technology by 2049. In 2015, the Chinese government launched a ten-year plan to update China's high-tech manufacturing sector in ten key areas. The rallying slogan, “Made in China 2025,” has become a state-led industrial policy that relies on government subsidies funding China-owned enterprises to pursue intellectual property acquisition to catch up to Western led technological leaders and eventually pass them.

The ten key areas, according to China's State Council are:

1. New information technology

2. High-end numerically controlled machine tools and robots

3. Aerospace equipment

4. Ocean engineering equipment and high-end vessels

5. High-end rail transportation equipment

6. Energy-saving cars and new energy cars

7. Electrical equipment

8. Farming machines

9. New materials, such as polymers.

10.Bio-medicine and high-end medical equipment

According to the Council, China's ten year plan is really a “three step” strategy of transforming China into a leading manufacturing power by the year 2049, which marks the 100th anniversary of the founding of the People’s Republic of China.