[As a useful companion to the paper highlighted today I’d recommend the new(-ish) book ‘Apple in China’ by Patrick McGee. It’s the most useful ‘China Book’ I’ve read in a long while. The book sheds light on how Apple has used China to its advantage but in the process transferred know-how to an ecosystem that now competes with them.]
Today’s highlight is a Working Paper from the U.S.’s National Bureau of Economic Research in which Jadeo Choi from the University of Texas’s Department of Economics (et al.) takes a scholarly look at the China JV issue during the period 1998~2013 when activity was most intense.
A summary can’t do justice to the work nor go into the on-the-one-hand-but-on-the-other details of the analysis. So I’d advise before any ‘ah-hah!’-ing or ‘stuff-and-nonsense’ push back you take the time to read the work in full which you can do via this link The Dynamics of Technology Transfer.
Having gotten that out of the way here’s what I think are the key points:
- There are positive spillovers from Multinational Enterprises (MNEs) to Chinese partners via JVs in terms of the Chinese partner’s increased growth in sales, capital and export growth. Moreover, patent activity of the Chinese partner increases to a level close to that of their MNE partner.
- There are manifest beneficial spillovers to other Chinese firms in the same ecosystem.
- For those U.S. industries with more FDI into China the U.S firms in that ecosystem experienced more negative outcomes in terms of employment, investment and innovation.
The researchers ran a theoretical counterfactual that showed if no JVs with Chinese firms had been progressed since 1999 the U.S. would be a little better off but China would be a lot worse off. Viz. “The JV restriction in 1999 improves US welfare by 1.2% but reduces China’s welfare by 10.3%.”
So, if the U.S. wants to gain an advantage they should ban all JVs with China? Not so fast. The world has moved on and the technology gap with China has closed so if this policy were enacted TODAY there would, in fact, most likely be a dis-benefit to the U.S. if such a policy were progressed.
I’d like to inject my two-pennyworth here. If analysis is confined to what’s right for the U.S. then arguably, and it is very arguable, greater business collaboration with China in the last two decades has not been a good thing.
However, if we consider what this process has meant, in aggregate, for the world there can be no doubt we are, unarguably, better off.
Happy Sunday.