Climbing up the Ladder: Technology Transfer-Related Policies in the Context of the Belt and Road Initiative

2.1 The Belt and Road Initiative: the origins

China launched a massive initiative, the BRI, to further its economic interests globally. The BRI was launched by President Xi Jinping in 2013.¹² The BRI includes two major components: the land-based ‘Silk Road Economic Belt’ connecting China and Europe through Central Asia and the Russian Federation; and the ‘Maritime Silk Road’ connecting China with Southeast Asia, East Africa, and the Middle East and going to the heart of the Mediterranean.¹³

The BRI routes have an extensive geographical coverage running through Asia, Europe and the Middle East, encompassing more than 60 countries with a population of about 4.4 billion (63% of the world population), accounting for some 30% of global GDP and more than 35% of the world’s merchandise trade.¹⁴

The BRI aims to contribute 80% of global GDP growth as well as to push about 3 billion people into the middle class by 2050.¹⁵ It has also been asserted that the BRI’s significance is not primarily its effect on the Asia-Pacific area but its potential of connecting the region to Africa and Europe through bilateral relations.¹⁶

Already, by late July 2019, China had concluded 195 inter-governmental cooperation agreements with 136 states and 30 international organizations. From 2013–2018, China’s trade value with countries of the BRI amounted to 6 trillion USD, while direct investment was 90 billion USD.¹⁷ In fact, the BRI finds its historical roots in the old ‘Silk Road’ (Seidenstrasse), a term coined by the German geographer, Ferdinand von Richthofen in 1877.¹⁸

The BRI seeks to revive the ancient trade routes. Nevertheless, it has been demonstrated that Chinese exports, in particular infrastructure related goods, had flourished in BRI countries for a decade before the establishment of the BRI. Nevertheless, the BRI further enhanced the impact of China in BRI countries.¹⁹

Classic capitalist economies usually put pressure on less developed trading partners to adopt policies and institutions similar to the most advanced policies and institutions in classical capitalist economies,²⁰ the ‘one size fits all’ approach. Yet, the promoters of the BRI present it as a global development model that accommodates the economic structure of different trading partners. Indeed, the BRI presents itself as a model that aims for creating a win-win situation by creating a ‘prosperous and peaceful community with shared future’.²¹ In contrast to the traditional policies of developed countries, the BRI purports to respect national sovereignty and values by not imposing norms or conditions on other trading partners.²² Chinese officials refer to the BRI as ‘a community with a shared future for mankind’.²³

As David Shambaugh maintained, the BRI is a Chinese attempt to provide an alternative to the postwar economic system. He stated that ‘China is meticulously constructing an alternative and parallel global institutional architecture to the postwar western order’.²⁴ In fact, many commentators have started contrasting the BRI with the post-war Western economic regime and institutions. The WTO is one of the most important institutions of the post-war global economic system. Therefore, the contrast between the BRI and the WTO needs to be highlighted. We do not purport to give a full account of this issue; rather, we will deal with the aspects of this issue which are related to our analysis.

Although the BRI is often contrasted with the WTO, we believe that this comparison needs to be carefully considered. The WTO is an intergovernmental organization which is largely rule-based with its own autonomous dispute settlement system. The WTO draws on a rich body of jurisprudence dating back to1947. However, the BRI has not yet emerged as a distinct normative legal system with its own legal infrastructure. Indeed, Wolff contends that there is no specific BRI law or rules; instead, the BRI’s goals are mainly achieved through bilateral and regional agreements.²⁵

Wang states that the BRI is a kind of a ‘megaregional arrangement’.²⁶ BRI practice is based on a huge network of understandings with varying degrees of legal weight ranging from memorandums of understanding (MOUs) to project contracts.²⁷ Indeed, ‘BRI agreements are a hallmark of BRI practice, and carry profound implications for the future international economic order’.²⁸ Furthermore, it is observed that BRI projects are usually conducted under the ambit of MOUs between China and the receiving country. Public and private contracts are then made to complement this structure. The projects include different forms of public-private partnerships between the state, state owned enterprises (SOEs) and private companies. State owned banks typically finance these projects.²⁹

In particular, the BRI is based on a decentralized management structure. No single government entity oversees the BRI investments. Instead, the Ministry of Commerce (MOFCOM), the National Development and Reform Commission (NDRC), Ministry of Foreign Affairs (MFA), and the State Council each issue action plans, guiding principles, joint communiques, declarations, and other normative documents. Currently, the BRI proceeds on the basis of many Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs) with member states. No standard-form BRI contracts and companies (whether SOEs or private) exist.³⁰ The State Council established ‘leading groups’ to provide oversight in 2015. Yet, there is very little public information about their managerial and enforcement powers.³¹

Accordingly, academic literature on the BRI is mainly based on policy documents issued by these bodies, MOFCOM, NDRC, MFA and the State Council. The Chinese approach exhibits the following characteristics: ‘(1) pragmatism and flexibility, (2) soft law over hard law, (3) integration of Chinese norms into existing international organizations, (4) bilateralism over multilateral agreements, and (5) dispute resolution’.³² By way of illustration, taking Djibouti as an example of a BRI host state, most of the transactional substance of the BRI consists of ‘government to government’ deals that are implemented mainly by SOEs. The BRI model emphasizes political negotiation over formal law.³³ The BRI, thus, takes a different approach than the WTO, we discuss this in the next section.

2.2 The Belt and Road Initiative: BRI v WTO

We argue that the uncertainty about the status and legal classification of the Chinese economy has a major impact on the China-US tech war. Indeed, WTO negotiators struggled to find a classification of the Chinese economy that fits within one of the WTO’s classic categories. This ambiguity has persisted in the WTO system and caused many problems that continue to haunt the multilateral trading system right up to the present time.

In fact, before the Chinese accession to the WTO, WTO negotiators were aware of the peculiar status of the Chinese economy and thus China was subjected to special accession rules in order to be admitted to the WTO. The peculiar status of the Chinese economy caused many problems under the WTO rules. Notions such as a ‘Public Body’ under the WTO Agreement on Subsidies and Countervailing Measures (SCM) Agreement and whether to treat China as a ‘Non-Market Economy’(NME) under WTO law saw a great controversy between China and the West, in particular, the US. In addition, legal academics have also struggled to categorize the Chinese economy due to the opaque relationship between the Chinese government and private Chinese firms. We will highlight these issues consecutively:

The Chinese WTO Accession Protocol (Accession Protocol)³⁴ granted other WTO Members greater rights vis-à-vis China and applied more stringent rules on China which exceed standard WTO rules³⁵ (WTO-Plus rules).³⁶ Qin contends that the transition economies that acceded to the WTO before China were granted more lenient treatment than China; for instance, they were treated more generously than China in terms of using subsidies to facilitate privatization and transition to a market economy.³⁷

According to Qin, the China Accession Protocol is:

Qin attributes this differential treatment of China to apprehension about the size of China and Chinese SOEs.³⁹ However, the question that was barely anticipated in the Chinese accession process is: what if China reached a high degree of economic and technological progress to the extent that WTO rules, especially the TRIPS Agreement, favour China?⁴⁰ Indeed, China, during its accession phase, made assurances concerning WTO compliance regarding inter alia transfer of technology-related measures:

Yet, despite the stringent rules that were imposed on China during its accession process, the Chinese development model still poses many challenges to the multilateral trading system. Indeed, commentators have struggled to categorize the Chinese development model. Some commentators are ambivalent about whether one can refer to the Chinese development model as ‘socialist with Chinese characteristics’ or ‘capitalist with Chinese characteristics’.⁴² At the time of Chinese accession to the WTO, it was hard to designate China as a developed country, but with a GDP that surpassed 1,000 USD per person in 2001 as well as being the sixth largest economy globally at that time, it was also hard to treat China as a developing country. The socialist origins of the Chinese economy further exacerbated the problem.⁴³

Professor Wu has referred to the current Chinese economic structure as ‘China Inc.’.⁴⁴ According to Professor Wu, the Chinese economy is marred by contradictions. While it can fairly be held that the Chinese economy is state dominated, Chinese economic growth can be mainly attributed to private enterprises. Also, while the Chinese economy adopts market-oriented policies, it is not a free-market capitalist system.⁴⁵

As a result, there is a controversy surrounding whether China should be treated as an NME under WTO law. The issue of the treatment of NMEs was a no-issue under the original General Agreement on Tariffs and Trade (GATT) due to the homogeneity of GATT participants. In fact, GATT did not differentiate between economies on grounds of ownership basis in the domestic market. Yet, the accession of NMEs was a complex issue in the era of the WTO. Although Keynes advocated that government involvement in economic planning was required to achieve full employment after World War 2, his views were not adopted by the US government which adopted a liberal economic policy in international trade that emphasized a privately led economy rather than a government planned economy.⁴⁶

Article 15 of the China Accession protocol sets up the NME status of China. The China Accession Protocol provides that the NME status of China is to lapse after 15 years from the date of China’s accession to the WTO.⁴⁷ Despite the fact that China thus would not be legally treated as an NME as of December 2016, particularly for the purposes of antidumping proceedings, the treatment of China after this deadline is still a controversial issue.⁴⁸ The WTO rules do not contain a definition of the term NME.⁴⁹ Thus, Member states have different approaches to this issue. At the present time, more than 80 countries acknowledge the market economy status of China, including Australia, New Zealand and the ASEAN countries.⁵⁰ However, the US and the EU are still refusing to treat China as a market economy. China has tried to resolve this issue sometimes through diplomacy and sometimes through WTO dispute settlement.⁵¹

The controversial status of the Chinese economy is reflected in the BRI. Although the BRI provides that it is based on market values,⁵² the market model envisaged by the BRI may be different from that of the WTO. The WTO is based on a neo-liberal free-market model that WTO Members should strive to reach. Non-Market Economies and Economies in Transition should ultimately transform themselves into this neo-liberal market model. Antidumping WTO Rules, for instance, use this market model in determining the conformity of a WTO Member with these rules.⁵³ As Qin argues, despite being ownership neutral, the WTO’s norms and rules actually contemplate a market-economy model that is commonly dominated by private ownership.⁵⁴

Moreover, it is argued that the diversified privatization programmes in developing countries have further exacerbated this issue.⁵⁵ However, we believe that it is up to each WTO Member to choose its privatization policy and economic model, provided it does not circumvent its obligations under the multilateral trading system.

We believe that the WTO trade rules should not impose a certain development model on WTO Members as long as this does not lead to the circumvention of WTO trade rules. Indeed, in Canada-Wheat Exports and Grain Imports, the Appellate body decided that non-discrimination was the overreaching obligation, holding ‘the obligations to “act in accordance with commercial consideration”, and to “afford adequate opportunities to compete” as mere expressions of the obligations to not discriminate, and not as distinct legal obligations’.⁵⁶

Moreover, the Chinese development model has had a great impact on international economic law. Some scholars view the Chinese development model as a Chinese attempt to construct its own transnational law regime based on a combination of private contracts and international investment agreements. They believe that the Chinese BRI Model is changing the architecture of international economic law.⁵⁷

Indeed, before its accession to the WTO, China had certainly done its homework. China invested heavily in transforming its trade-related laws, instigating legal and institutional reform as well as investing in human capital.⁵⁸ This has enabled China to challenge the major industrial powers, especially the US and the EU, before the WTO Dispute Settlement Body (DSB).⁵⁹ This rivalry was especially acute in respect of Chinese IP and FDI policies. Nevertheless, it is contended that in areas other than IP, industrial subsidization and data governance, the Chinese approach, to a large extent, is not in conflict with existing international law norms.⁶⁰

Some scholars contend that ‘neither does China offer a completely new model of finance, trade, and investment law norms and institutions since it borrows heavily from Western models. China’s model mimics and repurposes Western laws and institutions’.⁶¹ These scholars further contend that China is building new institutions and structures which build from and interact with existing institutions including the WTO, the International Centre for Settlement of Investment Disputes (ICSID), the World Bank, the London Commercial Court as well as other Western IP institutions.⁶² However, in this process, China is repurposing these institutions to achieve its own interests.⁶³ China seeks to achieve leading roles in the WTO and other Bretton Woods institutions as well as the UN’s institutions related to economic law.⁶⁴

In short, ‘China’s initiatives dynamically form part of a complex ecology of international economic institutions that coexist, complement, cooperate, and compete to shape norms and normative ties. They complement existing international institutions in which China aims to play a leading role, while building parallel Chinese-led institutions that interact with existing ones’.⁶⁵

Indeed, some scholars maintain that ‘China is actively shaping international legal norms and practices by repurposing international organizations, building new ones, selectively using international legal mechanisms, promoting the regional harmonization of law, and onshoring international disputes’.⁶⁶ Consequently, China has evolved into a norm-maker in a number of international economic law fields, including trade law, investment law and cyber law.⁶⁷

To sum up, it is important to note that the BRI is not a normative system.⁶⁸ Rulemaking under the BRI is not centralized and there is no BRI-wide treaty. Instead, the BRI is based on a network of investment treaties that are often insufficient to address investment issues.⁶⁹ The BRI emphasizes trade liberation and facilitation. In fact, the only WTO Agreement specifically mentioned in the BRI Action Plan is the WTO Agreement on Trade Facilitation.⁷⁰ The BRI, according to Wang, appears to impact transnational legal orders, which involve ‘legal rules and norms that have effects across borders without any binding agreement among states, whether they are created by international organizations, intergovernmental networks, or private actors, and whether they are of a hard or soft law nature’.⁷¹

Thus, we argue that the contrast between the economic development model envisaged by the WTO and the BRI has important ramifications on the issue of transfer of technology in the BRI. While the WTO envisages a normative market-based privately led transfer of technology regime, the economic development model underlying the BRI is likely to have a great impact on technology transfer-related policies/practices in the context of the BRI. Before we proceed with our analysis, we must point out that, due to the fact that the Chinese approach to international economic law order is of a fragmented nature,⁷² this will influence our analysis. This analysis does not aim to provide an exhaustive account of the BRI. Since the BRI is still evolving, we aim to preliminary examine the current Chinese technology transfer-related policies, namely IP and FDI policies, and to forecast the development of these policies in the context of the BRI.

3.1 Chinese Out-Bound IP Policies

As a result of China’s rise as a global IP exporter, China has sought to enhance its IP law, judicial system and policy to protect the IPRs of its domestic firms.⁷⁸ In pursuit of this objective, in 2016 the Chinese government co-organized with WIPO a High-Level Conference on Intellectual Property for Countries along the ‘Belt and Road’ in Beijing.⁷⁹

Furthermore, in 2017, China and WIPO entered into an Agreement on Enhancing ‘Belt and Road’ Intellectual Property Cooperation. In addition, China signed memorandums of understanding on IP cooperation with many countries. China has also provided technical assistance to BRI countries including IP education and exchange of knowledge. 2018 witnessed a second high-level conference which focused on the prospects and challenges of the BRI, particularly in the IP area.⁸⁰ China’s endeavours in the BRI regime in respect of IP occurred simultaneously with China’s rise as a major player in the field of technology transfer.⁸¹

Building on the BRI, in 2015 the National Development and Reform Commission (NDRC) of China, Ministry of Foreign Affairs and Ministry of Commerce jointly issued the ‘Visions and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road’ (Visions and Actions Plan) for the BRI. In the Visions and Actions Plan, the Chinese government proposed building international technology transfer centres jointly with other BRI participants.⁸²

This reflects the policy goal established in the ‘Outline of the National Intellectual Property Strategy’ (ONIPS) released by the Chinese State Council in 2008, which held that China should: ‘[r]aise the proportion of exportation of the goods rich in intellectual property step by step [and] [p]romote fundamental changes in the trade growth pattern and optimize trade structure’.⁸³ Thus, China is seeking to use IP as a major element in its external trade policy. We will refer to this policy as ‘Out-Bound IP Policies’.

It has been suggested that the BRI will accelerate the pace of transition of China from an IP importer to an IP exporter.⁸⁴ Francis Gurray, the former WIPO Director General, asserted in the Belt and Road Forum 2019 that ‘There is an expectation that the Belt and Road Initiative will also help strengthen global innovation networks, with an increase in technological innovation and economic development across the globe’.⁸⁵

China has cooperated with countries in the BRI region in the field of IP, signing 28 cooperation agreements out of 65 core countries involved in the BRI in addition to trilateral and regional cooperation endeavours. In fact, the number of Chinese patent applications grew by 16% to reach 5,608 in BRI countries in 2017, while patent applicants from BRI countries applied for 4,319 patents in China in 2017.⁸⁶ It is true that China does not seek to impose TRIPS-Plus IP norms on other trading partners, but it could be that the North has already raised the bar in the sense that strictly harmonized IP norms are already employed among WTO Members.

Another overlooked issue in this context is the use of standards especially in Chinese Out-Bound trade. Chinese firms such as Huawei often use Chinese standards rather than international standards when conducting telecommunication and infrastructure projects. China may be able to enhance the use of Chinese standards over international standards in the course of time which would increase its market share.⁸⁷ Network effects would allow Chinese firms not only to gain first-mover advantage in international markets but also to reap huge royalties from their competitors in respect of standards that contain an IP component.⁸⁸

In addition, the BRI is complemented by major Chinese investments in developing international standards through both domestic and international bodies. China launched an ambitious initiative in 2013, ‘China Standards 2035’. The ‘China Standards 2035’ initiative is overseen by the Standards Administration of China under guidance from the Chinese party-state. China has also managed to secure leadership positions on international standard setting bodies.⁸⁹

In particular, China seems to have the lead in developing 5G wireless technology standards where Huawei aims to dominate this field.⁹⁰ The US is extremely worried about this issue. In fact, in April 2019 the US Defense Innovation Board issued a study which warns that ‘[t]he country that owns 5G will own many of these innovations and set the standards for the rest of the world. …That country is currently not likely to be the United States’.⁹¹ 5G technology is essential for many hi-tech fields, such as artificial intelligence, robotics and the Internet of Things which involves sensors and data collection.⁹²

Accordingly, when assessing Chinese Out-Bound IP policies/practices, we deduce that China is liberalizing its IP system and is taking steps to get its laws in conformity with international standards. China is also actively engaging with International IP bodies. In addition, China is aligning its Out-Bound IP policy with its Out-Bound FDI policy by focusing on acquiring high-tech through Out-Bound investments in jurisdictions with lucrative technological assets, which are mainly Western jurisdictions. We will highlight the link between Chinese Out-Bound IP policy and its Out-Bound FDI policy in Section 4.1.

Finally, it is clear that the BRI has greatly influenced the Chinese IP Agenda.⁹³ As an illustration of this, Xinhua News Agency and China International Intellectual Corporation established a data base to alert Chinese exporters to seven IP risks in BRI states.⁹⁴ However, it remains to be seen whether Chinese IP Policy, in the context of the BRI, will allow China to reap disproportionate benefits by following a liberal Out-Bound IP Policy to enhance its IP-related exports while following a restrictive In-Bound IP Policy which allows it to gain leverage over IP-related imports.

Moreover, it has been observed that technology transfer laws and policies adopt a technology ladder. A vast number of middle-income countries started by utilizing an imitation policy in the hope of absorbing free or cheap technologies, particularly in labour-intensive industries. These policies are geared towards increasing the value added by local firms and support export activities.⁹⁵ We will refer to these policies as ‘In-Bound IP Policies’, a point that we discuss in the following section.

3.2 Chinese In-Bound IP Policies

Although hard infrastructure projects are a dominant element in the BRI, electronic commerce is a key component of the BRI. As an illustration of this, Alibaba Cloud has a faster growth rate than Amazon outside their home markets. Alibaba’s position is enhanced by its dominance in the Chinese internal market which is the largest e-commerce market in the world.⁹⁶ Moreover, Alibaba, in the hope of leveraging its BRI-induced economic growth, promotes an expansive approach which is referred to as a ‘One Belt, One Road, One Cloud’.⁹⁷

Alibaba is also actively promoting its electronic World Trade Platform (eWTP) concept and launched its ‘Enabling E-commerce’ initiative, together with the WTO and the World Economic Forum (WEF), in 2017. Alibaba allows China not only to coordinate with existing public and private institutions but also to build from institutions such as the WTO and the WEF.⁹⁸

In addition, in 2016 China launched a masterplan entitled ‘Made in China 2025’ which aspires to transform the country into a ‘manufacturing superpower’. This plan is deemed to present a challenge to the current economic powers, particularly since this plan targets all high-tech industries.⁹⁹ However, some scholars look at ‘Made in China 2025’ with skepticism claiming that the Chinese state is highly involved in the domestic market and that it uses practices that disfavour and discriminate against foreign competitors. There is a concern that China is seeking to substitute foreign technology for Chinese technology, thereby also offering a strong base for Chinese technology companies to compete in foreign markets.¹⁰⁰

China is also accused of achieving its innovation success through massive subsidization of domestic innovation, encouraging acquisitions of foreign firms and technology and using illegitimate means to acquire foreign technology, such as sourcing open-source materials and outright theft.¹⁰¹

To elaborate, the main aim of TRIPS in the WTO system was meant to enhance market access under the justification that strong protection of IPRs would encourage international trade. The BRI appears to be in harmony with the TRIPS Agreement’s objectives in the context of its Out-Bound IP Policy. However, in respect of the Chinese In-Bound IP Policies, China is accused of using protectionist measures to further its IP interests, allegedly, in ways that are not consistent with its WTO commitments. There is apprehension among the Western countries that the BRI may be used to further entrench the divide between China’s Out-Bound IP Policy and its In-Bound IP Policy. As Yu puts it, ‘it remains unclear how the [BRI] initiative will affect the country and the world at large in the intellectual property area’.¹⁰² Accordingly, it is interesting to highlight the current tension between the West and China in relation to the WTO’s IP Norms and to try to forecast the impact of the BRI on this tension.

In fact, China’s ‘In Bound-IP Policy’ is under attack from leading IP jurisdictions, in particular, the EU, the US and Japan. The issue of ‘forced technology transfer’ has emerged as a battleground between traditional IP superpowers and the newcomer, China. Specifically, the pending case, China – Certain Measures on the Transfer of Technology,¹⁰³ might represent the first major WTO dispute concerning transfer of technology adjudicated at the multilateral level.

The dispute is based on the concept of ‘forced technology transfer’, a concept that loosely refers to allegedly coercive measures undertaken by some WTO Members in order to coerce foreign investors to transfer technology to host countries in return for market access,¹⁰⁴ a practice that can be described as ‘the ‘market for technology’ barter.¹⁰⁵ The issue of ‘forced technology transfer’ was one of the main concerns of leading industrial countries, the US, the EU and Japan.¹⁰⁶

It has been said that while China may be pursuing legitimate interests by securing transfer of technology to its home industry, these Chinese policies may infringe China’s WTO obligations.¹⁰⁷ Accordingly, both the EU¹⁰⁸ and the US¹⁰⁹ engaged in negotiations with China to ensure the abolition of ‘forced technology transfer’ practices. However, developed countries, particularly the EU, are calling for an overhaul of the present WTO multilateral system by providing for ‘new market access rules’.¹¹⁰

To address the concerns of the North, China issued a new investment law, the Foreign Investment Law of the People’s Republic of China (FIL), enacted on 15 March 2019, which took effect on 1 January 2020.¹¹¹ The primary focus of the law is to prohibit Chinese authorities and officials forcing technology transfer through the implementation of administrative measures thereby effectively eliminating discrimination between national licensees and foreign investors.¹¹² Specifically, Article 22 of the FIL provides that:

The FIL is a significant step in respect of curbing forced technology transfer since this is the first time that China has incorporated the concept of forced technology transfer in its legislation.¹¹⁴ In addition, the FIL Implementing Regulations, as well as other domestic Chinese legislation such as the 2019 Administrative Licensing Law and the 2019 Administrative Regulations of Technology Import and Export, support this reform.¹¹⁵ However, there is still concern that these reforms are inadequate since the FIL and supporting legislation are focused on preventing forced technology transfer primarily through administrative coercion.¹¹⁶

It is worth mentioning that the Economic and Trade Agreement signed by China and the United States in 2020 goes further than the FIL in combating forced technology transfer as it requires technology transfer to follow market rules. The Agreement prohibits strategic investments or acquisitions that have the hidden aim of acquiring technology overseas. The Agreement further explicitly lists actions that may amount to forced technology transfer, such as: requiring foreign enterprises to give access to their technology in exchange for administrative authorization and preconditioning the receipt or perpetuation of treatment on transfer of technology.¹¹⁷

In respect of the protection of IPRs, the FIL Implementing Regulations have added an ‘equal’ requirement to foreign intellectual property protection and specifically provide that standards applicable to patents of foreign enterprises shall be based on relevant domestic governing regulations.¹¹⁸ However, there are several legal ambiguities in the application of these amendments that need to be addressed.¹¹⁹

Furthermore, regarding IP protection and enforcement, China is continuing to reform its IP laws. We do not aim to provide an exhaustive account of IP law reform in China, although we will refer to some examples of these reforms:

1. regarding patent law, China has abolished certain IP measures such as the Regulations on the Administration of Import and Export of Technologies. The action was taken as a settlement to a WTO dispute brought by the US in 2018. The measures related to measures that had the effect of denying foreign patent holders the ability to enforce patent rights against a Joint Venture (JV) Chinese partner after a technology transfer contract had ended. In addition, some measures that imposed mandatory adverse contract terms on foreign patent holders which discriminated between foreign technology and Chinese technology were also addressed.¹²⁰

2. regarding trade secrets, the disclosure of trade secrets and confidential business information by government officials is a huge concern for investors. Although China is instituting reforms in respect of this issue, the problem has not yet been fully resolved. China introduced the draft Guiding Opinions on Strengthening the Protection of Trade Secrets and Confidential Business Information in Administrative Licensing which were published for public comment in August 2020 by the Ministry of Justice, but the issue has not moved on any further.¹²¹

3. regarding industrial design, China acceded to the Hague Agreement Concerning the International Registration of Industrial Designs in 2022.¹²²

Furthermore, China has been active in bringing its IP laws up to international standards. China has cooperated with WIPO and has held four sessions of a series of high-level roundtables.¹²³ In addition, high-ranking Chinese officials have confirmed China’s commitment to strengthening IP protection and enforcement¹²⁴ based on free-market rules.¹²⁵ The Supreme People’s Court is committed to fully implementing the Memorandum of Understanding on Judicial Exchanges and Cooperation signed with WIPO.¹²⁶

In particular, China changed its IP rules to comply with the decision of China-Intellectual Property Rights.¹²⁷ The former Deputy Director-General MOFCOM’s Treaty & Law Department remarked that it “was unprecedented in [China’s] legislative history in the sense of amending its laws according to international rules” following an international court ruling’.¹²⁸

In fact, in respect of IPRs, China joined 15 of the 24 WIPO administered treaties which is two more than the United States.¹²⁹ Efforts to make IP-related reforms to promote international trade preceded China’s accession to the WTO. In 1979 China and the US signed the Agreement on Trade Relations Between the United States of America and the People’s Republic of China which called for reciprocal protection of copyrights, patents and trademarks, marking the beginning of Western intellectual property protection in post-Mao China. Article VI (5) further stipulated that ‘each Party shall take appropriate measures, under its laws and regulations and with due regard to international practice, to ensure to legal or natural persons of the other Party protection of copyrights equivalent to the copyright protection correspondingly accorded by the other Party’.¹³⁰ In 1989 China and the United States signed their first ever memorandum of understanding (MOU) concerning the protection of intellectual property rights.¹³¹ China amended its copyright and patent laws pursuant to the MOU. This trend has persisted through recent years, as it was noted that:

Nevertheless, the dichotomy between ‘In-Bound IP Policies’ and ‘Out-Bound IP Policies’ reflects the uncertainties accompanying the changing role of China from an IP-Importer to an IP-Exporter. However, whether China will also follow this policy concerning its ‘In-Bound IP Policy’ is an issue that has raised great controversy.

In fact, China is accused of massive subsidization of technological innovation to reduce dependence on Western technology, while at the same time incentivizing Chinese SOEs and private companies to acquire advanced technology abroad and expanding the role of IP.¹³³

Accordingly, we turn to discuss another important factor in technology transfer, namely FDI. The next section examines Chinese Out-Bound FDI policy and its impact on transfer of technology in the BRI.

4.1 Out-Bound technology transfer related FDI

In this section, we turn to a very important factor in transfer of technology, namely FDI. China, allegedly, leverages Chinese enterprises, particularly State-Owned Enterprises (SOEs), to invest in foreign companies with significant IP portfolios, then IP, as well as proprietary information, is transferred to Chinese companies.¹³⁸

Chinese FDI policy was challenged by the North because of, inter alia, the fact that these policies are mainly conducted through SOEs which gives Chinese investors a competitive edge in the international investment scene.¹³⁹ However, issues raised by SOEs are still very controversial under WTO law. Indeed, state ownership is suspected by some WTO Members of causing an enterprise to behave in a manner that is not based on a commercial basis and which might distort trade.¹⁴⁰ The main issues raised by SOEs are the difficulty of providing a definition of SOEs as well as a lack of transparency regarding the connections between a given firm and the government.¹⁴¹ Some commentators attribute the failure of WTO adjudicative bodies to find a definite legal standard to determine the existence of meaningful government control to the fact that SOEs’ privatization programmes in developing countries are diversified and usually SOEs in developing countries are only partially privatized.¹⁴²

Chinese SOEs are a major concern of the world trading powers given their massive size and the difficulty of detecting their relationship with the government. This issue was perceived when China joined the WTO;¹⁴³ however, we argue, it was dealt with inadequately. Before the rise of Chinese SOEs, SOEs were barely viewed as a WTO problem.¹⁴⁴ In fact, the early history of the GATT regime did not comprehensively deal with the issue of state trading.¹⁴⁵

However, following the Chinese WTO accession, Chinese SOEs have grown massively. To illustrate, in 2005 there was no single Chinese SOE among the Fortune Global 500 yet, in 2013, three Chinese SOEs were among the top ten Global 500 ranking.¹⁴⁶ These three SOEs ranked second, third and fourth in 2018.¹⁴⁷ A particular ground of concern relating to Chinese SOEs is their role in the massive increase in Out-Bound Chinese FDI.¹⁴⁸ In the context of the BRI, Chinese SOEs remain the main investors.¹⁴⁹

Nevertheless, the only WTO provision that explicitly refers to SOEs which are engaged in trade is GATT Article XVII, State Trading Enterprises (STEs) and, in particular, Article XVII 1(a), which is essentially a non-discrimination provision.¹⁵⁰ It is important to note in this respect that the China Protocol of Accession, paras. 5, 6 and 9, includes rules specific to China’s state trading regime and price controls. In particular, it extends the provisions of Article XVII GATT to cover all ‘state-owned enterprises’ and ‘state-invested enterprises’.¹⁵¹

In addition, the WTO does not prohibit or seek to dissolve STEs; after all both developed and developing countries have STEs which also pursue social functions in the given jurisdiction, in particular STEs can also be used for developmental policies.¹⁵² Instead, the main substantive obligations of WTO Members in relation to STEs can be summarized as follows:

1. non-discrimination, commonly referred to as ‘most favoured nation’ or ‘MFN’ treatment;

2. no quantitative restrictions;

3. preservation of the value of tariff concessions; and

4. transparency.¹⁵³

Furthermore, it is noted that the current WTO disciplines, in particular the subsidies discipline as well as the Agreement on Trade Related Investment Measures (TRIMs), fall short of addressing the problems raised by Chinese SOEs.¹⁵⁴ One significant shortfall in the TRIMs Agreement is that it is mainly focused on host country measures,¹⁵⁵ thus much of the Out-Bound FDI by Chinese SOEs is not captured by the TRIMs Agreement.

Indeed, it is observed that the Out-Bound Chinese FDI is state-led.¹⁵⁶ In the context of the BRI, BRI financing has been mainly affected by Chinese SOEs and state-owned banks. Examples of state-owned banks include: the China Development Bank which is the world’s largest development finance bank and which is a joint stock company owned mainly by the Chinese state funds, the Export-Import Bank of China, the Agricultural Development Bank of China, and the Asian Infrastructure Investment Bank (the AIIB).¹⁵⁷ In addition, a special fund, the USD 40 billion Silk Road Fund, is dedicated to financing BRI projects.¹⁵⁸

Chinese official sources have shown that Chinese state-owned enterprises (SOEs) were in charge of over 3,100 BRI Projects.¹⁵⁹ However, some studies show that BRI investments in 2022 were unusually dominated by private sector enterprises, including CATL and Alibaba, while construction contracts were dominated by state-owned enterprises.¹⁶⁰ But one must bear in mind that at the present time there is not enough data to examine the differences between the motivations of SOEs and those of the private enterprises.¹⁶¹

Moreover, it is observed by Garcia-Herrero et al that Chinese ‘Out-Bound Investments’ have increased sharply in the last decade; a 2014 OECD study revealed that China ranked as the third largest FDI investor in the world after the US and Japan.¹⁶² In 2016 China was ranked as the second largest holder of FDI assets globally (behind the USA) which is a remarkable increase since the previous years.¹⁶³ In 2014 the Chinese Ministry of Commerce declared that Chinese Out-Bound FDI might have exceeded In-Bound FDI for the first time.¹⁶⁴ The period 1984–91 witnessed the emphasis of the Chinese state on Out-Bound FDI in order to enhance technology transfer of foreign technology, enhance control over resources, and promote market access and the generation of foreign currency.¹⁶⁵

In fact, some commentators warn that Chinese high-tech investments rely systematically on acquired technology and induce technology transfer. The aim is to acquire control over the most lucrative fields of high-tech in global supply chains and production networks. Accordingly, the success of ‘Made in China 2025’ may pose a serious threat to the dominance of industrial countries in the field of high-tech.¹⁶⁶ The fact that Chinese Out-Bound FDI is directed and supported by the Chinese state is of particular concern to the US.¹⁶⁷ Chinese-US Out-Bound FDI is problematic due to the fact that it represents Chinese government-backed industrial policy which aims to target certain technology sectors and create national winners while utilizing the massive financial resources of the Chinese government which are not usually available to private firms.¹⁶⁸

In particular, the Notice on ‘Made in China 2025’ refers explicitly to these goals, as Out-Bound Chinese FDI should aim to explore: ‘the use of industrial funds, state-owned capital dividends, and other channels to support the “Going Out” of advantageous manufacturing capacity including high-speed rail, power generation equipment, automobiles, and engineering, so as to implement overseas investment acquisitions’.¹⁶⁹

The problematic nature of Chinese FDI is documented in the USTR Report, ‘Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974: Executive Summary (22 March 2018)’.¹⁷⁰

The notice of initiation of the USTR investigation identified specific elements of Chinese technology transfer policies/practices, including: ‘… 3) governmental direction and unfair facilitation of outbound Chinese investment targeting U.S. companies and assets in key industry sectors’.¹⁷¹

The US reacted to Chinese FDI policies with a number of measures. The most notable of these measures was the enactment of the Foreign Investment Risk Review Modernization Act |(FIRRMA) which expanded the authority of the Committee on Foreign Investment in the United States (CFIUS)¹⁷² to block certain foreign investment in the US.¹⁷³ In particular, FIRRMA has broadened the scope of CFIUS review to include, inter alia:

‘(2) “other investments” in certain U.S. businesses that afford a foreign person access to material nonpublic technical information in the possession of the U.S. business, membership on the board of directors, or other decision-making rights, other than through voting of shares’;¹⁷⁴

Nevertheless, although FIRRMA does not single out a specific country¹⁷⁵, the main catalyst for CFIUS reforms was China.¹⁷⁶

Furthermore, although the major trading partners of China are Western developed countries, in particular the US, Germany, Japan, South Korea and the UK,¹⁷⁷ there is currently a wave of rising protectionism in the West which has culminated in the China-US Tech Conflict. To illustrate, Chinese firms such as Huawei and ZTE have usually been subject to scrutiny by the US authorities and this situation has caused China to look for an alternative investment venue. It is argued that the BRI offers long-term alternative investment opportunities for Chinese businesses.¹⁷⁸

Turning to the impact of the BRI on Chinese Out-Bound FDI in BRI countries, it has been observed that infrastructure investments by Chinese enterprises in BRI countries would improve and facilitate Chinese investments in those countries. Indeed, it has been documented that Chinese Out-Bound investment, in particular Mergers and Acquisitions (M&A) activity, rose significantly after the announcement of the BRI.¹⁷⁹ In addition, the involvement of the Chinese government in the BRI through the conclusion of various investment treaties and instruments (which is referred to by some authors as ‘Economic Diplomacy’),¹⁸⁰ has reduced the risks of host country policy uncertainty and political instability, further encouraging Chinese firms, particularly non-SOEs, to invest in BRI countries.¹⁸¹

Chinese enterprises are in fact seeking knowledge in other BRI countries. In Singapore, which is a BRI state, China made strategic investments in the pharmaceutical, medical devices, computer hardware and software, automobile and machinery development industries. China is also investing in heavy duty machinery, such as mining machinery, in Russia and in India, China is targeting the software sector.¹⁸² Thus, BRI diplomacy has allowed Chinese business to go global.¹⁸³

In fact, Chinese MNEs have been interested in BRI countries since the early 1990s, according to the Statistical Bulletin of China’s Outward Foreign Direct Investment. East Asian regions, which are now included in the BRI, were the primary recipients of Chinese efficiency seeking and trade supportive investments.¹⁸⁴ To illustrate, in respect of Chinese Out-Bound FDI in the BRI region, East Asia holds half of the investment projects, while Central and Eastern Europe (CEE) is host to the lowest number of Chinese Out-Bound FDI despite having the largest number of BRI countries.¹⁸⁵

It is observed that currently Chinese Out-Bound FDI is shifting its focus from natural resources to inter alia high technology.¹⁸⁶ In fact, Chinese Out-Bound FDI in the BRI countries reached a peak level in 2019, mostly due to a new battery plant for electric investment in 147 countries. The driving force for this surge of Chinese Out-Bound FDI was China’s Contemporary Amperex Technology Co. and Mercedes-Benz Group AG investment plans of more than $7 billion in a plant in Hungary which is the biggest single project in any BRI country since it started in 2013.¹⁸⁷

In fact, the BRI had a great impact on the investment sectors targeted by Chinese Outbound M&A investments. In the period of 2012–13, the high-tech sector was not among the top 5 investment sectors of the Chinese Outbound M&A investments. However, after the launch of the BRI, the high tech sector featured among the top five sectors in Chinese Outbound M&A investments in 2014–15.¹⁸⁸

In respect of less developed BRI countries, it is suggested that the Chinese Out-Bound FDI development model in these countries resembles the ‘North-South Model’ where China is acting as a developed country entering less-developed BRI countries’ markets, looking for their huge markets, natural resources and cheap labour (since labour costs are increasing in China).¹⁸⁹

Finally, it is important to note that Chinese investors may face many risks when investing in BRI countries for two reasons:

1. BRI countries are very heterogeneous with different political and economic development systems. In addition, many BRI countries suffer from poor governance and corruption which can present many hazards for Chinese investors.¹⁹⁰

2. There is no single comprehensive BRI treaty covering all BRI countries. Instead, the BRI is based on many memoranda of understanding and declarations that are neither binding nor enforceable. Thus, Chinese investors must seek protection under investment agreements that are mostly obsolete or offer limited protection.

In fact, a systemic assessment of legal disputes of Chinese investors in BRI countries, in order to assess key elements that provide legal protection to these investors, has been conducted.¹⁹¹ It was found that the regime of Chinese International Investment Agreements (IIAs) can be divided into three main groups based on when they were negotiated and the type of investment protection provided. The development of these agreements is a reflection of the development of the Chinese economy where China has evolved as one of the main sources of FDI:

1. The first generation of these IIAs was negotiated between 1982 and 1989, before China joined the ICSID Convention, and they offer weak substantive protection and limited access to investment arbitration.

2. The second generation of these IIAs was negotiated between 1990 and 1998 and, whilst still providing only weak substantive protection, they did include limited access to arbitration.

3. The third generation of IIAs was negotiated from 1998 onwards, including inter alia IIAs signed with the ASEAN states and Uzbekistan. These treaties do provide substantial protection for investors including national treatment and most-favoured nation provisions and they also include ICSID dispute resolution provisions.¹⁹²

In respect of the treaties conducted between China and the BRI countries, they mostly fall into the first or second category, thus offering limited protection to Chinese investors (undermining standard protection to investors such as national treatment, most-favoured nation status, fair and equitable treatment) and limited access to investor-state dispute resolution and enforcement. They are also expressed in mostly encouragement provisions rather than enforceable obligations.¹⁹³

However, there are a number of BRI countries that are not covered by IIAs between China and their respective governments, such as Afghanistan, Bhutan, Iraq, Montenegro, Nepal, and Palestine, all of which are Chinese Out-Bound FDI recipients.¹⁹⁴

In addition, earlier Chinese IIAs usually did not clarify that SOEs should be treated as an ‘investor’ under IIAs. China has paid attention to this issue in more recent IIAs. In addition, recent cases have indicated that Chinese SOEs can qualify as ‘investors’.¹⁹⁵

These results might suggest that the BRI has offered Chinese enterprises the chance to build a strong base in BRI countries thereby giving China leverage in expanding its FDI activities to the West. In fact, President Trump denounced, in his view, ‘unfair’ Chinese policies, stating that such policies ‘champion Chinese firms and make it impossible for many United States firms to compete on a level playing field’.¹⁹⁶ In the next section we turn to Chinese In-Bound FDI policy, highlighting its role in the context of the BRI.

4.2 In-Bound technology transfer related FDI

It is argued that Chinese globalization policies underlying the BRI are not stand-alone policy occurrences but follow a classical development path (Dunning’s Investment Development Path) in which In-Bound FDI is accumulated first and then is followed by a surge of Out-Bound FDI.¹⁹⁷

Indeed, China has long been a favourite destination for FDI. As an example of this, FDI allocated to China surpassed that directed to the US in 2020.¹⁹⁸ In addition China has preserved its seat as the ‘World Factory’ which has further enhanced its economic position.¹⁹⁹ However, starting from the 2010s, China’s major trading partners started to raise concerns about China’s state-led economic policies that allegedly infringed WTO rules by discriminating between domestic and foreign investors operating in its domestic market.²⁰⁰

In fact, the Chinese foreign investment regulatory regime has been ranked by the OECD as one of the world’s most restrictive investment regimes.²⁰¹ The USTR initiation notice²⁰² pointed out specific issues of Chinese technology transfer-related policies/practices, namely:

We will highlight some aspects of the Chinese, allegedly unfair, In-Bound FDI policies. We do not purport to give a full account of the In-Bound FDI Chinese regulatory system; rather we will only give some examples of the allegedly unfair In-Bound FDI Chinese regulation. Before we proceed, it is important to note that, allegedly, foreign MNEs resorted to practices that were detrimental to Chinese firms in respect of technology transfer, including a number of issues such as turnaround time, delivery standards, pricing, and technology standards that do not favour local firms.²⁰⁴ Thus, there is always a tension between the interests of local Chinese firms in acquiring technology and the interests of foreign MNEs in protecting their cutting-edge technologies especially in jurisdictions that they deem to be not very supportive to IPRs.²⁰⁵

Indeed, China has introduced many legal reforms in response to these US concerns, including: lifting foreign ownership restrictions, enacting the Foreign Investment Law (FIL) which abolished forced technology transfer, amending the Trademark Law as well as the Anti-Unfair Competition Law.²⁰⁶ The main reforms introduced by the FIL, besides abolishing forced technology transfer, include:

1. introducing a holistic framework for foreign investment regulation which replaced the former foreign investment regime that was based on three laws (The Three Laws);²⁰⁷

2. Emphasizing pre-establishment national treatment and Negative List as key parts of a nationwide foreign investment regulation regime in China;²⁰⁸

3. adopting the concept of ‘competitive neutrality’, which emphasises national treatment for foreign investors. This is expected to provide foreign businesses with the chance of competition with inter alia Chinese SOEs except in sectors outlined in the Negative List (which outlines business sectors that are restricted or prohibited to foreign investors);²⁰⁹

Nevertheless, the West is still skeptical as to whether these reforms will eliminate the perceived unfair practices in this context.²¹⁰ In particular, there are concerns that the FIL is based on rhetorical language rather than specific enforceable obligations. To address these concerns China issued the Implementing Regulation of Foreign Investment Law (FIL Implementing Regulation) in December 2019.²¹¹

Furthermore, one of the most controversial items of Chinese legislation in that respect is the Chinese Cybersecurity Law which entered into force in 2017. This Law requires certain businesses investing in China to keep specified data on local Chinese-based servers and to allow specific Chinese government officials full access. Foreign investors were seriously concerned that the application of this Law might result in forcing them to give source codes or other IP to Chinese government officials which might allow illicit access to this information particularly by Chinese SOEs.²¹²

The WTO trade rules are inadequate for resolving all the allegedly unfair issues relating to Chinese In-Bound FDI policies and regulation. It is noted that, in general, WTO rules applicable to Member state policies concerning In-Bound Investment and associated technology transfer are ‘limited and indirect’.²¹³ Although the Chinese WTO Accession Protocol places more restraints on China regarding these issues,²¹⁴ these constraints were not enough, in the view of many developed countries, to capture Chinese allegedly trade-distorting practices especially in the area of transfer of technology.²¹⁵ Indeed, despite the recent promising reforms, there are usually many stories in the Western press about China’s hostility toward foreign businesses.²¹⁶

In an attempt to resolve this deadlock, both the US and the EU entered into negotiations with China to deal with these issues. In respect of the US, the Phase One Deal was signed between the US and China on 15 January 2020. The Phase One Deal provided inter alia for renewed commitments on IP and technology transfer.²¹⁷ The EU together with the European leaders entered into negotiations with China with a view to concluding a Comprehensive Agreement on Investment (CAI) which also included technology transfer and STEs.²¹⁸ However, developed countries, particularly those in the EU, are calling for an overhaul of the present WTO multilateral system by providing for ‘new market access rules’.²¹⁹

Turning to In-Bound Chinese FDI in the context of the BRI, it is noted that, so far, FDI in the context of the BRI has been one-directional: Out-Bound Chinese FDI to BRI states.²²⁰ In 2018, 40% of Chinese Out-Bound FDI went to BRI states which was double the amount of Chinese Out-Bound FDI in 2017.²²¹ Nevertheless, recent studies have reported a 58.2% rise in China In-Bound FDI from BRI countries.²²² China was a recipient of US$46.7 billion of FDI during the first three months of 2021, according to the Chinese Ministry of Commerce, surpassing the US to become the world’s largest FDI recipient.²²³

It is observed that the majority of Western media has given a negative account of the Chinese Foreign Investment Regulation. This may have negatively impacted China In-Bound FDI. To illustrate, during Q1 of 2021, China In-Bound FDI from the EU had a mere 7% increase. Thus, there is currently an economic de-coupling by the West.²²⁴ The question then is: will China In-Bound FDI by BRI countries provide an alternative to Western FDI?

Some experts believe that the international treaties concluded between China and its trading partners, particularly from BRI countries, as well as the legal and policy reform of FDI regulation in China are likely to lure more FDI into China, especially now that China is expected to become the largest importer and consumer market by 2025.²²⁵ However, it will be interesting to monitor how this issue will develop in the future.