The Global Electronics Revolution and China’s Technology Policy

The Global Electronics Revolution and China's Technology Policy

by Barry Naughton
April 15, 1999

This essay illustrates how transnational production networks—in which mainland Chinese firms are important participants—both require and promote enhanced protection of patents, copyrights, and associated forms of intellectual property.

Until recently, discussion of technology policy in developing countries was dominated by a type of analysis that can be called the “critical technologies” approach. According to this line of thinking, in any given industry there are critical technologies that have been pioneered in the developed countries. The primary objectives of technology policy for developing countries are, therefore: (a) identification of critical technologies; (b) technology transfer, including modification and adaptation of critical technologies to local conditions; (c) diffusion of new technologies within the domestic economy; and (d) nurturing new industries and ultimately domestic innovation capacity. In the critical technologies approach, the ultimate pace of technology transfer is determined by a broad range of organizational and economic factors, but many of these can be influenced by government policy and by the effort expended by government and society on technology policy.

Approaching technology policy choices through the “critical technologies” framework follows naturally from the most common interpretation of the experience of Japan and Korea. Government agencies in these two countries made extensive efforts to identify critical technologies, bargained hard over the terms on which those technologies would be transferred to domestic firms, and created conditions to protect and nurture new industries using these technologies once they were established. [1] In order to foster domestic capabilities, many kinds of direct foreign investment were restricted or discouraged. Barriers to trade were often used by the government in the pursuit of technology transfer, either to enhance bargaining power in negotiations over the terms of transfer, or to protect infant industries once transfer had occurred. The positive appraisal of past Japanese and Korean experience has been extremely influential in Chinese policymaking circles.

In this paper, I argue that the “critical technologies” approach is no longer adequate to analyze the trade-offs faced by Chinese policymakers as they consider domestic technology development. Government policy needs to adapt to recent developments in technology and business organization, and in particular to the recent rapid growth of international production networks. An analytical approach, based on the centrality of production networks, leads to a different set of policy recommendations than does the critical technologies approach. In general, the policies that promise to be most effective in fostering technology transfer, particularly in high-technology industry, include:

  • openness to foreign investment and trade;
  • strengthened protection of intellectual property rights, particularly
  • industrial patents
  • market development measures to strengthen domestic firms; and
  • deregulation to empower domestic consumers—the users…

[1] See Richard Samuels, Rich Nation, Strong Army: National Security and the Technological Transformation of Japan, Ithaca: Cornell University Press, 1994. Samuels is a significant source of the discussion of the critical technologies approach presented here. However, note that Samuels, as a political scientist, is primarily concerned with the policy processed and policy outcomes. From an economic standpoint, it is important to stress that Japan’s postwar economic success owes at least as much to the extraordinary robustness of Japanese firms, as to any particular government policy measures. See for example, Seki Mitsuhiro, Beyond the Full-Set Industrial Structure: Japanese Industry in the New Age of East Asia, Tokyo: LTCB International Library Foundation, 1994, and David Friedman, The Misunderstood Miracle: Industrial Development and Political Change in Japan, Ithaca: Cornell University Press, 1988. Both Seki and Friedman argue that the vibrant network of small firms (especially small machine shops) that existed in Japan were critical to Japan’s technological success.