The Economics Show: China wanted western tech. Now, the tables have turned.

Ethan Wu (0:00)

Hi, everyone. Rob and I are taking a break from the Unhedged podcast this week, but we wanted to introduce you to another podcast in the FT stable. The Economics Show with Soumaya Keynes is a weekly FT podcast covering the biggest issues in global economics, including trade, monetary policy and the AI revolution.

In this episode, Soumaya speaks to John Minnich, an expert on Chinese industrial policy at LSE. They discuss how China used tech transfers to absorb Western know-how and become the world's foremost manufacturer. And they ask whether the US and Europe should now do the same to China.

If you like what you hear, click the link in the description or search the Economics Show wherever you get your podcast to find more episodes. Enjoy the show.

Soumaya Keynes (0:47)

China has moved up the value chain. Its companies aren't supplying basic components anymore. They are global brands in their own right. And Western officials are looking on anxiously, as Chinese batteries, cars and drones become increasingly sophisticated. Now, Western policymakers are asking the same question their Chinese counterparts were asking years ago.

We'd like to beat them. Should we be joining them?

This is The Economics Show with Soumaya Keynes. I'm the author of a new book, How to Win a Trade War, with Chad Bowne. And in this episode, I wanted to make a sort of spin-off show, going deeper into one of the topics that we covered, and also speaking to one of the researchers whose expertise we drew on. So today, I am delighted to be speaking to John Minnich, Assistant Professor at the London School of Economics, whose super interesting research looks at the history of technology transfer to China, and how other countries might learn from that model today. John, hello!

John Minnich (1:56)

Great to be here. Thank you for having me.

Soumaya Keynes (2:00)

Okay.

So on a scale of 1 to 10, how strongly would you recommend to Western governments that they respond to concerns about Chinese competition by persuading them to hand over their tech? So 1 is no, don't bother. 10 is absolutely, this should be a massive priority for them.

John Minnich (2:24)

I would say the core idea, I would give an 8 or a 9 You know, one of the things I've learned from my research on China and technology transfer policies in China is that technology transfer policy alone is seldom the only or decisive factor that's going to get you from to 1

But an 8 or a 9, because I think that this should absolutely be an integral part of any policy package that European or the American government in the future pursue if they want to get technology transfer from China. I'd say where I'm a little bit more skeptical in the case of advanced industrial economies, especially liberal democratic governments, is when it comes to execution. Because getting it right, so to speak, requires a real tolerance for waste and efficiency, a lot of failure, but also a capacity to iteratively improve along the way. And with that, a kind of flexibility that honestly, at this point, I don't know, but I'm not particularly confident in Western governments' capacity to do.

Soumaya Keynes (3:21)

Okay, well, starting on a nice upbeat note there. So it feels like this question of how to do tech transfer, how to deal with investment, is really where the debate is right now when it comes to relations with China. I think in the US, there's relative hostility towards inbound Chinese investment, although increasingly there are voices making this point that if we want to compete, we're actually going to have to try to draw on some of the Chinese companies' technology. I think in the EU, the debate is much less settled. So there is just this question, which is open, of how far they should embrace partnerships with the Chinese. And in recent policy debates, you've seen the Industrial Accelerator Act, the IAA, which, quote, lays down conditions for large foreign investments, which will apply to investments above 100 million euros, by investors from countries that account for a 40 percent share of global production.

And that rhyme with Schmeiner, you might as well say. So I think what the Europeans are trying to do is make sure that more of the value associated with a foreign investment spills over to Europe, that they get some of those ideas when the Chinese invest. Which is kind of funny in a way, because in a sense, where we started with the Trump-China trade wars, was a concern about forced technology transfer, right? The Chinese had been applying this policy of trying to extract foreign tech for years. The Americans felt that they had been doing that in an underhand way, and then there were tariffs. So it's kind of funny that the source of all this tension at the beginning is now, we've gone full circle and we're now saying, oh, actually we need to know how to do it better.