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Is China Stealing GM's Technology?

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"China's actions are part of a disturbing trend where China demands American advanced-technology product secrets in order for those products to be sold in the world's second largest market."
-- Sen. Debbie Stabenow (D-Mich.), in a letter to U.S. Trade Representative Ron Kirk, Sept. 14, 2011

Senator Stabenow is hardly alone in being concerned. Worries that American companies -- in this case, General Motors (NYSE: GM  ) and Ford (NYSE: F  ) -- are being required to transfer technology secrets to Chinese firms via mandatory "joint ventures" have been voiced widely in recent times.

There's obviously some technology-sharing going on. But in this case, the key parties seem surprisingly unconcerned. Why did GM and Ford respond to their senator by saying that this "disturbing trend" wasn't an issue for them?

Is this pressure actually happening?
The senator wasn't writing in a vacuum. Her letter followed a New York Times article earlier this month that claimed that GM was being pressured to share secret technologies with its Chinese partners. The specific technologies -- three systems used inside the Chevy Volt -- were to be shared as a condition of allowing the Volt to qualify for incentives offered by the Chinese government to those who purchase hybrid and electric cars, according to the article.

Sounds dreadful, doesn't it? There are just a couple of problems. First, GM's CEO says that it didn't happen. Speaking on Tuesday, Dan Akerson said that neither the Chinese government nor SAIC, GM's key Chinese partner, has pressured GM to share technologies inside the Volt.

GM is working jointly with SAIC on an electric car to be produced and sold in China, and that effort may well involve some "technology transfer" -- or, at the very least, a version of the car wearing a domestic Chinese brand's nameplate. Nissan is also planning to build an EV in China via a joint venture, according to recent reports, and it's likely that other automakers have similar plans in the works. And Akerson confirmed that GM is going to try selling the Volt in China, as the Times reported -- but those Volts will be imported from the U.S., at least for the first year or two. (Longer-term, producing the Volt in China is a possibility, and might be a great way to lower its price, something that I'm sure has occurred to Akerson -- but that's another discussion).

Whether the electric-car incentives will apply to the Volt (and to other imported EVs and hybrids) is currently unclear, as the Chinese government has yet to announce an official policy. Now, it's possible (maybe even likely) that some horse-trading is happening behind the scenes, and Chinese officials are looking for some concessions from GM, as the Times report claimed -- but maybe Akerson thought it wise to dismiss the reports rather than confirming them.

But there's another, separate issue: Does it really matter all that much?

Are these "secrets" worth fighting for?
Here's the thing that gets me every time this conversation comes up: Cars are consumer products. These aren't military devices that will be hidden in carefully guarded bunkers until they're needed -- they're mass-market products that anyone can buy. And "anyone" includes rival automakers, nearly all of which buy and disassemble competitors' key products as a matter of course.

This is hardly a new practice. I recently read that GM engineers had bought and disassembled several top European luxury cars, hoping to reverse-engineer their front suspension designs to improve the handling of Cadillacs -- in 1930. It's a no-brainer that competitors, probably including some Chinese firms, have spent time finding out what makes the Volt tick -- just as companies like Ford and Honda (NYSE: HMC  ) probably spent time dissecting the first Toyota (NYSE: TM  ) Prius, and just as all the major automakers try to stay on top of their competitors' latest innovations.

Senator, you can't stop this kind of progress
Reverse-engineering automotive innovations just isn't all that hard if you have a team of auto engineers on the job. "Secrets" in the auto business -- the ones all automakers will jealously guard -- are really about the next generation of cars. GM's not going to tell you what's in the next Volt, and they probably won't tell SAIC either, unless SAIC needs to be involved in its development. But the current car? It's not a secret anymore.

The truth is, there's no way to stop Chinese automakers from learning what they need to learn to compete with the Western giants in time. Not only can their engineers buy, disassemble, and learn from current products from all over the world, but they can also do what other firms everywhere do: hire experts away from rivals.

I think the real issue, from the Chinese government's perspective, is less about "forced technology transfer" and more about being able to show the Chinese people that their domestic auto industry is advancing. GM and SAIC are partners with extensive joint operations , and some "transfer" of know-how is inevitable. As Americans rooting for the success of American companies in China, we might not love that. But at least for the moment, the people running GM (and Ford) think it's a tradeoff worth making.

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Fool contributor John Rosevear owns shares of Ford and General Motors. You can follow his auto-related musings on Twitter, where he goes by @jrosevear. The Motley Fool owns shares of Ford. Motley Fool newsletter services have recommended buying shares of Ford and General Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (1)

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  • Report this Comment On October 01, 2011, at 2:10 AM, krishnamahesh wrote:

    Come on. Of course GM will not admit to having the thumb screws applied by the Chinese. They have to deal with SIAC & the Chinese Govt for years to come. China is one of their largest markets.

    If they tell the truth and admit that the Chinese *are* trying to steal their technology, you'll find mysterious recalls, and other Govt. related problems in China.

    It's disingenuous or flat out naive to pretend not understand the limits that corporations face when working with (vindictive) dictatorships like China which value "public face" more than reality

  • Report this Comment On October 01, 2011, at 4:56 AM, ershler wrote:

    The capitalist will sell us the rope...

  • Report this Comment On October 01, 2011, at 8:34 AM, kickchina wrote:

    Mr. Rosevear,

    not sure why you are such a supporter of the Chinese, who don't seem to understand meaning of contract law and their WTO ascension agreements, but they are faulty anyway. First, under WTO rules , a country must treat all products equally regardless of origin. They have no standing to only allow incentive for Chinese made cars. not sure where you got your engineering degree, but reverse engineering not as useful now as years ago as have patented processes to make the components you can't see from finished product. US and western european countries need to collectively go after China legally and collectively as China not prepared to face WTO sanctions and western legal systems and we should be able to keep China from advancing to next level which should eventually bring them down.

  • Report this Comment On October 01, 2011, at 11:06 AM, Warhawk89 wrote:

    One of the dumbest articles I have ever read. Do you really take us all to be idiots? Just ask Boston Sci, Medtronic, and Saint Jude about sharing tech in China.

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