Let’s not forget Huawei. After years of speculation, the U.S. in January charged the Chinese telecommunications giant with stealing robotic technology from T-Mobile and offering bonuses to employees for successfully stealing IP. A Silicon Valley startup last year alleged that Huawei had planned to steal its digital-storage IP.
All this isn’t a matter just for prosecutors and diplomats. In 2017, the Commission on the Theft of American Intellectual Property said U.S. companies alone lost up to $600 billion from theft, counterfeiting and piracy. More than 25 major global companies have been affected by Chinese IP infringements in the last five years, by Shelton Capital Management’s count.
Some companies like AMSC have been “nearly destroyed,” with almost 700 jobs lost, U.S. prosecutors said, or roughly three of every four employees who worked at AMSC in 2011. Based on current trends, China’s state railway could hollow out Siemens and Alstom (Siemens is separately also a victim of hacking). Investment managers these days routinely quiz companies on when Chinese rivals will crop up, since that timeline could foretell a life-and-death struggle if the competition steals technology.
If companies outside China get further marginalized, at stake are exports, employment and in turn the wealth of many nations. Already, China’s drive for semiconductor IP has turned the whole economy of Taiwan, whose most important industry is semiconductors, into a battleground.
How can China be persuaded to stop? Bilateral treaties haven’t worked. The U.S. intelligence community last year accused China of violating a 2015 agreement between the two sides to halt cybertheft.
As for the WTO, it has fallen short as the arbiter of the global commercial order. Washington hasn’t historically sued Beijing for IP theft at the WTO because, some note, it would need detailed public evidence from U.S. companies—evidence those companies will shy away from providing, out of fear of Beijing’s retaliation. China joined the WTO in 2001.
The Trump Administration last year officially launched a WTO complaint against China on IP theft. But chances are low that the WTO will get anywhere. Unlike other multilateral bodies, the WTO requires the consensus of all members. The institution also lacks a formal process for kicking out a member. All this makes reform at the WTO urgent.
If the WTO fails, though, individual governments are within their rights to threaten China with tariffs, and even band together outside the WTO. With the U.S. having taken the lead, the comity of nations should step up to Chinese theft—with or without the WTO.
Andrew Manton is the lead portfolio manager for the Shelton International Select Equity strategy. Abheek Bhattacharya is a research analyst on the International Equities team.