OFFICE of the UNITED STATES TRADE REPRESENTATIVE

EXECUTIVE OFFICE OF THE PRESIDENT 

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

March 22, 2018
i

Abbreviations and Acronyms

Acronym Definition

3PLA People’s Liberation Army, Third Department

4WD four-wheel drive

AAFA American Apparel & Footwear Association

ABA American Bar Association

ABC Agriculture Bank of China

ABPIA American Bridal & Prom Industry Association

ACC American Chemistry Council

AEI American Enterprise Institute

AGIC Asia-Germany Industrial Promotion Capital

AI artificial intelligence

AmCham American Chamber of Commerce Shanghai

AML Anti-Monopoly Law

AMSC American Superconductor Corporation

APEC Asia-Pacific Economic Cooperation

APT advanced persistent threat

AQSIQ Administration of Quality Supervision, Inspection and Quarantine

ATI Allegheny Technologies, Inc

AVIC Aviation Industry Corporation of China

AVICEM ACIF Electromechanical Systems Co., Ltd

AWD all-wheel drive

BCM Bank of Communications

BEA U.S. Bureau of Economic Analysis

BGI Shenzhen Beijing Genomics Institute

BIO Biotechnology Innovation Organization

BIS Bureau of Industry and Security

BoC Bank of China

BRI Belt and Road Initiative

BRIC Brazil, Russia, India, and China

C&C command-and-control

CAAC Civil Aviation Administration of China

CAIGA China Aviation Industry General Aircraft Co.

CAST China Association of Science and Technology

CCBC China Construction Bank Corporation

CCC China Compulsory Certification

CCCME China Chamber of Commerce for Import & Export of Machinery and Electronic Products

CCOIC China Chamber of International Commerce

CCP Chinese Communist Party

CCXR China Chengxin Securities Rating Company

CDB China Development Bank

CFIUS Committee on Foreign Investment in the United States

CG Complete Genomics

CGCC China General Chamber of Commerce

CIC China Investment Corporation

CIGS copper indium gallium selenide

CIPL China Intellectual Property Law Society
ii

CJV contractual joint venture

CMG Continental Motors Group Limited

CMOS complementary metal-oxide semiconductor

CNOOC China National Offshore Oil Corporation

CNY Chinese yuan

COMAC Commercial Aircraft Corporation of China, Ltd

CompTIA Computing Technology Industry Association

CPPCC Chinese People’s Political Consultative Conference

CSI Coalition of Services Industries

CSIS Center for Strategic and International Studies

CSP cloud service providers

CTA Consumer Technology Association

DHH DHH Washington Law Office

DHS U.S. Department of Homeland Security

DOJ U.S. Department of Justice

DRC Development and Reform Commission

EJV equity joint venture

EXIM China Export-Import Bank

FADEC full authority digital engine control

FAW First Automotive Workers

FDI foreign direct investment

FIE foreign-invested entities

FYP Five-Year Plan for National Economic and Social Development

GA general aviation

GAC General Administration of Customs

GDP gross domestic product

GMO genetically modified organism

HNA Hainan Airlines

IaaS infrastructure as a service

IAM International Association of Machinists and Aerospace Workers

IATA International Air Transport Association

IC integrated circuit

ICBC Industrial and Commercial Bank of China

ICT information and communications technology

ICTSD International Center for Trade and Sustainable Development

IDAR introduce, digest, absorb, and re-innovate

IDC internet data center

IDDS innovation-driven development strategy

IGBT insulated-gate bipolar transistors

IGCC University of California Institute on Global Conflict and Cooperation

IMF International Monetary Fund

iML Integrated Memory Logic Limited

IP intellectual property

IPIRA Intellectual Property and Industry Research Alliances

ISS Imaging Solutions and Services

ISSI Integrated Silicon Solutions, Inc.

IT information technology

ITAR International Traffic in Arms Regulations

ITI Information Technology Industry Council
iii

ITIF Information Technology & Innovation Foundation

JCCT U.S.-China Joint Commission on Commerce and Trade

JV joint venture

M&A merger and acquisitions

MCF military-civil fusion

MCM multi-chip module

MEMA Motor & Equipment Manufacturers Association

MEMS micro-electromechanical systems

MERICS Mercator Institute for China Studies

METI Ministry of Economy, Trade, and Industry

MIIT Ministry of Industry and Information Technology

MLP National Medium- and Long-Term Plan for the Development of Science and Technology

MLPS Multi-level Protection Scheme

MLR Ministry of Land and Resources of the People’s Republic of China

MNE multinational enterprise

MOA Ministry of Agriculture of the People’s Republic of China

MOF Ministry of Finance of the People’s Republic of China

MOFCOM Ministry of Commerce of the People’s Republic of China

MOST Ministry of Science and Technology of the People’s Republic of China

MPS managed print services

MRO maintenance, repair, and overhaul

MSS China’s Ministry of State Security

MW megawatt

NAM National Association of Manufacturers

NBC National Bureau of Statistics of the People’s Republic of China

NDRC National Development and Reform Commission

NEA National Energy Administration

NEV new-energy vehicle

NFTC National Foreign Trade Council

NHI Northern Heavy Industries Group

NPC National People’s Congress (China)

NTE National Trade Estimate

OCTG oil country tubular goods

ODI overseas direct investment

OECD Organization for Economic Cooperation and Development

OFDI outbound foreign direct investment

PaaS computer platform as a service

PBOC People’s Bank of China

PERC Passivated Emitter Rear Contact

PLA China’s People’s Liberation Army

PMA parts manufacturing and authorization

PMDD Permanent-Magnet Direct Drive

PPD-28 Presidential Policy Directive 28

PPP private-public partnership

PRC People’s Republic of China

PWM pulse width modulation

R&D research and development

RMB renminbi (official currency of China)

S&ED U.S.-China Strategic & Economic Dialogue
iv

S&T science and technology

SaaS computer software as a service

SAFE State Administration of Foreign Exchange

SAIC State Administration of Industry Commerce

SASAC State-owned Assets Supervision and Administration Commission

SASTIND State Administration for Science, Technology, and Industry for National Defense

SAT State Administration of Taxes

SEI strategic and emerging industries

SIA Semiconductor Industry Association

SIGINT Signals intelligence

SIPO State Intellectual Property Office

SMIC Semiconductor Manufacturing International Corporation

SNPTC State Nuclear Power Technology Corporation

SOE state-owned enterprise

SSLP seamless standard line pipes

TIA Telecommunications Industry Association

TIER Regulations of the PRC on Administration of Import and Export Technologies

TRB technical reconnaissance bureau

TRIPS Trade-Related Aspects of Intellectual Property Rights

UAV unmanned aerial vehicle

UNCTAD United Nations Conference on Trade and Development

USC United States Constitution

USCBC U.S.-China Business Council

USCIB U.S. Council for International Business

USD U.S. dollars

USITC U.S. International Trade Commission

USPTO U.S. Patent and Trademark Office

USW United Steel Workers

UT United Turbine

VAT value-added tax

VC venture capital

WFOE wholly foreign-owned entity

WIPO UN’s World Intellectual Property Organization

WNA World Nuclear Association

ZGC Zhongguancun
1

CONTENTS

I. Overview................................................................................................................................. 3

A. Core Elements of Section 301............................................................................................. 3

B. Background to the Investigation ......................................................................................... 4

1. Initiation of the Investigation........................................................................................ 5

2. China’s Bilateral Commitments to End its Technology Transfer Regime and to 

Refrain from State-Sponsored Cyber Intrusions and Theft .......................................... 6

3. Input from the Public .................................................................................................... 9

C. China’s Technology Drive................................................................................................ 10

II. China’s Unfair Technology Transfer Regime for U.S. Companies in China ....................... 19

A. Introduction....................................................................................................................... 19

1. Key Elements of China’s Technology Transfer Regime ............................................ 19

2. A Persistent Problem for U.S. Business...................................................................... 22

B. Foreign Ownership Restrictions as Used in China’s Technology Transfer Regime ........ 23

1. The Foreign Investment Catalogue and Technology Transfer ................................... 24

2. Illustrative Examples of China’s Use of Investment Restrictions to Pressure 

Technology Transfer................................................................................................... 29

C. Administrative Review and Licensing Processes as Used in China’s Technology Transfer 

Regime .............................................................................................................................. 35

1. Technology Transfer Pressure in Administrative Approvals and Licensing .............. 36

2. Forced Disclosure of Sensitive Technical Information .............................................. 41

D. China’s Acts, Policies, and Practices Are Unreasonable.................................................. 43

E. China’s Acts, Policies, and Practices Burden or Restrict U.S. Commerce....................... 45

III. China’s Discriminatory Licensing Restrictions.................................................................... 48

A. Introduction....................................................................................................................... 48

B. Foreign Licensing Restrictions and China’s Technology Transfer Regime ..................... 48

1. Different Outcomes for U.S. Companies versus Chinese Competitors...................... 51

2. Indemnification Against Infringement Claims ........................................................... 51

3. Ownership of Improvements to Licensed Technology............................................... 52

4. Use of Technology after the Technology Contract Expires........................................ 53

C. Concerns Raised by Other Trading Partners..................................................................... 54

D. China’s Acts, Policies, and Practices are Discriminatory................................................. 55

1. Justifications for Discrimination................................................................................. 55

2. Acts, Polices, and Practices of Other Countries ......................................................... 57

E. China’s Acts, Policies, and Practices Burden U.S. Commerce ........................................ 60

IV. Outbound Investment............................................................................................................ 62

A. Introduction....................................................................................................................... 62

B. Policy and Regulatory Framework ................................................................................... 66

1. Major Policies to Acquire Foreign Technology.......................................................... 66

2. The Chinese Outbound Investment Approvals System .............................................. 70

3. Sectors “Encouraged” for Outbound Investment........................................................ 77

4. Outbound Investment Policy in Technology and Sectoral Policies............................ 78

5. State-Backed Actors.................................................................................................... 80
2

C. Impact of Policies and Implementing Measures on Chinese Investment in the United 

States................................................................................................................................. 97

1. Chinese Investment Activity in the United States: Analysis of Data ........................ 98

2. Effect of State Policies and Implementing Measures on Chinese Acquisitions....... 102

3. Leveraging “International Innovation Resources” Through Engagement with Silicon 

Valley........................................................................................................................ 142

D. China’s Acts, Policies, and Practices are Unreasonable ................................................. 147

E. China’s Acts, Policies, and Practices Burden U.S. Commerce ...................................... 150

V. Unauthorized Intrusions into U.S. Commercial Computer Networks and Cyber-Enabled 

Theft of Intellectual Property and Sensitive Commercial Information ............................. 153

A. Introduction..................................................................................................................... 153

B. China’s Acts, Policies, and Practices Regarding Unauthorized Intrusions into U.S. 

Commercial Computer Networks and Cyber-Enabled Theft of Intellectual Property and 

Sensitive Commercial Information ................................................................................. 154

1. The Chinese Government’s Extensive Cyber Activities .......................................... 154

2. The United States Department of Justice Indicted Chinese Government Hackers in 

May 2014 .................................................................................................................. 157

3. China’s Institutional Framework Supports Cyber Intrusions into U.S. Commercial 

Networks................................................................................................................... 164

4. China’s Recent Cyber Intrusion Activities Against U.S. Commercial Networks .... 167

C. China’s Acts, Policies, and Practices Regarding Cybertheft of Intellectual Property Are 

Unreasonable................................................................................................................... 171

D. China’s Acts, Policies, and Practices Regarding Cybertheft of Intellectual Property 

Burden U.S. Commerce .................................................................................................. 173

VI. Other Acts, Policies, and Practices of China ...................................................................... 177

A. Introduction..................................................................................................................... 177

1. Measures Purportedly Related to National Security or Cybersecurity ..................... 177

2. Inadequate Intellectual Property Protection.............................................................. 179

3. China’s Anti-Monopoly Law.................................................................................... 180

4. China’s Standardization Law.................................................................................... 181

5. Talent Acquisition..................................................................................................... 181

B. Conclusion ...................................................................................................................... 182
3

I. Overview

A. Core Elements of Section 301

This investigation has been brought under Section 301 of the Trade Act of 1974, as amended (the 

Trade Act).

1 Section 301 is a key enforcement tool that may be used to address a wide variety of 

unfair acts, policies, and practices of U.S. trading partners. Section 301 sets out three categories

of acts, policies, or practices of a foreign country that are potentially actionable: (i) trade 

agreement violations; (ii) acts, policies or practices that are unjustifiable (defined as those that 

are inconsistent with U.S. international legal rights) and that burden or restrict U.S. Commerce; 

and (iii) acts, policies or practices that are unreasonable or discriminatory and that burden or 

restrict U.S. Commerce.

2

 The third category of conduct is most relevant to this investigation.

Section 301 defines “discriminatory” to “include, when appropriate, any act, policy, and practice 

which denies national or most-favored nation treatment to United States goods, service, or 

investment.”3 An “unreasonable” act, policy, or practice is one that “while not necessarily in 

violation of, or inconsistent with, the international legal rights of the United States is otherwise 

unfair and inequitable.”4 The statute further provides that in determining if a foreign country’s 

practices are unreasonable, reciprocal opportunities to those denied U.S. firms “shall be taken 

into account, to the extent appropriate.”5 

If the USTR determines that the Section 301 investigation “involves a trade agreement,” and if 

that trade agreement includes formal dispute settlement procedures, USTR may pursue the 

investigation through consultations and dispute settlement under the trade agreement. 

Otherwise, USTR will conduct the investigation without recourse to formal dispute settlement. 

Moreover, if the USTR determines that the act, policy, or practice falls within any of the three 

categories of actionable conduct under Section 301, the USTR must also determine what action, 

if any, to take.6 For example, if the USTR determines that an act, policy or practice is 

unreasonable or discriminatory and that it burdens or restricts U.S. commerce, 

The Trade Representative shall take all appropriate and feasible action 

authorized under [Section 301(c)], subject to the specific direction, if any, 

of the President regarding any such action, and all other appropriate and 

feasible action within the power of the President that the President may 

 

1 Unless otherwise specified, “Section 301” refers generally to Chapter 1 of Title III of the Trade Act of 1974 

(codified as amended in 19 U.S.C. §§ 2411-2417). Furthermore, for ease of reference, full citations are used 

throughout this report.

2 Trade Act of 1974, 19 U.S.C. § 2411(a)-(b).

3 19 U.S.C. § 2411(d)(5). Section III describes discriminatory acts, practices, and policies of the Chinese 

government.

4 19 U.S.C. § 2411(d)(3)(A).

5 19 U.S.C. § 2411(d)(3)(D).

6 For example, in 2014, USTR determined that action against Ukraine was not appropriate due to the political 

situation. See Notice of Determination in Section 301 Investigation of Ukraine, 79 Fed. Reg. 14,326-27 (Mar. 13, 

2014).
I. Overview

4

direct the Trade Representative to take under this subsection, to obtain the 

elimination of that act, policy, or practice.7

Actions specifically authorized under Section 301(c) include: (i) suspending, withdrawing or 

preventing the application of benefits of trade agreement concessions; (ii) imposing duties, fees, 

or other import restrictions on the goods or services of the foreign country for such time as 

deemed appropriate; (iii) withdrawing or suspending preferential duty treatment under a 

preference program; (iv) entering into binding agreements that commit the foreign country to 

eliminate or phase out the offending conduct or to provide compensatory trade benefits; or (v) 

restricting or denying the issuance of service sector authorizations, which are federal permits or 

other authorizations needed to supply services in some sectors in the United States.8In addition 

to these specifically enumerated actions, the USTR may take any actions that are “within the 

President’s power with respect to trade in goods or services, or with respect to any other area of 

pertinent relations with the foreign country.”9 

B. Background to the Investigation

On August 14, 2017, the President issued a Memorandum to the Trade Representative stating 

inter alia that: 

China has implemented laws, policies, and practices and has taken actions related to 

intellectual property, innovation, and technology that may encourage or require the 

transfer of American technology and intellectual property to enterprises in China or that 

may otherwise negatively affect American economic interests. These laws, policies, 

practices, and actions may inhibit United States exports, deprive United States citizens of 

fair remuneration for their innovations, divert American jobs to workers in China, 

contribute to our trade deficit with China, and otherwise undermine American 

manufacturing, services, and innovation.

10

The President instructed USTR to determine under Section 301 whether to investigate China’s 

law, policies, practices, or actions that may be unreasonable or discriminatory and that may be 

harming American intellectual property rights, innovation, or technology development.11

Concerns about a wide range of unfair practices of the Chinese government (and the Chinese 

Communist Party (CCP)) related to technology transfer, intellectual property, and innovation are 

longstanding. USTR has pursued these issues multilaterally, for example, through the WTO 

dispute settlement process and in WTO committees, and bilaterally through the annual Special 

301 review. These issues also have been raised in bilateral dialogues with China, including the 

U.S.-China Joint Commission on Commerce and Trade (JCCT) and U.S.-China Strategic & 

Economic Dialogue (S&ED), to attempt to address some of the U.S. concerns. 

 

7 19 U.S.C. § 2411(b).

8

In cases in which USTR determines that import restrictions are the appropriate action, preference must be given to 

the imposition of duties over other forms of action. 19 U.S.C. §§ 2411(c).

9 19 U.S.C. § 2411(b)(2).

10 See Addressing China's Laws, Policies, Practices, and Actions Related to Intellectual Property, Innovation, and 

Technology, 82 Fed. Reg. 39,007 (Aug. 17, 2017). 

11 Id.
I. Overview

5

1. Initiation of the Investigation

USTR initiated this investigation on August 18, 2017 after consultation with the interagency 

Section 301 committee and private sector advisory committees.

12

 On that same date, USTR also 

requested consultations with the Government of China.13 China’s Minister of Commerce 

responded to this letter on August 28, opposing the initiation of a Section 301 investigation.

14

 

The Federal Register Notice described the focus of the investigation as follows: 

First, the Chinese government reportedly uses a variety of tools, including opaque and 

discretionary administrative approval processes, joint venture requirements, foreign 

equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. 

companies’ operations in China, in order to require or pressure the transfer of 

technologies and intellectual property to Chinese companies. Moreover, many U.S. 

companies report facing vague and unwritten rules, as well as local rules that diverge 

from national ones, which are applied in a selective and non-transparent manner by 

Chinese government officials to pressure technology transfer.

Second, the Chinese government’s acts, policies and practices reportedly deprive U.S. 

companies of the ability to set market-based terms in licensing and other technologyrelated negotiations with Chinese companies and undermine U.S. companies’ control 

over their technology in China. For example, the Regulations on Technology Import and 

Export Administration mandate particular terms for indemnities and ownership of 

technology improvements for imported technology, and other measures also impose nonmarket terms in licensing and technology contracts.

Third, the Chinese government reportedly directs and/or unfairly facilitates the 

systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese 

companies to obtain cutting-edge technologies and intellectual property and generate 

large-scale technology transfer in industries deemed important by Chinese government 

industrial plans.

Fourth, the investigation will consider whether the Chinese government is conducting or 

supporting unauthorized intrusions into U.S. commercial computer networks or cyberenabled theft of intellectual property, trade secrets, or confidential business information, 

and whether this conduct harms U.S. companies or provides competitive advantages to 

Chinese companies or commercial sectors.

 

12 See Initiation of Section 301 Investigation; Hearing; and Request for Public Comments: China’s Acts, Policies, 

and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 82 Fed. Reg. 40,213-14 (Aug.

24, 2017) (Appendix A).

13 See Appendix A.

14 See Letter from Minster of Commerce Zhong Shan to Ambassador Robert Lighthizer (Aug. 28, 2017) (on file 

with author). 
I. Overview

6

In addition to these four types of conduct, interested parties could submit for 

consideration information on other acts, policies and practices of China relating to 

technology transfer, intellectual property, and innovation for potential inclusion in this 

investigation or to be addressed through other applicable mechanisms.15 

The terms “technology” and “technology transfer” are key concepts in this investigation. They 

are defined in Box I.1.

Box I.1: Technology and Technology Transfer Defined

Technology is defined broadly in this investigation to include knowledge and information 

needed to produce and deliver goods and services, as well as other methods and processes 

used to solve practical, technical or scientific problems. In addition to information 

protected by patents, copyrights, trademarks, trade secrets, and other types of intellectual 

property (IP) protections, the term also includes “know-how”, such as production 

processes, management techniques, expertise, and the knowledge of personnel.

Technology and innovation are critical factors in maintaining U.S. competitiveness in the 

global economy. Among all major economies, the United States has the highest 

concentration of knowledge- and technology-intensive industries as a share of total 

economic activity. And in high-tech manufacturing, the United States leads the world 

with a global share of production of 29 percent, followed by China at 27 percent.

Technology transfers made on voluntary and mutually-agreed terms, and without 

government interference or distortion, are critical to the U.S. economy. In fact, U.S. 

companies are global leaders in the transfer of technology through legal mechanisms such 

as trade in high-tech goods and services; the licensing of technology to companies and 

persons abroad; and foreign direct investment (FDI).

Sources: OECD, Glossary of Statistical Terms; Keith E. Maskus, UNCTAD-ICTSD, 

Encouraging International Technology Transfer 9 (2004); U.S. Dept. of Commerce, 

Intellectual Property and the U.S. Economy 1 (2012); National Science Board, Science & 

Engineering Indicators 4, 4-17 (2016); OECD, Main Science and Technology Indicators: 

Technology Balance of Payments: Receipts (Current Prices), 2016; UNCTAD, World 

Investment Report, 2017, 14.

2. China’s Bilateral Commitments to End its Technology Transfer Regime and to 

Refrain from State-Sponsored Cyber Intrusions and Theft

In the bilateral relationship, China repeatedly has committed to eliminate aspects of its 

technology transfer regime. On at least eight occasions since 2010, the Chinese government has 

committed not to use technology transfer as a condition for market access and to permit 

technology transfer decisions to be negotiated independently by businesses. China has further 

committed not to pressure the disclosure of trade secrets in regulatory or administrative 

 

15 See Appendix A.
I. Overview

7

proceedings. The evidence adduced in this investigation establishes that China’s technology 

transfer regime continues, notwithstanding repeated bilateral commitments and government 

statements, as summarized in Table I.1, below, and discussed in the remainder of this report.
I. Overview

8

Table I.1 China’s Bilateral Commitments Relating to Technology Transfer, 2010 - 2016

Year Mechanism Commitment

2010 S&ED China reaffirmed that the terms and conditions of technology

transfer, production processes, and other proprietary information 

will be determined by individual enterprises.

2011 JCCT China confirmed that it does not and will not maintain measures 

that mandate the transfer of technology in the New Energy 

Vehicles Sector. China further clarified that “mastery of core 

technology” does not require technology transfer for NEVs.

2012 S&ED China reaffirmed its commitment that technology transfer is to 

be decided by firms independently and not to be used by the 

Chinese government as a pre-condition for market access.

2012 Xi Visit Commitment China reiterated that technology transfer and technological 

cooperation shall be decided by businesses independently and 

will not be used by the Chinese government as a pre-condition 

for market access.

2012 JCCT China reaffirmed that technology transfer and technology 

cooperation are the autonomous decisions of enterprises. China 

committed that it would not make technology transfer a 

precondition for market access. 

2014 JCCT China committed that enterprises are free to base technology 

transfer decisions on business and market considerations, and are 

free to independently negotiate and decide whether and under 

what circumstances to assign or license intellectual property 

rights to affiliated or unaffiliated enterprises.

2014 JCCT China confirmed that trade secrets submitted to the government 

in administrative or regulatory proceedings are to be protected 

from improper disclosure to the public and only disclosed to 

government officials in connection with their official duties in 

accordance with law.

2015 Xi Visit Commitment China committed not to advance generally applicable policies or 

practices that require the transfer of intellectual property rights or 

technology as a condition of doing business in the Chinese 

market.

2015 Xi Visit Commitment China committed to refrain from conducting or knowingly 

supporting cyber-enabled theft of intellectual property cyberenabled theft of intellectual property, including trade secrets or 

other confidential business information, with the intent of 

providing competitive advantages to companies or commercial 

sectors.

2016 Xi Visit Commitment China committed not to require the transfer of intellectual 

property rights or technology as a condition of doing business.

Source: USTR, CATALOGUE OF JCCT AND S&ED COMMITMENTS (2016); 2016 USTR REP. TO CONG. ON CHINA’S 

WTO COMPLIANCE 7. 
I. Overview

9

3. Input from the Public

USTR provided the public and interested persons with opportunities to present their views and 

perspectives on the issues highlighted in the Federal Register Notice, including through a public 

hearing on October 10, 2017.

16 Witnesses with varied interests and perspectives testified and 

responded to questions from the interagency Section 301 committee including representatives of 

U.S. companies and workers, trade and professional associations, and think tanks, as well as law 

firms and representatives of trade and professional associations headquartered in China.17 

Interested persons also filed approximately 70 written submissions in the public docket for this 

investigation.

18

 

As U.S. companies have stated for more than a decade,

19 they fear that they will face retaliation 

or the loss of business opportunities if they come forward to complain about China’s unfair trade 

practices. Concerns about Chinese retaliation arose in this investigation as well. Multiple 

submissions noted the great reluctance of U.S. companies to share information on China’s 

technology transfer regime, given the importance of the China market to their businesses and the 

fact that Chinese government officials are “not shy about retaliating against critics.”

20

For example, a representative of the Commission on the Theft of American Intellectual Property 

testified at the hearing: “American companies are intimidated and reticent over the issue, 

especially in China. There they risk punishment by a powerful and opaque Chinese regulatory 

system.”21 In addition, according to the U.S. China Business Council, their member companies 

do not presently have “reliable channel[s] to report abuses and to appeal adverse 

decisions...without fear of retaliation.”22 Similarly, a representative of SolarWorld stated that

“many other companies face the same issues of cyberhacking and technology theft that [it] has 

faced, but are unwilling to come forward publicly due to fear of lost sales or retaliation by 

China.”23

 

16 The transcript of the hearing is available on the Federal eRulemaking Portal, https://www.regulations.gov and on 

USTR’s website, https://ustr.gov.

17 The following individuals participated in the public hearing: Richard Ellings, Commission on the Theft of 

American Intellectual Property; Stephen Ezell, Information Technology and Innovation Foundation; Erin Ennis, USChina Business Council; Owen Herrnstadt, International Association of Machinists and Aerospace Workers; Juergen 

Stein, SolarWorld; Daniel Patrick McGahn, American Superconductor Corporation; William Mansfield, ABRO 

Industries; Scott Partridge, American Bar Association Intellectual Property Law Section; Scott Kennedy, Center for 

Strategic and International Studies; Jin Haijun, China Intellectual Property Law Society; Chen Zhou and Liu Chao, 

China Chamber of International Commerce; XU Chen, China General Chamber of Commerce; John Tang, DHH 

Washington Law Office; Wang Guiqing, China Chamber of Commerce for Import and Export of Machinery and 

Export Products. See Appendix B.

18 See Appendix C for a summary of the public submissions. The submissions can be viewed on the Federal 

eRulemaking Portal, https://www.regulations.gov. 

19 U.S. CHINA BUSINESS COUNCIL [hereinafter “USCBC”], Submission, Section 301 Hearing 4 (Sept. 28, 2017); see 

also SOLARWORLD, Submission, Section 301 Hearing 2 (Oct. 20, 2017). 

20 James Lewis, CENTER FOR STRATEGIC & INT’L. STUDIES [hereinafter “CSIS”], Submission, Section 301 Hearing 6 

(Sept. 27, 2017); see also Lee Branstetter, Submission, Section 301 Hearing 4 (Sept. 28, 2017); Stephen Zirschky, 

Submission, Section 301 Hearing 2 (Sept. 28, 2017).

21 USTR, Hearing Transcript, Section 301 Hearing 13 (Oct. 10, 2017); see also COMM’N. ON THE THEFT OF AM. IP

[hereinafter “IP Commission”], Submission, Section 301 Hearing 8 (Sept. 28, 2017). 

22 USCBC, Submission, Section 301 Hearing 4 (Sept. 28, 2017). 

23 SOLARWORLD, Submission, Section 301 Hearing 2 (Oct. 20, 2017).
I. Overview

10

Because USTR self-initiated this action, no particular company or group of companies was 

required to step forward and file a Section 301 petition to initiate this investigation. Moreover, 

in making this determination, USTR and the interagency Section 301 committee took into 

account not just investigation submissions and testimony but also public reports, scholarly 

articles, and other reliable information. In addition, business confidential information has been 

provided and considered as part of the record in this investigation, so that companies could share 

sensitive information without the threat of business loss or retaliation. 

C. China’s Technology Drive 

Official publications of the Chinese government and the CCP set out China’s ambitious 

technology-related industrial policies. These policies are driven in large part by China’s goals of 

dominating its domestic market and becoming a global leader in a wide range of technologies, 

especially advanced technologies. The industrial policies reflect a top-down, state-directed 

approach to technology development and are founded on concepts such as “indigenous 

innovation” and “re-innovation” of foreign technologies, among others. The Chinese 

government regards technology development as integral to its economic development and seeks 

to attain domestic dominance and global leadership in a wide range of technologies for economic 

and national security reasons.24 China accordingly seeks to reduce its dependence on 

technologies from other countries and move up the value chain, advancing from low-cost 

manufacturing to become a “global innovation power in science and technology.”

25 In pursuit of 

this overarching objective, China has issued a large number of industrial policies, including more 

than 100 five-year plans, science and technology development plans, and sectoral plans over the 

last decade.26 Some of the most prominent industrial policies include the National Medium- and 

Long-Term Science and Technology Development Plan Outline (2006-2020) (MLP),

27 the State 

Council Decision on Accelerating and Cultivating the Development of Strategic Emerging 

Industries (SEI Decision)

28

, and, more recently, the Notice on Issuing “Made in China 2025”

(Made in China 2025 Notice).

29

The MLP, issued in 2005 and covering the period 2006 to 2020, is the seminal document 

articulating China’s long-term technology development strategy. The MLP recognizes the 

country’s “relatively weak indigenous innovation capacity,” its “weak core competitiveness of 

enterprises,” and the fact that the country’s high-technology industries “lag” those of more 

developed nations.”

30

 

 

24 See James Lewis, Submission, Section 301 Hearing 1 (Sept. 2017).

25 CCP State Council Releases the “National Innovation-Driven Development Strategy Guidelines §2(3) [Chinese], 

XINHUA NEWS, May 19, 2016, http://news.xinhuanet.com/politics/2016-05/19/c_1118898033.htm.; see also TAI 

MING CHEUNG ET AL., U.S.-CHINA ECON. & SEC. REV. COMM’N, PLANNING FOR INNOVATION: UNDERSTANDING 

CHINA’S PLANS FOR TECHNOLOGICAL, ENERGY, INDUSTRIAL AND DEFENSE DEVELOPMENT [hereinafter “IGCC

REPORT”] xiii (2016).

26 IGCC REPORT at 30.

27 Notice on Issuing the National Medium- and Long-Term Science and Technology Development Plan Outline

(2006-2020) [hereinafter “MLP”] (State Council, Guo Fa [2005] No. 44, issued Dec. 26, 2005).

28 Decision on Accelerating the Cultivation and Development of Strategic Emerging Industries (State Council, Guo 

Fa [2010] No. 32, issued Oct. 10, 2010).

29 Notice on Issuing “Made in China 2025” (State Council, Guo Fa [2015] No. 28, issued May 8, 2015).

30 MLP §1.
I. Overview

11

As its focus, the MLP identifies 11 key sectors, and 68 priority areas within these sectors, for 

technology development.31 It also designates eight fields of “frontier technology,” 32 within 

which 27 “breakthrough technologies” will be pursued, and highlights four major scientific 

research programs.

33 The MLP also establishes the cross-cutting goal of reducing the rate of 

dependence on foreign technologies in the identified sectors to below 30% by the year 2020.34 

The MLP strategy for securing sought-after technology development includes several key 

elements, which continue to have a negative impact on U.S. and other foreign companies:

 A top-down national strategy, in which implementation requires the mobilization and 

participation of all sectors of society35 and the integration of civil and military 

resources;36

 Prioritization of certain industries and technologies for development,37 particularly those 

that can advance “sustainable development,” “core competitiveness,” “public service,” 

and “national security” objectives.38

 Leveraging state resources and regulatory systems;39

 Import substitution to be achieved through “indigenous innovation”

40 and re-innovation 

based on assimilation and absorption of foreign technologies;41 and

 Promoting Chinese enterprises to become dominant in the domestic market42 and 

internationally competitive enterprises43 in key industries.

The MLP set in motion a web of policies and practices intended to drive innovation and reinnovation. For example, Section 8(2) of the MLP calls for “enhancing the absorption, digestion, 

 

31 The sectors include energy, water and mineral resources, environment, agriculture, manufacturing, transportation, 

information and services, population and health, urbanization, public security and national defense.

32 The areas include biotech, information technology, advanced materials, advanced manufacturing, advanced 

energy technology, marine technology, laser technology and aerospace technology.

33 The fields include protein science, nanotechnology, quantum physics and developmental and reproductive 

science.

34 MLP § 2(2) ¶ 3, Guiding Directives, Development Targets, and Comprehensive Arrangements. 

35 MLP § 2(1). (“In sum, we must make enhancing indigenous innovation capacity our national strategy, and 

implement it in all aspects of modernization construction and in every industry, sector and region.”). §8(5) also 

guides “all types of financial institutions and private funds to participate in science and technology development.”

36 MLP § 8(7).

37 MLP § 3 sets out the “Key Sectors and their Priority Issues.”

38 MLP § 3, Preamble.

39 MLP § 9.

40 MLP § 2(1).

41MLP §§ 2(1), 8(2). The term “introduce” used throughout MLP refers to introduction of technology through 

foreign investment. This is made more explicit in the measures defining and discussing IDAR below. 

42 MLP § 2(2) states dependence on foreign technology should be reduced to only 30% by 2020.

43 See IGCC REPORT at 157. See also MLP § 2.
I. Overview

12

and re-innovation of introduced technology.”44 Following the issuance of the MLP, China 

detailed these policies in the Several Supporting Policies for Implementing the “National 

Medium- and Long-Term Science and Technology Development Plan Outline (2006-2020)” 

(MLP Supporting Policies)

45 and the Opinions on Encouraging Technology Introduction and 

Innovation and Promoting the Transformation of the Growth Mode in Foreign Trade (IDAR 

Opinions),

46 which articulate the concept of Introducing,47 Digesting,48 Absorbing,49 and Reinnovating50 foreign intellectual property and technology (IDAR). The IDAR approach involves 

four steps, each of which hinges on close collaboration between the Chinese government and 

Chinese industry to take full advantage of foreign technologies: 

 Introduce: Chinese companies should target and acquire foreign technology. Methods of 

“introducing” foreign technology that are specifically referenced include: technology 

transfer agreements, inbound investment, technology imports, establishing foreign R&D 

centers, outbound investment, and the collection of market intelligence by state entities 

for the benefit of Chinese companies.51 Technology to be “introduced” from overseas

includes “major equipment that cannot yet be supplied domestically”, as well as 

“advanced design and manufacturing technology”;

52 conversely, the government 

discourages imports of technologies for which China is already deemed to “possess 

domestic R&D capabilities.”

53

 Digest: Following the acquisition of foreign technology, the Chinese government should 

collaborate with China’s domestic industry to collect, analyze, and disseminate the 

information and technology that has been acquired.

54

 Absorb: The Chinese government and China’s domestic industry should collaborate to 

develop products using the technology that has been acquired. The Chinese government 

should provide financial assistance to develop products using technology obtained 

through IDAR, including foreign trade development funds, government procurement, and 

fiscal incentives.55 To absorb foreign technologies, authorities have established 

engineering research centers, enterprise-based technology centers, state laboratories, 

national technology transfer centers, and high-technology service centers.56 

 

44 MLP §§ 2(1), 8(2).

45 Several Supporting Policies for Implementing the “National Medium- and Long-Term Science and Technology 

Development Plan Outline (2006-2020)” (State Council, Guo Fa [2006] No. 6, issued Feb. 7, 2006).

46 Several Opinions on Encouraging Technology Introduction and Innovation and Promoting the Transformation of 

the Growth Mode in Foreign Trade (MOFCOM, NDRC, MOST, MOF, GAC, SAT, SIPO, SAFE, Shang Fu Mao Fa 

[2006] No. 13, issued July 14, 2006).

47 English translation of Chinese term yinjin.

48 English translation of Chinese term xiaohua.

49 English translation of Chinese term xishou.

50 English translation of Chinese term zai chuangxin.

51 IDAR Opinions § 7-9, 11-12. See also IGCC REPORT at 118-119.

52 MLP Supporting Policies § 28, 29.

53 MLP Supporting Policies § 29.

54 IDAR Opinions § 7; MLP Supporting Policies § 31.

55 IDAR Opinions § 15, 18; MLP Supporting Policies § 30, 32. 

56 IGCC REPORT at 118.
I. Overview

13

 Re-innovate: At this stage, Chinese companies should “re-innovate” and improve upon 

the foreign technology. The ultimate objective is to develop new, home-grown products 

that are competitive internationally, so as to “allow enterprises to possess more 

indigenous intellectual property for core products and core technologies.”57

The IDAR approach embraces a strong role for the Chinese government in guiding and 

assisting Chinese industry in technology development and has had profound implications, in 

particular, for the way in which China has sought to introduce foreign technologies into 

China over the last decade. It has spurred Chinese government ministries and government 

officials to pursue an array of aggressive implementing acts, policies, and practices, 

including those that are the subject of this investigation.

China has continued to emphasize the IDAR approach since it was first articulated in 2006 in 

broad-ranging five-year plans and technology development plans issued by China’s State 

Council, central government ministries and provincial and municipal governments, and the 

CCP. The IDAR approach also has been incorporated into numerous economic development 

plans for specific sectors, such as integrated circuits.

58

In 2010, the Chinese government announced another seminal technology development strategy, 

which calls for the accelerated development of seven so-called “strategic emerging industries” 

(SEIs): (1) energy efficient and environmental technologies, (2) next generation information 

technology, (3) biotechnology, (4) high-end equipment manufacturing, (5) new energy, (6) new

materials, and (7) new energy vehicles.59 The 12th Five-year National Strategic Emerging 

Industries Development Plan (12th Five-year SEI Plan)

60 subsequently recommended specific 

fiscal and taxation policy support and set a target for SEIs to account for 8% of China’s economy 

by 2015 and 15% by 2020. The 12th Five-year SEI Plan also aims to foster a group of Chinese 

enterprises – including state-owned enterprises – into “backbone enterprises” that can become 

 

57 IDAR Opinions § 5. 

58 E.g., 12th Five-year Development Plan for the Integrated Circuit Industry (Ministry of Industry and Information 

Technology, published Feb. 24, 2012) § 3(1), ¶ 3: “Maintain innovation drivers. Combine implementation of 

national science and technology major special projects and megaprojects, using innovation in technologies, modes, 

mechanisms, and systems as the impetus to make breakthroughs in a group of shared core technologies. Strengthen 

introduce, digest, absorb, and re-innovate, to stride down the path of open-type innovation and internationalized 

development.” (emphasis added).

59 State Council Decision on Accelerating the Development of Strategic Emerging Industries (State Council, Guo Fa 

[2010], No. 32, issued Oct. 10, 2010).

60 Notice on Issuing the 12th Five-year National Strategic Emerging Industries Development Plan (State Council, 

Guo Fa [2012] No. 28, issued July 9, 2012).
I. Overview

14

market leaders domestically and compete globally.61 The Chinese government later reaffirmed 

and refined this strategy in its 13th Five-year Strategic Emerging Industries Development Plan.

62

Notably, support for the IDAR strategy was reiterated in the CCP’s 2013 Third Plenum 

Decision63 (Third Plenum Decision) released in connection with the Third Plenary Session of 

the 18th National Congress of the CCP. IDAR’s inclusion in the Third Plenum Decision is 

significant because the document was widely seen as setting forth the priorities of President 

Xi Jinping’s new administration with respect to China’s future economic development path.64 

By reaffirming that China should “establish and perfect a mechanism to encourage original 

innovation, integrated innovation, and introduce, absorb, digest, and re-innovate,”65 the Third 

Plenum Decision signaled the CCP’s continued high-level support for the IDAR approach to 

technology innovation.

In 2015, the State Council released the Made in China 2025 Notice,

66 which is China’s ten-year 

plan for targeting ten strategic advanced technology manufacturing industries for promotion and 

development: (1) advanced information technology; (2) robotics and automated machine tools; 

(3) aircraft and aircraft components; (4) maritime vessels and marine engineering equipment; (5) 

advanced rail equipment; (6) new energy vehicles; (7) electrical generation and transmission 

equipment; (8) agricultural machinery and equipment; (9) new materials; and (10) 

pharmaceuticals and advanced medical devices.

67

 

While the Made in China 2025 Notice references market-oriented principles, it closely resembles 

China’s other state-led, technology-related plans, such as the MLP, issued a decade earlier, in 

that it:

 Reaffirms the Chinese government’s central role in economic planning;68

 

61 For example, the 12th Five-year National Economic and Social Development Plan Outline (adopted by the NPC 

on Mar. 14, 2011) calls for the cultivation of a group of backbone enterprises within strategic emerging industries. 

Ch. 10, §2 “Fostering the Development of Strategic Emerging Industries”. The 12th Five-year SEI Plan further 

specifies that backbone enterprises are to have “relatively strong indigenous innovation capacity and a technological 

leadership effects.” § 2(3), “Guiding Thoughts, Fundamental Principles, and Development Targets”. At the sectoral 

level, the Guidelines for the Development and Promotion of the Integrated Circuit Industry (State Council, issued 

June 24, 2014) laud the fact that China has established “a group of backbone enterprises with significant 

international competitiveness.” § 1, ¶ 1. The Guiding Opinion on Promoting International Industrial Capacity and 

Equipment Manufacturing Cooperation (State Council, Guo Fa [2015] No. 30, issued May 13, 2015) provides that a 

“main target” of the policy is to “establish a group of backbone enterprises that possess international 

competitiveness and the ability to open up markets.” § 2(6).

62 Notice on Issuing the 13th Five-year National Strategic Emerging Industries Development Plan (State Council, 

Guo Fa [2016] No. 67, issued Nov. 29, 2016).

63 CCP Central Committee Decision on Several Major Issues for Comprehensively Deepening Reform (CCP Central 

Committee, issued Nov. 12, 2013) [hereinafter “Third Plenum Decision”).

64 Third Plenums have historically been used to announce major economic reforms, such as the adoption of reform 

and opening during the Third Plenary Session of the 11th National Congress of the CCP in 1978, and the 

endorsement of the socialist market economy following the 14th National Congress of the CCP in 1993.

65 Third Plenum Decision § 13.

66 Decision on Issuing “China Manufacturing 2025” (State Council, Guo Fa [2015] No. 28, issued May 8, 2015).

67 Made in China 2025 Notice § 3(6). 

68 Made in China 2025 Notice § 2(2).
I. Overview

15

 Calls on all facets of society to mobilize behind the plan;69

 Seeks technological breakthroughs in key areas for economic and security purposes;

 Promotes further civil-military integration and the two-way transfer and conversion of 

military and civilian technologies;70

 Leverages state resources,

71 policy support,72 and regulatory systems;73

 Continues to promote import substitution and rely on indigenous products to meet 

growing demand in China;

74

 Reaffirms the leading role of backbone enterprises in technology development;75 and

 Promotes Chinese enterprises to become dominant in the domestic market and 

internationally competitive in key industries.76

The Made in China 2025 Notice expressly calls for China to achieve 40% “self-sufficiency” by 

2020, and 70% “self-sufficiency” by 2025, in core components and critical materials in a wide 

range of industries, including aerospace equipment and telecommunications equipment.77 The

“Made in China 2025” Key Area Technology Roadmap (Made in China Roadmap) sets explicit 

market share targets that are to be filled by Chinese producers both domestically and globally in 

dozens of high-tech industries.

78

 

69 Made in China 2025 Notice § 1(3).

70 Made in China 2025 Notice § 3(1).

71 Made in China 2025 Notice § 4.

72 Made in China 2025 Notice § 1(3).

73 See generally Made in China 2025 Notice. This is particularly the case in quality standard regulations as described 

in §§ 2(1) and 3(4).

74 Made in China 2025 Notice § 1(2) describes the growing demand for new equipment, consumption, and safety, 

while § 1(3) calls for China to “rely more on Chinese equipment and Chinese brands.”

75 Made in China 2025 Notice § 3(1).

76 Made in China 2025 Notice § 1(3).

77 Made in China 2025 Notice, Box 3.

78 Made in China 2025 Key Area Technology Roadmap, (National Strategic Advisory Committee on Building a 

Powerful Manufacturing Nation, issued Oct. 10, 2015); see also U.S. CHAMBER, MADE IN CHINA 2025: GLOBAL 

AMBITIONS BUILT ON LOCAL PROTECTIONS 8 (2017). The Made in China Roadmap was released by the National 

Strategic Advisory Committee on Building a Powerful Manufacturing Nation (also known as the “National 

Manufacturing Strategy Advisory Committee”) which was established pursuant to the Made in China 2025 Notice

with responsibility to provide advice and assessments on China’s major manufacturing policies. In August 2015, 

Vice Premier Ma Kai, who leads the Strong Manufacturing Country Leading Small Group, spoke at the 

Committee’s first meeting and lauded its establishment as a way to “strongly promote Made in China 2025.” 

National Strategic Advisory Committee on Building a Powerful Manufacturing Nation Established; Chaired by Ma 

Kai [Chinese], XINHUA (Aug. 26, 2015), available at http://www.xinhuanet.com/info/2015-08/26/c_134556815.htm

(last visited Mar. 16, 2018). See also Notice on the Establishment of the Strong Manufacturing Country Leading 

Small Group, (General Office of the State Council, Guo Ban Fa [2015] No. 48, published June 24, 2015) (last 

visited March 16, 2018); and National Strategic Advisory Committee on Building a Powerful Manufacturing Nation 

Established, STATE INTELLECTUAL PROPERTY OFFICE OF THE P.R.C. (Aug. 26, 2015), available at 

http://www.sipo.gov.cn/yw/2015/201508/t20150826_1165829.html (last visited Dec. 21, 2017).
I. Overview

16

For example, indigenous new energy vehicles are to achieve an 80% domestic market share79

with foreign sales accounting for 10% of total sales by 2025.80 Similarly, domestically produced 

energy equipment is to achieve 90% domestic market share, with exports accounting for 30% of 

production, by 2020,81 and renewable energy equipment with indigenous IP is to achieve 80% 

domestic market share by 2025.82 In comparison to previous plans, Made in China 2025

expands its focus to capturing global market share, not just dominance in the China market, and 

is part of a “broader strategy to use state resources to alter and create comparative advantage in 

these sectors on a global scale.”83

The Made in China 2025 Notice sets forth clear principles, tasks, and tools to implement this 

strategy, including government intervention and substantial government, financial and other 

support to the targeted Chinese industries.84 Domestic dominance and global competitiveness 

are to be achieved by upgrading the entire research, development, and production chain, with 

emphasis on localizing the output of components and finished products.85 Foreign technology 

acquisition through various means remains a prime focus under Made in China 2025 because 

China is still catching up in many of the areas prioritized for development, and as U.S. 

companies are front-runners in many of these areas.86

China’s Ministry of Industry and Information Technology (MIIT) has explained that Made in 

China 2025 is part of a three-step strategy for China to become a world leader in advanced 

manufacturing. Under the first step, by 2025, China should “approach the level of 

manufacturing powers Germany and Japan during the period when they realized 

industrialization.” In the second step, China should “enter the front ranks of second tier 

manufacturing powers” by 2035. In the final step, China should “enter the first tier of global 

manufacturing powers” by 2045, at which point China will have “innovation-driving 

capabilities,” “clear competitive advantages,” and “world-leading technology systems and 

industrial systems.”87 

In recent years, China also issued policies specific to advanced technologies in which U.S. firms 

are market leaders. Information and communications technologies have been a focal point, with 

more and more strategies emanating from the National Informatization Development Strategy

(2006-2020), such as the National Integrated Circuit Industry Development Outline, the Internet 

 

79 Made in China 2025 Key Area Technology Roadmap § 6.2.2.

80 Made in China 2025 Key Area Technology Roadmap § 6.2.2.

81 Made in China 2025 Key Area Technology Roadmap § 7.1.2.

82 Made in China 2025 Key Area Technology Roadmap § 7.1.2.

83 U.S. CHAMBER, MADE IN CHINA 2025: GLOBAL AMBITIONS BUILT ON LOCAL PROTECTIONS 6 (2017).

84 See AM. CHAMBER OF COMMERCE IN SHANGHAI, Submission, Section 301 Hearing 2 (Sept. 28, 2017); NAT’L.

ASS’N OF MANUFACTURERS [hereinafter “NAM”], Submission, Section 301 Hearing 3 (Sept. 28, 2017); WILEY REIN

LLP, Submission, Section 301 Hearing 3-4 (Sept. 28, 2017); BJÖRN CONRAD, ET AL., MERCATOR INST. FOR CHINA 

STUDIES [hereinafter “MERICS”], MADE IN CHINA 2025 7, 11 (2016); and U.S. CHAMBER OF COMMERCE, MADE IN 

CHINA 2025: GLOBAL AMBITIONS BUILT ON LOCAL PROTECTIONS 7, 15, 18 (2017).

85 IGCC REPORT at 121.

86 IGCC REPORT at 121.

87 Made in China 2025 Explanation 6: The Manufacturing Power ‘Three-Step’ Strategy, MINISTRY OF INDUSTRY 

AND INFORMATION TECHNOLOGY (May 19, 2015), 

http://www.miit.gov.cn/n1146295/n1146562/n1146655/c3780688/content.html; see also IGCC REPORT at 47-48. 
I. Overview

17

Plus Plan, the “Broadband China” strategy and corresponding implementation plan, and the 

designation of next-generation information technology as a “strategic emerging industry.”

88

In addition, China recently announced that it will pursue an “innovation-driven” development 

strategy

89 and that it has made breakthroughs in higher-end innovation a top priority.90

 At the 

19th National Congress of the CCP, held in October 2017, President Xi Jinping’s remarks 

specifically referenced the goal of building China into a “powerful nation [or power] in science 

and technology, quality, aerospace, the Internet, and transportation” and called for “accelerating 

the construction of [China as] a manufacturing power” by “accelerating the development of 

advanced manufacturing industry” and “promoting the deep integration of the Internet, big data, 

and artificial intelligence with the real economy.”91 

Like the MLP a decade ago, newer plans such as the Made in China 2025 Notice and the various 

plans focused on information and communications technologies call for a wide array of Chinese 

government intervention and financial and other support designed to transform China into a 

world leader in technology. While these policies and practices are not necessarily new, their 

actual and potential effects on foreign companies and their technologies have become much 

more serious. As James Lewis of CSIS explained in his submission to USTR:

What is new is that unfair trade, security and industrial policies, tolerable in a smaller 

developing economy, are now combined with China’s immense, government-directed 

investment and regulatory policies to put foreign firms at a disadvantage...China now has 

the wealth, commercial sophistication and technical expertise to make its pursuit of 

technological leadership work. The fundamental issue for the U.S. and other western 

nations, and the IT sector is how to respond to a managed economy with a well-financed 

strategy to create a domestic industry intended to displace foreign suppliers.92

As detailed in Sections II through VI of this report, a key part of China’s technology drive 

involves the acquisition of foreign technologies through acts, policies, and practices by the 

Chinese government that are unreasonable or discriminatory and burden or restrict U.S. 

commerce. These acts, policies, and practices work collectively as part of a multi-faceted 

strategy to advance China’s industrial policy objectives. They are applied across a broad range 

of sectors, overlap in their use of policy tools (e.g., the issuance of planning documents and 

guidance catalogues), and are implemented through a diverse set of state and state-backed actors, 

including state-owned enterprises.

 Section II describes the Chinese government’s use of foreign ownership restrictions, such 

as joint venture (JV) requirements and foreign equity limitations, other foreign 

 

88 IGCC REPORT at 44. 

89 IGCC REPORT at 41 (“This innovation-driven development strategy (IDDS) was officially promulgated by the 

Chinese authorities in May 2016 and provides a ‘top-level design and systemic plan’ for China’s innovation over 

next 30 years.”).

90 IGCC REPORT at xiii-xiv. 

91 Xi Jinping, Speech at the 19th CPC National Congress: Secure a Decisive Victory in Building a Moderately 

Prosperous Society in All Respects and Strive for the Great Success of Socialism with Chinese Characteristics for a 

New Era (Oct. 18, 2017), available in Chinese at http://www.gatj.gov.cn/html/6/wjjh/17/10/3257-6.html.

92 James Lewis, CSIS, Submission, Section 301 Hearing 1 (Sept. 27, 2017).
I. Overview

18

investment restrictions, and the administrative licensing and approvals process to require 

or pressure the transfer of technology from U.S. companies to Chinese entities. 

 Section III describes how U.S. companies seeking to license technologies to Chinese 

entities must do so on non-market-based terms that favor Chinese recipients.

 Section IV describes how the Chinese government directs and unfairly facilitates the 

systematic investment in, and acquisition of, U.S. companies and assets by Chinese 

entities, to obtain cutting-edge technologies and intellectual property and generate largescale technology transfer in industries deemed important by state industrial plans. 

 Section V describes how the Chinese government has conducted or supported cyber 

intrusions into U.S. commercial networks targeting confidential business information 

held by U.S. firms. Through these cyber intrusions, China’s government has gained 

unauthorized access to a wide range of confidential business information, including trade 

secrets, technical data, negotiating positions, and sensitive and proprietary internal 

communications.

 Section VI describes other acts, policies, and practices of by the Chinese government to 

acquire foreign technologies, including measures purportedly related to national security 

or cybersecurity, inadequate intellectual property protection, the Antimonopoly Law of the 

People’s Republic of China, the Standardization Law of the People’s Republic of China, 

and talent acquisition.
19

II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

A. Introduction

The previous section of this report detailed China’s technology drive and how it seeks to support 

prioritized industries and foster “national champions” by pursuing technology advancement 

through the acquisition and “re-innovation” of foreign technology.93 One method China uses to 

achieve this goal is through restrictions on foreign investment, which it uses to selectively grant 

market access to foreign investors in exchange for commitments to transfer technology. This 

section will detail how China uses inbound foreign ownership restrictions, such as joint venture 

(JV) requirements and foreign equity limitations, and the administrative licensing and approvals 

process to require or pressure the transfer of technology. 

1. Key Elements of China’s Technology Transfer Regime

The evidence collected in this investigation from hearing witnesses, written submissions, public 

reports, journal articles, and other reliable sources indicates there are two key aspects of China’s 

technology transfer regime for inbound foreign investment. 

First, the Chinese government uses foreign ownership restrictions, such as formal and informal 

JV requirements, and other foreign investment restrictions to require or pressure technology 

transfer from U.S. companies to Chinese entities. These requirements prohibit foreign investors 

from operating in certain industries unless they partner with a Chinese company, and in some 

cases, unless the Chinese partner is the controlling shareholder. Second, the Chinese government 

uses its administrative licensing and approvals processes to force technology transfer in 

exchange for the numerous administrative approvals needed to establish and operate a business 

in China. 

These two aspects of China’s technology transfer regime are furthered by the non-transparent 

and discretionary nature of China’s foreign investment approvals system. Prior to 2001, China 

often explicitly mandated technology transfer, requiring the transfer of technology as a quid pro 

quo for market access.94 In 2001, China joined the WTO and committed not to condition the 

approval of investment or importation on technology transfer.95 Since then, according to 

numerous sources, China’s technology transfer policies and practices have become more 

implicit, often carried out through oral instructions and “behind closed doors.”96 

 

93 See Section I.C. 

94 See, e.g., OFFICE OF TECH. ASSESSMENT, 100TH CONG., OTA-ISC-3401, REP. ON TECHNOLOGY TRANSFER TO 

CHINA (1987); OFFICE OF STRATEGIC INDUS. & ECON. SEC. BUREAU OF EXPORT ADMIN. & DFI INT’L., U.S. DEPT. 

COMMERCE, U.S. COMMERCIAL TECHNOLOGY TRANSFER TO THE PEOPLE’S REPUBLIC OF CHINA (Jan. 1999); 

THOMAS J. HOLMES ET AL., FED. RES. BANK OF MINNEAPOLIS, RES. DEP’T STAFF REP. 486, QUID PRO QUO:

TECHNOLOGY CAPITAL TRANSFERS FOR MARKET ACCESS IN CHINA 3 (2015).

95 China’s accession agreements include the Protocol on the Accession of the People’s Republic of China, WTO 

Doc. WT/L/432 (Nov. 23, 2001) [hereinafter “Accession Protocol”], and the Report of the Working Party on the 

Accession of China, WTO Doc. WT/ACC/CHN/49 (Oct. 1, 2001) [hereinafter “Working Party Report”]. China’s 

technology transfer commitments are contained in Accession Protocol, General Provisions ¶ 7.3 and Working Party 

Report ¶ 203 (incorporated into the Accession Protocol through ¶ 1.2).

96 See, e.g., THOMAS J. HOLMES ET AL., FED. RES. BANK OF MINNEAPOLIS, RES. DEP’T STAFF REP. 486, QUID PRO 

QUO: TECHNOLOGY CAPITAL TRANSFERS FOR MARKET ACCESS IN CHINA 3 (2015); TAI MING CHEUNG ET AL., U.S.-
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

20

As the Information Technology and Innovation Foundation (ITIF) stated in its written 

submission in this investigation:

Chinese officials are careful not to put such requirements in writing, often resorting to 

oral communications and informal ‘administrative guidance’ to pressure foreign firms to 

transfer technology.97 

According to another expert, Chinese measures and practices “no longer spell out the most 

controversial requirements in black and white. Verbal instructions and requests to ‘volunteer’ 

one’s technology are today’s rules of the road.”98 Similarly, a 2014 study of China’s foreign 

investment policies conducted for the European Union found that China has relied more heavily 

on opaque administrative processes to promote its technology transfer goals as international trade 

rules have limited its ability to formally codify foreign investment restraints.99

Another particular challenge is the complex relationship between China’s private sector and the 

government, which provides both direct and indirect mechanisms by which the government may 

pressure foreign companies. In some cases, the Chinese government may directly pressure the 

foreign company to transfer technology, but in other cases the demand may come from a Chinese 

partner.100 As discussed in more detail below, when confronted with this latter scenario, foreign

companies often reasonably understand that the demand originated from the government,101 as 

“business decisions [in China] are very much influenced by the public policy objectives pursued 

by the State and the CCP.”102 Moreover, because the Chinese partner serves as the applicant in 

the approval process on behalf of the JV, the Chinese partner is able, in many cases, to control 

the communication channels between the foreign investor and the Chinese government 

authorities.103 Section IV of this report further details how the Chinese government and Chinese 

Communist Party (CCP) utilize a wide array of actors, regulations, and informal guidance to 

achieve China’s industrial policy objectives.104 

 

CHINA ECON. & SEC. REV. COMM’N, PLANNING FOR INNOVATION: UNDERSTANDING CHINA’S PLANS FOR 

TECHNOLOGICAL, ENERGY, INDUSTRIAL AND DEFENSE DEVELOPMENT 163 (2016) (citing US-CHINA BUSINESS 

COUNCIL [hereinafter “USCBC”], CHINA’S STRATEGIC EMERGING INDUSTRIES: POLICY, IMPLEMENTATION,

CHALLENGES, AND RECOMMENDATIONS (Mar. 2013)); 2016 USTR REPORT TO CONGRESS ON CHINA’S WTO

COMPLIANCE 104 (2017).

97 ITIF, Submission, Section 301 Hearing 5-6 (Oct. 25, 2017).

98 See Covington & Burling LLP, Measures and Practices Restraining Foreign Investment in China, prepared for 

the European Commission Directorate-General for Trade 63-4 (Aug. 2014) (citing to JAMES MCGREGOR, NO 

ANCIENT WISDOM, NO FOLLOWERS: THE CHALLENGES OF CHINESE AUTHORITARIAN CAPITALISM 38 (2012)).

99 Covington & Burling LLP, Measures and Practices Restraining Foreign Investment in China, prepared for the 

European Commission Directorate-General for Trade 11 (Aug. 2014). 

100 USCBC, 2017 MEMBER SURVEY 9 (2017).

101 USCBC, 2017 MEMBER SURVEY 9 (2017).

102 EUROPEAN COMM’N, COMMISSION STAFF WORKING DOCUMENT ON SIGNIFICANT DISTORTIONS IN THE ECONOMY OF 

THE PEOPLE'S REPUBLIC OF CHINA FOR THE PURPOSES OF TRADE DEFENCE INVESTIGATIONS 426 (SWD(2017)483 FINAL/2,

39 (Dec. 20, 2012).

103 U.S. CHAMBER OF COMMERCE,CHINA’S APPROVAL PROCESS FOR INBOUND FOREIGN INVESTMENT:IMPACT ON 

MARKET ACCESS, NATIONAL TREATMENT AND TRANSPARENCY 38-9 (Nov. 2012).

104 See e.g., Mark Wu, The 'China, Inc.' Challenge to Global Trade Governance, 57 HARV. INT’L L. J. 284 (May 

2016) ( “China’s economic structure involves a complex web of overlapping networks and relationships—some 

formal and others informal—between the state, Party, SOEs, private enterprises, financial institutions, investment 
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

21

The fact that China systematically implements its technology transfer regime in informal and 

indirect ways makes it “just as effective [as written requirements], but almost impossible to 

prosecute.”105 This difficulty is further exacerbated by the reality that foreign companies have 

no effective recourse in China and have been hesitant to report these informal pressures for fear 

of Chinese government retaliation and the potential loss of business opportunities.106 

Nevertheless, as shown below, confidential industry surveys, where companies may report their 

experiences anonymously, make clear that they are receiving such pressure. The lack of 

transparency in the regulatory environment, the complex relationship between the State and the 

private sector, and concerns about retaliation have enabled China’s technology transfer regime to 

persist for more than a decade.107

In the course of this investigation, certain Chinese trade associations and law firms representing 

Chinese interests defended China’s technology transfer regime, arguing that technology transfer 

decisions are products of “voluntary agreement” without “government intervention.”108 They 

also asserted that JV and technology transfer arrangements are distinct from broader national 

industrial policies, and that domestic and foreign companies can choose when and whether to 

establish business partnerships.109 Further, they stated that no Chinese laws or regulations 

explicitly force foreign investors to transfer technology, and that the central government has 

instructed local governments not to require technology transfer.110

 

vehicles, trade associations, and so on.”). See also EUROPEAN COMM’N, COMMISSION STAFF WORKING DOCUMENT ON 

SIGNIFICANT DISTORTIONS IN THE ECONOMY OF THE PEOPLE'S REPUBLIC OF CHINA FOR THE PURPOSES OF TRADE 

DEFENCE INVESTIGATIONS 426 SWD(2017)483 FINAL/2, 13 (Dec. 20, 2012) (“Therefore, even though today the 

Chinese economy is to some extent made up of non-state actors...the decisive role of the State in the economy 

remains intact, with tight interconnections between government and enterprises (going far beyond the boundaries of 

SOEs) in place.”).

105 ITIF, STOPPING CHINA’S MERCANTILISM: A DOCTRINE OF CONSTRUCTIVE, ALLIANCE-BACKED CONFRONTATION

18 (Mar. 2017).

106 See U.S.CHAMBER OF COMMERCE,CHINA’S APPROVAL PROCESS FOR INBOUND FOREIGN INVESTMENT:IMPACT ON 

MARKET ACCESS, NATIONAL TREATMENT AND TRANSPARENCY 2, 40 (Nov. 2012). ITIF’s submission in this 

investigation also illustrates how the threat of Chinese government retaliation leads U.S. companies to avoid seeking 

redress. For example, the ITIF submission provides that, “[a] top executive at a large U.S. plant biotechnology firm 

told ITIF recently of its experience in China. China was dumping the chemicals for a particular herbicide the U.S. 

company sold on global markets. The company confronted the Chinese agricultural minister with fact and said that 

it was planning to bring a complaint before the WTO. The Chinese minister simply responded that if the case were 

brought, the company would lose access to the Chinese market. Needless to say, the U.S. firm did not bring the 

case, even as it continued to lose global market share and jobs in the U.S.” ITIF, Submission, Section 301 Hearing 6 

(Oct. 25, 2017).

107 See, e.g., U.S. CHAMBER OF COMMERCE,CHINA’S APPROVAL PROCESS FOR INBOUND FOREIGN INVESTMENT:IMPACT 

ON MARKET ACCESS, NATIONAL TREATMENT AND TRANSPARENCY 38-9 (Nov. 2012); EUROPEAN CHAMBER OF 

COMMERCE, CHINA MANUFACTURING 2025 15-16 (2017) (“For example, a longstanding feature of China’s 

industrial policy is that foreign companies are often pushed to transfer technology as the price of market 

entry...Forced technology transfer is nothing new to FIEs. However, it is now an increasing requirement for more 

advanced technologies to be shared.”).

108 See generally, CHINA CHAMBER OF COMMERCE FOR IMPORT & EXPORT OF MACHINERY & ELECTRONIC PRODUCTS

[hereinafter “CCCME”], Submission, Section 301 Hearing 6 (Oct. 20, 2017); CHINA CHAMBER OF INT’L. 

COMMERCE [hereinafter “CCOIC”], Submission, Section 301 Hearing 12 (Sept. 28, 2017). 

109 CCCME Submission, Section 301 Hearing 8-9 (Sept. 27, 2017).

110 CCOIC, Submission, Section 301 Hearing 124 (Sept. 28, 2017).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

22

USTR has carefully considered these arguments and finds them unsupported by the evidence and 

unconvincing. As set forth in detail below, the weight of the evidence shows that China uses 

foreign ownership restrictions, including joint venture requirements and equity limitations, and 

other investment restrictions to require or pressure technology transfer from U.S. companies to 

Chinese entities. The evidence further establishes that China uses discretionary and nontransparent administrative reviews and licensing processes to pressure technology transfer or 

force the unnecessary disclosure of sensitive technical information. 

2. A Persistent Problem for U.S. Business

Due to the fact that much of China’s technology transfer regime occurs “behind closed doors,”

confidential surveys provide an important source of information on how the regime works in 

practice. These surveys make clear that China’s technology transfer regime is a persistent 

problem for U.S companies in China, particularly in high-tech sectors targeted by the Chinese 

government. 

According to the US-China Business Council’s (USCBC) most recent member survey, 19 

percent of responding companies stated that in the last year they had been directly asked to 

transfer technology to China.111 Of these, 33 percent said that the request came from a central 

government entity and 25 percent that it came from the local government.112 

Annual surveys conducted by the American Chamber of Commerce in China (AmCham China) 

reflect a similar problem. For example, in a 2013 survey of 325 U.S. companies in various 

sectors, more than one-third of respondents (35 percent) reported that they were concerned about 

“de facto technology transfer requirements as a condition for market access.”

113 In a 2017 

survey, 36 percent of respondents cited “reducing the need for us to engage in technology 

transfer” as one factor that would cause them to increase their investment levels in China.114 

Other evidence indicates that this problem may be even more widespread than these surveys 

suggest. For example, one participant testified in the hearing for this investigation that while he 

was aware of these survey results, his own research indicated through “many, many private 

interviews with companies...we did not find a single instance in which companies had not felt 

pressure and in many cases caved into the pressure to share technology.”

115

 

111 USCBC, 2017 MEMBER SURVEY 9 (2017).

112 USCBC, 2017 MEMBER SURVEY 9 (2017) (67 percent said the request was made directly by a Chinese company 

during the negotiations. The survey states, “[t]he request most frequently comes from a Chinese partner, rather than 

a government entity. While some of these requests may be a normal part of commercial negotiations, in many cases 

the hand of the Chinese government is behind these requests.”).

113 THOMAS J. HOLMES ET AL. FED. RES. BANK OF MINNEAPOLIS, RES. DEP’T STAFF REP. 486, QUID PRO QUO:

TECHNOLOGY CAPITAL TRANSFERS FOR MARKET ACCESS IN CHINA 8 (2015) (citing AM. CHAMBER OF COMMERCE 

IN CHINA, CHINA BUSINESS CLIMATE SURVEY REPORT (2013)).

114 AMCHAM CHINA, 2018 CHINA BUSINESS CLIMATE SURVEY REPORT 44 (2017). Of these, 22 percent stated that 

this reduction would be somewhat significant to their investment decision, 9 percent as very significant and 5 

percent as extremely significant.

115 Richard Ellings, COMMISSION ON THE THEFT OF INTELLECTUAL PROPERTY [hereinafter “IP Commission”],

Testimony, Section 301 Hearing, 37 (Oct. 10, 2017) (emphasis added).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

23

Moreover, in sectors that are the focus of the Chinese government’s industrial policy initiatives, 

the pressure on U.S. companies to form JVs and transfer technology is particularly intense. For 

example, according to AmCham China’s 2013 survey, 42 percent of respondents in advanced 

technology sectors (including aerospace, automotive, chemical, and information technology) 

were concerned about “de facto technology transfer requirements as a condition for market 

access.”

116

 Only 3 percent of surveyed companies reported that these technology transfer 

requirements were decreasing, while 37 percent reported they were increasing and 26 percent 

that they were staying the same.117 

A 2017 survey of the U.S. integrated circuit design and manufacturing industry conducted by the 

Department of Commerce’s Bureau of Industry and Security yielded similar results: 25 U.S. 

integrated circuit companies responded that they will have to form JVs with Chinese entities and 

transfer intellectual property to obtain or maintain access to the China market.118 In 2017, these 

25 integrated circuited companies accounted for more than $25 billion in total sales and over a 

quarter (26 percent) of all integrated circuits made and sold in the United States.119

U.S. companies are not alone in their concerns about China’s technology transfer regime. 

According to a 2011 public consultation process conducted by the EU, the top barriers to 

investment in China included technology transfer requirements; JV requirements; foreign 

ownership limitations; prohibitions or limitations on the scope of business investments; licensing 

requirements/procedures; and regulatory approval procedures.120

B. Foreign Ownership Restrictions as Used in China’s Technology Transfer 

Regime

Foreign ownership restrictions such as JV requirements121 and foreign equity limitations are a 

cornerstone of China’s technology transfer regime. China’s Catalogue of Industries for Guiding 

Foreign Investment (Foreign Investment Catalogue), and other rules and regulations, require 

U.S. companies seeking to invest in certain industry sectors to enter into cooperative 

 

116 AMCHAM CHINA, 2013 CHINA BUSINESS CLIMATE SURVEY REPORT 10 (2013).

117 Id. (“N/A or don’t know” responses omitted). 

118 U.S. DEP’T OF COMMERCE, BUREAU OF INDUS. & SECURITY, ASSESSMENT OF THE U.S. INTEGRATED CIRCUIT 

DESIGN AND MANUFACTURING INDUSTRY (forthcoming).

119 U.S. DEP’T OF COMMERCE, BUREAU OF INDUS. & SECURITY, ASSESSMENT OF THE U.S. INTEGRATED CIRCUIT 

DESIGN AND MANUFACTURING INDUSTRY (forthcoming).

120 EUROPEAN COMM’N, IMPACT ASSESSMENT REPORT ON THE EU-CHINA INVESTMENT RELATIONS, SWD (2013)

185final 12 90, 95 (May 23, 2013).

121 The three most common corporate forms for foreign-invested entities (FIEs) in China are contractual joint 

ventures, equity joint ventures, and wholly foreign-owned enterprises. Each of these forms has different 

requirements and restrictions under Chinese law. See generally Law of the People’s Republic of China on ChineseForeign Contractual Joint Ventures (adopted at the First Session of the Seventh NPC on Apr. 13, 1988, amended by 

the 18th Session of the Standing Committee of the Ninth NPC on Oct. 31, 2000, further amended Sep. 3, 2016, in 

Executive Order No. 51, and Nov. 7, 2016, in Executive Order No. 57, and Nov. 4, 2017, in Executive Order No. 

81); Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures (adopted at the Second 

Session of the Fifth NPC on July 1, 1979, amended Apr. 4, 1990, in Executive Order No. 27, further amended Mar.

15, 2001, in Executive Order No. 48, and Sept. 3, 2016, in Executive Order No. 51); Law of the People’s Republic of 

China on Wholly Foreign-Owned Enterprises (adopted by NPC on Apr. 12, 1986, amended Oct. 31, 2000, further 

amended Sept. 3, 2016).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

24

arrangements with Chinese partners.122 According to submissions and testimony in this 

investigation, China’s imposition of these requirements precludes U.S. companies from entering 

the market on their own terms and lays the foundation for the Chinese government to require or 

pressure technology transfer. For example, the U.S. Chamber of Commerce states in its written 

submission that: 

As companies negotiate the terms of the joint venture, the foreign side may be asked—or 

required—to transfer its technology in order to finalize the partnership. Especially in 

instances where the Chinese partner is a state-owned or state-directed company, foreign 

companies have limited leverage in the negotiation if they wish to access the market. 

Although this type of technology transfer may not be explicitly mandated in a Chinese 

law or regulation, it is often an unwritten rule for market access.123

The USCBC similarly states that JV and other investment restrictions necessarily create an 

“unbalanced negotiation” with respect to technology transfer: 

Chinese companies are in an inherently stronger position since their participation is 

required to form a joint venture or to provide the remaining equity in restricted sectors. 

As a consequence, a request for technology transfer made by a Chinese party in a

business negotiation can reasonably be interpreted by foreign parties as a requirement for 

the deal to be concluded.124

The National Association of Manufacturers (NAM) stressed the negative effects of China’s 

technology transfer regime on U.S. companies’ global competitiveness:

This tilting of the playing field leaves manufacturers with untenable choices: they must 

either transfer their technology to the new China-based joint venture, or they must cede 

the world’s fastest-growing market to foreign competitors, thus harming both their shortterm growth and their long-term competitiveness. 125

1. The Foreign Investment Catalogue and Technology Transfer

China maintains a detailed system for administering inbound foreign investment. The Foreign 

Investment Catalogue is a starting point for analyzing the restrictions on foreign investment in a 

particular industry, and is an important element of China’s technology transfer regime.126 First 

 

122 Catalogue of Industries for Guiding Foreign Investment (2017 Amendment) (NDRC, MOFCOM, Order No. 4,

issued June 28, 2017).

123 U.S. CHAMBER OF COMMERCE, Submission, Section 301 Hearing 15 (Oct. 3, 2017).

124 USCBC, Submission, Section 301 Hearing 6-7 (Sept. 28, 2017).

125 NAT’L. ASS’N OF MANUFACTURERS [hereinafter “NAM”], Submission, Section 301 Hearing 3 (Sept. 28, 2017). 

See also Lee Branstetter, Submission, Section 301 Hearing 2, 3 (Sept. 28, 2017) (U.S. companies are forced to 

choose between protecting their valuable technologies or losing access to a critical market. If they choose to forego 

the Chinese market to protect their valuable intellectual property, their foreign competitors exploit the market 

opportunity, thereby inhibiting U.S. companies’ global competitiveness in the long-run).

126 In addition to the Foreign Investment Catalogue, there are thousands of other regulations, rules, and regulatory 

documents related to foreign investment that are issued by central government authorities, as well as a countless 

local government regulations and restrictions that must be consulted to fully understand the restrictions foreign 

investors face in any particular sector. See Covington & Burling LLP, Measures and Practices Restraining Foreign 
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

25

issued in 1995, and most recently revised in 2017, the Foreign Investment Catalogue has 

historically divided industries into three basic categories: (1) “encouraged,” (2) “restricted,” and 

(3) “prohibited.”

127

 Industries not listed in one of these categories generally are considered to be 

“permitted.” 

Different categories of investment generally lead to different degrees of approval scrutiny or 

application requirements. For example, foreign investments in “restricted” industries are subject 

to stricter government review and a case-by-case administrative approval process.

128

“Encouraged” industries benefit from special preferences and from a file-for-the record system 

of approvals, but can still be subject to investment restrictions.129 Moreover, even for 

“encouraged” sectors, stakeholders have expressed concerns, based on past experiences, that 

once China’s economy has achieved self-sufficiency in a particular industry and closed the 

technology gap, it will impose additional requirements or restrictions in these industries.130

Since its inception, the Foreign Investment Catalogue has required that investments in certain 

sectors take the form of a JV, that the proportion of foreign equity investment in the JV be 

capped at a particular level, that the Chinese party hold a controlling interest, and imposed other 

restrictions.131 These arrangements may take different forms including: (i) a requirement that the 

U.S. company enter into an equity joint venture (EJV) or contractual joint venture (CJV) with a 

Chinese party; (ii) a requirement that Chinese parties must be controlling shareholders or hold 

 

Investment in China, prepared for the European Commission Directorate-General for Trade 5 (Aug. 10, 2014)

(reviewing 39 central government agencies that promulgated 137,328 measures affecting foreign investment that 

were in effect at the time of the survey). 

127 In 2017, a “negative list” approach was adopted under which the catalogue was divided between a list of 

“encouraged” sectors and a “Foreign Investment Access Negative List” (Negative List), which consisted of three 

types of industries: (a) “restricted” (b) “prohibited” and (c) certain “encouraged” industries subject to limitations on 

shareholder structure or other limitations. This approach is fundamentally similar to previous catalogues and merely 

re-categorizes the restricted and prohibited industries under the rubric of a Negative List. Further, the Negative List 

is not a comprehensive identification of all foreign investment restrictions as it is based on earlier catalogues, which 

as described above, do not comprehensively list all investments restrictions that may apply to foreign investors in 

China. Foreign Investment Catalogue.

128 See WTO Secretariat, Trade Policy Review: China, ¶2.45-¶2.76, WT/TPR/S/300 (May 27, 2014).

129 Projects in the “encouraged" category” may be eligible for certain preferential policies, such as customs duty

preferences on the importation of certain capital goods. See e.g, General Administration of Customs Announcement 

On Implementing Issues Regarding Foreign Investment Industry Guiding Catalogue (amended 2017) §1 (GAC, 

2017 Announcement No. 30, issued July 17, 2017). Encouraged industries subject to foreign equity restrictions are 

listed twice, once under the encouraged category and then again under the restricted category. Foreign Investment 

Catalogue. 

130 U.S. CHAMBER, MADE IN CHINA 2025: GLOBAL AMBITIONS BUILT ON LOCAL PROTECTIONS 27 (2017); 

EUROPEAN CHAMBER OF COMMERCE, CHINA MANUFACTURING 2025 15 (2017). See also TAI MING CHEUNG ET AL.,

U.S.-CHINA ECON. & SEC. REV. COMM’N, PLANNING FOR INNOVATION: UNDERSTANDING CHINA’S PLANS FOR 

TECHNOLOGICAL, ENERGY, INDUSTRIAL AND DEFENSE DEVELOPMENT 166 (2016) (“In cases where China has no 

bargaining power but wants the technology, it will allow 100 percent foreign ownership since that is the only choice. 

An example of an ‘encouraged’ investment with no JV or equity requirements is ‘IC design, manufacturing of 28 nm 

and below large-scale digital IC, manufacturing of 0.11-micron and below analog and mixed signal IC, 

manufacturing of MEMS and compound semiconductor IC, and BGA, PGA, CSP, MCM, and other advanced 

packaging and testing.’ This category does not specify any joint venture or Chinese controlled entity requirement.”).

131 See TAI MING CHEUNG ET AL., U.S.-CHINA ECON. & SEC. REV. COMM’N, PLANNING FOR INNOVATION:

UNDERSTANDING CHINA’S PLANS FOR TECHNOLOGICAL, ENERGY, INDUSTRIAL AND DEFENSE DEVELOPMENT 166

(2016); Foreign Investment Catalogue. 
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

26

the majority of shares in the venture; and (iii) other types of restrictions on foreign ownership or 

control. 132

Although reforms to China’s foreign investment regime have enabled other forms of 

investments, including wholly-owned foreign enterprises (WFOEs) in certain sectors, ownership 

restrictions continue to operate in many key sectors important to foreign investors, including in 

the services, agriculture, extractive industries, and manufacturing sectors. 

Currently, 35 sectors remain in the “restricted” category of the Foreign Investment Catalogue.

133

 

The category includes, inter alia, the following sectors, which are subject to equity limits and/or

local partner requirements (see Table II.1).

Table II.1: Examples of Equity Restrictions and Local Partner Requirements in China’s 2017 

Foreign Investment Catalogue

Sector Summary of Requirements

Selection and cultivation of new varieties of

crops and production of seeds

Chinese party must be the controlling

shareholder.

Exploration and development of oil and natural 

gas

Limited to CJV or EJV

Manufacturing whole automobiles Chinese party’s investment cannot be lower than 50 

percent, and the same foreign investor may establish no

more than two JVs in China for the same kind of 

automobiles, subject to certain exceptions.

Manufacturing commercial aircraft Chinese party must be the controlling shareholder.

Construction and operation of nuclear power 

plants

Chinese party must be the controlling shareholder.

Value-added Telecommunications Services Foreign investment cannot exceed 50 percent,

excluding e-commerce, and is limited to WTO 

commitments. Note that China classifies a broad 

range of internet and technology-related services 

under this sector.

Basic telecommunications services Chinese party must be the controlling

shareholder and foreign investment is limited to 

WTO commitments. 

Banks Foreign financial institution investment cannot

exceed 20 percent or 25 percent depending on how

the investment is structured.

Medical institutions Limited to CJV or EJV.

Surveying and mapping companies Chinese party must be the controlling shareholder.

Source: Foreign Investment Catalogue (2017 Amendment).

By promoting foreign investment in certain industries while limiting or altogether prohibiting 

investment in others, the Chinese government uses its foreign investment regime to channel 

 

132 Foreign Investment Catalogue.

133 Sectors in the “restricted” category are described in Appendix D to this Report.
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

27

foreign investment into industries of its choosing to support policy objectives.134 For example,

the U.S. Chamber of Commerce in a March 2017 report on the Made in China 2025 initiative, 

notes that foreign investment restrictions impact companies in the plan’s targeted industries:

These restrictions either block opportunities for foreign companies to operate in the 

market, or, in some cases, create a de facto technology transfer requirement to the 

Chinese partner as a precondition for market access.135 

These technology transfer pressures occur not only in the high-tech sectors targeted by Made in 

China 2025 but also in more traditional sectors in which China has sought to obtain advanced 

technologies through the imposition of JV requirements. The shale gas industry provides one 

example of how the Foreign Investment Catalogue is used to channel investment to support 

industrial policy objectives. In this industry, China seeks to acquire foreign technologies in order 

to unlock the potential of its shale reserves located in geologically complex areas, and has 

explicitly stated in its industrial policies that “cooperation” with foreign companies should be 

used as one way to introduce this technology to China. For example, China’s Shale Gas 

Development Plan (2011-2015) encourages international cooperation to “absorb and emulate 

mature advanced technologies from abroad and create core technologies for exploration and 

development that possess ‘Chinese characteristics.’”

136

 In addition, China’s Shale Gas Industrial 

Policy reiterates that China will encourage domestic enterprises to engage with foreign 

enterprises “that possess advanced shale gas technology” in technical cooperation in order to 

“introduce”

137 shale gas technology and operational experience.138 Accordingly, oil and natural 

gas exploration and development continue to be subject to a JV requirement in the Foreign 

Investment Catalogue.

139

 As discussed in more detail in Section V.B of this report, China has 

also used cyber intrusions to obtain technology and sensitive commercial information from U.S. 

companies operating in the oil and gas sectors, underscoring how the Chinese government uses a 

range of tools at its disposal to achieve its industrial policy objectives and to effect the transfer of 

technology from U.S companies. 

Foreign companies typically prefer to invest in China through a WFOE, rather than a JV, if the 

option is available. This preference often stems from concerns about the loss of control over their 

valuable technologies.140 In a survey of 1,000 companies conducted on behalf of the EU, only 

12 percent of respondents reported they would have chosen their current JV structure in the 

 

134 USTR, 2016 USTR REPORT TO CONGRESS ON CHINA’S WTO COMPLIANCE 103-4 (2017); see also U.S. 

CHAMBER, MADE IN CHINA 2025: GLOBAL AMBITIONS BUILT ON LOCAL PROTECTIONS 26 (2017); EUROPEAN 

CHAMBER OF COMMERCE, CHINA MANUFACTURING 2025 15 (2017).

135 U.S. CHAMBER, MADE IN CHINA 2025: GLOBAL AMBITIONS BUILT ON LOCAL PROTECTIONS 26 (2017). 

136 Notice on Issuing the Shale Gas Development Plan (2011-2015), Sec. 5(1)2 (NDRC, MoF, MLR, NEA, Fa Gai 

Neng Yuan [2012] No. 612, issued Mar. 13, 2012).

137 See Section I.C for an explanation of China’s IDAR strategy and the concept of “introducing” technology from 

abroad. 

138 Shale Gas Industry Policy, art. 9 (NEA, 2013 Order No. 5, issued Oct. 22, 2013). The policy at art. 10 also 

encourages enterprises to participate in shale gas exploration and development through joint ventures.

139 Foreign Investment Catalogue. 

140 INTERCHINA CONSULTING, ESTABLISHMENT OF A JOINT VENTURE IN CHINA 5 (June, 2011) (“Many foreign 

investors have discovered through hard found experience that one of the greatest exposures to IPR infringement is 

by having a Chinese partner.”); EUROPEAN COMM’N, IMPACT ASSESSMENT REPORT ON THE EU-CHINA INVESTMENT 

RELATIONS, SWD (2013) 185final 12 95-6 (May 23, 2013).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

28

absence of JV requirements. Most (52 percent) would have preferred a fully-owned business and 

32 percent wanted a greater ownership stake in the JV than permitted.141 

The risk of technology loss is exacerbated when the Chinese partner in the JV operation 

maintains other factories and workers that compete with the JV operation.142 The employees of 

the JV often are recruited from, or have ties to, the Chinese partner’s existing operations.143

Under these conditions, there is a considerable likelihood that the JV’s technology and knowhow will leak, either through “unintentional osmosis or through intentional diversion.”

144 In 

contrast, a WFOE has more control over its operations and can sometimes minimize operational 

decisions that create technology risks.145 Nevertheless, WFOEs also face various technologyrelated pressures from the Chinese government, as part of China’s numerous administrative 

review and licensing processes, as described in more detail below.146

In this investigation, the Intellectual Property Law Section of the American Bar Association 

noted that many U.S. companies—including American Superconductor Corporation (AMSC), 

Corning, DuPont, Eli Lilly, and General Motors—have sued for the misappropriation of trade 

secrets by JV partners, employees and others in Chinese courts.

147 The U.S. International Trade 

Commission also has been a frequent forum for U.S. companies asserting trade secret 

misappropriation claims based on conduct by JV partners and others in China, including SI 

Group, Fellowes, and Manitowoc Company.148 

In response to these concerns, defenders of China’s technology transfer regime argue that China 

has opened its economy to foreign investment in several respects, such as the introduction of the

“Negative List” system, in which foreign investment in all sectors is permitted unless it is 

expressly included on a negative list.149 Despite these changes, substantial restrictions on foreign 

 

141 EUROPEAN COMM’N, IMPACT ASSESSMENT REPORT ON THE EU-CHINA INVESTMENT RELATIONS, SWD (2013)

185final 12 13 (May 23, 2013).

142 OWEN D. NEE, JR., SHAREHOLDER AGREEMENTS AND JOINT VENTURES IN CHINA 583 (Thomson Reuters ed, 

2016); see also INTERCHINA CONSULTING ESTABLISHMENT OF A JOINT VENTURE IN CHINA 5 (June, 2011); ITIF 

Submission, Section 301 Hearing 10 (Oct. 25, 2017) (stating that, “[a]nother way China acquires technology and 

intellectual property is to steal it.”).

143 OWEN D. NEE, JR., SHAREHOLDER AGREEMENTS AND JOINT VENTURES IN CHINA 583 (Thomson Reuters ed, 

2016).

144 OWEN D. NEE, JR., SHAREHOLDER AGREEMENTS AND JOINT VENTURES IN CHINA 583 (Thomson Reuters ed, 

2016).

145 OWEN D. NEE, JR., SHAREHOLDER AGREEMENTS AND JOINT VENTURES IN CHINA 583 (Thomson Reuters ed, 

2016).

146 See infra Section II(C).

147 AM. BAR ASS’N SECTION OF IP LAW [hereinafter “ABA Section”], Submission, Section 301 Hearing 3 (Sept. 27, 

2017). See also Daniel C.K. Chow, Navigating the Minefield of Trade Secrets Protection in China, 47 VAND. J. 

TRANSNAT’L L., 1007, 1009 (2014); Paul Ranjard, Benoit Misonne, Study 12: Exploring China’s IP Environment, in

Study on the Future Opportunities and Challenges of EU-China Trade and Investment Relations 15 (2007). 

(describing a “common scenario” of IP violations by Chinese JV partners with competing businesses that use 

technology obtained from the foreign JV partner).

148 ABA IP Law SECTION, Submission, Section 301 Hearing 3 (Sept. 27, 2017). 

149 Opinions on the Implementation of the Market Access Negative List System § 1(1), (State Council, Guo Fa [2015] 

No. 55, issued Oct. 2, 2015, effective from Dec. 1, 2015 to Dec. 31, 2017); CCOIC, Submission, Section 301 

Hearing 33 (Sept. 26, 2017); CHINA INTELLECTUAL PROPERTY LAW [hereinafter “CIPL”], Submission, Section 301 

Hearing 40 (Sept. 27, 2017). 
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

29

investment remain. First, China continues to use an approach that is fundamentally similar to 

previous versions of the Foreign Investment Catalogue, in which many “restricted” and 

“prohibited” investments are included under the “Negative List”.150 During the period of this 

investigation, key sectors remain subject to JV and other investment restrictions.

151

 Moreover, 

even if China dropped its JV and other foreign ownership requirements, foreign investors would 

still continue to face pressures to transfer technology or disclose technical information through 

China’s licensing and administrative approvals regime (detailed in Section II.C, below). 

2. Illustrative Examples of China’s Use of Investment Restrictions to Pressure 

Technology Transfer 

While companies from the United States and other advanced economies have long faced JV 

requirements and other limits on control over their technologies in China, the most intensive 

technology transfer pressures often arise in sectors that align with the Chinese government’s 

industrial policy objectives. For example, studies commissioned by the European Commission 

have found that in key sectors, including machinery and environmental technologies, European 

companies have to enter into partnerships with Chinese state-owned enterprises (SOEs) and 

acquiesce to technology transfer demands to access the market or bid on government projects.152 

Highlighted below for purposes of illustration are examples of technology transfer requirements 

or pressures imposed by the Chinese government in the automotive and aviation sectors. 

a) Auto Manufacturing and New Energy Vehicles

When China initially opened the auto manufacturing sector to foreign investment, its goal was to 

use the transfer of technology from U.S. and other foreign auto makers to modernize SOEs in the 

sector.153 To accomplish this goal, China has long required U.S. and other foreign car makers to 

enter into JVs where non-Chinese ownership is capped at 50 percent.154

China’s strategy of leveraging the technology of foreign automakers through JV requirements to 

grow its indigenous innovation capability has been called the “Changan Model” by Chinese 

 

150 U.S. CHAMBER OF COMMERCE, Submission, Section 301 Hearing 14 (Oct. 3, 2017) (China’s latest changes to its 

investment regime have provided, “...little in the way of comprehensive and meaningful openings to foreign 

investors.”).

151 See Appendix D.

152 Joachim Ihrcke, Krystina Becker, Study 1: Machinery, in Study on the Future Opportunities and Challenges of 

EU-China Trade and Investment Relations 33 (2007); Celine Louche, Angus Lambkin Padraig Oliver, Study 11: 

Sustainable Technologies and Services, in Study on the Future Opportunities and Challenges of EU-China Trade 

and Investment Relations 66 (2007).

153 2015 U.S.-CHINA ECON. & SEC. REV. COMM’N ANN. REP. 84-5 (2015); KATHERINE KOLESKI, U.S.-CHINA ECON.

& SEC. REV. COMM’N, CHINA’S 13TH FIVE-YEAR PLAN 153 (Feb. 14, 2017); see also USITC, INV. NO. 332-519,

CHINA: EFFECTS OF INTELLECTUAL PROPERTY INFRINGEMENT AND INDIGENOUS INNOVATION POLICIES ON THE U.S. 

ECONOMY 5-33 (2011).

154 2015 U.S.-CHINA ECON. & SEC. REV. COMM’N ANN. REP. 84 (2015); KATHERINE KOLESKI, U.S.-CHINA ECON. &

SEC. REV. COMM’N, CHINA’S 13TH FIVE-YEAR PLAN 153 (Feb. 14, 2017); see also USITC, INV. NO. 332-519, CHINA:

EFFECTS OF INTELLECTUAL PROPERTY INFRINGEMENT AND INDIGENOUS INNOVATION POLICIES ON THE U.S. 

ECONOMY 5-33 (2011).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

30

government entities.155 This model refers to the 50/50 JV entered into by a U.S. auto 

manufacturer and Chongqing Changan Automobile (Changan), a state-owned company 

ultimately controlled by the State-owned Assets Supervision and Administration Commission of 

the State Council (SASAC) through China South Industries Group.156 A research division under 

the State Council lauded the “Changan Model” as an example of China’s Introduce, Digest, 

Absorb, Re-innovate (IDAR) approach157 to technology development through the “introduction 

of technology and the digestion and re-innovation of technology.”158 According to an article on 

the SASAC website, the model’s advantages include Changan’s control of the JV’s core 

production technology, the development of domestic innovation capabilities through control of 

that core technology, and the gradual upgrading of the domestic brand.159 

As China gained advanced auto manufacturing technology through JVs and sought to promote its 

own domestic brands, foreign automakers have found their industry placed in increasingly 

restrictive sections of the Foreign Investment Catalogue. Thus, the Foreign Investment 

Catalogue “encouraged” the “manufacturing of complete automobiles” until 2010, “permitted” it 

from 2011-2014, and “restricted” it in 2015, as China’s domestic capability grew.160

Technology transfer pressures have intensified as China has sought to develop expertise in the 

manufacture of new energy vehicles (NEVs), which includes plug-in hybrids, electric batteries

and fuel cell vehicles. The NEV sector was specifically targeted by the Chinese government in 

2010 following the release by the State Council of the Decision on Accelerating the Development 

of Strategic Emerging Industries, which designated NEVs as one of the seven “strategic 

emerging industries” selected for accelerated development. In 2012, the State Council released 

the Energy-Saving and New-Energy Automotive Industry Development Plan (2012-2020) (NEV 

Plan),161 which set forth an industrial development blueprint for NEVs calling for the 

 

155

“Changan Model” Radiates at the China Auto Industry Indigenous Innovation Summit [Chinese], SASAC, Nov. 

7, 2006. http://www.sasac.gov.cn/n2588025/n2588124/c3877435/content.html (last visited Nov. 29, 2017).

156 CHONGQING CHANGAN AUTOMOBILE CO., LTD. 2016 ANNUAL REPORT 42 [Chinese] (2016), available at

http://www.chinasouth.com.cn/1144.html (last visited Dec. 2, 2017). China Southern Industries Group is a major 

Chinese arms manufacturer. SASAC is a part of the Chinese government, directly under the State Council, tasked 

with overseeing China’s SOEs.

157 See Section I.C for an explanation of China’s IDAR strategy.

158 Development Research Center of the State Council: Changan Innovation Model Evokes Interest [Chinese], 

CHINA ENTERPRISE CONFEDERATION / CHINA ENTERPRISE DIRECTORS ASSOCIATION, Nov. 14, 2006, available at

http://info.cec-ceda.org.cn/jx/pages/20061114_32467_6_2.html (last visited Nov. 29, 2017).

159 Changan Model” Radiates at the China Auto Industry Indigenous Innovation Summit [Chinese], SASAC, Nov. 7, 

2006, available at http://www.sasac.gov.cn/n2588025/n2588124/c3877435/content.html (last visited Nov. 29, 

2017).

160 See 2015 U.S.-CHINA ECON. & SEC. REV. COMM’N ANN. REP. 85 (2015). See also Catalogue of Industries for 

Guiding Foreign Investment (National Planning Commission, National Economic and Trade Commission, Ministry 

of Foreign Economics and Trade, Order No. 21, issued Mar. 4, 2002); Catalogue of Industries for Guiding Foreign 

Investment (amended 2004) (NDRC, MOFCOM Order No. 24, issued Nov. 30, 2004); Catalogue of Industries for 

Guiding Foreign Investment (amended 2007) (NDRC, MOFCOM Order No. 57, issued Oct. 31, 2007); Catalogue of 

Industries for Guiding Foreign Investment (amended 2011) (NDRC, MOFCOM Order No. 12, issued Dec. 24, 

2011); Catalogue of Industries for Guiding Foreign Investment (amended 2015) NDRC, MOFCOM Order No. 22, 

issued Mar. 10, 2015); Catalogue of Industries for Guiding Foreign Investment (amended 2017) (NDRC, 

MOFCOM, Order No. 4, issued June 28, 2017).

161 Energy-Saving and New-Energy Automotive Industry Development Plan (2012-2020) § 6(2)(2) (State Council, 

Guo Fa [2012] No. 22, issued June 28, 2012) [hereinafter “NEV Plan”]. 
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

31

establishment of numerous regulations and subsidy programs to support domestic R&D, 

manufacturing, and utilization of NEVs. The NEV Plan sets a target of achieving cumulative 

production and sales volume of 5 million NEV units by 2020.162 A “basic principle” of the NEV 

Plan is to “expedite the formation of technology, standards, and brands using indigenous 

intellectual property.”163 China’s focus on developing its domestic capacity to produce NEVs 

was recently reconfirmed with the sector’s inclusion in the Made in China 2025 Key Area 

Technology Roadmap (Made in China 2025 Roadmap), which calls for, inter alia, indigenous 

NEVs to comprise 70 percent of domestic NEV sales by 2020 and 80 percent by 2025.164

Foreign NEV producers seeking to sell their products in China face pressure to produce their 

automobiles in China with a JV partner rather than exporting them to China, due to a range of 

Chinese policies, including steep import tariffs165 and subsidies available for domesticallyproduced NEVs,

166 as well as a new NEV credit system.167

 These pressures to produce NEVs 

locally work in tandem with China’s JV requirements to elicit the transfer of technology from 

foreign automakers to domestic Chinese automakers. 

Specifically, market access rules issued in 2009 by the Ministry of Industry and Information 

Technology (MIIT), which applied to all enterprises that manufactured NEVs in China for use in 

China168 and were a condition to be eligible for certain NEV preference programs,169 required

that NEV JVs hold intellectual property rights in one of three key NEV technologies: batteries, 

drive systems, or control systems.170 In effect, this requirement forced foreign NEV 

 

162 NEV Plan § 3(2.1).

163 NEV Plan § 2(2).

164 Made in China 2025 Key Area Technology Roadmap (National Strategic Advisory Committee on Building a 

Powerful Manufacturing Nation, issued Oct. 2015).

165 Imported passenger vehicles are generally subject to a 25 percent tariff rate. See Customs Import and Export 

Tariff of the People’s Republic of China (2017). 

166 The Chinese government provides subsidies to NEV manufacturers in connection with their sales of NEVs to 

consumers in China. In the current phase of the program, the central government subsidy amount is based primarily 

upon vehicle range and is capped at CNY 44,000 ($6,500) per vehicle. In addition, local governments are allowed 

to offer a subsidy of up to 50 percent of the value of the central government subsidy. Notice on Adjusting Fiscal 

Subsidy Policies for Promoting the Expanded Use of NEVs (MOF, MOST, MIIT, NDRC, Cai Jian [2016] No. 958, 

Dec. 30, 2016). Eligibility requirements for these subsidies are described below in more detail.

167 The NEV credit system requires all automakers selling vehicles in China to generate, by 2018, a certain portion 

of their production and imports from NEVs in order to generate “NEV credits” or be subject to penalties. See 

Provisional Measures for Administration of the NEV Fuel Use and Credit System, art 36 (MIIT, MOF, MOFCOM, 

General Administration of Customs, and General Administration of Quality Supervision, Inspection and Quarantine, 

2017 Order No. 44, issued Sept. 27, 2017, effective Apr. 1, 2018); see also ITIF, Submission, Section 301 Hearing 6 

(Oct. 25, 2017).

168 Provisions on the Administration of Access for New Energy Vehicle Manufacturers and Products, art. 2 (MIIT, 

[2009] Order No. 44, effective July 1, 2009).

169 NEV models that satisfy the market access rules were published in a catalogue. See Provisions on the 

Administration of Access for New Energy Vehicle Manufacturers and Products, art. 8 (MIIT, [2009] Order No. 44, 

effective July 1, 2009). Only NEV models listed in the catalogue were eligible for certain subsidies. See Notice on 

Developing Energy Efficient and New Energy Vehicle Demo Promotion Pilot Work § 3, art. 7(1) (MOST, MOF, Cai 

Jian [2009] No. 6, issued Jan. 23, 2009). See also Notice on New Energy Vehicle Expanded Use Fiscal Support 

Policies for 2016-2020 § 1(2) (MOF, MOST, MIIT, NDRC, Cai Jian [2015] No. 134, issued Apr. 22, 2015).

170 Provisions on the Administration of Access for New Energy Vehicle Manufacturers and Products (MIIT, [2009] 

Order No. 44, effective July 1, 2009), Appendix 2, Requirement 5 required the NEV manufacturer “possess 

intellectual property (at least rights to make design changes or usage rights) for the mastered core technology.” See
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

32

manufacturers to transfer their valuable technologies to the NEV JV, which they do not control, 

in order to gain market access.171

The pressure on NEV manufacturers to transfer core NEV technology to their JVs in China has 

intensified over the last year. New market access rules issued by MIIT in 2017, which also apply 

to all enterprises that manufacture NEVs in China for use in China172 and are a condition to be 

eligible for certain NEV preference programs,173 impose an even more onerous standard. These 

rules require that NEV manufacturers “master” the development and manufacturing technology 

for a complete NEV, rather than just one of the three key technologies listed in the 2009 market 

access rules, and possess key R&D capacities.174 As foreign automaker investment in China 

must be through a JV in which the foreign company holds no more than 50 percent equity, the 

foreign automaker effectively must transfer a high degree of key technologies and components to 

the JV in order for the JV to acquire mastery of the manufacturing process, including electronic 

and electrical control systems, on-board energy systems, powertrains, and dynamic coupling 

equipment.

175

 

Several submissions from U.S. trade associations pointed to China’s NEV rules as evidence of 

China’s unfair technology transfer regime, with one trade association stating in hearing 

testimony that China’s NEV rules present “a clear case in the electric vehicle sector that you’re 

simply not going to be able to sell that product in China unless that local partner has mastered the 

ability to leverage the technology and take it to produce it going forth.”176

 

also TAI MING CHEUNG ET AL., U.S.-CHINA ECON. & SEC. REV. COMM’N, PLANNING FOR INNOVATION:

UNDERSTANDING CHINA’S PLANS FOR TECHNOLOGICAL, ENERGY, INDUSTRIAL AND DEFENSE DEVELOPMENT 235-6

(2016); U.S. CHAMBER, Submission, Section 301 Hearing 16 (Oct. 3, 2017). See also Keith Bradsher, Hybrid in a 

trade squeeze, NEW YORK TIMES, Sept. 6, 2011 (reporting that the Chinese government was refusing to let GM’s 

electric vehicle, the Chevrolet Volt, qualify for certain subsidies unless GM agreed to transfer the technology for 

“one of the Volt’s three main technologies” (electric motors, electronic controls, or power storage) to a JV in China. 

These subsidies were reportedly “crucial” for allowing electric vehicles to sell in meaningful quantities.); Ben 

Klayman, GM, SAIC to develop electric vehicles in China, REUTERS, Sept. 20, 2011 (reporting that GM and its 

Chinese partner SAIC Motor Corp signed an agreement that they would build electric vehicles that would qualify for 

subsidies, noting that as the Volt was not built in China, it did not qualify for them).

171 TAI MING CHEUNG ET AL., U.S.-CHINA ECON. & SEC. REV. COMM’N, PLANNING FOR INNOVATION:

UNDERSTANDING CHINA’S PLANS FOR TECHNOLOGICAL, ENERGY, INDUSTRIAL AND DEFENSE DEVELOPMENT 236

(2016) (citing Sabrina Howell, Henry Lee, & Adam Heal, HARVARD KENNEDY SCHOOL BELFER CENTER, 

LEAPFROGGING OR STALLING OUT? ELECTRIC VEHICLES IN CHINA (May 2014)).

172 Provisions on the Administration of Access for New Energy Vehicle Manufacturers and Products, art. 2 (MIIT 

[2017] Order No. 39, effective July 1, 2017).

173 As with the 2009 rules, NEV models that satisfy the market access rules are published in a catalogue and only 

those NEV models listed in the catalogue are eligible for certain subsidies. Provisions on the Administration of 

Access for New Energy Vehicle Manufacturers and Products, art. 14 (MIIT, [2017] Order No. 39, effective July 1, 

2017); Notice on New Energy Vehicle Expanded Use Fiscal Support Policies for 2016-2020 § 1(2) (MOF, MOST, 

MIIT, NDRC, Cai Jian [2015] No. 134, issued Apr. 22, 2015).

174 Provisions on the Administration of Access for New Energy Vehicle Manufacturers and Products, art. 5(3), app. 1 

(MIIT, [2017] Order No. 39, effective July 1, 2017); see also U.S. CHAMBER, Submission, Section 301 Hearing 16 

(Oct. 3, 2017).

175 Provisions on the Administration of Access for New Energy Vehicle Manufacturers and Products, art. 5(3), app. 1 

(MIIT, [2017] Order No. 39, effective July 1, 2017).

176 Stephen Ezell, ITIF, Testimony, Section 301 Hearing 38-39 (Oct. 10, 2017); see also U.S. CHAMBER, Submission 

16 (Oct. 3, 2017); U.S. CHAMBER, MADE IN CHINA 2025: GLOBAL AMBITIONS BUILT ON LOCAL PROTECTIONS 27

(2017).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

33

b) Aviation

The state is the dominant force on the demand-side in many industries in China, both through 

direct purchases made by the central and local governments and through purchases made by 

SOEs, which account for a large share of purchasing decisions.177 According to one hearing 

participant, “often an implicit part of the deal of whether or not a company has its product or 

good chosen and purchased is [whether] there’s going to be a transfer of technology concomitant 

with that sale.”178 Similarly, AmCham China’s 2013 White Paper on Civil Aviation states 

“many US companies possess intellectual property (IP) that serves as their source of

competitiveness and profitability, yet they are sometimes required (implicitly or explicitly) to 

transfer such IP to their JV partners”.

179

 In the aviation industry, China uses its purchasing

power to require JVs and technology transfer in exchange for two types of business 

opportunities– the sale of commercial aircraft to China’s state-owned airlines and the sale of 

aircraft components to Chinese-made aircraft. 

The fact that China’s three largest airlines – AirChina, China Eastern, and China Southern – are 

all state-owned and account for the vast majority of aircraft purchases provides the Chinese 

government with a significant degree of leverage over foreign aircraft makers.180 Purchases of 

commercial aircraft by China’s state-owned airlines require approval by the Chinese 

government.

181 According to industry experts and participants, China uses its leverage to 

maintain a balance between purchases of foreign aircraft182 and to pressure them to form JVs 

with Chinese companies and localize production.183 China is effectively able to exert this 

pressure over aircraft manufacturers because of the size of China’s commercial aircraft 

 

177 The European Chamber of Commerce in China in 2011 estimated that China’s government procurement market 

including SOEs ranges from 12 percent to 20percent of China’s GDP. EU CHAMBER OF COMMERCE IN CHINA,

PUBLIC PROCUREMENT IN CHINA: EUROPEAN BUSINESS EXPERIENCES COMPETING FOR PUBLIC CONTRACTS IN CHINA

16 (Apr. 2011). 

178 Stephen Ezell, ITIF, Testimony, Section 301 Hearing 38 (Oct. 10, 2017).

179 AMCHAM CHINA 2013 WHITE PAPER 188 (2012). 

180 See KEITH CRANE, ET AL., RAND, THE EFFECTIVENESS OF CHINA’S INDUSTRIAL POLICIES IN COMMERCIAL 

AVIATION MANUFACTURING 27 (2014).

181 See e.g., CAAC Notice Regarding the Report on Civil Aviation System Management System Reform, (State 

Council Guo Fa [1985] No. 3, Issued Dec. 3, 1984). See also Yan Yan, Secrets of “Elderly” Aircraft, PEOPLE’S 

DAILY, Apr. 6, 2015, http://paper.people.com.cn/gjjrb/html/2015-04/06/content_1550497.htm (last visited Dec. 8, 

2017) for a description of the government approval process for purchasing and leasing aircraft in China.

182 This problem has been widely discussed in industry and government fora, including in two reports commissioned 

by the U.S.-China Economic and Security Review Commission which explain how the Chinese government 

leverages purchases of aircraft in exchange for agreements that it hopes will lead to technology transfers into 

China’s aviation industry. See, e.g., KEITH CRANE, ET AL., RAND, THE EFFECTIVENESS OF CHINA’S INDUSTRIAL 

POLICIES IN COMMERCIAL AVIATION MANUFACTURING (2014); ROGER CLIFF, CHAD J. R. OHLANDT, DAVID YANG, 

RAND, READY FOR TAKEOFF: CHINA’S ADVANCING AEROSPACE INDUSTRY 38 (Mar. 2011).

183 Owen Herrnstadt, INT’L ASS’N OF MACHINISTS & AEROSPACE WORKERS (hereinafter “IAM”), Testimony, 

Section 301 Hearing 28-9 (Oct. 10, 2017); KEITH CRANE, ET AL, RAND, THE EFFECTIVENESS OF CHINA’S 

INDUSTRIAL POLICIES IN COMMERCIAL AVIATION MANUFACTURING 29 (2014); The Impact of International 

Technology Transfer on American Research and Development: Hearing Before the House Committee on Science, 

Space, and Technology, Subcommittee on Investigations and Oversight, 112th Cong. 8 (2012) (Statement of Robert 

D. Atkinson).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

34

market,

184 coupled with required government approvals of aircraft purchases by state-owned 

airlines, and fierce competition for a limited number of government-approved sales.

China similarly uses its purchasing power to foster the development of a domestic supply chain 

for Chinese-made aircraft, particularly the C919, which will be China’s first “homegrown” large 

commercial aircraft.185 Industry observers have described the purchase order process for the 

C919 as “state directed,” “coerced,” and “choreographed” by the central government.

186

 Within 

this process, JVs are used as a key mechanism for obtaining the technology needed to support the 

development of a domestic supply chain for Chinese-made aircraft:

Chinese government officials have clearly communicated to foreign firms in the 

commercial aviation manufacturing industry that their business in China would be much 

more likely to enjoy success if they are seen as a “friend of China.” Companies can 

demonstrate this by setting up local production facilities, bringing in technologies, or 

participating in the C919 project...

187

Specifically, the Commercial Aircraft Corporation of China (COMAC), a centrally-controlled 

SOE,188 has made clear that foreign suppliers to the C919 program must enter into JVs with 

Chinese suppliers to participate in tenders for key components and systems.189 This pressure is 

particularly prevalent in tenders for high-tech functions where Chinese capabilities are lagging, 

 

184 The International Air Transport Association estimates that China’s aviation market will reach 1.3 billion 

passengers by 2035, compared to only 1.1 billion in the U.S. market. Based on these projections, some estimates 

predict that Chinese airlines will need to purchase 6,810 aircraft worth more than $1 trillion by 2035. Press Release, 

International Air Transport Association, IATA Forecasts Passenger Demand to Double Over 20 Years (Oct. 18, 

2016); Boeing lifts long-term outlook for China plane demand to $1 trillion, REUTERS (Sept. 13, 2016).

185 This problem has been widely discussed in industry and government fora, including in two reports commissioned 

by the U.S.-China Economic and Security Review Commission which explain how the Chinese government 

leverages purchases of aircraft in exchange for agreements that it hopes will lead to technology transfers into 

China’s aviation industry. See, e.g., KEITH CRANE, ET AL., RAND, THE EFFECTIVENESS OF CHINA’S INDUSTRIAL 

POLICIES IN COMMERCIAL AVIATION MANUFACTURING (2014); ROGER CLIFF, CHAD J. R. OHLANDT, DAVID YANG, 

RAND, READY FOR TAKEOFF: CHINA’S ADVANCING AEROSPACE INDUSTRY 38 (Mar. 2011).

186 Steve Wilhelm, Mighty 737 Has Rivals on its Tail—and not Just Airbus, PUGET SOUND BUSINESS JOURNAL, Aug. 

17, 2012; The Enduring Jetliner Duopoly, AEROSPACE AMERICA, Oct. 2012; C919 May Suffer Order Bottleneck 

over Next 4 Yrs, SINOCAST, Sept. 20, 2012; National Priority: COMAC Is Behind Schedule on C919 Supplier 

Selection, but Has State Directed Orders in the Bag, AVIATION WEEK & SPACE TECHNOLOGY, June 28, 2010; 

Alexey Komarov, Michael A. Taverna, Growing Pains, AVIATION WEEK & SPACE TECHNOLOGY, Nov. 22, 2010.

187 KEITH CRANE, ET AL, RAND, THE EFFECTIVENESS OF CHINA’S INDUSTRIAL POLICIES IN COMMERCIAL AVIATION 

MANUFACTURING 31 (2014).

188 See List of Central Enterprises [Chinese], ASSET SUPERVISION AND ADMINISTRATION COMMISSION OF THE 

CHINESE STATE COUNCIL, available at http://www.sasac.gov.cn/n2588035/n2641579/n2641645/index.html (last 

visited Jan. 7, 2018).

189 Why the “Main Manufacturer – Supplier” Model [Chinese], COMMERCIAL AIRCRAFT CORPORATION OF CHINA 

(COMAC) (June 24, 2013), http://www.comac.cc/xw/mtjj/201306/24/t20130624_941203.shtml (last visited Dec. 

11, 2017) (“As a result [of the drive to develop domestic industry], during the supplier bidding process, COMAC 

has explicitly put forward that for five systems including avionics, it seeks technological advancements, and at the 

same time, requires the establishment of joint ventures with domestic suppliers, build-out of R&D, integration, 

production and assembly, and testing capabilities for system-level products, as well as the formation of a complete 

set of batch-production and customer service capabilities. Concurrently, [COMAC] has supported the participation 

of domestic suppliers in system-level and equipment-level R&D cooperation, and encouraged domestic enterprises 

and institutions to cooperate with foreign suppliers in the form of subcontracted production, to participate in 

research and procurement projects for other large aircraft systems and equipment.”).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

35

such as advanced materials and flight control systems.190 A 2015 press statement issued by 

COMAC explains that it selected sixteen leading international suppliers and it pushed for these 

suppliers to partner with domestic enterprises to develop key technologies for the C919. As a 

result, these sixteen JVs have “improved the overall level of China’s aerospace R&D and 

manufacturing through technology transfer, diffusion, and spillover.”191

AmCham China’s 2012 White Paper on Civil Aviation makes clear how China’s technology 

transfer regime puts pressure on U.S. aviation companies:

Indigenous innovation industrial policy in the aerospace sector is forcing US companies 

to form joint ventures (JV) or localize manufacturing in order to participate in domestic 

aircraft programs such as the C919. Rather than being market-driven, these JVs are often 

with the Aviation Industry Corporation of China (AVIC) or COMAC designated 

partners... Additionally, many US companies possess intellectual property that serves as 

the source of their competitiveness and profitability, yet they are being forced to transfer 

their intellectual property in order to participate in this sector. It is challenging enough for 

companies to manage a successful JV when they choose their own JV partner. When JV 

partners are designated by an outside party, the difficulty of running a successful JV 

increases further.192

In this investigation, the International Association of Machinists and Aerospace Workers (IAM) 

criticized U.S. aviation companies for responding to this pressure by transferring certain 

technologies and production to China.193 Other submissions stated, however, that aviation 

companies face few realistic alternatives; even if U.S. companies did not accede, those from 

other countries would do so to and gain a critical competitive advantage.194 Another submission 

put the matter more starkly:

[A] ‘voluntary’ technology transfer takes place, but one that is only voluntary in the sense 

that the business transactions engaged in by the fictional gangster of the Godfather series, 

Vito Corleone, were voluntary. China is effectively making an offer multinationals 

cannot refuse. Once Chinese producers are able to produce commercial aircraft, the 

state-owned airlines can be induced to buy them, even if they lag multinational products 

in terms of reliability or performance. Shut out of the world’s largest market for their 

product, multinational players are forced to shrink, export opportunities are lost, and the 

leading firms have fewer resources to invest in the next generation of products.”

195

C. Administrative Review and Licensing Processes as Used in China’s Technology 

Transfer Regime 

 

190 KEITH CRANE, ET AL, RAND, THE EFFECTIVENESS OF CHINA’S INDUSTRIAL POLICIES IN COMMERCIAL AVIATION 

MANUFACTURING at 31 (2014). 

191 The C919 First Large Passenger Plane Comes Off General Assembly Line, Xi Jinping Issues Important 

Directive, Premier Li Keqiang Issues Comments, Ma Kai and Han Zheng Attend the Ceremony [Chinese] COMAC

(Nov. 2, 2015), http://www.comac.cc/xwzx/gsxw/201511/02/t20151102_3031037.shtml (last visited Dec. 11, 2017).

192 AMCHAM CHINA 2012 WHITE PAPER 190 (2012).

193 IAM, Submission, Section 301 Hearing 1 (Sept. 29, 2017).

194 Lewis, Submission, Section 301 Hearing 3 (Sept. 27, 2017).

195 Lee Branstetter, Submission, Section 301 Hearing 2 (Sept. 28, 2017).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

36

China also uses its administrative review and licensing processes to force the disclosure of 

sensitive technical information and to achieve its technology transfer objectives. China 

maintains numerous administrative review and licensing processes that companies must comply 

with before establishing or expanding operations, or offering products or services in the China 

market.196 These review and licensing processes, which occur in agencies at the central, 

provincial, and municipal levels, often are used as an opportunity to require technology 

transfer.197 Vaguely worded provisions and uncertainty about the applicable rules provide 

Chinese authorities with wide discretion to use administrative processes to pressure technology 

transfer, restrict investments to protect domestic competitors, or otherwise act in furtherance of 

industrial policy objectives.198 

1. Technology Transfer Pressure in Administrative Approvals and Licensing

Foreign investment in China requires obtaining numerous government approvals depending on 

the terms of the investment and the industry and location in which the investment occurs. For 

instance, a foreign investment may be required to obtain (1) investment approval from the 

Ministry of Commerce (MOFCOM) or its local counterpart, (2) project approval from the 

National Development and Reform Commission (NDRC), its local counterpart, or the State 

Council, (3) national security and (4) anti-monopoly approval by MOFCOM, and (5) local 

approvals for site-related requirements.199

At each stage of the approval process, vaguely worded provisions provide government officials 

with significant discretion to impose technology transfer requirements. For example, China’s 

regulations governing JVs expressly state that equity joint ventures should raise China’s level of 

science and technology.200 Moreover, China’s JV regulations stipulate that MOFCOM in 

conducting its approval review of an EJV or CJV must consider inter alia whether the 

 

196 USCBC, UPDATE: LICENSING CHALLENGES AND BEST PRACTICES IN CHINA 2 (Jan. 2014).

197 USCBC, Submission, Section 301 Hearing 4 (Sept. 28, 2017); U.S. CHAMBER, Submission, Section 301 Hearing

17 (Oct. 3, 2017) (misuse of administrative license procedures provides the opportunity for a company’s trade 

secrets to be put at risk of unnecessary disclosure); U.S. DEP’T OF STATE, INVESTMENT CLIMATE STATEMENT 6

(2017); Covington & Burling LLP, Measures and Practices Restraining Foreign Investment in China, prepared for 

the European Commission Directorate-General for Trade 65 (Aug. 2014).

198 USCBC, Submission, Section 301 Hearing 4 (Sept. 28, 2017); U.S. CHAMBER, Submission, Section 301 Hearing

17 (Oct. 3, 2017) (misuse of administrative license procedures provides the opportunity for a company’s trade 

secrets to be put at risk of unnecessary disclosure); U.S. DEP’T OF STATE, INVESTMENT CLIMATE STATEMENT 6

(2017); Covington & Burling LLP, Measures and Practices Restraining Foreign Investment in China, prepared for 

the European Commission Directorate-General for Trade 65 (Aug. 2014); U.S. CHAMBER, MADE IN CHINA 2025:

GLOBAL AMBITIONS BUILT ON LOCAL PROTECTIONS 27-29, 33 (2017).

199 See generally U.S.CHAMBER OF COMMERCE,CHINA’S APPROVAL PROCESS FOR INBOUND FOREIGN INVESTMENT:

IMPACT ON MARKET ACCESS, NATIONAL TREATMENT AND TRANSPARENCY (Nov. 2012); see also JAMES M. 

ZIMMERMAN, CHINA LAW DESKBOOK (4th ed. 2014). In 2016, some MOFCOM approvals were replaced with a

record filing requirement, but MOFCOM approval is still required for those industries listed on the Negative List, 

and all FIEs are still subject to national security or anti-monopoly reviews where applicable.

200 Regulations for the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity 

Joint Ventures, art. 3 (State Council, Guo Fa [1983] No. 148, issued Sep. 20, 1983, effective Sep. 20, 1983, 

amended Jan. 15, 1986, in Guo Fa [1986] No. 6, further amended Dec. 21, 1987, in Guo Fa [1987] No. 110, Jul. 22, 

2001, in Order of the State Council No. 311, Jan. 8, 2011, in Order of the State Council No. 588, and Feb. 19, 2014, 

in Order of the State Council No. 648).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

37

investment is consistent with China’s national economic development needs or industrial policy 

goals, respectively. 201

In addition, China imposes administrative licensing202 requirements on more than 100 different 

business activities, such as food and drug production, mining, or telecommunications services, 

for all enterprises in China.

203

 Even if a foreign investment in a particular industry is technically 

permitted, a foreign invested enterprise (FIE) must still obtain an industry-specific license in 

order to conduct these activities.204 The specific requirements and approval timelines vary 

widely depending on the industry at issue. For heavily regulated industries, the industry 

regulator review process can take more than a year.205 

The US Chamber of Commerce has highlighted how the Chinese government uses its discretion 

in the review process to apply vague and unwritten rules in a selective and non-transparent 

manner:

The relatively opaque nature of the inbound FDI approval processes enables China’s 

investment approval authorities to favor domestic competitors over foreign investors, 

should they so desire, without leaving a paper trail of discriminatory written regulations 

that could clearly offend WTO obligations. Foreign investors have reported this 

favoritism occurring in two ways: (i) through the application of vaguely worded or 

unpublished rules or requirements in ways that discriminate against foreign investors; and 

(ii) through the imposition of deal-specific conditions that go beyond any written legal 

requirements.206

In one investigation submission, a former in-house counsel reported similar practices from his 

time doing business in China:

[T]here is a very clear discretionary administrative approval processes and other 

restrictions adopted by the Government of China that pressure the transfer of intellectual 

property to Chinese companies and/or to Chinese State Owned Enterprises in order to ‘do 

business’ in China and receive required licensing approvals. Often the language in 

Chinese licensing and business registration forms may not be clear as to its required and 

mandatory expectation for technology transfer by U.S. companies to Chinese firms or 

state agencies, but licensing officials within regional Chinese centers clarify in person, 

what is expected, without providing written documents that could be subsequently shared 

 

201 Regulations for the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity 

Joint Ventures, art. 4; Rules for the Implementation of the Law of the People’s Republic of China on ChineseForeign Contractual Joint Ventures, art. 9 (Order of the State Council, issued September 4, 1995, last amended 

March 1, 2017); see also JAMES M. ZIMMERMAN, CHINA LAW DESKBOOK 147 (4th ed. 2014).

202 The Chinese term xuke zheng is often translated as “license” or “permit”. 

203 U.S. CHAMBER OF COMMERCE,CHINA’S APPROVAL PROCESS FOR INBOUND FOREIGN INVESTMENT:IMPACT ON 

MARKET ACCESS, NATIONAL TREATMENT AND TRANSPARENCY 17 (Nov. 2012).

204 U.S. CHAMBER OF COMMERCE,CHINA’S APPROVAL PROCESS FOR INBOUND FOREIGN INVESTMENT:IMPACT ON 

MARKET ACCESS, NATIONAL TREATMENT AND TRANSPARENCY 18 (Nov. 2012).

205 U.S. CHAMBER OF COMMERCE,CHINA’S APPROVAL PROCESS FOR INBOUND FOREIGN INVESTMENT:IMPACT ON 

MARKET ACCESS, NATIONAL TREATMENT AND TRANSPARENCY 18 (Nov. 2012).

206 U.S. CHAMBER OF COMMERCE,CHINA’S APPROVAL PROCESS FOR INBOUND FOREIGN INVESTMENT:IMPACT ON 

MARKET ACCESS, NATIONAL TREATMENT AND TRANSPARENCY 35-36 (Nov. 2012).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

38

with global trade organizations. So a carefully crafted and structured process has been 

developed to avoid obvious demands for U.S. technology.207

The administrative licensing and approvals process can also work in tandem with the JV 

requirements described above to require or pressure technology transfer. A study conducted by 

the U.S. Chamber of Commerce concluded:

The [JV requirement] creates numerous circumstances where investment approval 

authorities are able to work in an nontransparent way with the local partner to ensure that 

valuable intellectual property, market channels, and other assets of the foreign investor 

are made available to the joint venture — often on extremely favorable commercial terms 

for the local partner. This problem is exacerbated by the fact that in Sino-foreign joint 

ventures, the local partner serves as the investment approval process applicant on behalf 

of the prospective joint venture. As a result, Chinese joint venture partners are able, in 

many cases, to control the communication channels between the foreign investor and the 

government approval authorities, making the process even more opaque for the foreign 

investor and enabling the local partner to shape the approval requirement imposed by the 

authorities to its advantage.208

Problems with administrative licensing processes are consistently identified as top concerns in 

annual surveys of U.S. companies in China.209 According to the most recent USCBC member 

survey, for example, companies specifically ranked “obtaining licenses and approvals” and 

“investment barriers” as the second and third greatest challenges, respectively.210 Moreover, 65 

percent of respondent companies experienced problems obtaining necessary licenses and 

approvals in China. According to the survey, these licensing problems occurred overwhelmingly 

at the central government level (80 percent) and almost three-fourths of respondents report that 

China’s licensing reforms have had no impact to date.211 Similarly, in each of AmCham China’s 

2017 and 2018 annual surveys, U.S. companies ranked China’s inconsistent regulatory 

interpretations as a top challenge. 212 Companies also repeatedly identified “difficulty in 

obtaining required licenses” as a top challenge.213 

As one legal treatise on foreign investment in China explains:

Even under the existing laws, where approvals are required for foreign investment, it is 

not unusual to experience a situation where the Catalogue on Guiding Foreign Investment 

may provide that a certain activity may be conducted by a WFOE, [while] the Chinese 

 

207 Stephen Zirschky, Submission, Section 301 Hearing (Sept. 28, 2017). 

208 U.S. CHAMBER OF COMMERCE,CHINA’S APPROVAL PROCESS FOR INBOUND FOREIGN INVESTMENT:IMPACT ON 

MARKET ACCESS, NATIONAL TREATMENT AND TRANSPARENCY 38-39 (Nov. 2012).

209 AMCHAM CHINA, 2016 AMCHAM CHINA WHITE PAPER: AMERICAN BUSINESS IN CHINA 8 (2016); USCBC, 

UPDATE: LICENSING CHALLENGES AND BEST PRACTICES IN CHINA 1 (Apr. 2016).

210 USCBC, 2017 MEMBER SURVEY 2 (2017).

211 USCBC, 2017 MEMBER SURVEY 12 (2017).

212 AMCHAM CHINA, 2017 CHINA BUSINESS CLIMATE SURVEY REPORT 28 (2017); AMCHAM CHINA, 2018 CHINA 

BUSINESS CLIMATE SURVEY REPORT 40 (2018).

213 AMCHAM CHINA, 2017 CHINA BUSINESS CLIMATE SURVEY REPORT 28 (2017); AMCHAM CHINA, 2018 CHINA 

BUSINESS CLIMATE SURVEY REPORT 40 (2018).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

39

authorities openly state that a WFOE will never be approved—only a joint venture, and 

only if all material technology is transferred to the joint venture.214

ITIF’s submission in this investigation provides further example of how China’s administrative 

authorities pressure foreign investors’ decisions on technology and R&D localization:

The CEO of a large multinational telecommunications equipment company recently 

shared with ITIF that he opened up a large R&D facility in Beijing that employs over 500 

scientists and engineers. When asked if he did this to access Chinese engineering talent, 

he responded bluntly: “Unless I promised the Chinese Government that I would open up 

an advanced technology lab there, I was told that I would not be able to sell to the 

Chinese telecommunications providers,” (most of which are de facto controlled by the 

Chinese government).215

As described above, discretion in China’s administrative licensing process can be used to require 

technology transfer or impose deal-specific conditions in exchange for the licenses necessary for 

a foreign investor to operate in China. Similarly, ambiguity in the administrative licensing and 

approvals process may also result in technology transfer where existing laws and regulations are 

unclear as to the relevant requirements for foreign investors— this problem is particularly acute 

in new and emerging industries. 

As one submission noted:

“[U]ncertainty surrounding administrative licensing regulations can also serve as a de 

facto limit for companies hoping to move into certain sectors. Businesses are often 

particularly cautious about advancing into new and under-regulated business sectors such 

as telemedicine, fearing that they might find themselves in violation of new regulations 

after investing.”216 

These violations may lead to technology transfer in circumstances where foreign-invested 

enterprises must quickly comply with new regulations (or new interpretations of existing 

regulations) that threaten to shut down their existing business in China. According to numerous 

submissions in this investigation, an important example of how ambiguity in China’s 

administrative licensing process is used to pressure technology transfer arises in the field of 

cloud computing.217

Cloud Computing

 

214 OWEN D. NEE, JR., SHAREHOLDER AGREEMENTS AND JOINT VENTURES IN CHINA 57 (Thomson Reuters ed, 2016). 

The authors further conclude that even if China does adopt a Negative List approach, “it is doubtful that a [negative 

list] will effectively abolish such internal regulations or “neibu wenjian.”

215 ITIF, Submission, Section 301 Hearing 6 (Oct. 25, 2017).

216 USCBC, Follow-Up Submission, Section 301 Hearing 4-5 (Oct. 30, 2017).

217 CONSUMER TECHNOLOGY ASS’N [hereinafter “CTA”], Submission, Section 301 Hearing 10 (Sept. 28, 2017); 

COMPTIA, Submission, Section 301 Hearing 4 (Sept. 28, 2017); INFORMATION TECHNOLOGY INDUSTRY COUNCIL 

[hereinafter “ITI”], Submission, Section 301 Hearing 3-4 (Sept. 28, 2017); COALITION OF SERVICES INDUSTRIES, 

Submission Section 301 Hearing 2 (Sept. 28, 2017); see generally TELECOMMUNICATIONS INDUSTRY ASS’N, 

Submission, Section 301 Hearing (Sept. 28, 2017).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

40

China has prioritized the development of its cloud computing sector and seeks to raise its 

indigenous cloud computing capability and achieve “systematic breakthroughs” in “indigenously 

innovated core technology” by 2020.218 Submissions in this investigation raised concerns with 

China’s restrictions on foreign investment, and related licensing practices and policies in this 

field.219 These submissions indicate that the Chinese government has used regulatory ambiguity 

to benefit Chinese cloud computing businesses and pressure technology transfer. China first 

tacitly permitted foreign investors to partner with licensed Chinese cloud service providers in 

order to gain market access, and then, once key technology and know-how had been injected into 

these partnerships, China resolved the regulatory ambiguities that had necessitated these 

arrangements in favor of the Chinese partner, resulting in the transfer of technology to the 

Chinese partner.

China precludes U.S. cloud service providers (CSPs) from directly participating in the three most 

common forms of cloud computing: computing infrastructure as a service (IaaS); computer 

platform as a service (PaaS); and computer software as a service (SaaS).220 CSPs must obtain 

certain value-added telecommunication licenses, such as an internet data center (IDC) license, 

from China’s MIIT or its local counterpart to operate their businesses.221 According to numerous 

submissions in this investigation, in practice, China does not grant such licenses to U.S. investors 

and thus does not permit U.S. CSPs to provide cloud computing services directly to customers in 

China.222

However, the global nature of cloud computing means that forgoing the China market is simply 

not a commercially viable option for U.S. CSPs, whose customers demand globally available 

services.223 This is particularly the case for technology companies that have invested in and built 

up a market share in China in areas that are rapidly transitioning to cloud-based delivery. Thus, 

a business built on managing a customer’s computing resources, or supplying and maintaining 

software applications has little option but to offer those services on a cloud basis, given the 

economic, technical and security superiority of the cloud model, the transition to which 

customers now demand. 

 

218 Notice on Issuing 13th Five-year Plan for National Informatization, Sec. 2(3) (State Council, Guo Fa [2016] No. 

73, issued Dec. 15, 2016). In addition, the plan states that by 2020, China should have “basically established a

secure and controllable IT industry ecosystem”, and asserts that “digitization comprehensively underpins the 

development of Party and national government initiatives.”

219 CTA, Submission, Section 301 Hearing 10 (Sept. 28, 2017); COMPTIA, Submission, Section 301 Hearing 4 (Sept. 

28, 2017); ITI, Submission, Section 301 Hearing 3-4 (Sept. 28, 2017); U.S. CHAMBER OF COMMERCE, Submission, 

Section 301 Hearing 18-19 (Oct. 3, 2017); see generally TELECOMMUNICATIONS INDUSTRY ASS’N [hereinafter 

“TIA”], Submission, Section 301 Hearing (Sept. 28, 2017).

220 U.S. companies are global leaders in these sectors. USITC, GLOBAL DIGITAL TRADE 1: MARKET OPPORTUNITIES 

AND KEY FOREIGN TRADE RESTRICTIONS 19-20 (Aug. 2017).

221 See Telecommunications Regulations of the People’s Republic of China, art. 7 and the Telecommunications 

Services Catalogue, attached as the Annex (State Council Order No. 291, issued Sept. 25, 2000 and amended on 

July 29, 2014 and Feb. 6, 2016), which lists IDC under the VATS operator license.

222 IDC licenses have only been granted to Chinese companies and joint ventures with Hong Kong or Macau 

investors and have not been granted to joint ventures with investors from the U.S. and other jurisdictions. See

Samuel Yang, Regulation of Cloud Computing in China, PRACTICAL LAW (Apr. 26, 2017). 

223 BSA THE SOFTWARE ALLIANCE [hereinafter “BSA”], Submission, Section 301 Hearing 3 (Sept. 28, 2017).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

41

In view of this commercial reality, the only way U.S. suppliers are able to participate in the 

market is through contractual arrangements with Chinese entities eligible to obtain the required 

licenses.224 Under these arrangements, U.S. suppliers will train the employees of the Chinese 

license holder how to operate complex technology, and are effectively forced to provide their 

proprietary cloud computing technology, brands, and know-how to their Chinese partners, in 

exchange for a fee or a share of revenue.225 This reality disadvantages U.S. companies in China 

as these contractual arrangements provide even less rights and protections with respect to their 

investment and technology than would be available through an equity investment.

Until 2016, China permitted such contractual arrangements by granting the requisite license to 

the Chinese partner. However, recent draft regulations prohibit these arrangements, which have

long been relied upon by foreign CSPs for market access. In March 2016, China released the 

Notice on Regulating Business Operations in Cloud Service Market (Draft for Public Comment) 

and the Circular on Cleaning Up and Regulating the Internet Access Service Market, which 

exacerbated the challenges facings U.S. CSPs operating in the Chinese market. 226 According to 

the written submissions in this investigation, these measures effectively prohibit, inter alia, (1) 

the Chinese license holder from providing any facilities or other resources to the foreign CSP; 

(2) the foreign CSP from entering into contracts with customers directly; and (3) the provision of 

cloud services under the trademark of the foreign CSP. 227 

U.S. and other foreign CSPs operating in China through contractual arrangements inconsistent 

with this draft notice are now faced with the prospect of needing to restructure their existing 

arrangements and relinquish ownership and operations of their cloud business to a Chinese 

company in order to comply with the new rules.228 Indeed, although the draft notice has yet to be 

finalized, some U.S. suppliers have already done just that.

229

 

2. Forced Disclosure of Sensitive Technical Information

A second technology transfer mechanism used by Chinese administrative agencies is the forced 

disclosure of sensitive technical information. In a wide variety of industry sectors, the Chinese 

 

224 See e.g., Jason Verge, Microsoft Launches Azure in China Via 21Vianet Group, DATACENTER KNOWLEDGE, 

(May 22, 2013) (“In November 2012, Microsoft, 21Vianet and the Shanghai Municipal Government announced a 

strategic partnership agreement in which Microsoft licensed the technology know-how and rights to operate and 

provide Office 365 and Windows Azure services in China to 21Vianet. ‘21Vianet will act as an operation entity for 

Azure, hosting the service in its data centers and handling the customer relationship,’ said Vianet's CFO, Shang 

Hsiao.”).

225 NAT’L FOREIGN TRADE COUNCIL [hereinafter “NFTC”], Submission, Section 301 Hearing 3 (Sept. 28, 2017).

226 See Notice on Regulating Business Operations in Cloud Service Market (Draft for Public Comment) § 4(1)-4(5)

(released by MIIT Mar. 2016); Circular on Cleaning up and Regulating the Internet Access Service Market (MIIT, 

Gong Xin Bu Xin Guan Han [2017] No. 32, issued Jan. 17, 2017).

227 ITI, Submission, Section 301 Hearing 4 (Oct. 4, 2017); U.S. CHAMBER, Submission, Section 301 Hearing 19 

(Oct. 3, 2017); NFTC, Submission, Section 301 Hearing 3-4 (Sept. 28, 2017); CompTIA, Submission, Section 301 

Hearing 7-8 (Sept. 28, 2017).

228 See e.g., Stratford, et al., How China's Draft Regulations Will Control Cloud Services, LAW360 (Dec.15, 2016); 

McGinty et al., HOGAN LOVELLS, DRAFT LEGISLATION TO AFFECT CHINA CLOUD SERVICES MARKET ACCESS (Jan. 

2017).

229 Cate Cadell, Amazon Sells off China Cloud Assets as Tough New Rules Bite, REUTERS, Nov. 13, 2017 (“In 

November 2017, for example, Amazon.com Inc. sold off its public cloud business in China to its local partner for 

$301.2 million. According to Amazon, this was done ‘to comply with Chinese law.’”).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

42

government requires the disclosure of unreasonable amounts of sensitive technical information in 

exchange for necessary administrative approvals. As noted by European researchers:

A particular concern amongst various industries including but not limited to ICT, 

pharmaceuticals, chemicals, agro-food (in particular GMOs), machinery and financial 

services, centers on the depth of information which needs to be provided to the 

authorities for obtaining the authorization to build a factory, to market a product, etc. In 

some cases, this information was provided to the local industry who used this data to 

develop similar activities.230

U.S. stakeholders are particularly concerned because the forced disclosures put technology and 

intellectual property at risk.231 Forced disclosures of information are especially problematic in 

cases in which the disclosure must be made not just to government officials but also to outsiders. 

This occurs when China requires reviews by “expert panels” that may include representatives 

from Chinese government, industry, academia, or others who may have a competitive interest in 

the information.232

Information disclosure and expert panel review requirements can arise at any stage of a 

company’s operations in China and in a wide variety of industries. For example, in the preestablishment phase, a company may be subject to expert review panels to assess the safety, 

environmental impact, and energy conservation of the proposed investment.233 Panels typically 

require companies to respond to “detailed information [requests] about project costs and revenue, 

capacity and equipment information, raw material and energy requirements, and other sensitive 

details about the operations.”234

The information required to be disclosed may include trade secrets. For example:

One company that submitted its safety assessment to an approval agency was required to 

provide specific temperature and pressure range information for its process equipment... 

that would make it easier for a competitor to learn about a production process the 

company considered to be a trade secret.235 

As noted by the American Chamber of Commerce in Shanghai:

 

230 Paul Ranjard, Benoit Misonne, Study 12: Exploring China’s IP Environment, in Study on the Future 

Opportunities and Challenges of EU-China Trade and Investment Relations 24 (2007).

231 USCBC, Submission, Section 301 Hearing 4-5 (Sept. 28, 2017); U.S. CHAMBER, Submission, Section 301 

Hearing 17 (Oct. 3, 2017).

232 USCBC, UPDATE: LICENSING CHALLENGES AND BEST PRACTICES IN CHINA 8 (Jan. 2014); USCBC, IMPROVING 

CHINA’S LICENSING SYSTEM: RECOMMENDATIONS FOR KEY SECTORS 2 (Mar. 2014); Paul Ranjard, Benoit Misonne, 

Study 12: Exploring China’s IP Environment, in Study on the Future Opportunities and Challenges of EU-China 

Trade and Investment Relations 15 (2007).

233 USCBC, Submission, Section 301 Hearing 5 (Sept. 28, 2017). See e.g., China Energy Conservation Product 

Certification Management Measures (National Economic and Trade Commission, issued Feb. 11, 1999), art. 3 states 

that evidence a product meets “standards or technological needs” is one of the criteria for receiving the Energy 

Conservation Certificate.

234 USCBC, IMPROVING CHINA’S LICENSING SYSTEM: RECOMMENDATIONS FOR KEY SECTORS 4 (Mar. 2014).

235 USCBC, IMPROVING CHINA’S LICENSING SYSTEM: RECOMMENDATIONS FOR KEY SECTORS 3 (Mar. 2014).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

43

Companies have also expressed concerns about some of China’s product approval 

requirements. In particular, for companies to gain approval from regulatory agencies they 

must disclose proprietary formula or designs. Despite assurances by regulators, 

companies are still not confident that the information will be protected. Some companies 

report that they have been able to push back but others have not been as successful and 

must face the difficult choice of seeking product approval, which could put proprietary 

information at risk, or not pursuing market opportunities in China in order to protect their 

IP.236

Similarly, environmental impact and energy conservation assessments require expert panel 

reviews, 237 and sometimes involve a “pre-review” by a separate panel prior to application.238 

Environmental impact panels “frequently include competitors or scholars affiliated with 

competitors.”239 In general, the panels introduce significant liability for companies seeking to 

safeguard their trade secrets, particularly since there are few safeguards in place to ensure that 

information is not misused.240 

Expert review panels do not just apply before a company is established in China. For example, in 

the post-establishment phase, expert review panels may be required for security reviews in a 

range of industries under China’s Cybersecurity Law of the People’s Republic of China 

(Cybersecurity Law).

241

 Although many implementing regulations of the cyber-review regime 

are in draft form only, stakeholders report concerns that current ambiguities in the law will be 

used to pressure unnecessary disclosure of companies’ most critical technologies.242 For 

example, companies may be forced to disclose critical technologies, including source code, 

complete design databases, behavior models, logic models, and even floor plans and physical 

layouts of central processing units.243 

D. China’s Acts, Policies, and Practices Are Unreasonable 

 

236 AM. CHAMBER OF COMMERCE SHANGHAI, Submission, Section 301 Hearing 2 (Sept. 28, 2017);

237 See Environmental Impact Assessment Law of the People’s Republic of China (PRC Environmental Impact 

Assessment Law) ̧ art. 11, 13. (adopted at the 30th Meeting of the Standing Committee of the Ninth NPC, Order No. 

77, on Oct. 28, 2002, effective Sept. 1, 2003, amended July 2, 2016). Art. 13 stipulates that the “expert working 

groups” shall be comprised of government representatives and other experts from the list of experts within the expert 

database created by the relevant government authority. 

238 USCBC, Submission, Section 301 Hearing 1 (Oct. 20, 2017). See PRC Environmental Impact Assessment Law ̧ 

art. 11.

239 USCBC, Submission, Section 301 Hearing 1 (Oct. 20, 2017).

240 USCBC, UPDATE: LICENSING CHALLENGES AND BEST PRACTICES IN CHINA 8-9 (Jan. 2014). See e.g., 

Administrative License Law of the People’s Republic of China (PRC Administrative License Law) (adopted by the 

Fourth Session of the Standing Committee of the Tenth NPC, Order No. 7, on Aug. 27, 2003, effective July 1, 

2004), art. 31 (regarding scope of required information), art. 54-55 (regarding the types of technical material which 

need to be submitted for certain licenses), and art. 76 (regarding compensation in the event of violation).

241 Cybersecurity Law of the People’s Republic of China (adopted by the Twenty-fourth Session of the Twelfth 

NPC, on Nov. 7, 2016, effective June 1, 2017). Submissions received in this investigation are summarized in 

Appendix C to this report.

242 See CTA, Submission, Section 301 Hearing 6 (Sept. 28, 2017); U.S. CHAMBER, Submission at 31; TIA, 

Submission, Section 301 Hearing 2 (Sept. 28, 2017).

243 SEMICONDUCTOR INDUSTRY ASS’N [hereinafter “SIA”], Submission, Section 301 Hearing 10, fn 42 (Sept. 28, 

2017).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

44

Conduct that is “unreasonable” is actionable under Section 301, provided that it also burdens or 

restricts U.S. commerce. The statute defines an “unreasonable” act, practice, or policy as one that 

“while not necessarily in violation of, or inconsistent with, the international legal rights of the 

United States is otherwise unfair and inequitable.”244 The statute further provides that in 

determining unreasonableness, the USTR shall take into account, to the extent appropriate, 

whether foreign companies in the United States have access to reciprocal opportunities to those 

denied U.S. companies.245 Based on the foregoing factors, China’s technology transfer regime is

unreasonable. 

According to the Organization for Economic Co-operation and Development (OECD), very few 

countries employ foreign equity limitations or screen foreign investments on the basis of 

potential technology-related benefits.246 China’s foreign investment restrictions and 

administrative review and licensing systems not only exert great technology transfer pressures on 

U.S. companies, but also are substantially more restrictive than those of the United States and 

most other countries. Indeed, the OECD has consistently ranked China’s foreign investment 

regulatory regime as one of the most restrictive in the world based on an evaluation of (i) equity 

restrictions on foreign ownership, (ii) screening and prior approval requirements, (iii) rules for 

key personnel, and (iv) restrictions on the operation of foreign enterprises.247 For example, in 

2016, China was ranked the fourth most restrictive economy out of 63 OECD and non-OECD 

member economies measured—only the Philippines, Saudi Arabia, and Myanmar were more 

restrictive. This low ranking is particularly striking given that China is the world’s second 

largest economy and it has extensive global trading relationships as compared to the other 

economies at the bottom of the index. China’s restrictiveness score was also 3.7 times higher 

than that of the United States.248 

Moreover, the OECD’s regulatory restrictiveness index does not even account for the full 

breadth of restrictive practices used by China to pressure technology transfer. The OECD index 

only captures those laws and policies pertaining to equity caps and pre-establishment 

administrative screening processes that have been formally adopted by the Chinese central 

government.249 As discussed above, China’s technology transfer requirements often do not take 

 

244 19 U.S.C. § 2411(d)(3)(A).

245 19 U.S.C. § 2411(d)(3)(D). 

246 PRZEMYSLAW KOWALSKI, DANIEL RABAIOLI, SEBASTIAN VALLEJO, OECD, INTERNATIONAL TECHNOLOGY 

TRANSFER MEASURES IN AN INTERCONNECTED WORLD: LESSONS AND POLICY IMPLICATIONS, 

TAD/TC/WP(2017)1/FINAL, 2017 43-45 ¶ 130-1 (2017) (“In particular, making FDI in technology-related sectors 

conditional upon joint ventures...or requiring direct transfer of technology to the local partner... are not found in 

most of the countries [surveyed]. This may be a result of awareness that such laws deter investors and may be 

counterproductive. However, such measures are still present in two developing countries, namely China and 

Nigeria...Screening on the basis of potential technology-related benefits... is present in only five countries. For 

example, in China, for a project to be approved, it should meet the requirements of mid and long term planning for 

national economic development, de facto meaning that the government will screen investment on the basis of its 

technology-transfer potential.”).

247 FDI Regulatory Restrictiveness Index, OECD, http://www.oecd.org/investment/fdiindex.htm (last visited Oct. 20, 

2017).

248 FDI Regulatory Restrictiveness Index, OECD, http://www.oecd.org/investment/fdiindex.htm (last visited Oct. 

20, 2017).

249 In its methodology, the OECD specifies that its regulatory restrictiveness measures do not account for measures 

imposed at the sub-national level, and do not account for variability in restrictiveness stemming from 

implementation of formally adopted laws or policies. In other words, the regulatory restrictiveness index does not 
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

45

the form of written laws or policies promulgated by China’s central government and are often 

carried out orally and “behind closed doors.”

250

 Evidence collected in this investigation also has 

demonstrated that forced disclosure of technical information occurs throughout the life span of 

U.S. companies’ operations in China through a variety of administrative reviews and licensing 

processes.251 These practices are not captured by the OECD’s index. 

China’s regime is ultimately unfair and inequitable because it greatly restricts the freedom of 

U.S. companies to deploy and fully protect their valuable and hard-won technologies to compete 

in China. Instead of fostering a level playing field, China’s regime gives systematic and 

structural support for technology acquisition by Chinese companies from U.S. and other foreign 

competitors.252 Faced with China’s regime, U.S. companies must either cede substantial control 

over their valuable technologies or be closed out of one of the world’s largest and fastestgrowing economies.253 This results in a highly asymmetric playing field where U.S. companies 

face immensely restrictive policies in China, while Chinese companies are not equally restricted 

in the United States.254 

Accordingly, China’s technology transfer regime—including foreign ownership restrictions and 

administrative approval and licensing process that are used to require or pressure the transfer of 

technology from U.S. companies to Chinese entities— is unfair, inequitable, and results in 

nonreciprocal opportunities relative to Chinese companies operating in the United States. These 

acts, practices, or policies are unreasonable as defined in Section 301.

E. China’s Acts, Policies, and Practices Burden or Restrict U.S. Commerce

The unreasonable act, policy, or practice of a foreign country must also burden or restrict U.S. 

commerce to be actionable under Section 301. In the present case, required or pressured 

technology transfer significantly undermines the value of American technology (including IP), 

thereby distorting markets and compromising U.S. companies’ global competitiveness. 

Therefore, China’s acts, policies, and practices that effectuate technology transfer burden and 

restrict U.S. commerce. 

Technology and IP drive economic growth and sustain the competitive edge of the U.S.

economy.255 According to the Department of Commerce, in 2014, IP-intensive industries 

 

account for restrictions that are informally applied “behind closed doors”, by government officials. See Blanka 

Kalinova, et. al., OECD, FDI RESTRICTIVENESS INDEX: 2010 UPDATE 6 (2010).

250 See supra Section II.A-C.

251 See supra Section II.C. In a recent AmCham China survey, 52% of respondents believe that in China the risk of 

“IP leakage and IT and data security threats” was greater than those in other countries. AMCHAM CHINA, 2018

CHINA BUSINESS CLIMATE SURVEY REPORT 31 (2018).

252 BSA, Submission, Section 301 Hearing 3-4 (Sept. 28, 2017); CSI, Submission, Section 301 Hearing 5 (Sept. 28, 

2017); NAM, Submission, Section 301 Hearing 12-13 (Sept. 28, 2017).

253 BSA, Submission, Section 301 Hearing 3 (Sept. 28, 2017); U.S. CHAMBER, Submission, Section 301 Hearing 15 

(Oct. 3, 2017).

254 U.S. CHAMBER, Submission, Section 301 Hearing 40 (Oct. 3, 2017).

255 U.S. PATENT & TRADEMARK OFFICE [hereinafter “USPTO”], & ECON. & STATISTICS ADMIN. INTELLECTUAL 

PROPERTY AND THE U.S. ECONOMY: 2016 UPDATE 1 (2016); see also NAT’L SCIENCE BOARD, SCIENCE &

ENGINEERING INDICATORS, 6-20 (2016) (among all major economies, the United States has the highest concentration 

of knowledge-intensive and technology-intensive industries as a share of total economic activity).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

46

supported approximately 45.5 million jobs in the United States, and workers in those industries 

earned significantly higher wages on average than those working in non-IP-intensive

industries.256 Further, IP-intensive companies represented more than 39 percent of U.S. GDP, 

and accounted for 52 percent of U.S. exports.257 Therefore, as noted by multiple submissions in 

this investigation, the well-being of U.S. companies and their workers, along with the broader 

U.S. economy, is dependent in substantial part on the continued strength of IP-intensive 

industries.258

China’s technology transfer policies effectively deprive U.S. companies of the full value of their 

IP and technology and inhibit them from fairly competing in the large China market. When U.S.

companies are required or pressured to transfer their technology, they may experience not only a 

direct loss of key competitive assets, but also may lose their technological competitive edge in 

global markets. Moreover, as noted by submissions in this investigation, Chinese beneficiaries 

of technology transfer under the highly favorable circumstances created by China acquire 

powerful advantages without the expense or risk of developing the technology themselves, and 

thus enjoy an additional competitive advantage over foreign innovators.259 If U.S. companies 

alternatively elect not to comply with Chinese requirements, the companies are excluded from an 

important and growing market, foregoing sales and export opportunities, and economies of 

scale.

260

 

No matter how a U.S. company responds, the Chinese government’s technology transfer regime 

generates considerable negative impacts on competition by depriving U.S. companies of the 

ability to achieve reasonable returns on their investments in the Chinese market and exploit 

legitimately obtained intellectual property rights, and prevents them from making investments at 

all.

261 Given the strategic importance of the large and growing Chinese market, obstacles to 

level competition are acutely harmful to U.S. companies.

Moreover, U.S. companies that lose the option of exclusive enjoyment of their valuable 

technology and are therefore unable to compete fairly in China may become less globally 

competitive in the long run. When U.S. companies are deprived of fair returns on their 

investment in IP, they are unable to achieve the growth necessary to reinvest in innovation.

262 In 

this sense, China’s technology transfer regime directly burdens the innovation ecosystem that is 

an engine of economic growth in the United States and similarly-situated economies.

263

 

256 USPTO, INTELLECTUAL PROPERTY AND THE U.S. ECONOMY: 2016 UPDATE 4, 30 (2016).

257 USPTO, INTELLECTUAL PROPERTY AND THE U.S. ECONOMY: 2016 UPDATE iii (2016).

258 WILEYREIN, Submission, Section 301 Hearing 11 (Sept. 28, 2017); IP COMMISSION, Submission, Section 301 

Hearing 6 (Sept. 28 2017); see generally USPTO, INTELLECTUAL PROPERTY AND THE U.S. ECONOMY: 2016

UPDATE (2016).

259 WILEYREIN, Submission, Section 301 Hearing 11 (Sept. 28, 2017); SOLARWORLD, Submission, Section 301 

Hearing 2 (Oct. 20, 2017); NAM, Submission, Section 301 Hearing 9-10 (Sept. 28, 2017); CSIS, Submission, 

Section 301 Hearing 1 (Sept. 28, 2017).

260 AMCHAM SHANGHAI, Submission, Section 301 Hearing 2 (Sept. 28, 2017); NAM, Submission, Section 301 

Hearing 13 (Sept. 28, 2017).

261 WILEYREIN, Submission, Section 301 Hearing 11 (Sept. 28, 2017).

262 WILEYREIN, Submission, Section 301 Hearing 11 (Sept. 28, 2017); see also IAM, Submission, Section 301 

Hearing 1 (Sept. 29, 2017).

263 WILEYREIN, Submission, Section 301 Hearing 11 (Sept. 28, 2017).
II. China’s Unfair Technology Transfer Regime for U.S. Companies in China

47

In fact, the displacement of global industrial leaders—including U.S. companies—so that China 

may achieve global market dominance is an explicit policy goal of the Chinese government.264

According to China’s Made in China 2025 initiative, for example, the Chinese government seeks 

to acquire foreign technology, absorb that technology to boost indigenous innovation, and 

displace foreign competitors in both domestic and international markets.265 China’s technology 

transfer regime is a key mechanism to achieve this goal.266

Annual surveys of companies conducted by AmCham China and USCBC indicate that 

addressing China’s technology transfer regime would significantly increase U.S. investment in 

China. According to the 2018 AmCham China survey of U.S. companies, surveyed companies 

stated that they would significantly increase investment if China’s government were able to: 

provide greater regulatory transparency and predictability; limit the use of industrial policies that 

create barriers; allow U.S. companies to enter business segments that are currently restricted; 

provide recourse for unfair investment treatment; allow U.S. companies to increase control over 

their operations by reducing the need for joint ventures and local business partners; allow 

strategic acquisitions; and reduce the need to engage in technology transfer.267 

Ultimately, China’s acts, policies, and practices that require or pressure technology transfer 

undermine U.S. companies’ valuable IP, weaken their global competitiveness, and stunt 

investment in innovation.268 Therefore, China’s acts, policies, and practices with respect to 

technology transfer burden and restrict U.S. commerce.269

 

264 U.S. CHAMBER, MADE IN CHINA 2025: GLOBAL AMBITIONS BUILT ON LOCAL PROTECTIONS 13 (2017); BJÖRN 

CONRAD, ET AL., MERCATOR INST. FOR CHINA STUDIES [hereinafter “MERICS”], MADE IN CHINA 2025 14, 16 

(2016).

265 MERICS, MADE IN CHINA 2025 16 (2016) (technological development to achieve the ultimate objective of 

import substitution is pervasive throughout the plan, which specifically calls for the development and usage of 

indigenous products in a variety of industries). 

266 See MERICS, MADE IN CHINA 2025 41 (2016).

267 AMCHAM CHINA, 2018 CHINA BUSINESS CLIMATE SURVEY REPORT 53 (2018).

268 WILEYREIN, Submission, Section 301 Hearing 11 (Sept. 28, 2017); U.S. CHAMBER, MADE IN CHINA 2025:

GLOBAL AMBITIONS BUILT ON LOCAL PROTECTIONS 7 (2017). 

269 This finding is consistent with numerous other sources that confirm that Chinese technology transfer practices 

burden U.S. commerce. See generally USTR, NTE, SPECIAL 301 AND WTO COMPLIANCE REPORTS; U.S.-CHINA 

EC. & SEC.REV. COMM’N (2016); USITC, INV. NO. 332-519, CHINA: EFFECTS OF INTELLECTUAL PROPERTY 

INFRINGEMENT AND INDIGENOUS INNOVATION POLICIES ON THE U.S. ECONOMY (2011); USITC, INV. NO. 332-514,

CHINA: INTELLECTUAL PROPERTY INFRINGEMENT, INDIGENOUS INNOVATION POLICIES, AND FRAMEWORKS FOR 

MEASURING THE EFFECTS ON THE U.S. ECONOMY (2010); U.S.-CHINA ECON. & SEC. REV. COMM’N, CHINA’S FIVEYEAR PLAN, INDIGENOUS INNOVATION AND TECHNOLOGY TRANSFERS, AND OUTSOURCING (2011). 
48

III. China’s Discriminatory Licensing Restrictions

A. Introduction

The second category of conduct set forth in the Federal Register Notice issued on August 24, 

2017, addresses China’s acts, policies, and practices depriving U.S. companies of the ability to 

set market-based, mutually-desirable terms in licensing and other technology-related negotiations 

with Chinese companies. In addition to the difficulties with administrative licensing discussed in 

Section II, China also intervenes in U.S. firms’ investments and related activities in China 

through restrictions on their technology licensing. These restrictions result in discriminatory 

technology transfer-related acts, policies, and practices that burden U.S. commerce.

China’s regime of technology regulations deprives U.S. technology owners of the ability to 

bargain and set terms for technology transfer that are free from interference by China. U.S. firms 

seeking to license technologies to Chinese enterprises must do so on non-market-based terms 

that favor Chinese recipients. Moreover, the bureaucratic hurdles contained in licensing 

regulations provide China with an additional opportunity to pressure firms to transfer more 

technology, or transfer it on more favorable terms, in exchange for administrative approvals. 

China’s imposition of mandatory adverse licensing terms is reflected in official measures that 

impose a different set of rules for imported technology transfers originating from outside China, 

such as from U.S. entities attempting to do business in China, compared to separate rules for 

technology transfers occurring between two domestic companies. The mandatory requirements 

for importation of foreign technology are discriminatory and clearly more burdensome than the 

domestic requirements, as explained in detail below. The result of these mandatory terms 

imposed only on technology import contracts is that foreign entities (including U.S. entities) 

doing business in China are at a disadvantage compared to Chinese entities. These restrictions 

benefit domestic entities at the expense of foreign competitors, including U.S. competitors, 

because the mandatory terms are only imposed on technology import contracts and do not govern 

technology contracts between two domestic parties. From the outset, the regime is tipped in 

favor of Chinese entities before a U.S. company even attempts to enter the market in China 

through a legal framework adversely influencing all technology negotiations and contracts. 

As explained in more detail below, due to mandatory provisions in China’s regime of technology 

regulations, U.S. entities seeking to license foreign technologies to enterprises in China must do 

so on non-market-based terms that favor Chinese recipients. One such entity, the Office of 

Intellectual Property (IP) and Industry Research Alliances (IPIRA) at the University of 

California, Berkeley, summarized its experiences with these unacceptable terms mandated by the 

Chinese regime, provided at Appendix E to this report.

B. Foreign Licensing Restrictions and China’s Technology Transfer Regime

China regulates instances in which an entity seeks to transfer technology into China under its 

Regulations of the People’s Republic of China on the Administration of the Import and Export of 
III. China’s Discriminatory Licensing Restrictions

49

Technologies (TIER)270 and situations in which a foreign entity seeks — as part of its investment 

in its foreign-invested enterprise in China — to transfer technology to that entity by means of the 

Regulations for the Implementation of the Law of the People’s Republic of China on ChineseForeign Equity Joint Ventures (JV Regulations).271

 These Chinese regulations provide less 

favorable treatment of foreign entities than the comparable treatment of domestic Chinese 

entities under the Contract Law of the People’s Republic of China (PRC Contract Law).272 

Specifically, TIER imposes the following restrictions (among others) on the ability of U.S. 

technology owners to negotiate market-based terms for the transfer of technology into China:273

 Indemnity terms: TIER mandates that all indemnity risks be borne by the foreign 

technology transferor. Parties cannot negotiate the allocation of this risk, even if the 

transferee would like to bear the risk for a variety of reasons. Specifically, the 

licensor (typically a foreign entity for a technology import contract) is liable for any 

claims of “infringing [a third party’s] lawful rights” made against the licensee 

resulting from the use of the licensed or transferred technology.274 This requirement 

is particularly onerous for small U.S. firms seeking to license technology, as they 

typically would not have the expertise or resources necessary to assess and cover the 

risk of third party litigation. 

 Rights in technology improvements: TIER mandates that all improvements belong 

to the party making the improvement. TIER further provides that the licensor cannot 

stop the licensee from making improvements to the technology.275 Parties cannot 

negotiate shared ownership or that the licensor will own improvements made by the 

licensee.276 These provisions are particularly harmful to a U.S. licensor if the Chinese 

licensee makes an improvement severable from the original invention and then 

patents the severable improvement in China or elsewhere. The TIER’s provision on 

mandatory ownership of improvements enables the Chinese licensee to enjoy the 

 

270 Regulations of the People’s Republic of China on the Administration of the Import and Export of Technologies 

[hereinafter “TIER”] (Order of the State Council No. 331, issued Dec. 10, 2001, effective Jan. 1, 2002, amended 

Jan. 8, 2011, in Order of the State Council No. 588). Art. 2 of TIER defines technology import and export as “the 

act of transferring technology from outside the territory of ... China to inside the territory of ... China or from inside 

the territory of ... China to outside the territory of ... China.” Several key provisions impose mandatory terms only 

on technology import contracts. For example, art. 24 provides that “[t]he licensor of a technology import contract 

shall ...” while art. 27 applies “[d]uring the valid term of a technology import contract” and art. 29 provides that “[a] 

technology import contract may not contain ....” (emphases added).

271 Regulations for the Implementation of the Law of the People’s Republic of China on Chinese-Foreign Equity 

Joint Ventures [hereinafter “JV Regulations”] (State Council, Guo Fa [1983] No. 148, issued Sep. 20, 1983, 

effective Sep. 20, 1983, amended Jan. 15, 1986, in Guo Fa [1986] No. 6, further amended Dec. 21, 1987, in Guo Fa 

[1987] No. 110, Jul. 22, 2001, in Order of the State Council No. 311, Jan. 8, 2011, in Order of the State Council No. 

588, and Feb. 19, 2014, in Order of the State Council No. 648). 

272 Contract Law of the People’s Republic of China [hereinafter “PRC Contract Law”] (adopted at the Second 

Session of the Ninth NPC on Mar. 15, 1999, effective Oct. 1, 1999).

273 TIER, art. 2.

274 TIER, art. 24.

275 TIER, art. 29(3).

276 TIER, art. 27. 
III. China’s Discriminatory Licensing Restrictions

50

severable improvement without the original technology licensed by the U.S. entity to 

the Chinese entity, and block the U.S. entity from enjoying the benefit of the 

severable improvement. The provisions prevent the U.S. entity from restricting its 

Chinese licensee from making improvements to the transferred U.S. technology or 

from using such improvements in the market place, including using the improvements 

to the detriment of the U.S. licensor.

The JV Regulations also mandate terms that are non-market-based for technology agreements in 

joint ventures between Chinese and foreign entities. Among other provisions, the JV 

Regulations generally limit technology contracts to a duration of ten years and provide that the 

Chinese joint venture must be granted the right to use the technology in perpetuity after the 

technology contract expires.277 

The JV Regulations further impose requirements on the characteristics of transferred 

technologies. The technologies must be capable of (i) significantly improving the performance 

or quality of existing products and increasing productivity or (ii) significantly saving raw 

materials, fuel, or power; and (iii) being applicable and advanced, such that the joint venture’s 

products generate significant social and economic benefits in the domestic market or are 

competitive in the international market.278 These requirements provide opportunities for Chinese 

officials to pressure foreign firms to transfer the latest and most advanced versions of their 

technologies, restricting their freedom to deploy the technology as they choose, and 

notwithstanding any intellectual property infringement concerns the firm may have.

The JV Regulations in particular provide ample opportunities for Chinese officials to review 

foreign technologies in detail and pressure transfer to Chinese partners. For example, as with 

wholly foreign-owned enterprises, initial capital contributions from the foreign party may 

include industrial property rights, know-how, and other intellectual property rights.279 The 

foreign party may also license the right to use technology to the joint venture. The license must 

be reviewed and approved by China, typically at the same time as the joint venture application. 

Although there are no express limits on the amount that the foreign licensor is paid for the 

license, Chinese regulations provide guidelines to determine if the payments are appropriate and 

should be approved by China.280

The technology licensing regime in China applies to all importers of foreign technology. The 

TIER, JV Regulations, and the PRC Contract Law all have provisions applicable to technology 

transfer agreements involving a foreign party. TIER applies to “acts of transferring technology 

from outside the territory of the People’s Republic of China into the territory of the People’s 

Republic of China or vice versa by way of trade, investment, or economic and technical 

 

277 JV Regulations, art. 43.

278 JV Regulations, arts. 25, 41.

279JV Regulations, art. 5. See also Law of the People’s Republic of China on Chinese-Foreign Contractual Joint 

Ventures art. 8 (adopted at the First Session of the Seventh NPC on Apr. 13, 1988, amended by the 18th Session of 

the Standing Committee of the NPC on Oct. 31, 2000, further amended Sep. 3, 2016, in Executive Order No. 51, and 

Nov. 7, 2016, in Executive Order No. 57, and Nov. 4, 2017, in Executive Order No. 81).

280 JAMES ZIMMERMAN, CHINA LAW DESKBOOK: A LEGAL GUIDE FOR FOREIGN-INVESTED ENTERPRISES 102, 109–

110 (Am. Bar Ass’n 4th ed. 2014).
III. China’s Discriminatory Licensing Restrictions

51

cooperation.”281 The TIER further defines these acts to “include assignment of the patent right 

or right to apply for patents, licensing for patent exploitation, assignment of technical know-how, 

technical services and transfer of technology by other means.”282 The JV Regulations apply to 

technology “introduction” contracts under Article 40, defined as the “necessary technology 

obtained by the joint venture by means of technology transfer from a third party or parties to the 

joint venture.” The PRC Contract Law addresses “Technology Contracts” in its Chapter 18. 

Within Chapter 18, Article 322 defines a technology contract as a “contract made by the parties 

to define their mutual rights and obligations for technology development, transfer, consultation 

or service.”

1. Different Outcomes for U.S. Companies versus Chinese Competitors

Foreign entities cannot fully take advantage of the domestic Chinese contract licensing regime 

under the PRC Contract Law because conflicting articles of the TIER and JV Regulations control 

over the PRC Contract Law. Article 123 of the PRC Contract Law provides that the PRC 

Contract Law will not control under Chinese law “where other laws stipulate otherwise on 

contracts.” In addition, Chapter 18 of the PRC Contract Law, which covers technology 

contracts, specifically addresses the “Applicability of Other Laws of Administrative 

Regulations” in Article 355, which stipulates that “[w]here laws and administrative regulations 

stipulate otherwise on contracts for technology import and export or on contracts for patents and 

patent applications, the relevant provisions thereof shall govern.” Thereby, and as explained in 

detail below, where the provisions of the TIER and the JV Regulations are in conflict with those 

of the PRC Contract Law, the TIER and the JV Regulations, respectively, control under the 

licensing regime in China.283

TIER imposes a number of procedural requirements that the PRC Contract Law does not impose. 

Under TIER, all technology import contracts must be notified to China and copies of such 

contracts provided.284 If such contracts are not duly notified as required, the foreign technology 

licensor is denied the ability to remit any royalty payments back to its home country.285 From 

the outset, foreign imported technology licensors, including U.S. technology licensors, must 

meet obligations that are not imposed on their Chinese competitors under the PRC Contract Law.

2. Indemnification Against Infringement Claims

The TIER imposes obligatory indemnifications and other special treatment in favor of Chinese 

licensees of imported technology.286 Under Article 24, in a technology import contract the 

“liabilities shall be borne by the licensor” for any infringement of the “lawful interests of any 

other person.” The TIER does not permit parties to freely contract issues of liability. Therefore, 

 

281 TIER, art. 2.

282 TIER, art. 2.

283 See NATIONAL FOREIGN TRADE COUNCIL [hereinafter “NFTC”], Submission, Section 301 Hearing 7 (Sept. 28, 

2017).

284 TIER, art. 18.

285 See TIER, art. 20.

286 TIER, art. 24. See also BSA | THE SOFTWARE ALLIANCE [hereinafter “BSA”], Submission, Section 301 Hearing

§ II(A) (Sept. 28, 2017) (referring to art. 24 of the TIER as part of “insufficient and contradictory laws relating to 

contracts and liability for infringement” in China).
III. China’s Discriminatory Licensing Restrictions

52

all U.S. technology licensors of imported technology are required to indemnify Chinese 

technology licensees for, among other things, third party infringement claims based on use of the 

imported technology.287 In addition, the indemnification requirement in the TIER on “lawful 

interests of any other person” does not appear to be limited to the “other person’s” intellectual 

property rights. Therefore, the TIER potentially obligates a U.S. technology licensor to 

indemnify its Chinese licensee for any infringement suit by a third party.288

In contrast, Article 353 of the PRC Contract Law provides parties negotiating for the transfer of 

domestic technology within China with flexibility to determine the scope of the licensor’s 

liability for indemnification. Article 353 sets out that “[w]here the exploitation of the patent or 

utilization of the technical know-how by the transferee as contracted infringes upon the 

legitimate rights and interests of others, the liability therefor shall be borne by the transferor, 

unless the parties stipulate otherwise.”

289

 Unlike for licensors of foreign technology, the PRC 

Contract Law permits parties to a domestic technology transfer agreement to negotiate issues of 

liability in Article 353, whereas Article 24 of the TIER does not permit parties to contract around 

liability for infringement claims and no other article of the TIER permits parties to agree to terms 

on liability.290 

3. Ownership of Improvements to Licensed Technology

Article 29(3) of the TIER prohibits U.S. technology licensors from restricting their Chinese 

licensees to make or use improvements to the transferred technology. Article 29(3) prohibits 

technology import contracts from including any clause that “restrict[s] the receiving party from 

improving the technology supplied by the supplying party, or restricting the receiving party from 

using the improved technology.” This prohibition means that U.S. licensors cannot restrict their 

Chinese licensees from using the transferred technologies, which could include valuable 

information protected not only by patent laws but also by trade secret protections resulting from 

research and development conducted and paid for by the U.S. licensors, to then improve the 

transferred technologies. By prohibiting any restriction on the licensee to make or use improved 

technology, Article 29 permits Chinese licensees to free ride on U.S. technology licensors’ 

research and development costs in any imported technology transfer agreement. 

Article 27 of the TIER requires that the rights to any of these improvements to imported 

technology will vest in the party making the improvement.291 As with the liability issues in 

 

287 See CHINA CHAMBER OF COMMERCE FOR IMPORT & EXPORT OF MACHINERY AND ELECTRONIC PRODUCTS

[hereinafter “CCCME”], Submission, Section 301 Hearing 10 (Sept. 27, 2017) (“the provision only mentions the 

liability of the licensor”).

288 See INFORMATION TECHNOLOGY & INNOVATION FOUNDATION [hereinafter “ITIF”], Submission, Section 301 

Hearing 15–16 (Oct. 25, 2017) (“Article 24 requires that licensor (licensor importing technology into China for that 

matter) to bear full liability regardless whether or [sic] the licensor is aware that use of the licensed technology may 

‘infringe upon the lawful rights and interests of another person.’ In fact, not only does awareness not matter, the 

liability could result from any third party’s ‘lawful rights and interest.’ That is, the liability could include tort and 

other liability beyond IP infringements.”).

289 Emphasis added.

290 See NFTC, Submission, Section 301 Hearing 7 (Sept. 28, 2017).

291 See, e.g., CHINA CHAMBER OF INT’L. COMMERCE [hereinafter “CCOIC”], Submission, Section 301 Hearing 62 

(Sept. 28, 2017) (stating that “the basic meaning is that an achievement made in improving the technology 
III. China’s Discriminatory Licensing Restrictions

53

Article 24, the TIER restrictions on the ownership of improvements cannot be contractually 

avoided by parties to the imported technology contract because “[the right over] any 

improvement on the technologies shall be vested with the party which has made the 

improvement.” The “shall be vested” language in Article 27 of the TIER does not permit the 

parties to a technology import contract to negotiate other terms. The restriction means that a 

U.S. technology licensor cannot negotiate for ownership rights to any improvements made by its 

Chinese licensee while that licensee is using the U.S. licensor’s technology, and, with the 

restriction against prohibiting improvements from Article 29, the U.S. technology licensor has no 

means to negotiate how its technology will be “improved” or how rights in that improved 

technology will be vested in the Chinese licensee. 

By contrast, under Article 354 of the PRC Contract Law, domestic Chinese companies have 

flexibility to determine how any benefits, licenses, and ownership rights arising from 

improvements to technology will be shared between the parties to the technology transfer 

contract. Article 354 provides that “[t]he parties to a technological transfer contract may, in

accordance with the principle of mutual benefit, stipulate the method for sharing any 

subsequently improved technological result obtained from the patent exploitation or utilization of 

the technical know-how.” Unlike the restrictions placed on U.S. importing technology licensors, 

licensors party to domestic technology transfer agreements can negotiate the terms for sharing 

the benefits of any improvements to a licensed patent or trade secret.292 

The PRC Contract Law also provides a default position for parties to domestic technology 

transfer agreements such that, should the parties fail to agree on how to determine ownership of 

any improvements, or if the contractual language regarding improvements is vague,293 then the 

default is that neither party owns any improvement made by the other party to the contract. This 

default provision only provides a non-mandatory backstop position for technology transfer 

contracts, as well as a position from which to negotiate such contracts, yet such flexibility is only 

available to companies transferring technology domestically. 

4. Use of Technology after the Technology Contract Expires

 

concerned belongs to the party making the improvement”); CCCME, Submission, Section 301 Hearing 10 (Oct. 23, 

2017).

292 A Chinese commentator has also identified this inconsistency between the terms of art. 27 of TIER and art. 354 

of the PRC Contract Law. In a general overview to TIER published shortly after its promulgation, a Chinese patent 

attorney noted that it was a “very real problem” that a foreign party might see its co-ownership rights to an 

improvement rescinded by a Chinese court, even if the foreign party and Chinese party had agreed to share 

ownership of such improvements based on the PRC Contract Law. In that writer’s opinion, the PRC Contract Law

permitted “a comparatively flexible and elastic means” by which the parties may, on the principle of mutual benefit, 

contract for ownership of these improvements which are “seeking truth from facts, in the long term interests of the 

parties.” Wang Chongfang, Thoughts and Interpretations of TIER, 13 INTELLECTUAL PROPERTY RIGHTS 31 (2003).

293 Art. 61 of the PRC Contract Law applies to “Indeterminate Terms; Supplementary Agreement” and states that if 

a “[f]or a contract that has become valid, where the parties have not stipulated the contents regarding quality, price 

or remuneration or the place of performance, or have stipulated them unclearly, the parties may supplement them by 

agreement; if they are unable to reach a supplementary agreement, the problem shall be determined in accordance 

with the related clauses of the contract or with trade practices.” Art. 354 of the PRC Contract Law specifies that art.

61 applies when determining whether the method of sharing improvement is “not stipulated or not clearly stipulated, 

nor can [...] be determined pursuant to the provisions of Article 61,” and is therefore vague.
III. China’s Discriminatory Licensing Restrictions

54

In the course of the Section 301 investigation, USTR identified additional licensing restrictions 

in the JV Regulations. In addition to the TIER, the JV Regulations, too, include licensing 

restrictions on technology exporting parties involved in joint ventures within China’s territory 

(e.g., U.S. parties exporting technology to their Chinese joint venture). The licensing restrictions 

result in securing benefits for technology importing parties (the Chinese joint ventures importing 

technology into China from the United States). Article 43(3) of the JV Regulations states that 

the term of the technology transfer agreement to the JV shall “generally not exceed ten years.” 

The provision may result in U.S. companies only having control over their transferred 

technology for ten years, even though some forms of technology, such as patents and trade 

secrets, may be protectable for much longer than ten years. After the conclusion of the JVrelated technology transfer agreement, Article 43(4) stipulates that the “technology importing 

party shall have the right to continue using the technology.” The result of Article 43(4) is that 

Chinese joint ventures to technology contracts have the right under the JV Regulations to 

continue to use transferred technology after the expiration of the related technology contract, 

even if the transferred technology would otherwise be protected from use by that Chinese party. 

This means that under the JV Regulations, the Chinese joint venture licensee has the right to use 

the U.S. licensor’s technology in perpetuity after the technology contract expires, without paying 

compensation or subject to other terms. 

C. Concerns Raised by Other Trading Partners

Other governments have identified China’s technology transfer licensing regime as a problem. 

In connection with the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Council 

transitional reviews of China at the World Trade Organization in 2009 and 2011, Japan, the EU, 

and the United States requested information from China to explain its technology transfer regime 

and address other areas of concern as well. In the last review of China in 2011, Japan 

specifically noted its concern that the TIER contains discriminatory provisions as to the 

treatment of foreign licensors when compared to their domestic counterparts.294 

Japan continues to raise concerns about the system in China for regulating importation of 

technology.295 In its 2016 Annual Compliance Report, Japan’s Ministry of Economy, Trade and 

Industry (METI) devoted a section of its report on China specifically to the discriminatory 

articles of the TIER, including Articles 24, 27, and 29. METI notes that “[i]n many cases of 

technology import and export subject to the [TIER], foreign companies are assumed to be the 

parties providing the technology” and that therefore the “mandatory provisions [of the TIER] are 

applied only to foreign companies providing the technology and therefore can be a measure that 

discriminates between Chinese and foreign technology transfer.”296

Foreign stakeholders also have raised concerns. The European Union Chamber of Commerce in 

China concluded in its “Intellectual Property Rights Working Group Position Paper 2016/2017” 

 

294 China’s only response to these criticisms was that there are no discriminatory regulations in the TIER. For a 

summary of the 2011 TRIPS Council meeting, see the 2016 report of the Ministry of Economy, Trade and Industry 

(METI) of Japan, THE 2016 REPORT ON COMPLIANCE BY MAJOR TRADING PARTNERS WITH TRADE AGREEMENTS -

WTO, EPA/FTA AND IIA [hereinafter “2016 Report on Compliance”] 67 (2016), available at

http://www.meti.go.jp/english/report/data/2016WTO/pdf/01_01.pdf.

295 See 2016 REPORT ON COMPLIANCE at 64–67.

296 2016 REPORT ON COMPLIANCE at 65.
III. China’s Discriminatory Licensing Restrictions

55

that due to TIER, “parties to a cross-border technology transfer contract are not allowed to freely 

negotiate clauses concerning the ownership of subsequent developments or the liability for 

infringement of third parties rights....[A]s a consequence, [TIER] interfere[s] with the needs of 

Chinese and foreign companies for effective technology trade mechanisms.”297 In its position 

paper for 2017/2018, the Chamber recommended that Article 27 of the TIER be deleted.298

D. China’s Acts, Policies, and Practices are Discriminatory

The above articles of the TIER and the JV Regulations constitute discriminatory acts, policies, 

and practices of China.299 The TIER and JV Regulations put foreign technology importers, 

including U.S. entities, at a disadvantage relative to their domestic Chinese counterparts because 

the TIER and JV Regulations impose additional restrictions on importers of foreign technology 

and their use and enjoyment of their rights in technology, including but not limited to rights in 

intellectual property.300 Through these restrictions, U.S. technology importers into China often 

are forced to grant ownership or usage rights to valuable intellectual property to domestic 

Chinese entities. At the same time, the licensing restrictions result in benefits for the Chinese 

counterparty to those forced arrangements.301 

1. Justifications for Discrimination

In this Section 301 investigation, USTR received submissions and testimony stating that the 

licensing restrictions in China are necessary to protect Chinese companies, which are in a “weak 

position” in technology transfer negotiations and contracts.302 Other submissions stated that 

 

297 EUROPEAN CHAMBER IN CHINA, INTELLECTUAL PROPERTY RIGHTS WORKING GROUP POSITION PAPER 2016/2017

87, available at http://www.europeanchamber.com.cn/documents/download/start/en/pdf/429.

298 See EUROPEAN CHAMBER IN CHINA, INTELLECTUAL PROPERTY RIGHTS WORKING GROUP POSITION PAPER

2017/2018 89, available at http://www.europeanchamber.com.cn/documents/download/start/en/pdf/545.

299 See NFTC, Submission, Section 301 Hearing 7 (Sept. 28, 2017) (“This lack of freedom of contract [under art. 24 

of the TIER] discriminates against overseas licensors....”); US–CHINA BUSINESS COUNCIL [hereinafter “USCBC”], 

Submission, Section 301 Hearing 10 (Sept. 28, 2017).

300 NFTC, Submission, Section 301 Hearing 6 (Sept. 28, 2017) (“The Regulations on the Administration of the 

Import and Export of Technology impose greater risks and liabilities on foreign technology licensors than China’s 

Contract Law imposes on domestic licensors.”). 

301 ITIF, Submission, Section 301 Hearing 16 (Oct. 25, 2017) (“In summary, China imposes onerous restrictions on 

foreign parties involved in technology licensing activities in China which disadvantages foreign parties to the benefit 

of the Chinese counterparty.”).

302 See Yang Guohua, Submission, Section 301 Hearing (Sept. 28, 2017) (“The relevant provisions of China’s 

Regulation on Technology Import and Export Administration are well-founded. The provisions are intended to 

safeguard the legitimate rights and interests of the licensees who have a weak position in international technology 

transfer negotiations, as similar laws and policies of other countries do in such circumstances.”); CCOIC, 

Submission, Section 301 Hearing 63–4 (Sept. 28, 2017) (“In the context of cross-border technology transfer, the 

status of the licensor from developed countries and licensee from developing countries in a negotiation is usually 

unequal, often greatly...the Regulations are based on the same principle, which is to redress the imbalance of 

powers leading to imbalance of interests and to protect the rights of the licensee having a weak negotiation 

position.”). 
III. China’s Discriminatory Licensing Restrictions

56

licensing negotiations and contracts are based on market conditions without interference from 

China303 and that the TIER does not favor Chinese companies.304

Other submissions stated that licensing restrictions like the TIER could not constitute a problem 

for U.S. industry because there were no legal cases brought in China based on the TIER.305 

These submissions do not account for the continuing existence of the TIER (as well as the JV 

Regulations) in China and the effects of such restrictions on contract negotiations for U.S. 

technology owners.306 These concerns increase when a company has valuable intellectual 

property and other proprietary information that may be affected by China’s licensing restriction 

regime.307 Moreover, none of the submissions justifying the discriminatory policies addressed 

how such a licensing regime meets a national treatment standard. National treatment means that 

a country (like China) accords to the nationals of other countries (like the United States) 

treatment that is no less favorable than that it accords to its own nationals with regard to the 

policies at issue. Instead, the submissions appear to implicitly acknowledge that China has 

discriminatory acts, polices, and practices concerning technology import contracts by justifying 

their existence.

Section 301 defines acts, policies, and practices that are discriminatory to “include, when 

appropriate, any act, policy, and practice which denies national or most-favored nation treatment 

to United States goods, services, or investment.”

308

 Technology transfer agreements as defined 

by the TIER and the JV Regulations in China cover U.S. goods, service, or investment as related 

to the licensing and importing of U.S.-owned technology into China when compared to the 

treatment of domestic licensing of Chinese goods, services, or investment.

The TIER and JV Regulations place U.S. technology owners at a disadvantage relative to their 

Chinese counterparts when licensing technology into the Chinese market. The disparate 

treatment is effectively based on nationality, resulting in discrimination under Section 301.

 

303 See CCCME, Submission, Section 301 Hearing 9 (Oct. 23, 2017) (alleging that “contracts are concluded 

according to companies’ independent willingness. Chinese governments at all levels neither participate nor 

intervene in any of those business decisions or activities...The intellectual property licensing or technology 

negotiations are carried out based on market conditions by Chinese companies and U.S. companies.”); CCOIC, 

Submission, Section 301 Hearing 64 (Sept. 28, 2017).

304 CCCME, Submission, Section 301 Hearing 10 (Oct. 23, 2017).

305 E.g. CCCME, Submission, Section 301 Hearing 5 (Oct. 23, 2017) (“Over the past five years, however, CCCME 

received neither dispute nor complaints related to intellectual property and technology transfer.”). 

306 USCBC, Submission, Section 301 Hearing 10 (Sept. 28, 2017) (“China’s JV requirements and foreign equity 

limitations create an unequal negotiation for companies...Elimination of these policies would create a meaningful 

change in companies’ ability to negotiate market-based terms for their IP and technology in China.”). 

307 Id. at 3 (“In USCBC’s recent survey, most companies report that they are concerned about transferring their 

technology to China, regardless of the circumstances, because of concerns about the protection of intellectual 

property rights and proprietary information, as well as concerns about enforcing technology licensing agreements.”).

308 19 U.S.C. § 2411(d)(5).
III. China’s Discriminatory Licensing Restrictions

57

2. Acts, Polices, and Practices of Other Countries

In addition, USTR received submissions regarding the acts, policies, and practices of other 

trading partners relating to licensing and technology transfer, including submissions regarding 

the technology licensing regime in the United States. None of the cited acts, policies, or 

practices in comments submitted to USTR was the same as or similar to those of China. Instead, 

these very different examples highlight that the acts, policies, and practices of China in 

technology licensing discriminate against importers of foreign technology, including U.S. 

entities.

USTR received comments and testimony asserting, without support or discussion, that the PRC 

Contract Law provisions regarding technology transfer “equally apply to domestic and foreign 

invested companies without favoring either group.”309 As discussed above in Section III.B.1, the 

PRC Contract Law does not equally apply to domestic and foreign companies.310 A Chinese 

company seeking to transfer technology within China can take full advantage of the provisions of 

the PRC Contract Law, while a U.S. technology owner seeking to transfer technology into China 

must adhere to the adverse terms imposed by TIER or the JV Regulations.311 

Some submissions characterized other indemnity clauses in international codes and national laws 

as similar to those in the TIER. For example, two submissions highlighted language from the 

Draft International Code of Conduct on the Transfer of Technology (Draft Code), a United 

Nations text.312 Article 24 of TIER states in relevant part that “[w]here any of the lawful 

interests of any other person is infringed upon, the liabilities shall be borne by the licensor.

Chapter 5, Paragraph.4, Romanette vi (Rights to the technology transferred) of the Draft Code 

states that “[t]he technology supplier's representation that on the date of the signing of the 

agreement, it is, to the best of its knowledge, not aware of third parties' valid patent rights or 

similar protection for inventions which would be infringed by the use of the technology when 

used as specified in the agreement....” The Draft Code, drafted over thirty years ago, does not 

address indemnification for future liability, which is what is required by Article 24 of TIER. 

Instead, the Draft Code addresses a warranty issue regarding known past infringement at the time 

the contract is signed.313 The TIER addresses all indemnification issues, not just past warranties 

as the Draft Code addresses. 

 

309 CHINA GENERAL CHAMBER OF COMMERCE – USA [hereinafter “CGCC”], Submission, Section 301 Hearing

(Sept. 28, 2017). The CGCC submission adds that “[i]n addition to the Contract Law, the Regulations on 

Technology Import and Export Administration of the People’s Republic of China (passed in 2001) have additionally 

bolstered the protection of technology transfer, licensing, ownership and indemnity in cross border transactions,” but 

does not include information as to how the TIER bolsters such protections nor how the TIER’s separate regime for 

foreign technology transfers works alongside the PRC Contract Law. Id. 14-5.

310 ITIF, Submission, Section 301 Hearing 15 (Oct. 25, 2017) (“CCCME...holds that TIER’s relevant Articles 24 

and 27 are ‘neutral in nature.’ Yet they are not, for CCCME omits that the articles only apply in a ‘technology 

import contract.’”).

311 See id. (“CCCME contends that these provisions are ‘neutral in nature’....But this fails to rebut or address the 

real issue at hand, for it omits the fact that both articles [24 and 27 of TIER] only apply ‘in a technology import 

contract’ but do not hold with regard to a technology license contract.”).

312 CCCME, Submission, Section 301 Hearing 10 (Oct. 23, 2017); CCOIC, Submission, Section 301 Hearing 61–2 

(Sept. 28, 2017).

313 ITIF, Submission, Section 301 Hearing 15 (Oct. 25, 2017) (“The unaware-of-dominant-patent fundamentally 

differs from TIER Article 24’s ‘licensor shall bear liability.’”).
III. China’s Discriminatory Licensing Restrictions

58

Instead of adopting the Draft Code, certain Members like China and the United States have 

adopted the Convention on Contracts for the International Sale of Goods, which includes a 

provision expressly providing for the freedom of contract around such terms. The Convention 

does include a related warranty provision that a seller of goods “must deliver goods which are 

free from any right or claim of a third party based on industrial property or other intellectual 

property” in Article 42, but the Convention also provides in Article 6 that parties 

“may...derogate from or vary the effect of any of [the Convention] provisions.” A similar 

freedom of contract provision is incorporated into the “Successful Technology Licensing” 

publication of the UN’s World Intellectual Property Organization (WIPO). WIPO, of which 

China and the United States are also members, provides guidance through its Successful 

Technology Licensing document, which recognizes the “legal complexity” of terms regarding 

issues like indemnity and the importance of parties being able to freely negotiate such terms. In 

its Successful Technology Licensing, WIPO makes clear that “there is no set answer” and 

“nothing is ‘standard’ or ‘customary.’” These freedom to contract provisions in the UN 

Convention and the WIPO document are reflected in Article 353 of the PRC Contract Law, but 

the TIER conflicts for U.S. technology importers into China.

Some submitters asserted that additional relevant laws of trading partners, including the United 

States, address indemnification, but the submitters failed to provide supporting legal analysis for 

such allegations.314 USTR was unable to analyze unsupported allegations such as these, 

particularly when the submitters were provided an opportunity during the hearing to respond to 

these questions and chose not to do so in the hearing or afterwards in written submissions during 

the rebuttal comment period.315

For example, a submission identified the Philippines as having similar indemnification and 

improvement ownership clauses to China in the Voluntary Licensing chapter of the Intellectual 

Property Code of the Philippines (Republic Act No. 8293).316 However, the cited provisions of 

the Philippine law are not similar to the Chinese regime under the TIER.

As discussed above, the TIER in China requires a technology importing licensor to be 

responsible for all liabilities resulting from use of the technology provided “[w]here any of the 

 

314 For example, the China Intellectual Property Law Society submitted that German case law and the U.S. Uniform 

Commercial Code both included similar rules to the TIER, but did not cite to any provision in either that required 

foreign licensors to indemnify domestic licensees for all infringement liability. China Intellectual Property Law 

Society [hereinafter “CIPL”], Submission, Section 301 Hearing 80–1 (Sept. 27, 2017). Instead, CIPL only cited 

German case law and the U.S. Uniform Commercial Code with regard to express and implied warranty language for 

goods in Germany and the United States regarding known defects of products. Jin Haijun, CIPL, Testimony, Section 

301 Hearing 140–1 (Oct. 10, 2017). 

315 E.g. Jin Haijun, CIPL, Testimony, Section 301 Hearing 140–1 (Oct. 10, 2017) (“We provided the explanation of 

your question in our written comments....We give some examples like the judgment in Germany and the UCC in the 

United States and the draft code in the United Nations.”); John Tang, DHH WASHINGTON DC LAW OFFICE P.C. 

[hereinafter “DHH”], Testimony, Section 301 Hearing 164 (Oct. 10, 2017) (responding that “I believe in our 

supplemental comments, we will address your answer in a more complete way” regarding questions about TIER) 

compare with DHH, Submission, Section 301 Hearing 4 (Oct. 23, 2017) (“In particular, China does not have any 

laws, rules or regulations that force foreign investors to transfer their technology. Should such situations arise, it 

would be an agreement among corporations subject to market conditions, instead of by government interference.”).

316 CCOIC, Submission, Section 301 Hearing 62 (Sept. 28, 2017).
III. China’s Discriminatory Licensing Restrictions

59

lawful interests of any other person is infringed upon.”317 The cited Philippine law states that 

there is a prima facie presumption that an adverse effect on competition and trade arises for 

technology transfer arrangements that “exempt the licensor for liability for non-fulfilment of his 

responsibilities under the technology transfer arrangement and/or liability arising from third 

party suits brought about by the use of the licensed product or the licensed technology.” Given 

that it is a presumption, the Philippine measure significantly differs from the TIER’s broad 

indemnification requirement. Additionally, there is an exception to the presumption under 

Philippine law for situations listed under Section 91 of the law, which include technology 

transfer arrangements that are “exceptional or meritorious cases where substantial benefits will 

accrue to the economy, such as high technology content, increase in foreign exchange earnings, 

employment generation....” The submission fails to account for the exception cited in the 

section, that the presumption applies “[e]xcept in cases under Section 91 [of the Intellectual 

Property Code].” Section 91 of the Intellectual Property Code of the Philippines specifically 

permits entities to seek exemptions from the cited Sections 87.14 and 87.16, including in cases 

“where substantial benefits will accrue to the economy, such as high technology content.” Most 

importantly, the Philippine law appears to apply to all technology transfer arrangements under 

Philippine law, whereas the Chinese TIER provision only applies to importers of foreign 

technology, such as U.S. industry.

For the ownership clause, Article 27 of the TIER requires that improvements to imported 

technology belong to the party making the improvement. As discussed above in Section III.B.3, 

the obligation in Article 27 means that Chinese parties to technology importing contracts have 

the automatic right to any improvements made by those same parties without negotiating terms 

with their U.S. partners. The cited Philippine law318 in Section 87.6 states that there is a prima 

facie presumption that technology transfer arrangements that “obligate the licensee to transfer for 

free to the licensor the inventions or improvements that may be obtained through the use of the 

licensed technology” have an adverse effect on competition and trade. The TIER requires that 

all improvements made by a licensee vest with that licensee, not that there is a prima facie

presumption of adverse effect on competition and trade where a licensee must transfer any 

improvements for free, as set out in the Philippine intellectual property law. Also, and as with 

Section 87.14, there is an exception to the presumption under Philippine law for situations listed 

under Section 91 of the same law, which include technology transfer arrangements that are 

“exceptional or meritorious cases where substantial benefits will accrue to the economy, such as 

high technology content, increase in foreign exchange earnings, employment generation....” 

Similarly, the Philippine law appears to apply to all technology transfer arrangements under 

Philippine law, whereas the Chinese TIER provision only applies to importers of foreign 

technology, such as U.S. industry.

USTR also received statements that the intellectual property regime in Vietnam is similar to the 

TIER.319 However, just as for the Philippine system, Vietnam does not have a provision like 

Article 27 of the TIER in China. The regime in Vietnam addresses contracts that require 

licensees to transfer improvement made by the licensee free of charge to licensors. Article 

144.2(a) of Vietnam’s Law on Intellectual Property Law states that “an industrial property object 

 

317 TIER, art. 24.

318 CCOIC, Submission, Section 301 Hearing 63 (Sept. 28, 2017).

319 CCOIC, Submission, Section 301 Hearing 63 (Sept. 28, 2017).
III. China’s Discriminatory Licensing Restrictions

60

license contract must not have provisions which unreasonably restrict the right of the licensee.” 

Specific examples include “[p]rohibiting the licensee to improve the industrial property object 

other than marks” and “compelling the licensee to transfer free of charge to the licensor 

improvements of the industrial property object made by the licensee or the right of industrial 

property registration or industrial property rights to such improvements.” However, the TIER in 

China forbids the parties from freely contracting as to how improvements are allocated between 

the parties, taking into consideration that the technology at issue was provided by the licensor in 

the first place.320 

Similar submissions failed to address whether any of these cited provisions only apply to foreign 

technology owners and provide different treatment for domestic technology transfers, as is the 

regime in China. All of the so-called “similar” legal and guidance provisions in other countries 

and international fora do not solely apply to imported technology transfers, as the TIER does in 

China, but instead apply equally to all technology transfers in licensing contracts.

USTR received comments stating that U.S. companies are not treated differently under the TIER 

as compared to Chinese domestic companies.321 As explained above in Section I.B.2 et seq. and 

Section I.D.1, this is not the case. One submission states that “as long as the patent on the 

technology is still valid or the technology remains subject to confidentiality, the use of the 

technology by the licensee still requires licensing by the licensor” under the TIER.322 Such 

comments do not account for the other requirements of the licensing regime in China, including 

the JV Regulations that, among other things, authorize the licensee to use the technology without 

compensation after the conclusion of the agreement. Other comments stated without citations 

that the Chinese contract law system “originated from those in major European countries (such 

as Germany) and the law has evolved into a very similar one to its U.S. counterpart.”323 

Assertions of such a general nature are not responsive to the concern articulated above regarding 

the differential and discriminatory treatment of U.S. and other foreign technology owners 

relative to Chinese counterparts. The submitters’ failure to provide citations to the asserted 

relevant U.S. counterpart contract provisions precludes USTR from concluding such statements 

are sound and supported by law. Moreover, no submission addressed the fact that the contract 

laws of the United States do not provide different treatment for domestic transfers of technology 

versus foreign imported transfers of technology.

USTR did not receive any submissions establishing that the United States or any third country 

has enacted any act, policy, or practice similar to the JV Regulations.

E. China’s Acts, Policies, and Practices Burden U.S. Commerce

As discussed earlier under Section II.E., China’s acts, policies, and practices regarding 

restrictions on technology transfer — including licensing and other technology-related

 

320 See TIER, art. 27.

321 See CCCME, Submission, Section 301 Hearing 10 (Oct. 23, 2017) (alleging that “these two provisions [arts. 24 

and 27 of the TIER] are neutral in nature....Either Chinese companies or U.S. companies can be the licensor and the 

party who has made the improvement.”); CCCME, Submission, Section 301 Hearing 7 (Oct. 23, 2017) (asserting 

without citations that “enterprises usually agree on the ownership of improved technology”).

322 CCOIC, Submission, Section 301 Hearing 62 (Sept. 28, 2017).

323 CGCC, Submission, Section 301 Hearing §2(C) (Sept. 28, 2017).
III. China’s Discriminatory Licensing Restrictions

61

negotiations for U.S. entities — clearly burden U.S. commerce. Acts, policies, and practices that 

burden U.S. commerce include licensing requirements that result in discrimination against U.S. 

technologies,324 as well as acts, policies, and practices that do not adequately protect U.S. 

intellectual property rights.325 The licensing restrictions described in Section III.B on U.S. 

entities clearly meet these standards because they deprive U.S. entities from benefiting from their 

innovative technology that has been transferred into China under a discriminatory licensing 

regime.326

 

324 See Initiation of Section 302 Investigation and Request for Public Comment: Japan Market Access Barriers to 

Agricultural Products, 62 Fed. Reg. 53,853 (Oct. 16, 1997); Petition of National Canners Association, 40 Fed. Reg. 

44,635 (Sept. 29, 1975).

325 See Termination of Action: Protection of Intellectual Property Rights by the Government of Honduras, 63 Fed. 

Reg. 37,943 (June 30, 1998). 

326 WILEY REIN LLP, Submission, Section 301 Hearing 11 (Sept. 28, 2017) (“Chinese companies would be able to 

employ ‘winner-take-all’ strategies to keep U.S. companies from regaining market share. Therefore, it is clear that 

the Chinese government’s action burden and restrict U.S. commerce.”).
62

IV. Outbound Investment

A. Introduction

Over the past decade, China’s outbound foreign direct investment (OFDI) has grown at a rapid 

rate.327 A longstanding focus of China’s OFDI has been the acquisition of mineral deposits and 

other natural resource assets, principally in developing regions such as Africa and Latin 

America.328 Yet, as China’s OFDI flows have increased, technology-focused investments have 

become more prevalent, particularly in the United States and Europe.329

Various motives inform China’s outbound investment behavior. Under the general, marketbased theory of foreign direct investment (FDI), foreign investors seek (1) market expansion, (2) 

efficiency gains, and/or (3) resources (broadly defined to include natural resources and other 

strategic assets).330 These motives also apply to an extent in China’s case, particularly with 

respect to natural resource investments that aim to mitigate China’s reliance on resource 

imports.331

 

327 Thilo Hanneman, Daniel H. Rosen, RHODIUM GROUP, CHINESE INVESTMENT IN THE UNITED STATES: RECENT 

TRENDS AND THE POLICY AGENDA 6 (Dec. 2016) (stating that, “The rapid growth of outbound foreign direct 

investment (FDI) by firms from China is changing the patterns of global capital flows. Chinese FDI flows grew at 

an average annual rate of 27 percent over the past decade, from $3 billion in 2005 to $123 billion in 2015.”). For a 

definition of FDI, see Shun Chiao Chang, The Determinants and Motivations of China’s Outward Foreign Direct 

Investment: A Spatial Gravity Model Approach, 43 GLOBAL ECON. REV. 260 (2014) (“‘Foreign direct investment’ is 

the category of international investment that reflects the objective of a resident entity in one economy (‘direct 

investor’ or parent enterprise) to obtain a ‘lasting interest’ and control in an enterprise resident in another economy 

(‘direct investment enterprise’. The two criteria incorporated in the notion of a ‘lasting interest’ are the existence of 

a long-term relationship between the direct investor and the enterprise, and the significant degree of influence that 

gives the direct investor an effective voice in the management of the enterprise.”). 

328 See, e.g., Ernst & Young data for the period 2010-2014 shows that Chinese firms transacted a total of 223 M&A 

deals in energy and mining, totaling $143 billion, and 54 M&A deals in agribusiness and food, totaling $16.7 billion. 

ERNST &YOUNG, RIDING THE SILK ROAD: CHINA SEES OUTBOUND INVESTMENT BOOM 7-11 (Mar. 2015).

329 Thilo Hanneman, Daniel H. Rosen, RHODIUM GROUP, CHINESE INVESTMENT IN THE UNITED STATES: RECENT 

TRENDS AND THE POLICY AGENDA 6 (Dec. 2016) (stating that, “Initially focused on extractive sectors in developing 

countries, today Chinese FDI flows increasingly to advanced economies where technology, brands, and 

sophisticated manufacturing assets are abundant.”); see also ERNST & YOUNG, RIDING THE SILK ROAD: CHINA SEES 

OUTBOUND INVESTMENT BOOM 7-11, 15-16 (Mar. 2015) (“European countries, especially the developed ones, are 

increasingly sought after by Chinese investors for their advanced technology and expertise, well-accepted and 

recognized brands and mature marketing networks. [...] The industrial, [technology, media, and 

telecommunications] and automotive sectors are favorites for Chinese investors.”). 

330 For a general theory of FDI motives (often referred to as the “eclectic paradigm”), John H. Dunning, The Eclectic 

Paradigm of International Production: A Restatement and Some Possible Extensions, 19 J. OF INT’L BUS. STUDIES 

1-31 (1988).

331 Yi Zhang, Hein Roelfsema, Unravelling the Complex Motivations behind China’s Outward FDI, 19 J. OF THE 

ASIA PACIFIC ECONOMY 92 (2013) (“The third pattern is that host country resources, including natural resources and 

strategic assets, are of growing importance in attracting China’s outward FDI. Many Chinese firms specialize in 

mass production which involves natural resource intensive processes. Nevertheless, natural resources per capita in 

China are only 20 percent–25 percent of the world’s average level (Guo, 1996). To secure supplies for domestic 

firms, the outward FDI has been used to acquire scarce natural resources such as energy, petroleum, and minerals 

(Wu and Sia 2002). For example, over years Chinese multinationals have invested in large projects to exploit oil in 

countries such as Algeria, Angola, Kenya, Nigeria, and Sudan; copper in Congo and Zambia, as well as iron ore in 

Gabon. With the fast expansion of the Chinese economy, in recent years there is an increasing demand for natural 

resources to support domestic economic growth. This path thereby leads to a more urgent need for conducting 
IV. Outbound Investment

63

But as numerous studies have noted, China’s OFDI is also driven by non-market factors. These 

factors stem from the Chinese government’s extensive intervention – in the Chinese economy in 

general, and in foreign investment in particular – to achieve industrial policy objectives.

 The U.S. Chamber of Commerce observed in a 2017 report: 

In several [Made in China 2025] sectors, the technological gap between domestic and 

foreign competitors is significant, and closing that gap would require extended 

timelines and high levels of financial commitment that could stress budgets. To 

accelerate the learning process, the [Chinese] state appears to be supporting 

acquisition strategies of Chinese state-owned and state-supported companies tied to 

[Made in China 2025] priority sectors.332

 The European Union Chamber of Commerce in China states in a 2017 report: 

Over the course of 2015 and 2016, an unprecedented wave of outbound 

investments into firms in Europe and elsewhere in industries of relevance to 

[Made in China 2025] have either been successfully completed or attempted. 

Significantly, many of these investments have been in areas where European 

business is unable to make equivalent investments in China, and have also 

enabled Chinese firms to access technology, brands and management expertise 

that they would not otherwise have been able to acquire. In some industries, such 

as semiconductors, attempted and completed investments have spanned entire 

industrial supply chains.333

 The 2017 European Commission report on Chinese economic distortions states:

A clear acceleration of Chinese outbound investments in Europe (and elsewhere) 

is noticeable in the last few years [...] Most of these overseas acquisitions have 

the direct backing of the State. Through that state-support process, Chinese 

[state-owned enterprises (SOEs)] gain market share, build additional capacities 

[and] capital assets and gain access to inputs.334

 The Mercator Institute for China Studies, a leading German think tank, states in a 2016 

report: 

 

natural-resource-seeking FDI over time.”). See also Shun Chiao Chang, The Determinants and Motivations of 

China’s Outward Foreign Direct Investment: A Spatial Gravity Model Approach, 43 GLOBAL ECON. REV. 244, 260 

(2014). The study, which reviews China’s outbound investment in 138 countries between 2003 and 2009, finds that 

the “fuel extraction motive plays a key role in China’s OFDI.”

332 U.S. CHAMBER OF COMMERCE [hereinafter “U.S. Chamber”], MADE IN CHINA 2025: GLOBAL AMBITIONS BUILT 

ON LOCAL PROTECTIONS 22 (2017).

333 EUROPEAN UNION CHAMBER OF COMMERCE IN CHINA [hereinafter “E.U. Chamber”], CHINA MANUFACTURING 

2025: PUTTING INDUSTRIAL POLICY AHEAD OF MARKET FORCES 18-19 (2017).

334 EUROPEAN COMMISSION, COMMISSION STAFF WORKING DOCUMENT ON SIGNIFICANT DISTORTIONS IN THE 

ECONOMY OF THE PEOPLE'S REPUBLIC OF CHINA FOR THE PURPOSES OF TRADE DEFENCE INVESTIGATIONS 426

(SWD(2017)483 final/2 (Dec. 20, 2012).
IV. Outbound Investment

64

[To] speed up China’s technological catch-up and to leapfrog stages of 

technological development, Chinese companies are acquiring core technologies 

through investment abroad. In itself, this is neither surprising nor objectionable. 

However, China’s technology acquisitions are partly supported and guided by the 

state. China pursues an outbound industrial policy with government capital and 

highly opaque investor networks to facilitate high-tech acquisitions abroad. This 

undermines the principles of fair competition: China’s state-led economic system 

is exploiting the openness of market economies in Europe and the United States. 

Chinese high-tech investments need to be interpreted as building blocks of an 

overarching political programme. It aims to systematically acquire cutting-edge 

technology and generate large-scale technology transfer.335

 Rhodium Group, in a 2016 study on Chinese investment in the United States, observes 

that, while it is difficult to draw clear-cut conclusions concerning aggregate FDI data, 

“Chinese government policies are important variables in FDI patterns,” and that “the 

surge in global takeover offers in the semiconductor industry is the most notable example 

of the industrial policy-outbound investment nexus.”336

 Ernst and Young, in a 2016 annual report on China’s outbound investment, states that 

“[t]he Chinese government is actively improving the strategy of outbound investment to 

facilitate Chinese enterprises to ‘Go Global’ by launching fiscal and financial support 

policies and establishing cooperation platforms.”337

 Numerous academic studies note the significance of state involvement in shaping China’s 

OFDI.338 For example, in a widely-cited study on the determinants of China’s outbound 

 

335 Jost Wübbeke, et. al., MERCATOR INSTITUTE FOR CHINA STUDIES [hereinafter “MERICS”], MADE IN CHINA 

2025: THE MAKING OF A HIGH-TECH SUPERPOWER AND CONSEQUENCES FOR INDUSTRIAL COUNTRIES 7-8 (Dec. 

2016) (emphasis added).

336 Thilo Hanneman, Daniel H. Rosen, RHODIUM GROUP, CHINESE INVESTMENT IN THE UNITED STATES: RECENT 

TRENDS AND THE POLICY AGENDA 7 (Dec. 2016) (“Government policies impact patterns in Chinese companies’ 

outbound investment both indirectly, through economic policy, and directly through incentives and policies aimed at 

promoting overseas investment in specific industries, technologies, and geographies.”); see also RHODIUM GROUP 

[hereinafter “Rhodium”], Submission, Section 301 Hearing 4 (Sept. 28, 2017). 

337 ERNST & YOUNG, GOING OUT – THE GLOBAL DREAM OF A MANUFACTURING POWER: 2016 CHINA OUTBOUND 

INVESTMENT OUTLOOK 7 (Mar. 2016) (“In 2015, China began to comprehensively implement its ‘One Belt One 

Road’ strategy. It also introduced the ‘Made in China 2025’ plan and ‘Guiding Opinions on Promoting International 

Cooperation in Industrial Capacity and Machinery Manufacturing’, aiming at encouraging the manufacturing 

industry to ‘Go Global’ and to develop international capacity cooperation. These efforts have already taken some 

effect: In 2015, Chinese enterprises invested USD 14.8 billion along the Belt and Road territories, up 18.2 percent 

from 2014; meanwhile the outward FDI from the machinery manufacturing industry has grown by 154.2 percent.”).

338 See, e.g., Alvaro Cuervo-Cazurra et al., Government as Owners: State-owned Multinational Companies, J. OF 

INT’L BUS. STUDIES (July 9, 2014); Lin Cui, Fuming Jiang, State Ownership Effect on Firms’ FDI Ownership 

Decisions under Institutional Pressure: A Study of Chinese Outward-Investing Firms, 43 J. OF INT’L BUS. STUDIES 

264-284 (2012); Chengqi Wang, et. al., Exploring the Role of Government Involvement in Outward FDI from 

Emerging Economies, 43 J. OF INT’L BUS. STUDIES 655-676 (2012); Luke Hurst, Comparative Analysis of the 

Determinants of China’s State-owned Outward Direct Investment in OECD and Non-OECD Countries, 19 CHINA &

WORLD ECONOMY 74-91 (2011); Ping Deng, Why Do Chinese Firms Tend to Acquire Strategic Assets in 

International Expansion, 44 J. OF WORLD BUS. 74-84 (Jan. 2009).
IV. Outbound Investment

65

investment, Peter J. Buckley et al. argue for a “special theory of Chinese [OFDI]” that 

takes into account the degree to which China’s outbound investment is shaped by soft 

budget constraints afforded to outbound investors by state-owned financial institutions; 

pervasive state ownership of outbound investors; 339 and the manner in which the Chinese 

government exerts control over the outbound investment approval process.340

USTR determines that the Chinese government directs and unfairly facilitates the systematic 

investment in, and acquisition of, U.S. companies and assets by Chinese companies, to obtain 

cutting-edge technologies and intellectual property (IP) and generate large-scale technology 

transfer in industries deemed important by state industrial plans. The role of the state in 

directing and supporting this outbound investment strategy is pervasive, and evident at multiple 

levels of government – central, regional, and local. The government has devoted massive 

amounts of financing to encourage and facilitate outbound investment in areas it deems strategic. 

In support of this goal, China has enlisted a broad range of actors to support this effort, including 

SOEs, state-backed funds, government policy banks, and private companies. 

This section is structured as follows: Section IV.B provides a review of China’s outbound 

investment policies, and the various state-owned and state-supported actors that participate in 

outbound investment. The section considers the government’s principal initiatives to acquire 

foreign technology, including the “Going Out” strategy, and other levers that the government 

employs to channel and direct investment, such as its outbound investment approval system. 

Section IV.C examines the ways in which this policy framework and approach have impacted 

Chinese investment in the United States. The section reviews aggregate data on investment 

flows, followed by a detailed analysis of Chinese acquisitions in seven sectors of the U.S. 

economy that illustrate China’s acts, policies, and practices: (1) aviation; (2) integrated circuits

(IC); (3) information technology (IT) and electronics; (4) biotechnology; (5) industrial 

machinery and robotics; (6) renewable energy; and (7) automotive. The section ends by

analyzing Chinese investment activities that target core innovation drivers for the U.S. economy 

in technology centers such as Silicon Valley.

Section IV.D provides a summary of findings: China has engaged in acts, policies, and practices 

that are unreasonable, and that burden U.S. commerce. The market-distorting acts, policies, and 

 

339 Peter J. Buckley et al., Determinants of Chinese Outward Foreign Direct Investment, 38 J. OF INT’L BUS.

STUDIES 501 (July 2007) (“Market imperfections may be transformed into ownership advantages by emerging 

economy firms (Buckley, 2004a). This ability may arise from a number of particular and interrelated imperfections: 

(1) state-owned (and state-associated) firms may have capital made available to them at below- market rates (e.g., in 

the form of soft budget constraints) [...] (2) inefficient banking systems may make soft loans to potential outward 

investors, either as policy or through inefficiency [...] (3) conglomerate firms may operate an inefficient internal 

capital market that effectively subsidizes FDI [...] There are good grounds for believing that all [...] of these 

imperfections exist in China. State-sponsored soft budget constraints make acquisition by Chinese enterprises a 

‘normal’ mode of entering and penetrating a host economy.”). 

340 Peter J. Buckley et al., Determinants of Chinese Outward Foreign Direct Investment, 38 J. OF INT’L BUS.

STUDIES 503 (July 2007) (“Given the extent of state control of the Chinese economy (Scott, 2002), the institutional 

environment is likely to have had far-reaching and profound effects on the internationalisation decision of Chinese 

firms. [...] Because various agencies within the state administration have been required to approve each and every 

outward FDI project from China (pre- dominantly through the control of foreign exchange), this evolution is likely 

to have influenced strongly the development, strength and orientation of Chinese MNEs.”).
IV. Outbound Investment

66

practices of the Chinese government in technology-focused sectors impose significant costs and 

risks on U.S. industry. They undermine the ability of U.S technology companies to innovate and 

adapt, and threaten the long-term competitiveness of U.S. industry. 

B. Policy and Regulatory Framework 

1. Major Policies to Acquire Foreign Technology

a) The “Going Out” Strategy 

A cornerstone of Chinese outbound investment is the “Going Out”341 strategy. This strategy 

encourages Chinese companies to “go out” and invest abroad, and calls on the government to 

guide and facilitate this effort. The strategy, as originally conceived, seeks to remove obstacles 

to outbound investment342 and provide targeted support for specific enterprises and sectors 

investing abroad.343 This strategy appears to have been first articulated in a 1997 speech by then 

President Jiang Zemin,344 and was enshrined in the 10th Five-year National Economic and Social 

Development Plan Outline (2001-2005) (10th Five-year Plan).345 In subsequent statements, the 

government affirmed the linkage between the “Going Out” strategy and technology acquisition. 

For example, at the 2004 “International Forum on the Going Out of Chinese Companies,” a highranking official from the Ministry of Commerce (MOFCOM) explained that, as one of seven 

 

341 English translation of Chinese term zou chu qu.

342 Peter J. Buckley et al., Determinants of Chinese Outward Foreign Direct Investment, 38 J. OF INT’L BUS.

STUDIES 500 (July 2007) (“The process of accelerated outward investment liberalisation and growth can be traced 

from Deng Xiaoping's tour of South China in 1992 through to the government-led 'go global' (zou chu qu) initiative, 

which was instigated in 1999. This initiative aims to promote the international competitiveness of Chinese firms by 

further reducing or eliminating foreign-exchange-related, fiscal and administrative obstacles to international 

investment (Sauvant, 2005)”).

343 Luke Hurst, Comparative Analysis of the Determinants of China’s State-owned Outward Direct Investment in 

OECD and Non-OECD Countries, 19 CHINA & WORLD ECONOMY 77 (2011) (“A ‘Go Global’ policy was unveiled 

in 1999. Its fundamental aim was to encourage ODI to support national exports, with the clear objective of pushing 

domestic firms to internationalize their activities as a means to acquire strategic resources and expand into foreign 

markets. The overarching goal was to increase the competitiveness of 180 corporate champions to facilitate their rise 

as true multinationals and enter the Fortune 500. Firms that were identified benefited from preferential tax 

concessions and political backing (VanWyk, 2009)”).

344 Jiang Zemin, Former General Secretary of the Communist Party of China, Implement the ‘Drawing In’ and 

‘Going Out’ Combined Opening Up Strategy [Chinese] (Dec. 24, 1997), available at http://history.mofcom.gov.cn. 

345 10th Five-year National Economic and Social Development Plan Outline (adopted by the NPC on Mar. 15, 

2001). The 10th Five-year Plan specifically references the “Going Out” strategy in the context of science and 

technology development. Part 1, Chapter 1, ¶ 5 states: “Adhere to Reform and Opening Up and progress in 

science and technology as the driving force. [...] We shall unwaveringly expand Opening Up, and while 

actively ‘drawing in’, implement the ‘Going Out’ strategy. Amplify implementing the strategy of scientific 

education, revitalize science and technology, and foster talent for a prosperous nation.” In furtherance of this 

policy, the 10th Five-year Plan calls for the expansion of “areas, pathways, and modes for international 

economic and technology cooperation” and encourages enterprises to “utilize foreign knowledge resources, and 

establish research and development institutions and design centers overseas.” Likewise, the plan calls for a 

broad array of support measures to help Chinese companies engage in “multinational operations” to “implement 

internationalization development” (including outbound investment). The government should assist in several 

areas, including financing, insurance, foreign exchange, fiscal policy, laws, information services, and border 

entry and exit administration. The plan instructs authorities to “improve corporate governance structures of 

enterprises with outbound investments,” and standardize supervision and administration of outbound investment 

(Part 5, Ch. 17, § 4).
IV. Outbound Investment

67

aspects of “Going Out,” enterprises should “set up R&D centers in regions endowed with 

intensive science and technology” and “intensify international technical exchange and 

cooperation and improve their innovative capability and technology.”346

As discussed below, several recent policies flow from and support the “Going Out” strategy. For 

example:

 The State Council’s Notice on Issuing Several Policies on Further Encouraging the 

Development of the Software and Integrated Circuit Industries calls for supporting the 

“Going Out” strategy of enterprises in establishing foreign marketing networks and R&D 

centers to promote IC, software, and IT service exports.347 

 The Next-Generation Artificial Intelligence Development Plan, released in July 2017, 

calls for a “Going Out” strategy that includes overseas mergers and acquisitions, equity 

investments, venture capital (VC), and establishment of research and development 

centers abroad.348 

 The Notice on Issuing “Made in China349 2025” (Made in China 2025 Notice)

350 outlines 

a wide-ranging strategy for harnessing and promoting the acquisition of foreign 

technology through outbound investment, including “explor[ing] 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.”351

China has also established the “Going Out” strategy as one element of the Introduce, Digest, 

Absorb, Re-innovate (IDAR) approach to technology assimilation (see Section I.C for further 

 

346 See Karl Sauvant, New Sources of FDI: The BRICs - Outward FDI from Brazil, Russia, India and China, 6 J. OF 

WORLD INVESTMENT & TRADE 676-677 (2005) (“First, gradually increasing outward investment and develop 

overseas processing trade and overseas assembling trade. [...] Second, intensifying overseas cooperation of 

resource development. [...] Third, contracting overseas engineering projects. [...] The fourth aspect is to carry out 

overseas agricultural cooperation. [...] The fifth aspect is to facilitate overseas science, technology and talent 

cooperation. Companies are guided to set up R&D centers in regions endowed with intensive science and 

technology. They should intensify international technical exchange and cooperation and improve their innovative 

capability and technology. The sixth aspect is to elevate the level of foreign-related labor service cooperation. [...] 

The seventh aspect is to promote cooperation in the field of trade in services.”) (emphasis added).

347 Notice on Issuing Several Policies on Further Encouraging the Development of the Software and Integrated 

Circuit Industries § 4(21) (State Council, Guo Fa [2011] No. 4, issued Jan. 28, 2011).

348 State Council Notice on Issuing the Next-Generation of Artificial Intelligence Development Plan (State Council, 

Guo Fa [2017] No. 35, issued July 8, 2017). For full translation and analysis, see Graham Webster, et al., China’s 

Plan to ‘Lead in AI: Purpose, Prospects, and Problems, NEW AMERICA CYBERSECURITY INITIATIVE (Aug. 1, 2017), 

available at https://www.newamerica.org/cybersecurity-initiative/blog/chinas-plan-lead-ai-purpose-prospects-andproblems/.

349 The literal translation is “China manufacturing”, but “Made in China” is consistent with usage in Englishlanguage documents published by China’s official state-run news agency, Xinhua News and with colloquial usage.

350 Notice on Issuing “Made in China 2025” (State Council, Guo Fa [2015] No. 28, issued May 8, 2015). For a 

more detailed discussion on some of the broader policy goals of Made in China 2025, see Section I.C.

351 Made in China 2025 Notice § 4, “Strategy Support and Guarantees,” § 4(7), “Further Expand Opening Up of 

Manufacturing Industries.”
IV. Outbound Investment

68

discussion of IDAR). This link is most clearly articulated in a 2006 document issued pursuant to

the National Medium- and Long-Term Science and Technology Development Plan Outline

(2006-2020) (MLP),352 and other policies which call on the government to “[g]uide enterprises 

that possess the conditions to ‘go out.’ Through the establishment of overseas research and 

development entities, fully utilize foreign science and technology resources, follow and study 

global advanced technology, and continually enhance the technological development and 

innovation capacity of Chinese enterprises.”353 

b) International Cooperation and International Industrial Capacity

In support of the “Going Out” strategy, China has emphasized the need to promote “international 

cooperation,” a term that often refers to strategic outbound investments guided by state industrial 

policy. For example, the Information and Communications Industry Development Plan (2016-

2020),

354 released by the Ministry of Industry and Information Technology (MIIT) in December 

2016, calls for “continually exploring different modes of overseas cooperation including joint 

ventures, acquisitions, equity investments, and controlling equity investments.”355 The Formal 

Announcement of Guidelines for the Development and Promotion of the Integrated Circuit 

Industry (IC Guidelines),

356 released in 2014, calls for domestic IC companies to expand

“international cooperation, consolidate international resources, and expand international 

markets.”357 The Robotics Industry Development Plan (2016-2020) (Robotics Five-year 

Plan),358 under the heading “expand international exchange and cooperation,” states that the 

government should “develop international exchange and cooperation” across governments, 

industry associations, and enterprises, and “encourage enterprises to actively expand overseas 

markets, and strengthen technology cooperation [...]”359

Likewise, China recently has called for “international industrial capacity cooperation,”360 which 

was conceived as part of the “One-Belt One-Road” initiative launched in 2015.361 This policy 

 

352 Notice on Issuing the National Medium- and Long-Term Science and Technology Development Plan Outline 

(2006-2020) (State Council, Guo Fa [2005] No. 44, issued Dec. 26, 2005); see also Several Supporting Policies for 

Implementing the “National Medium- and Long-Term Science and Technology Development Plan Outline (2006-

2020)” (State Council, Guo Fa [2006] No. 6, issued Feb 7, 2006).

353 Several Opinions on Encouraging Technology Introduction and Innovation and Promoting the Transformation of 

the Growth Mode in Foreign Trade [hereinafter “IDAR Opinions”] § 3(10) (MOFCOM, NDRC, MOST, MOF, 

GAC, SAT, SIPO, SAFE, Shang Fu Mao Fa [2006] No. 13, issued July 14, 2006).

354 Information and Communications Industry Development Plan (2016-2020) (MIIT, Gong Xin Bu Gui [2016] No. 

424, issued Dec. 18, 2016).

355 Information and Communications Industry Development Plan § 3(2)6, “Development Priorities” (emphasis 

added).

356 Notice on Issuing Guidelines for the Development and Promotion of the Integrated Circuit Industry (State 

Council, issued June 24, 2014).

357 IC Guidelines § 4(8) (emphasis added).

358 Notice on Issuing Robotics Industry Development Plan (2016-2020) (MIIT, NDRC, MoF, Gong Xin Bu Lian Gui 

[2016] No. 109, issued Mar. 21, 2016) (emphasis added).

359 Robotics Five-year Plan § 4(6).

360 English translation of Chinese term guoji channeng hezuo.

361 Belt and Road Basics, HONG KONG TRADE DEVELOPMENT COUNCIL, http://beltandroad.hktdc.com/en/belt-androad-basics (last visited Dec. 6, 2017) (“The Belt and Road Initiative refers to the Silk Road Economic Belt and 21st 

Century Maritime Silk Road, a significant development strategy launched by the Chinese government with the 

intention of promoting economic co-operation among countries along the proposed Belt and Road routes. The 
IV. Outbound Investment

69

focuses on encouraging outbound investment in manufacturing industries to expand markets for 

Chinese goods and technologies. In addition, “international industrial capacity cooperation” 

encompasses possible arrangements by which Chinese companies can obtain technology from 

foreign entities –including acquisitions, various forms of equity investments, and JVs.

In May 2015, the State Council issued the Guiding Opinion on Promoting International 

Industrial Capacity and Equipment Manufacturing Cooperation (International Cooperation 

Opinion),362 which identifies 11 sectors as priorities for international expansion: (1) steel and 

nonferrous metals, (2) construction materials, (3) rail equipment, (4) power generation and 

infrastructure, (5) resource development, (6) textiles, (7) automotive, (8) information technology, 

(9) machinery, (10) aviation, and (11) shipbuilding.363 With respect to information and 

communications technology (ICT), the measure calls for “[p]romoting innovation upgrading” 

and “raising [...] international competitiveness.”364 To do this, authorities are directed to 

“[e]ncourage telecoms operating enterprises and Internet enterprises to use methods, including 

mergers and acquisitions and investments in infrastructure and facilities operations, to ‘Go 

Out’[...].”365

To facilitate this “Going Out” strategy, the International Cooperation Opinion calls for 

government support, including preferential financing through: (1) equity investment and other 

new forms of financing; (2) international use of the Renminbi (hereinafter Chinese Yuan or 

CNY) to facilitate transactions, with support from the state-owned policy banks Export-Import 

Bank of China (China Exim) and China Development Bank (CDB); (3) diversified funding 

sources, including low-cost access to funding through domestic fund-raising and preferential 

access to foreign exchange funds; (4) increases in equity investment resources through more use 

of state-backed funds, such as the Silk Road Fund; and, (5) export credit insurance.366

China appears to be implementing the “international industrial capacity cooperation” strategy on 

a large scale. China Exim has described “international industrial capacity cooperation” as a 

government policy that has informed its lending for outbound investment projects.367 Likewise, 

on its online “Going Out” Public Service Platform, MOFCOM manages a website dedicated to 

“international industrial capacity cooperation.”368 This website regularly publishes “industrial 

capacity statistical data,” which quantifies the growth of China’s outbound investment in 

“manufacturing industries” and, within that category, the share of outbound investment in 

 

Initiative has been designed to enhance the orderly free-flow of economic factors and the efficient allocation of 

resources. It is also intended to further market integration and create a regional economic co-operation framework of 

benefit to all. The National Development and Reform Commission (NDRC) issued its Vision and Actions on Jointly 

Building the Silk Road Economic Belt and 21st Century Maritime Silk Road on 28 March 2015. This outlined the 

framework, key areas of co-operation and co-operation mechanisms with regard to the Belt and Road Initiative.”).

362 Guiding Opinion on Promoting International Industrial Capacity and Equipment Manufacturing Cooperation

(State Council, Guo Fa [2015] No. 30, issued May 13, 2015).

363 International Cooperation Opinion § 3(7-18).

364 International Cooperation Opinion § 3(15).

365 International Cooperation Opinion § 3(15).

366 International Cooperation Opinion § 6(32-36).

367 See EXPORT-IMPORT BANK OF CHINA, ANNUAL REPORT 2016 37 (2016) (“The Bank provided financial services 

to facilitate China’s major strategic plans, including [...] international industrial capacity cooperation.”).

368 “Going Out” Service Platform [Chinese], available at http://fec.mofcom.gov.cn/article/tjgjcnhz/. 
IV. Outbound Investment

70

“equipment manufacturing.”369 Moreover, Chinese media reports indicate that China has signed 

over 30 “international industrial capacity cooperation” agreements370 with foreign countries and 

launched outbound investments in a wide range of industries in pursuit of this policy.371

2. The Chinese Outbound Investment Approvals System

The Chinese government also exercises control over outbound investment through an investment 

approval mechanism. As described in more detail below, the government retains considerable 

ability to influence investment decisions through its use of administrative procedures and foreign 

exchange controls.

By way of background, until the early 2000s, Chinese outbound investment was relatively rare. 

The government began to permit inbound FDI only in the 1980s, under the aegis of the “Reform 

and Opening Up Policy.” In the 1980s and 1990s, China’s outbound investment regime 

remained highly restrictive. Only a small number of enterprises – mostly SOEs – invested 

abroad during this period.372

Beginning in 2004, the government relaxed certain restrictions on outbound investment, while 

formalizing its outbound investment approval system in laws and regulations. An important 

foundation for this shift was the Administrative License Law of the People's Republic of 

China,

373 which came into effect on July 1, 2004. The law draws a distinction between a set of 

items that may be and set of items that may not necessarily be subject to government approval, 

 

369January-October 2017 Statistical Data on Industrial Capacity Cooperation [Chinese], MINISTRY OF COMMERCE

(Nov. 23, 2017), http://fec.mofcom.gov.cn/article/tjgjcnhz/tjsj/201711/20171102674823.shtml. 

370 Signatories are primarily developing countries, such as Kazakhstan, Egypt, and Brazil. These agreements 

generally entail cooperation on industrial projects in the foreign country with which China signs the agreement, 

financed primarily or entirely by China. For example, China and Brazil have established an “industrial capacity 

cooperation fund” with capital of $20 billion, of which $15 billion is provided by China. Sectors in which the fund 

will invest include advanced technology, among others. China Has Signed Industrial Capacity Cooperation 

Agreements with 37 Countries [Chinese], XINHUA NEWS, Sept. 8, 2017, available at

http://news.xinhuanet.com/politics/2017-09/08/c_129699618.htm; Press Release, Permanent Secretariat of Form for 

Economic and Trade Co-operation between China and the Portuguese-Speaking Countries, US$20-Billion ChineseBacked Fund to Build Brazilian Industry Starts Next Week (May 26, 2017).

371 China Signs International Industrial Capacity Cooperation Agreements with Over 30 Countries [Chinese], 

PHOENIX NEWS, May 12, 2017, available at http://news.ifeng.com/a/20170512/510838270.shtml. The report states, 

for example: “In the information technology industry, several solar PV companies have invested in solar PV station 

infrastructure and developed engineering, procurement, and construction full-package services in locations including 

the United States, Japan, Europe, South America, and Southeast Asia.”

372 Thilo Hanneman, Daniel H. Rosen, RHODIUM, CHINESE INVESTMENT IN THE UNITED STATES: RECENT TRENDS 

AND THE POLICY AGENDA 66 (Dec. 2016) (“While China embraced inward foreign direct investment (FDI) to a far 

greater extent than most developing countries since the 1980s, it long prohibited its firms from investing overseas. 

For most of the first two decades of China’s economic reform period, Chinese companies were forbidden from 

investing overseas unless they had direct approval from the government. [...] The approval regime was modified 

several times but outbound FDI remained largely the domain of state-owned trading and technology companies.”); 

Peter J. Buckley et al., Determinants of Chinese Outward Foreign Direct Investment, 38 J. OF INT’L BUS. STUDIES

500 (July 2007) (“Since 1979, when ODI was formally permitted under the 'Open Door' policies, the 

internationalisation of Chinese firms has been tightly controlled by national and provincial government, either 

directly, by administrative fiat, or indirectly, via economic policy and other measures designed to advance the 

economic development agenda (Buckley et al., 2006)”). 

373 PRC Administrative License Law (adopted by the NPC on Aug. 27, 2003, effective July 1, 2004).
IV. Outbound Investment

71

and codifies relevant regulatory procedures.374 In conjunction with this law, the State Council 

released a catalogue of all administrative approval items “absolutely necessary to be retained.”375 

Also in July 2004, the State Council released a guiding decision on reforming investment 

approvals. The document recommends an aggregate reduction in approvals, but also the 

formulation of long-term economic development plans and investment guidance catalogues to 

channel investment into areas favored by the government.376 This legal and normative 

framework continues to inform China’s outbound investment approval system.

Several features of the outbound approval system afford Chinese authorities significant influence 

over outbound investment flows.

a) Formal Approval Authority

Individual government agencies have authority to approve important items relating to outbound 

investment: 

 The National Development and Reform Commission (NDRC) has authority to “screen 

and approve”377 outbound investment projects involving overseas resource extraction or 

large amounts of foreign exchange, as well as the amount of foreign exchange used for 

outbound investment.378

 The State Administration of Foreign Exchange (SAFE), the arm of China’s central bank 

that administers foreign exchange, has authority to “examine and approve”379 the 

overseas transfer of foreign exchange for capital projects and to “screen and examine”380

the originating source and the overseas transfer of foreign exchange for overseas 

investment.381 

 MOFCOM has authority to “examine and approve” the establishment of enterprises 

overseas and to “examine and approve” participation in foreign contract bidding.382

 

374 PRC Administrative License Law, art. 12-14. art. 12 authorizes the government to maintain administrative 

approvals for a variety of reasons including, inter alia, “special activities that directly bear on national security, 

public security, macro-economic adjustment and control”; “vocations and trades that provide public services and 

directly relate to the public interest,”; “important equipment, facilities, products, articles that directly concern public 

security”; “the establishment of the enterprises or other institutions for which the subject qualifications need to be 

determined”; “other matters for which administrative licenses may be established in accordance with the laws and 

regulations”.

375 Decision on Establishing Administrative License for the Administrative Screening and Approval Items Absolutely 

Necessary to Be Retained [hereinafter “Approval Items Decision”], (State Council 2004 Order No. 412, issued June 

29, 2004, effective July 1, 2004, amended Jan.29, 2009, further amended Aug. 25, 2016).

376 State Council Decision on Investment System Reform §§ 4(2) (State Council, Guo Fa [2004] No. 20, issued July 

16, 2004).

377 English translation of Chinese term shenpi.

378 Approval Items Decision, Annex items 1 and 2.

379 English translation of Chinese term hezhun.

380 English translation of Chinese term shenhe.

381 Approval Items Decision, Annex items 468, 487.

382 Approval Items Decision, Annex items 188, 191. 
IV. Outbound Investment

72

b) The Investment Catalogue

In July 2004, the State Council began to publish the Catalogue of Investment Projects for 

Government Examination and Approval (Investment Catalogue), which informs both domestic 

and foreign investment approvals.383 The Investment Catalogue, since updated in 2013, 2014, 

and 2016, lists government approval requirements for investments in “high and new technology” 

and nine other sectors of the Chinese economy.384 It also specifies, in a general sense, which 

type and amount of outbound foreign investment is subject to approval or “filing-for-records” 

requirements with government departments under the State Council. 

The 2016 edition of the Investment Catalogue provides that all outbound investments in 

“sensitive countries”385 and “sensitive sectors”386 require “examination and approval” by 

government departments under the State Council, and that all outbound investments 

“administered by the central government,” as well as all investments by “local enterprises” at or 

above $300 million, require “filing-for-records”387 with government departments under the State 

Council. 

The 2016 edition also refers to government-issued “development plans,” “industrial policies,” 

and “technology policies”388 as an “important basis”389 for enterprises engaging in investment 

projects.390

c) MOFCOM and NDRC Approval Roles

MOFCOM and NDRC maintain separate legal instruments to exercise approval and review 

authority over outbound investment. MOFCOM exercises its authority pursuant to the Measures 

on Administering Overseas Investment (2014 MOFCOM Approval Measures).

391 The measure 

provides that investments in “sensitive countries” and “sensitive sectors” require “examination 

and approval” by MOFCOM.392 All other investments are subject to “filing-for-records” 

requirements,393 which involve the submission of a form and corresponding paperwork. Upon 

 

383 The first edition of the Investment Catalogue was appended to the State Council Decision on Investment System 

Reform (State Council, Guo Fa [2004] No. 20, issued July 16, 2004). State Council Decision on Investment System 

Reform § 3(1), also contains a notable provision that grants broad authority to maintain “government investment” in 

areas that affect “national security” or “fill gaps left by the market,” to expressly include “promoting science and 

technology advances and the industrialization of high and new technology.” 

384 The 11 sectors are: (1) Agriculture and irrigation, (2) energy (3) transportation (4) IT industry (5) raw materials 

(6) machinery manufacturing (7) light industry and tobacco (8) high and new technology (9) urban construction (10) 

public services, (11) finance, (12) inbound FDI, and (13) OFDI. 

385 English translation of Chinese term mingan guojia.

386 English translation of Chinese term mingan hangye.

387 English translation of Chinese term bei’an.

388 English translation of Chinese term jishu zhengce.

389 English translation of Chinese term zhongyao yiju.

390 State Council Notice on Issuing the Investment Projects for Government Examination and Approval (2016 

Edition) §§ 2, 3 (State Council, Go Fa [2016] No. 72, issued Dec.12, 2016).

391 Measures on Administering Overseas Investment (MOFCOM, Shang Wu Bu Ling [2014] Order No. 3, issued 

Sept. 6, 2014).

392 2014 MOFCOM Approval Measures, art. 6.

393 2014 MOFCOM Approval Measures, art. 6.
IV. Outbound Investment

73

MOFCOM review, the information submitted is “filed for records,” combined with the issuance 

of a certificate to the enterprise.394 MOFCOM can choose to reject a “filing-for-records” 

submission if it deems the information to be “untruthful”395 or “incomplete.”396 These 

administrative procedures are significant because they allow MOFCOM to collect detailed 

information on and intervene administratively in individual investment transactions.

Pursuant to the Measures on the Administration of Examination and Approval and Filing-forRecords of Overseas Investment Projects (2014 NDRC Approval Measures),397 effective through 

February 2018, NDRC examines and approves investments that (1) exceed $1 billion in value or 

(2) involve “sensitive countries” or “sensitive sectors.” For investments at or above $2 billion 

that are also in “sensitive countries” or “sensitive sectors,” State Council approval is required.398 

The 2014 NDRC Approval Measures list “conformity with [...] industrial policies” as one of 

several “examination and approval” criteria.399 All other investments are “filed-for-records” 

with NDRC at the central level (for all investments by central SOEs and for investments at or 

above $300 million for all other enterprises) or the local level (below $300 million).400 Like 

MOFCOM, NDRC performs an administrative evaluation of investments that are “filed for 

records,” and its criteria include conformity with “industrial policies.”401 

Effective March 1, 2018, the 2014 NDRC Approval Measures were replaced by the Measures on 

the Administration of Enterprise Outbound Investment (2018 NDRC Approval Measures), which 

adjust but do not fundamentally alter the existing regulations.402 NDRC will only “examine and 

approve” investments in “sensitive countries” or “sensitive sectors;” yet, in other respects, the 

new rules are more stringent. In particular, NDRC will now regulate not only outbound 

investments of People’s Republic of China (PRC)-registered enterprises, but also those overseas 

investments that are made by foreign entities that are ultimately “controlled” by PRC-registered 

 

394 2014 MOFCOM Approval Measures, art. 9.

395 English translation of Chinese term bu rushi.

396 2014 MOFCOM Approval Measures, art. 9. English translation of Chinese term bu wanzheng.

397 Measures on the Administration of Examination and Approval and Filing-for-Records of Overseas Investment 

Projects (NDRC, 2014 Order No. 9, issued Apr. 8, 2014).

398 2014 NDRC Approval Measures, art. 7.

399 2014 NDRC Approval Measures, art. 18(1).

400 2014 NDRC Approval Measures, art. 8.

401

 In particular, art. 22 of the 2014 NDRC Approval Measures provides: “For outbound investment projects 

applying for filing for records, NDRC performs screening and examination mainly with respect to whether the 

project belongs within the administrative scope of filing for records, conforms with relevant laws and regulations, 

industrial policies, and outbound investment policies [...] harms national sovereignty, security, or the public interest, 

and whether the investment entity possesses the corresponding investment capacity.” 2014 NDRC Approval 

Measures, art. 22. See also arts. 20, 21, 23. 

402 Measures on the Administration of Enterprise Outbound Investment (NDRC, Order No. 11, issued Dec. 26, 2017, 

effective Mar. 1, 2018). Also in December 2017, NDRC and other government authorities jointly released a notice 

establishing behavioral norms for “private enterprises” (minying qiye) investing abroad. This measure provides, for 

example, that private enterprises are to participate in the “One Belt One Road” initiative, promote international 

industrial capacity and equipment manufacturing cooperation, act in the interest of the Chinese government’s supply 

side structural reform agenda, and help “protect China’s sovereignty (guojia zhuquan), security (guojia anquan), and 

public interest (shehui gonggong liyi).” Notice on Issuing Behavioral Norms for Private Enterprise Foreign 

Investment Operations § 1(2), § 3(18) (NDRC, MOFCOM, PBOC, Ministry of Foreign Affairs, and All-China 

Federation of Industry and Commerce, Fa Gai Wai Zi [2017] No. 2050, issued Dec. 6, 2017).
IV. Outbound Investment

74

enterprises.403 Moreover, NDRC will evaluate investments based on conformity with the 

“national interest”404 and “national security”405 (see below).

d) “National Security,”, “National Interest,” and “Sensitive Sectors” 

The Chinese government uses expansive definitions of “national security,” “national interest,”

and “sensitive sectors” that leaves considerable discretion to government authorities when 

making outbound investment approval decisions.

The 2018 NDRC Approval Measures, effective March 1, 2018, provide that outbound investment 

“must not threaten or harm our country’s national interest and national security,”406 and instruct 

NDRC to supervise outbound investment based on “protecting our country’s national interest and 

national security.”407 NDRC can order the suspension or modification of an outbound 

investment deemed to “threaten the national interest and national security.”

408

 Where an 

outbound investment is deemed to “harm the national interest and national security,” NDRC can 

terminate or modify the investment, take “remedial measures,”409 issue a warning to the 

investors, and, where a crime is suspected to have occurred, pursue criminal liability.410 In 

addition, “national interest” and “national security” now serve as criteria for both “examination 

and approval” and “filing for records” reviews.411

The Chinese government also applies an expansive and inconsistent definition of “sensitive 

sectors.”

 

403 The 2014 NDRC Approval Measures applied solely to the overseas investments of PRC-registered enterprises 

(art. 2). The 2018 NDRC Approval Measures (art. 2) significantly expand this scope to also cover overseas 

investments that are made by foreign entities that are ultimately “controlled” by a PRC-registered enterprises. 

“‘Control’ (kongzhi) in the regulation is broadly defined to mean either holding the majority of voting shares of the 

overseas enterprise or, in lieu of such majority, having “decisive power” over the major matters of that enterprise, 

such as its operations or finances. This amendment broadens the ability of the NDRC to monitor overseas 

investments connected to a Chinese investor and subjects them to the same verification and approval or recordation 

requirements that applies to investments made by PRC-registered enterprises.

404 English translation of Chinese term guojia liyi.

405 English translation of Chinese term guojia anquan.

406 2018 NDRC Approval Measures, art. 5.

407 2018 NDRC Approval Measures, art. 6.

408 2018 NDRC Approval Measures, art. 56.

409 English translation of Chinese term bujiu cuoshi. 

410 2018 NDRC Approval Measures, art. 56.

411 With respect to investments subject to “examination and approval,” art. 19 provides that the application form 

must include a “national interest and national security impact analysis”; art. 26 provides that NDRC will apply “not 

threaten or harm our country’s national interest and national security,” as well as conformity with “macroadjustment and control policies,” as evaluating criteria; and art. 28 provides that NDRC is now authorized to 

“directly issue a non-approval decision”, without soliciting input or commissioning additional assessments, if an 

investment is deemed to “threaten or harm our country’s national interest and national security.”. With respect to 

investments subject to “filing for records”, art. 31 authorizes NDRC to reject the filing if the investment is deemed 

to “threaten or harm our country’s national interest and national security”.
IV. Outbound Investment

75

 The 2016 edition of the Investment Catalogue states that “[r]elevant departments under 

the State Council will examine and approve projects in sensitive countries and regions 

and sensitive sectors,” yet fails to define the term “sensitive.”412

 The 2018 NDRC Approval Measures list specific examples of “sensitive sectors,” but 

also define such sectors to include those that “require restricting enterprise outbound 

investment in accordance with our country’s macro-adjustment and control policies.”413 

 Likewise, the 2014 MOFCOM Approval Measures provide that MOFCOM will examine 

and approve investments in “sensitive sectors,” and explains that “the sectors for which 

examination and approval administration will be implemented refer to sectors that have a 

bearing on exports of products and technologies that are restricted for export from the 

PRC, and sectors that affect the interests of more than one country (region).”414 The 

inconsistent, vague, and open-ended use of this concept gives government agencies wide 

discretion to deploy their approval authority, and thus, the ability to influence the shape 

and direction of outbound investment.

e) Foreign exchange restrictions

Control over the use of foreign exchange is a crucial tool for the government to influence 

outbound investment. China operates a closed capital account that restricts currency 

convertibility, as well as monetary inflows and outflows.415 Once enterprises have successfully 

undergone “examination and approval” or “filing for records” with MOFCOM and NDRC, they 

undergo additional review and approval in order to receive foreign exchange to make outbound 

investments. Prior to 2015, enterprises seeking to invest abroad had to apply for foreign 

exchange directly with the State Administration of Foreign Exchange (SAFE); subject to a 

reform instituted in 2015, enterprises now undergo review and approval from local banks, under 

SAFE supervision and guidance.416 

 

412 Investment Catalogue (2016 edition) § 12.

413 2018 NDRC Approval Measures, art. 13. The sectors listed are weapons equipment, trans-border water resource

development and use, and news media.

414 2014 MOFCOM Approval Measures, art. 7.

415 China’s Capital Account – An Open and Shut Case, WALL STREET JOURNAL, Feb. 25, 2014. (“As part of its push 

to give markets a “decisive” role in the economy, China has pledged to drop controls on the movement of capital 

and make its currency, the yuan, fully convertible. China for years has maintained a “closed” capital account, 

meaning companies, banks and individuals can’t move money in or out of the country except in accordance with 

strict rules. The limit for individuals is currently $50,000 a year, while corporate investments need government 

approval.”).

416 Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving Policies on the 

Administration of Foreign Exchange for Direct Investment §§ 1(1)-1(2) (SAFE, Hui Fa [2015] No 13, issued Feb. 

13, 2015). See also Thilo Hanneman, Daniel H. Rosen, RHODIUM, CHINESE INVESTMENT IN THE UNITED STATES:

RECENT TRENDS AND THE POLICY AGENDA 67-68 (Dec. 2016) (“[Prior to 2015], [t]he State Administration of 

Foreign Exchange (SAFE) became the third major actor in the outbound FDI approval system. SAFE was a hurdle 

that investors had to take as it controlled access to foreign currency needed for outbound investments. [...] [I]n 2015 

SAFE simplified and shortened the review process for foreign exchange approvals and delegated the verification of 

foreign exchange needs for outbound investments to local bank branches.”).
IV. Outbound Investment

76

Despite this recent change, SAFE significantly influences the decisions of local banks regarding 

the provision of foreign exchange.417 In 2016, the government reportedly introduced various 

types of restrictions on the use of foreign exchange.418 The restrictions were applied in an 

informal manner – i.e., not set forth in official government measures – to several forms of 

foreign investment disfavored by the government.419

Some observers have suggested that the government’s recent restrictions on certain outbound 

investments serve to enhance Chinese companies’ incentives to align their investments with 

government policies and priorities. According to the European Union Chamber of Commerce in 

China: 

While [recent restrictions have] contributed to uncertainty regarding the ability of 

Chinese entities to complete investments, there is no reason to conclude that outbound 

investments that are not disguised capital flight or tainted by corruption will be brought to 

a halt, especially in sectors that have been identified as strategic priorities by the 

government. This conclusion is supported by a 26th December statement made at the 

2016 National Commerce Work Conference by Minister of Commerce Gao Hucheng that 

the government “will promote the healthy and orderly development of outbound 

investment and cooperation” in 2017. During his January 2017 speech at the World 

Economic Forum in Davos, President Xi also stated that he expected outbound Chinese 

 

417 Thilo Hanneman, Daniel H. Rosen, RHODIUM, CHINESE INVESTMENT IN THE UNITED STATES: RECENT TRENDS 

AND THE POLICY AGENDA 70 (Dec. 2016) (“The degree of scrutiny exerted by banks depends on guidance by SAFE, 

and this guidance often correlates with the macroeconomic situation.”).

418 Thilo Hanneman, Daniel H. Rosen, RHODIUM, CHINESE INVESTMENT IN THE UNITED STATES: RECENT TRENDS 

AND THE POLICY AGENDA 70 (Dec. 2016) (“In the first half of 2016, banks were asked by SAFE officials to tighten 

reviews of foreign exchange restrictions for outbound FDI projects following pressure by SAFE to slow down the 

outflow of foreign exchange. Banks were reportedly asked by SAFE to submit outbound FDI transactions of a 

certain size and type directly to SAFE.”). See also ALLEN & OVERY, CHINA’S NEW RESTRICTIONS ON OUTBOUND 

INVESTMENTS AND REMITTANCE (Dec. 30, 2016) (“1. Banks are now required to report any overseas transfer of $5m 

or more under any capital account item (covering both foreign currency and CNY) per transaction to Beijing SAFE. 

Such overseas transfers can only be made after the Chinese regulators have re‐examined the underlying transaction 

of the requested transfer to verify its authenticity and compliance with relevant regulations. 2. SAFE also tightened 

controls over ODI with a capital outflow of $50m or more. Such fund transfers will only be made after reexamination of the underlying transaction for authenticity and compliance with relevant regulations. 3.The rules for 

cross-border CNY lending by Chinese companies (which used to be more relaxed than the regime for cross-border 

lending in foreign currency) has also been modified by the PBOC recently. The cross-border lending limit (which is 

below 30 percent of the lender’s total equity) and shareholding requirement (that the lender and the borrower must 

have a shareholding relationship) which previously applied only to foreign currency lending now also applies to 

cross-border CNY lending. In addition, the rules now make it clear that such cross-border CNY lending by Chinese 

companies need to be registered with SAFE.”). 

419 The Chinese government reportedly placed restrictions on: (1) Extra-large outbound investments: outbound real 

property acquisitions or developments by state-owned enterprises with an investment value of $1bn or above; 

outbound investments of more than $1bn outside of the core business of a Chinese buyer; and extra-large outbound 

investments valued at $10bn or more; (2) OFDI by limited partnership; (3) Minority investments in listed 

companies: OFDI involving the acquisition of 10 percent or less of the shares in an overseas listed company; (4) 

“Small parent, big subsidiary”: OFDI where the size of the target is substantially larger than the size of the Chinese 

buyer or where the Chinese buyer makes the investment shortly after its establishment; (5) Privatization: 

participation in the delisting of overseas listed companies which are ultimately controlled by Chinese companies or 

individuals; (6) High risk/low return transactions: OFDI into an overseas target resulting in a high debt-to-asset 

ratio and low return on equity. ALLEN & OVERY, CHINA’S NEW RESTRICTIONS ON OUTBOUND INVESTMENTS AND 

REMITTANCE (Dec. 30, 2016).
IV. Outbound Investment

77

investment to amount to USD 750 billion over the next five years. These strengthened 

controls may actually motivate more Chinese companies to look for ways to align their 

investment plans with government priorities outlined in [Made in China 2025], since 

presenting investments to the authorities that support their priorities—for example those 

outlined in [Made in China 2025] or the Belt and Road Initiative (BRI)—can be expected 

to achieve a higher rate of approval. 420

3. Sectors “Encouraged” for Outbound Investment

To channel outbound investments towards state priorities, China has instituted a system of 

“encouraged” 421 sectors. Although the list of encouraged sectors has evolved over time, the 

general approach is to induce investment in these sectors through preferential treatment and 

financing. 

China launched this system in 2006, when NDRC, MOFCOM, and other government authorities 

jointly issued the Overseas Investment Industrial Guiding Policy.

422

 The stated objective of this 

policy was to “accelerate the implementation of the ‘Going Out’ strategy” and to “formulate a 

guiding policy especially for outbound investment pursuant to China’s five-year plans for 

national economic and social development and in accordance with requirements of investment 

system reform and industrial policy.”423

The Overseas Investment Industrial Guiding Policy identifies categories of “encouraged-type 

overseas investment projects;” (1) investments that enable the acquisition of resources and raw 

materials that are in short supply domestically and which are “in urgent demand for national 

economic and social development;” (2) investments that support the export of products, 

equipment, technology, and labor for which China has a comparative advantage; and, (3) 

investments that “are able to clearly enhance China’s technology research and development 

capacity, including an ability to use international leading technology and advanced management 

experience and professional talent.”424 Thus, the acquisition and subsequent use of technology is 

a central feature of “encouraged” outbound investments.

In addition, the Overseas Investment Industrial Guiding Policy targets specific sectors for 

preferential treatment. The policy includes a catalogue of 40 industries that are “encouraged” 

and eight industries that are “prohibited” for overseas investment. The catalogue appended to 

the Overseas Investment Industrial Guiding Policy includes several technology-related sectors, 

such as overseas manufacturing investments in chemical product manufacturing advanced 

technology which China is unable to access and passenger vehicles (including engine products 

with advanced technology), as well as overseas services investments relating to high and new 

technology and product research.425

 

420 E. U. CHAMBER, CHINA MANUFACTURING 2025: PUTTING INDUSTRIAL POLICY AHEAD OF MARKET FORCES 21 

(2017) (emphasis added).

421 English translation of Chinese term guli.

422 Overseas Investment Industrial Guiding Policy (NDRC, MOFCOM, Ministry of Foreign Affairs, GAC, SAFE, 

Fa Gai Wai Zi [2006] No. 1312, issued July 5, 2006).

423 Overseas Investment Industrial Guiding Policy, art. 1.

424 Overseas Investment Industrial Guiding Policy, art. 6.

425 Overseas Investment Industrial Guiding Policy, Annex §§ 3(8), 3(17), 4(5). 
IV. Outbound Investment

78

Investments that are “encouraged” receive several forms of government support, including: 

subsidies for fees incurred, and bank loans at government-subsidized interest rates; policy bank 

loan support; priority administrative approval; priority support for the use of foreign exchange; 

export tax rebates on exports of equipment and other materials relating to the overseas 

investment project; priority access to services relating to overseas financing, investment 

consultation, risk evaluation, risk control, and investment insurance; and coordinated support 

from several government departments with respect to information exchange, diplomatic 

protections, the travel of personnel abroad, and registration of import and export rights.426

A recent State Council opinion clarifies and supplements this approach. In its Guiding Opinion 

on Further Guiding and Standardizing the Direction of Overseas Investment (2017 Investment 

Opinion), issued in August 2017, the State Council re-affirmed the importance of “catalyzing the 

‘Going Out’ strategy for products, technologies, and services.”427 It also aims to expand the 

speed, scale, and efficacy of China’s outbound investment, so as to promote “transformation and 

upgrading of the domestic economy” and “international industrial capacity cooperation.”428

In addition, the 2017 Investment Opinion re-defines the broad categories of “encouraged” 

investments. Technology acquisition and utilization is a key consideration in determining 

whether a sector is “encouraged.” For instance, the 2017 Investment Opinion encourages 

investments that strengthen “investment cooperation” with “overseas high and new technology 

and advanced manufacturing industry enterprises,” as well as investments that promote the 

“sending out” from China to the world of “advantageous manufacturing capacity, advantageous 

equipment, and technology standards.”429 

Echoing previous state policies, the 2017 Investment Opinion also states that “encouraged” 

investments will receive “a more enhanced level of service with respect to tax collection, foreign 

exchange, insurance, customs, information, and other matters, so as to create more favorable 

facilitating conditions for the enterprise,”430 In addition, the opinion introduces the “negative 

list” concept431 with respect to general overseas investment.

4. Outbound Investment Policy in Technology and Sectoral Policies 

As mentioned in Section I.C, China has issued a series of science and technology (S&T) and 

sectoral policies that are intended to promote indigenous innovation and technology transfer. 

S&T planning documents also reference the role of outbound investment in achieving these 

objectives. For instance, the 2010 Decision on Accelerating the Cultivation and Development of 

Strategic Emerging Industries (SEI Decision) – which targets strategic emerging industries –

 

426 Overseas Investment Industrial Guiding Policy, art. 8.

427 Guiding Opinion on Further Guiding and Standardizing the Direction of Foreign Investment, preamble (NDRC, 

MOFCOM, PBOC, Ministry of Foreign Affairs, Guo Ban Fa [2017] No. 74, issued Aug. 4, 2017).

428 2017 Investment Opinion Preamble, § 3.

429 2017 Investment Opinion §§ 3(1)-3(6).

430 2017 Investment Opinion § 6(1).

431 2017 Investment Opinion § 2, ¶2.
IV. Outbound Investment

79

contains provisions on “deepening international cooperation and enhancing the level of 

internationalized development.”432 The document calls on authorities to:

Pragmatically enhance the quality and level of international investment financing 

cooperation. [...] Support capable enterprises to engage in overseas investment [...] 

Expand the autonomy of enterprises to make overseas investments, improve the approval 

process, and further amplify foreign exchange support for enterprises to make overseas 

investments. Actively explore the establishment of science and technology and industrial 

parks abroad, formulate a country-specific industrial guidance catalogue to guide 

enterprises in development of multinational investments.433

The SEI Decision also calls for “supporting enterprises to use methods including overseas 

registered trademarks and overseas acquisitions [...]”434

Likewise, the Made in China 2025 Notice, which, as discussed in Section I.C, serves as the 

basis for the Made in China 2025 policy, calls for “supporting enterprises to make 

acquisitions, equity investments, and venture investments overseas, and to establish R&D 

centers and testing bases and global distribution and services networks overseas.”435 The 

Made in China 2025 Notice also outlines a wide-ranging strategy for harnessing and 

promoting the acquisition of foreign technology through outbound investment:

[...] Promote a transition from prioritizing introducing investment, technology, and 

equipment to the development of joint ventures and cooperation, outbound acquisitions, 

and the introduction of leading talent. Strengthen legislation governing outbound 

investment, strengthen “Going Out” legal guarantees for manufacturing enterprises, and 

standardize enterprise overseas operating behavior, to protect enterprises’ lawful rights. 

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, to implement overseas 

investment acquisitions. Accelerate the establishment of entities for, and enhance the 

level of, services that support manufacturing industries “Going Out”; establish a public 

service platform for manufacturing industry outbound investment and a services platform 

for export product technology-type trade, and optimize early warning coordinating 

mechanisms to respond to trade frictions and major incidents in outbound investment.

436

Planning documents for the ITC and IC sectors also emphasize the role of outbound 

investment in promoting technological development. For instance, the Made in China 2025 

Key Area Technology Roadmap (Made in China 2025 Roadmap) contains a chapter devoted 

to the IT sector, and calls for development in this sector through the “Going Out” strategy 

 

432 Decision on Accelerating the Cultivation and Development of Strategic Emerging Industries § 6 (State Council, 

Guo Fa [2010] No. 32, issued Oct. 10, 2010).

433 SEI Decision § 6(2).

434 SEI Decision § 6(3).

435 Made in China 2025 Notice § 3, “Strategic Tasks and Priorities,” § 3(9), “Raise the Level of Internationalized 

Development of the Manufacturing Industry.”

436 Made in China 2025 Notice § 4, “Strategy Support and Guarantees,” § 4(7), “Further Expand Opening Up of 

Manufacturing Industries”.
IV. Outbound Investment

80

and overseas investment.437 The 2014 IC Guidelines also call for “encourag[ing] domestic 

enterprises to engage in international cooperation, integrate international resources, and 

expand international markets,” in conjunction with “making every effort to introduce foreign 

capital, technology, and talent” into China and encouraging international IT enterprises to 

“establish R&D, manufacturing, and operating centers [in China].”438

5. State-Backed Actors

To implement its outbound investment strategy, China relies on an array of actors with ties to the 

government. These actors have traditionally comprised non-financial SOEs and the largest stateowned policy and commercial banks. But more recently, this set of actors has grown to include 

nominally private enterprises and financial entities, such as funds and investment companies, that 

have connections with or are funded by the government. Each group of actors is discussed in 

more detail below. 

a) State-Owned Enterprises and State-owned Banks

In the early stages of Chinese outbound investment, SOEs played a leading role – particularly 

national oil companies and state-owned mining and metal processing companies.439 Today, SOEs 

continue to account for a significant share of overall outbound investment, and are responsible 

for many of the largest overseas transactions.440 For example, the central SOE ChemChina 

acquired the Swiss firm Syngenta for $43 billion in 2016.441 State-owned banks, in particular the

policy banks China Exim and CDB, and the four largest state-owned commercial banks, have 

facilitated outbound investments, primarily through financing support to SOEs.442 In October 

2016, China’s president Xi Jinping, who also serves as General Secretary of the CCP, described 

 

437 Made in China 2025 Key Area Technology Roadmap § 1.2.5.4 (National Strategic Advisory Committee on 

Building a Powerful Manufacturing Nation, issued Oct. 2015).

438 Formal Announcement of Guidelines for the Development and Promotion of the Integrated Circuit Industry §

4(8) (MIIT, issued June 24, 2014).

439 For studies of investments by Chinese SOEs in the mining and energy sectors, see, e.g. ROBERT EVAN ELLIS, THE 

EXPANDING CHINESE FOOTPRINT IN LATIN AMERICA: NEW CHALLENGES FOR CHINA AND DILEMMAS FOR THE US

(2012); Ruben Gonzalez-Vicente, Mapping Chinese Mining Investment in Latin America: Politics or Market?, THE 

CHINA Q. 209 35, 35–58 (2012); BARBARA KOTSCHWAR,THEODORE H. MORAN & JULIA MUIR, CHINESE 

INVESTMENT IN LATIN AMERICAN RESOURCES: THE GOOD, THE BAD, AND THE UGLY, PETERSON INSTITUTE FOR 

INTERNATIONAL ECONOMICS (2012); Chen Shaofeng, Has China’s Foreign Energy Quest Enhanced Its Energy 

Security?” THE CHINA QUARTERLY 207, 600–625 (2011); CHRIS ALDEN ET AL (ED.), CHINA RETURNS TO AFRICA: A

RISING POWER AND A CONTINENT EMBRACE (C. Hurst & Co Publishers Ltd 2008); Erica S. Downs, The Fact and 

Fiction of Sino-African Energy Relations, 3(3) CHINA SECURITY 42, 42–68 (2007).

440 Thilo Hanneman, Daniel H. Rosen, RHODIUM, CHINESE INVESTMENT IN THE UNITED STATES: RECENT TRENDS 

AND THE POLICY AGENDA 7 (2016), (“[recent] Chinese restructuring plans suggest that SOEs will remain an 

important part of China’s FDI flows in years ahead . . . ); see also Haiyan Zhang & Daniel Van Den Bulcke, 

China’s Direct Investment in the European Union: A New Regulatory Challenge, 12 ASIA EUROPE J. 168, 168 

(2014) (“The five Chinese ‘acquirers’ that were investigated within the [EU Merger Regulation] framework were 

all large state-owned enterprises that are ranked among Fortune Magazine’s global 500 companies, i.e. China 

National Bluestar of ChemChina, Huaneng, Sinochem, China National Agrochemical Corporation and 

PetroChina.”). 

441 Press Release, Syngenta, ChemChina Cash Offer to Acquire Syngenta at a Value of Over US$ 43 Billion (Mar. 2, 

2016).

442 See Kevin P. Gallagher & Amos Irwin, Exporting National Champions: China’s Outward Foreign Direct 

Investment Finance in Comparative Perspective, 22 CHINA & WORLD ECONOMY 6, 1–21 (2014).
IV. Outbound Investment

81

the role of SOEs as extensions of the Party-state, and clarified that SOEs are “important forces to 

implement decisions” of the CCP and “major strategies,” such as industrial “Going Out” 

strategies to “enhance overall national power, economic and social development, and people’s 

wellbeing.”443

SOEs remain prevalent throughout the Chinese economy, and are market leaders in key sectors 

deemed strategic by the government, such as banking and finance, energy, telecommunications, 

aviation, and automotive.444 The presence of SOEs in the Chinese economy is especially evident 

with respect to credit allocation. The International Monetary Fund (IMF), for example, reports 

that domestically the “SOE share in credit stock” was 55.6 percent in 2014.445

SOEs are also subject to state direction and control. Indeed, the Chinese government has a 

constitutional and legal mandate to maintain a leading role for the state sector.446 The largest 

central SOEs in China are administered by the State Council’s State-owned Assets Supervision 

 

443Xi Stresses CPC Leadership of State-owned Enterprises, XINHUA NEWS, Oct. 11, 2016, available at

http://news.xinhuanet.com/english/2016-10/11/c135746608.htm.

444 For example: 

 In the banking sector, the “Big Five” commercial banks in China – Bank of China (BoC), Industrial and 

Commercial Bank of China (ICBC), China Construction Bank Corporation (CCBC), Agriculture Bank of 

China (ABC), and Bank of Communications (BCM) – are majority-owned by the central government and 

account for almost half the total loan market. DOUGLAS J ELLIOTT & KAI YAN, BROOKINGS, THE CHINESE 

FINANCIAL SYSTEM: AN INTRODUCTION AND OVERVIEW 3 (2013).

 In the oil and gas sector, three enterprises administered by SASAC—China National Offshore Oil Corp., 

China National Petroleum Corp. and Sinopec—accounted for 94 percent of domestic oil production and 99 

percent of domestic gas production in 2015. See Lei Wang, Presentation to the Colorado School of Mines 

at the Oil & Gas Conference, slide 13 (Aug. 17, 2016). 

 In the aviation sector, Commercial Aircraft Corporation of China, Ltd. (COMAC), managed by SASAC, is 

the only major firm dedicated to producing large commercial aircraft. See Keith Crane et al, RAND, THE 

EFFECTIVENESS OF CHINA’S INDUSTRIAL POLICIES IN COMMERCIAL AVIATION MANUFACTURING 25 (2014). 

See also About Us, COMMERCIAL AIRCRAFT CORPORATION OF CHINA, LTD., 

http://english.comac.cc/aboutus (last visited Jan.11, 2018); China’s Big Three Airlines Set to Report 

Biggest Combined Profit Since 2010, BLOOMBERG NEWS, Mar. 29, 2017. 

 In the automotive sector, the market leaders in domestic vehicle sales are joint ventures between foreign 

automakers and the three SIEs: Shanghai Automotive Industry Corp., First Automotive Works, and 

Dongfeng Motor Corporation. See Top 10 Chinese Automotive Firms by Revenue in 2015, CHINA DAILY,

Jun. 6, 2016. 

445 KANG ET AL., PEOPLE’S REPUBLIC OF CHINA: SELECTED ISSUES, INTERNATIONAL MONETARY FUND COUNTRY 

REPORT NO. 16/271, at “Table 1. Rebalancing Score Card” (2016).

446 The guiding principles for government ownership and control are set forth in the Constitution of the People’s 

Republic of China [hereinafter “China Constitution”] and the CCP Constitution. China Constitution, art. 7, 

provides that “[t]he state-owned economy, that is, the socialist economy with ownership by the whole people, is the 

leading force in the national economy. The state ensures the consolidation and growth of the state-owned 

economy.” Article 11 also provides that “[t]he state permits the private sector of the economy to exist and develop 

within the limits prescribed by law. The private sector of the economy is an important component of the socialist 

market economy.” Article 11 states that “[t] he state encourages, supports, and guides the development of the nonpublic sectors of the economy [...]” (emphasis added). The state is to take active steps to ensure the growth of the 

state-owned economy as the core of the economic system, and it will also intervene in the private sector, a 

component of the overall economy. The CCP Constitution, in turn, states: “[T]he Party must uphold and improve 

the basic economic system, with public ownership playing a dominant role and different economic sectors 

developing side by side [...]” (emphasis added). Accordingly, CCP members and the leadership have a mandate to 

ensure the dominance of the state and SOEs in the economy.
IV. Outbound Investment

82

and Administration Commission (SASAC), the government’s representative shareholder 

responsible for the largest central government SOEs. Likewise, provincial and municipal SOEs 

are administered by local SASAC entities. Other government bodies are also controlling 

shareholders of certain enterprises.

SASAC imposes an elaborate system of rules, plans, and reporting requirements, which it uses to 

monitor and influence the outbound investments of central SOEs. SASAC has articulated these 

requirements in two measures: the Provisional Measures on Supervision and Administration of 

Central State-Owned Enterprise Overseas Investments (2012 SOE Measures),447 and its 

successor, the Measures on Supervision and Administration of Central State-Owned Enterprise 

Overseas Investments (2017 SOE Measures).448

 Conformity with state policies: The 2012 SOE Measures stipulated that when 

undertaking outbound investments, SOEs are to act in accordance with basic principles 

including “conformity with plans for national economic and social development and 

overseas investment industrial policies;” “conformity with the composition of the stateowned economy and the direction of structural adjustment;” “conformity with enterpriselevel strategies for development and enterprise-level strategies for internationalizing 

operations, focusing on core industries, conducive to enhancing the enterprise’s 

international competitiveness.”449 The updated 2017 SOE Measures simplify these 

principles, but likewise maintain that central SOEs are to act in accordance with 

“strategic guidance,” including devising plans to internationalize their business and 

making investments that enhance innovative capacity and international 

competitiveness.

450

 Central SOEs are also to abide by the principle of “maintaining and 

enhancing the value of state-owned assets” when undertaking outbound investments.451

 Negative list: The 2017 SOE Measures call for establishing an “enterprise overseas 

investment administration system.” As part of this system, central SOEs are to act in 

accordance with an individualized “negative list”452 formulated by SASAC that outlines 

types of investments the enterprise should not make. If the enterprise nonetheless 

chooses to make a “negative list” investment, it must seek formal approval from SASAC 

and submit a prescribed set of application materials, including internal company decision 

documents, a financing plan, and feasibility study.453

 

447 Provisional Measures on Supervision and Administration of Central State-Owned Enterprise Overseas 

Investments (SASAC, 2012 Order No. 28, issued Mar. 18, 2012).

448 Measures on Supervision and Administration of Central State-Owned Enterprise Overseas Investments (SASAC, 

2017 Order No. 35, issued Jan. 7, 2017). This measure was formulated expressly pursuant to laws and regulations 

governing state-owned assets and recent initiative to improve the performance of SOEs. The 2017 SOE Measures 

were issued pursuant to the Guiding Opinion on Deepening Reform of State-owned Enterprises (CCP Central 

Committee and State Council, Guo Fa [2015] No. 22, issued Aug. 24, 2015), the Several Opinions on Reforming 

and Optimizing the State-owned Asset Administration System (State Council, Guo Fa [2015] No. 63, issued Oct. 25, 

2015).

449 2012 SOE Measures, art. 5.

450 2017 SOE Measures, art. 6(1).

451 2017 SOE Measures, art. 6(4).

452 English translation of Chinese term fumian qingdan.

453 2017 SOE Measures, arts. 7, 12.
IV. Outbound Investment

83

 Overseas investment plans: The 2017 SOE Measures state that central SOEs are to 

formulate “plans for the internationalization of operations”454 that define priority regions, 

sectors, and projects for medium- and long-term internationalization of operations, in 

accordance with state-owned enterprise five-year plan outlines and enterprise 

development strategies and plans formulated by SASAC. In turn, central SOEs are to 

formulate a more detailed “annual overseas investment plan455.”456

 Reporting obligations: The 2017 SOE Measures also instruct central SOEs to submit 

quarterly reports on the status of overseas investments to SASAC via an internal IT 

network, and to draft an “annual overseas investment completion status report” to be 

submitted to SASAC on January 31 of each year, which is to detail the overall status and 

positive results of overseas investment, progress on major overseas investment projects, 

and a post-investment evaluation work, and the main problems confronted.457

 Review and discipline: The 2017 SOE Measures provide that SASAC will establish a

system of indices to evaluate the internationalization of operations of central SOEs, to 

include, among other criteria, the “direction of investment.”458 Moreover, if central SOE 

personel take actions in outbound investment that “cause an unfavorable impact,” 

SASAC will take disciplinary action against those personnel. If the actions “cause the 

loss of state-owned assets,” then the CCP can take disciplinary action; and if the actions 

violate the law, the personnel can be handed over to law enforcement.459

In addition to SASAC, the Ministry of Finance (MOF) has recently adopted regulations specific 

to the outbound investment of SOEs. The Measures on the Financial Administration of Stateowned Enterprises Overseas Investment (MOF Measures), issued in June 2017, call for 

“enhanc[ing] the capacity of state-owned capital in the service of national strategies including 

‘One-Belt One-Road’ and ‘Going Out.’”460 The MOF Measures provide that an SOE’s CCP 

Committee is to participate, alongside the company’s board, chief executives, and shareholders, 

in deliberating the financial feasibility of the projects outlined in the enterprise’s “overseas 

investment plan.”

461

Under the MOF Measures, SOEs also must submit to MOF annual reports on the financial status 

of overseas investments.462 Local branches of MOF are in charge of collecting and summarizing 

these documents.463 SOEs also are required to provide an annual overseas investment evaluation 

report, which will largely determine (1) the degree of government support for that SOE’s 

overseas investment activities, (2) the state shareholders’ treatment of the SOE (e.g., whether to 

 

454 English translation of Chinese term guojihua jingying guihua.

455 English translation of Chinese term niandu jingwai touzi jihua.

456 2017 SOE Measures, art. 11.

457 2017 SOE Measures, arts. 19, 20.

458 2017 SOE Measures, arts. 22, 23.

459 2017 SOE Measures, art. 30.

460 Notice on Issuing the “Measures on the Financial Administration of State-owned Enterprises Overseas 

Investment”, cover sheet (MOF, Cai Zi [2017] No. 24, issued Jun. 12, 2017).

461 MOF Measures, arts. 6, 7.

462 MOF Measures, art. 8.

463 MOF Measures, art. 9.
IV. Outbound Investment

84

restructure the enterprise’s assets), and (3) local government officials’ assessment of how well 

the SOE is executing its “Going Out” strategy, and whether more support should be provided to 

the SOE for “Going Out” purposes.464

Through the CCP, the Chinese government exercises additional control over SOE behavior. Top 

executives of SOEs are generally CCP members, cycle between corporate and government 

positions, and are subject to evaluation by the CCP Organization Department.465 SOEs also host 

CCP committees that actively participate in corporate governance. This arrangement is codified

in Chinese law: according to Article 19 of the Company Law of the People’s Republic of China

(PRC Company Law),

466 an organization of the CCP may be set up in all enterprises, regardless 

of whether it is a state, private, domestic, or foreign-invested enterprise, to carry out activities of 

the CCP.

There are indications that a coordinated push is now underway to increase Party committee 

influence on company decisions.467 More than thirty Hong Kong-listed Chinese SOEs reportedly 

altered their articles of association in 2017 to codify a more explicit operational role for their 

internal Party committees. 468 For instance, Sinopec amended its articles of association to call for 

increased CCP input on major corporate matters and management personnel:

When making decisions on significant matters such as direction of reform and 

development, key objectives, and priority operational arrangements of the Company, the 

board of directors should seek advice from the Party organization. When the board of 

directors appoints the management personnel of the Company, the Party organization 

shall consider and provide comments on the candidates for management positions 

nominated by the board of directors or the president, or recommend candidates to the 

board of directors and/or the president.469

 

464 MOF Measures, arts. 39-41.

465 U.S. DEPARTMENT OF COMMERCE, CHINA’S STATUS AS A NON-MARKET ECONOMY 82-94 (Oct. 26, 2017). 

RICHARD MCGREGOR, THE CCP: THE SECRET WORLD OF CHINA’S COMMUNIST RULERS 49-50 (2010) (stating that 

“the CCP has remained unyielding on a number of fronts. Its control over personnel appointments has been 

inviolate.”); see also, ZHENG YONGNIAN, THE CHINESE COMMUNIST PARTY AS ORGANIZATIONAL EMPEROR: 

CULTURE, REPRODUCTION, AND TRANSFORMATION 103-104 (2010) (“The CCP’s most powerful instrument in 

structuring its domination over the state is a system called the ‘Party management of cadres’ (dangguan ganbu), or 

more commonly known in the West as the nomenklatura system. The nomenklatura system ‘consists of lists of 

leading positions, over which Party units exercise the power to make appointments and dismissals; lists of reserves 

or candidates for these positions; and institutions and processes for making the appropriate personnel changes.’”).

466 PRC Company Law (adopted by the NPC on Dec. 29, 1993, amended Dec. 25, 1999, further amended Aug. 28, 

2004 and Oct. 27, 2005 and Dec. 28, 2013).

467 These efforts may be traced back to the March 2012 release of a document titled “Opinions on Strengthening and 

Improving Party Building in Nonstate Enterprises,” issued by the CCP Organization Department. More recently, the 

party has issued a directive targeting party-building in entrepreneurial ventures. See Opinions on Creating a Healthy 

Environment for the Development of Entrepreneurs, Promoting Entrepreneurship and Allowing Full Play to the 

Role Played by Entrepreneurs (CCP and State Council, Sept. 8, 2017).

468 Jennifer Hughes, China’s Communist Party Writes Itself into Company Law, FINANCIAL TIMES, Aug. 14, 2017.

469 SINOPEC, PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION AND THE RULES OF PROCEDURE FOR THE 

BOARD OF DIRECTORS’ MEETING, art. 109, available at

http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0427/LTN201704272794.pdf
IV. Outbound Investment

85

Given the level of control exerted over SOEs by the state and CCP, outbound investment by 

SOEs is frequently directed at achieving state policies and objectives. As one participant in the 

investigation observed, “[m]uch Chinese FDI comes from state-owned enterprises that often 

have different motives than simply maximizing profits. Rather, their investments often serve 

strategic state goals.”470 Likewise, in its 2017 report on China’s status as a non-market economy, 

the European Commission remarked on “the [Chinese] government’s determination to further 

develop the dominant role of the state-owned economy, in particular by selectively creating large 

SOEs, shielded from competition domestically and expanding internationally which would serve 

the Government’s strategic industrial policies rather than focusing on their own economic 

performance.”471

Tsinghua Unigroup and its parent company, Tsinghua Holdings Co., Ltd. (Tsinghua Holdings), 

illustrate the extent to which state policies direct SOE activities, including outbound investment. 

The decision to establish Tsinghua Holdings was approved by the State Council.472 Tsinghua 

Holdings is wholly state-owned,473 via Tsinghua University,474 and controls Tsinghua Unigroup 

through a 51 percent ownership stake.475 Tsinghua Unigroup is funded, in part, through an 

equity investment of CNY 10 billion ($1.6 billion)476 from China’s National Integrated Circuit 

Investment Fund (National IC Fund).

477

 At one point the company’s CCP secretary was Hu 

Haifeng, the son of China’s former president Hu Jintao.478 Reflecting these state ties, Tsinghua 

Holdings notes in its annual report that its development strategy is oriented toward the needs of 

national strategy,479 and that Tsinghua Unigroup employs an “international acquisition + 

indigenous innovation” development model focused on the IC industry.480

Tsinghua Unigroup’s Chairman, Zhao Weiguo, is also the Deputy Director General of the 

“China High-End Chip Alliance,” which is composed of 27 “backbone enterprises” and research 

institutes and is tasked with creating an IC industry ecosystem in China. The alliance was 

 

470 INFORMATION TECHNOLOGY & INNOVATION FOUNDATION [hereinafter “ITIF”], Submission, Section 301 

Hearing 7 (Oct. 25, 2017).

471 EUROPEAN COMMISSION, COMMISSION STAFF WORKING DOCUMENT ON SIGNIFICANT DISTORTIONS IN THE 

ECONOMY OF THE PEOPLE'S REPUBLIC OF CHINA FOR THE PURPOSES OF TRADE DEFENCE INVESTIGATIONS 108-109

(SWD(2017)483 final/2 (Dec. 20, 2012).

472 Letter Regarding Approval for Beijing University and Tsinghua University to Establish Peking University Asset 

Management Company Limited and Tsinghua Holdings Company Limited (State Council, Guo Ban Han [2003] No. 

30, issued Apr. 24, 2003).

473 TSINGHUA HOLDINGS, 2016 BOND PROSPECTUS 13[Chinese] (2016).

474 Imagination Technologies filing with the U.K. Financial Conduct Authority, TR-1: Notification of Major Interest 

in Shares, notified on May 22, 2017.

475 TSINGHUA HOLDINGS, 2016 BOND PROSPECTUS 44 [Chinese] (2016).

476 Foreign currency values are followed by a parenthetical estimation of the USD value. When available, USD 

conversion values are taken from primary or secondary sources. In cases where a U.S. dollar estimate is 

unavailable, the foreign currency value is generally based on the U.S. Federal Reserve Bank average annual 

exchange rate for the relevant year. The U.S. Federal Reserve Bank’s average annual currency exchange rates are 

available at https://fred.stlouisfed.org.

477 Press Release, Tsinghua Unigroup, Tsinghua Unigroup Receives CNY 10 Billion Investment from the National 

Integrated Circuit Investment Fund [Chinese] (Feb.14, 2015), available at

http://www.unigroup.com.cn/newscenter/jtxw/2015/0214/138.html.

478 Gerry Shih, Political Ties Could Prove Double-edged Sword for Chinese Chipmaker, REUTERS, July 14, 2015. 

479 TSINGHUA HOLDINGS, 2016 BOND ANNUAL REPORT 55 [Chinese] (Apr. 28, 2017).

480 TSINGHUA HOLDINGS, 2016 BOND ANNUAL REPORT 50 [Chinese] (Apr. 28, 2017).
IV. Outbound Investment

86

proposed by Chairman Xi and established by the National IC Industry Development Leading 

Small Group in July 2016.481 On the establishment of the alliance, Tsinghua Unigroup’s 

Chairman stated that:

We are in the midst of a great country, a great era, and a great undertaking. The 

establishment of the ‘China High-End Chip Alliance’ expresses the desire of the 

alliance members and the broader China IC industry to work as one to carry out 

properly the great undertaking that is China’s IC industry. We will work together 

to consolidate industry resources and advance strategy, technology, standards, the 

market, and other cooperative links to jointly drive the future of China’s chip

industry.482 

Reflecting its commitment to these objectives, Tsinghua Unigroup has attempted to acquire 

several U.S. IC companies. In July 2015, Unigroup made a $23 billion bid for Micron 

Technologies, the Idaho-based world leader in memory chips, but the deal was abandoned, 

reportedly due to concerns about whether the Committee on Foreign Investment in the United 

States (CFIUS) would approve the transaction.483 Unigroup, through its Unisplendour 

subsidiary, also offered to purchase a 15 percent stake in Western Digital, an industry leader in 

storage solutions; but the offer was withdrawn in early 2016, reportedly due to concerns with 

CFIUS scrutiny of the transaction.484

b) Other Enterprises with State Support and Linkages 

A growing share of China’s outbound investment is undertaken by private enterprises in which 

the government does not own an observable controlling stake.485 Nonetheless, the government 

may exert substantial influence over the outbound investment behavior of such nominally private

 

481 Press Release, Chipone, IC National Team: Which Enterprises Participate in the High-end Chip Alliance? 

[Chinese] (Aug. 8, 2016), available at http://www.chiponeic.com/content/details1264.html.

482 Press Release, Tsinghua Unigroup, Tsinghua Unigroup Joins Hands with 27 Organizations to Jointly Establish 

the ‘China High-End Chip Alliance’ [Chinese] (Aug. 2, 2016), available at

http://www.unigroup.com.cn/newscenter/jtxw/2016/0802/238.html. The General Manager of the National IC Fund, 

Ding Wenwu, is Director General of the Alliance. Press Release, Chipone, IC National Team: Which Enterprises 

Participate in the High-end Chip Alliance? [Chinese] (Aug. 8, 2016), available at

http://www.chiponeic.com/content/details1264.html.

483 Liana B. Baker, Greg Roumeliotis, Exclusive: Micron does not believe deal with Tsinghua is possible – sources, 

REUTERS, July 21, 2015. 

484 Tsinghua Kills $3.8bn Investment Plan in Western Digital, FINANCIAL TIMES, Feb. 23, 2016.

485 Thilo Hanneman, Daniel H. Rosen, RHODIUM GROUP, CHINESE INVESTMENT IN THE UNITED STATES: RECENT 

TRENDS AND THE POLICY AGENDA 7 (Dec. 2016) ( “The shift in investment patterns has also informed the mix of 

Chinese investors in the US economy. Previously dominated by trading companies and large state-owned enterprises 

(SOEs), investment in recent years was almost entirely driven by private sector firms.”). But see also Curtis J. 

Milhaupt & Wentong Zheng, Beyond Ownership: State Capitalism and the Chinese Firm, 103 GEO. L.J. 665, 701 

(2015) (stating that “[o]wnership of the firm as such provides relatively little information about the degree of 

autonomy the firm enjoys from the state... because the Chinese party state retains (relatively undefined) residual 

control rights in firms of all types, corporate ‘ownership’ is less central to understanding the attributes of the 

Chinese firm as compared to firms operating under market-neutral institutions and relatively robust constraints on 

state intervention.”).
IV. Outbound Investment

87

entities through other means – for instance, through the government approvals and financing 

processes described above, and the pervasive influence of the CCP.486 

As discussed above, the outbound investment approvals system applies to all enterprises, not just 

SOEs. This gives the state a decisive role in determining which industry sectors should be 

targeted or closed for overseas investment. As a result, any enterprise seeking to receive 

government support for such acquisitions are incentivized to invest in sectors favored by the 

government, including those classified as “encouraged” in outbound investment measures and 

those identified in major S&T plans such as the Made in China 2025 Notice.

487

 

Senior executives at China’s largest private companies regularly acknowledge the influence of 

this investment approvals system on their investment decisions. For instance, the 2017 

Investment Opinion of the State Council restricted overseas investments in property, sports, 

hotels, cinemas and entertainment,488 and encouraged companies to invest in China’s “One-Belt 

One-Road” initiative.489 Two of China’s largest overseas acquirers publicly announced their 

intention to comply with the new policy direction. Adam Tan, CEO of Hainan Airlines (HNA), 

noted that the company would “listen to orders” and pledged that HNA “will not invest in 

anything the government does not support.”490 Wang Jianlin, CEO of Wanda Group, stated that 

the company has “actively respond[ed] to the state’s call and decided to put its main investments 

within China.” 491 Wang further noted that recent asset sales were based on “state policy and the 

macro-environment.”492 One U.S. lawyer, commenting on the effect of this policy change on his 

 

486 See e.g Bruce J. Dickson, Integrating Wealth and Power in China: The Communist Party’s Embrace of the 

Private Sector, 192 THE CHINA Q. (2007). Xiaojun Yan & Jie Huang, Navigating Unknown Waters: The Chinese 

Communist Party's New Presence in the Private Sector, 37 CHINA REV. (2017).

487 E.U. CHAMBER, CHINA MANUFACTURING 2025: PUTTING INDUSTRIAL POLICY AHEAD OF MARKET FORCES 18-19 

(2017).

488 Guiding Opinion on Further Guiding and Standardizing the Direction of Foreign Investment § 4 (NDRC, 

MOFCOM, PBOC, Ministry of Foreign Affairs, Guo Ban Fa [2017] No. 74, issued Aug. 4, 2017).

489 2017 Investment Opinion § 2.

490 Over the last several years, HNA has invested in Deutsche Bank, Swissport, Carlson Hotels, Hilton Worldwide, 

Ingram Micro, and logistics firm CWT. Frank Tang, China’s HNA Says It Will Pull Out of Deals on Beijing’s 

Investment Blacklist, SOUTH CHINA MORNING POST, Nov. 27, 2017. See also HNA Considers Asset Sales, Signals 

Reversal of Buying Spree, BLOOMBERG, Nov. 28, 2017. 

491 Hou Wen & Han Wei, Wanda Will Keep Major Investments in China, CAIXIN, July 21, 2017. In recent years 

Wanda has acquired AMC Cinemas, Carmike, Odeon UCI Legendary Entertainment, Infront Sports, World 

Triathlon, and yacht maker Sunseeker. In 2015, the New York Times noted that Wanda’s increase in overseas 

media acquisitions “coincided with a policy push by the Chinese leadership to expand the nation’s cultural influence 

both overseas and at home.” Michael Forsythe, Wang Jianlin, A Billionaire at the Intersection of Business and 

Power in China, NEW YORK TIMES, Apr. 28, 2015.

492 Wang’s comments came before China officially issued its new foreign investment restrictions but after China’s 

National Reform and Development Commission had issued informal guidance suggesting the rules were 

forthcoming. Michael Forsythe, Wang Jianlin, A Billionaire at the Intersection of Business and Power in China, 

NEW YORK TIMES, Apr. 28, 2015. Although the asset sales involved properties located on mainland China, they 

were viewed as necessary to free up working capital following the government’s decision to withhold financing for 

some of the company’s overseas deals. Li Xuanmin, Wanda in Big Sell-off, GLOBAL TIMES, Aug. 2, 2017 (“The 

conglomerate's surprising move comes after the central government began prioritizing financial risk reduction in the 

second half of this year and warned against ‘irrational investment abroad,’ which the market believe has prompted 

Wang's knee-jerk decision.”).
IV. Outbound Investment

88

Chinese clients, noted that his clients had merely redirected outbound investment from real estate 

and hotels to industries such as mining and aviation.493

These statements suggest that private companies’ overseas investment decisions are not, as 

claimed by some participants in the investigation, wholly based on “market need” and “without 

intervention by the Chinese government,”494 but rather are strongly influenced by the Chinese 

government’s decision to encourage or restrict a given overseas investment sector in line with the 

country’s industrial policy.

Pervasive state involvement in China’s financial sector is closely tied to China’s outbound 

investment approvals regime. Private enterprises often rely on capital from state-owned policy 

banks, state-owned commercial banks, or state-backed funds to make an investment project 

viable.495 Moreover, there is an “abundance of empirical evidence [indicating] that the political 

connections of [private] firms in China are a strong indicator of their access to bank loans.”496 

This relationship is reinforced by government policy that directs state-owned financial 

institutions to support technological development objectives. For example, the 2014 IC 

Guidelines and the International Cooperation Opinion expressly direct China Exim and CDB to 

 

493 Sui-Lee Wee, Geely Buys Take in Volvo Trucks, Despite China Restrictions, NEW YORK TIMES, Dec. 27, 2017.

494 See, e.g., Wang Guiqing, CHINA CHAMBER OF COMMERCE FOR IMPORT AND EXPORT OF MACHINERY AND 

ELECTRONIC PRODUCTS [hereinafter “CCCME”], Testimony, Section 301 Hearing 159 (Oct. 10, 2017) (explaining 

that business operations and acquisitions are “market oriented,” and “[t]here is no intervention by the Chinese 

government in companies’ business decisions”); John Tang, DHH WASHINGTON DC LAW OFFICE P.C. [hereinafter

“DHH”], Testimony, Section 301 Hearing 155 (Oct. 10, 2017) (“Chinese companies including our firm have made 

billions of investments in the U.S. These investments are purely driven by market need. [...] [P]olitics does not 

have an influence on the business decisions.”); CCCME, Submission, Section 301 Hearing 11 (Sept. 28, 2017) 

(“Chinese companies can choose any project independently and there are no government-motivated actions.”); 

DHH, Submission, Section 301 Hearing 7 (Sept. 28, 2017) (“Chinese acquisitions overseas (including intellectual 

property) are not driven by the government, but instead by market need.”); CHINA CHAMBER OF INTERNATIONAL 

COMMERCE [hereinafter “CCOIC”], Submission, Section 301 Hearing 64-65 (Sept. 26, 2017) (“Chinese companies’ 

investment and acquisition in U.S. companies is normal commercial behavior, with no government direction behind 

it.”).

495 U.S.-CHINA ECON. & SEC. REV. COMM’N, 2016 ANNUAL REPORT TO CONGRESS 102 (2016) (“Private firms often 

rely heavily on government subsidies to increase profit margins. In Professor Zheng’s testimony to the Commission, 

he explained that private companies ‘have to have the help of the state in order to prosper or even survive.’ Huawei, 

for example, is a privately held firm but receives major funding from state-owned commercial and policy banks due 

to its status as a “national champion.” [...] [A] private automobile manufacturer, BYD Co., has also benefitted from 

state support, receiving $108 million in 2013 from local and central government subsidies, nearly 130 percent of its 

net profits for the year.”).

496 Curtis J. Milhaupt & Wentong Zheng, Beyond Ownership: State Capitalism and the Chinese Firm, 103 GEO. L.J. 

665, 690 (2015) (citing e.g., Clement Kong Wing Chow et al., Investment Opportunity Set, Political Connection and 

Business Policies of Private Enterprises in China, 38 REV. QUANTITATIVE FIN. ACCT. 367 (2012) (finding that firms 

with political connections in China are able to borrow more); Hongbin Li et al., Political Connections, Financing 

and Firm Performance: Evidence from Chinese Private Firms, 87 J. DEV. ECON. 283, 284 (2008) (finding that 

Communist Party membership helps private entrepreneurs in China to obtain loans from banks or other state 

institutions); Wubiao Zhou, Bank Financing in China’s Private Sector: The Payoffs of Political Capital, 37 WORLD 

DEV. 787, 788 (2008) (finding that membership in China’s legislative or semi-legislative organs helps private 

entrepreneurs obtain access to bank loans); Robert Cull et al., WORLD BANK, GOVERNMENT CONNECTIONS AND 

FINANCIAL CONSTRAINTS: EVIDENCE FROM A LARGE REPRESENTATIVE SAMPLE OF CHINESE FIRMS, Working Paper 

No. 6352, 7 (2013) (finding that government connections are associated with substantially less severe financial 

constraints at private firms in China)”).
IV. Outbound Investment

89

provide financial support as needed.497 These incentives provide a further opportunity for the 

state to direct private enterprises’ overseas investment in line with industrial policy. 

The recent expansion of CCP committees in nominally private enterprises also enhances state 

influence over these enterprises’ decision-making – including outbound investment activities. 

As noted above, the Company Law of the People’s Republic of China authorizes the 

establishment of CCP committees in enterprises that are not state-owned. Recent statistics 

indicate that these Party committees now exist in “70 percent of some 1.86 million privately 

owned companies,”498 a sharp increase from 2014, when only 53.1 percent of China’s 1.60 

million private companies had such committees.499 

The increasing influence of the CCP has affected foreign enterprises that are located in China. 

106,000 firms had set up Party units in 2016, compared to only 47,000 firms in 2011.500 As a 

result, several of these companies report “political pressure” to allow their internal Party 

committees greater input on business operations and investment decisions.501 Some foreign 

executives have reported that company investment decisions have already been made to satisfy 

internal CCP pressure.502 These efforts are so pervasive that at least one foreign industry group –

the Delegations of Germany Industry and Commerce – released a public statement in November 

2017 pushing back against attempts by the CCP “to strengthen their influence in wholly foreign 

owned German companies in China.” The statement concluded that German companies may 

choose to leave China or reconsider investment strategies if such attempts continued.503

Recent CCP documents indicate that these Party-building efforts are affecting all types of 

enterprises in China, not just SOEs and foreign-invested entities (FIEs).

504

 Although there are 

few public reports concerning Party-building efforts within Chinese companies that lack 

significant foreign investment or control, it is reasonable to suppose that the CCP is making 

 

497 IC Guidelines § 4(3); International Cooperation Opinion § 33. 

498 Michael Martina, Exclusive: In China, the Party’s Push for Influence inside Foreign Firms Stirs Fears, REUTERS, 

Aug. 24, 2017.

499 Xiaojun Yan & Jie Huang, Navigating Unknown Waters: The Chinese Communist Party's New Presence in the 

Private Sector 37 CHINA REVIEW (2017).

500 He Huifeng, German Trade Body Warns Firms May Pull Out of China Over Communist Party Pressure, SOUTH 

CHINA MORNING POST, Nov. 29, 2017.

501 Michael Martina, Exclusive: In China, the Party’s Push for Influence Inside Foreign Firms Stirs Fears, 

REUTERS, Aug. 24, 2017. 

502 Michael Martina, Exclusive: In China, the Party’s Push for Influence Inside Foreign Firms Stirs Fears, 

REUTERS, Aug. 24, 2017 (“A sales and marketing head in China for a major U.S. consumer goods firm said its party 

cell had recently become more active, and had pushed for locating a new facility in a district where the local 

government was promoting investment, a move the company made.”).

503 Press Release, Delegations of German Industry and Commerce, Increasing business challenges – Delegations of 

German Industry & Commerce in China concerned about growing influence of Chinese Communist Party on foreign 

business operations (Nov. 24, 2017), available at http://china.ahk.de/news/single-view/artikel/press-statementincreasing-business-challenges-delegations-of-german-industry-commerce-in-china-concerned-about-growinginfluence-of-chinese-co/.

504 See e.g., Lucy Hornby, Communist party asserts control over China Inc., FINANCIAL TIMES, Oct. 3, 2017 (noting 

CCP’s push to increase influence on SOEs, private companies, and joint ventures); Provisions of the CCP 

Regarding On-Site Inspections (2017 Revision) (CCP Central Committee, July 1, 2017) (Calling on central, 

provincial and local CCP committees to increase inspection and supervision of all Party organizations under their 

jurisdiction, including those existing in enterprises).
IV. Outbound Investment

90

similar demands on these companies. 505 Unlike FIEs, Chinese companies likely have far less 

freedom to push back against such requests or to make them public.

Company executives often maintain close ties to the Party, either through their own membership 

in the Party or through cultivating political connections with influential Party cadres or organs in 

their locality.506 Likewise, industry associations may influence outbound investment behavior in 

line with government objectives. Industry associations exist for most of the technology-intensive 

manufacturing sectors of the Chinese economy, and most trace their origins to a government 

body. The members of these associations include SOEs as well as nominally private 

enterprises.507

c) State-backed Funds

The emergence of state-backed funds and investment companies represents an important new 

feature of China’s financial sector. 

An early development in this regard was the establishment in 2007 of China’s sovereign wealth 

fund China Investment Corporation (CIC).508 CIC has received periodic capital injections from 

the foreign exchange reserves managed by SAFE.509 A large portion of its assets are located in 

its subsidiary, Central Huijin Investment Ltd., which holds stakes in China’s state-owned 

commercial banks, policy banks, securities companies, and insurance companies.510 Members of 

 

505 According to a recent report, over 35 of China’s largest technology companies have “quietly instituted Party 

committees in recent years” but declined to give further specifics on the operational role of such committees. Emily 

Feng, Chinese Tech Groups Display Closer Ties with the Communist Party, FINANCIAL TIMES, Oct. 10, 2017.

506 U.S.-CHINA ECON. & SEC. REV. COMM’N, 2016 ANNUAL REPORT TO CONGRESS 102 (2016) (stating that, “In their 

research, Professor Zheng and Curtis Milhaupt, a professor at Columbia Law School, found 95 out of the top 100 

private Chinese firms by revenue and eight out of the top ten Internet firms by revenue were founded or are 

controlled by a current or former member of a central or local political organization such as the People’s Congresses 

and People’s Political Consultative Conferences. These connections are integral to a private firm’s success, creating 

and reinforcing important networks to top banks, other leading SOEs, and government regulators.”).

507 U.S.-CHINA ECON. & SEC. REV. COMM’N, 2016 ANNUAL REPORT TO CONGRESS 102 (2016) (“Private companies 

are subjected to largely undefined regulations that dilute the rights of corporate owners. Take, for instance, China’s 

state-run industry associations, which were created in the 1990s amid mounting pressure for the government to 

separate its regulatory power from its business activities. State-run industry associations were meant to provide 

industrial coordination and private regulation, but they have become quasi-governmental entities: created and staffed 

by former government officials from defunct ministries, they supervise and coordinate the activities of firms whose 

ministries have been disbanded. Compulsory participation in these state-led industrial restructuring efforts, along 

with other forms of pressure from regulators to comply with government-favored policies, contribute to the state’s 

extralegal control over private enterprises.”).

508 CIC was established as a wholly state-owned enterprise pursuant to the PRC Company Law. Profile [Chinese], 

CHINA INVESTMENT CORP., available at http://www.china-inv.cn.

509 CIC received a $200 billion capital injection at its founding and a $30 billion capital injection in December 2011. 

CHINA INVESTMENT CORP., 2011 ANNUAL REPORT (2011); Lingling Wei, China’s CIC Works on Funding 

Mechanism, THE WALL STREET JOURNAL, Mar. 6, 2012.

510 Central Huijin Investment Ltd. stakes include Agricultural Bank of China, Industrial and Commercial Bank of 

China, and CDB. Shareholdings [Chinese], CENTRAL HUIJIN INVESTMENT LTD, http://www.huijininv.cn/wps/portal/!ut/p/a1/jZDLDoIwEEW_yMxYsOCygPKQ6oIQsRvSGIEmUoghLvx6q2FrcXY3OSf3ZkBABU

LLp2rlpAYt758saH1EiuuwwAw52yPzccdPTkbiYGOAiwHCmCWulyOi6xNMoyCJvC1HTKnN9ws6-

_jjGP7nW4CF_dkXsPSbAvLgIW9BjHLqVko3A1Td0N_qq4YzCGvDgSwArjMDthcubRz7sqxeeVOkir0BYO0FN

g!!/dl5/d5/L2dBISEvZ0FBIS9nQSEh (last visited Nov. 20, 2017).
IV. Outbound Investment

91

CIC’s supervisory committee and executive board include current and former government 

officials.511

CIC is tasked with “implementing the diversification of investments of national foreign exchange 

reserves.”512 In fulfilling this role, CIC has not only made portfolio investments, but also 

purchased substantial equity shares in U.S. financial institutions and companies in the energy and 

resource sectors, including the U.S. energy company AES.513 In recent years, CIC has played a 

more indirect role by contributing capital to other funds. Notably, CIC contributed $550 million 

to the Asia-Germany Industrial Promotion Capital (AGIC), a private Chinese-owned investment 

fund based in Germany targeting investment in European “Industry 4.0”514 enterprises.515

Since 2007, state-backed funds and investment companies have proliferated, to the extent that 

these entities now constitute a central feature of China’s technology acquisition strategy. In a 

2016 report, the Mercator Institute observes that:

Sovereign investment funds and governmental investment management companies play 

an increasing role in high-tech FDI. While these funds and their management often 

present themselves as private enterprises, the state’s active role is concealed behind an 

opaque network of ownership and funding structures. The State Council and local 

governments primarily use these funds and the expertise of private managers to make 

subsidies to Chinese enterprises more efficient. These funds are now becoming 

increasingly active with regard to investment in overseas markets.516

One of the largest state-backed funds is the National IC Fund. This fund was established in 

September 2014, soon after the June 2014 release of the IC Guidelines. The Semiconductor 

 

511 CIC’s supervisory committee consists of representatives from MOF, PBOC, and other government organs. Its 

executive board is staffed primarily by former government officials. Executive Committee [Chinese], CHINA 

INVESTMENT CORP, http://www.chinainv.cn/wps/portal/!ut/p/a1/jZBNC4JAEIZ_Ucy02mrHVcsP3CJEsr3IEqkLuUpIh359Jl1dndvA8_DOvCCgAKHlW9

VyUJ2Wz98uaHlCils_wwQ5OyJz8cDPVkKYZ43AbR4IbWL0L7u_74cssp0UEW2XYBx4UeDsOWJM1_k4Mwz

XQZg4f9kAgz5YwB5cZ_XIHo5NBulqw6Kpmsf5V3DFYQxIbPMwNTwBJgqXLqxb_M8Lz5plcXqCxJDtLo!/dl5/d

5/L2dBISEvZ0FBIS9nQSEh/ (last visited Nov. 20, 2017).

512 Profile [Chinese], CHINA INVESTMENT CORP., http://www.chinainv.cn/wps/portal/!ut/p/a1/jZHRCoIwGIWfpQeI_U2ddjm1dOKKkMh2IyNSBzklpIuePpVunZ67H77DOfwHCZQjo

eVHVbJXrZav8RakOAGBXZBBApwegXpw4GcrwdRxBuA-D0Q2Nvp96-

8PIhrbbgoAtoeBhX4cunsOwMg6P8yIgtF_Weg_AqvyDcDC_5IJMPQfAvCbB7xCopN9vVW6bFFet82zeGh0Q8K

YkFlmYFpoAkwTLHU0d-AEdc11UP5Ny4wpRjc_2EaqQw!!/dl5/d5/L2dBISEvZ0FBIS9nQSEh/ (last visited Nov. 

20, 2017.

513 See IACOB KOCH-WESER, OWEN HAACKE, U.S.-CHINA ECON. & SEC. REV. COMM’N, CHINA INVESTMENT 

CORPORATION: RECENT DEVELOPMENTS IN PERFORMANCE, STRATEGY, AND GOVERNANCE 29 (June 13, 2014); 

Eiichi Sekine, China Investment Corporation: Investment Performance in 2010 and Outlook, 3 NOMURA J. OF 

CAPITAL MARKETS 6 (Winter 2012).

514 “Industry 4.0” refers to the “fourth industrial revolution” resulting from the integration of the “internet of things” 

into the entire industrial value chain. See Bill Lydon, Industry 4.0: Intelligent and flexible production, 63 INTECH 

12–17 (2016).

515 Jost Wübbeke, et al., MERICS, MADE IN CHINA 2025: THE MAKING OF A HIGH-TECH SUPERPOWER AND 

CONSEQUENCES FOR INDUSTRIAL COUNTRIES 53 (Dec. 2016).

516 Jost Wübbeke, et al., MERICS, MADE IN CHINA 2025: THE MAKING OF A HIGH-TECH SUPERPOWER AND 

CONSEQUENCES FOR INDUSTRIAL COUNTRIES 53 (Dec. 2016).
IV. Outbound Investment

92

Industry Association (SIA) reports that, to date, the National IC Fund has secured 

approximately $21 billion in funding.517 The fund has used these resources to support 

numerous technology-related outbound investments in the United States (see Section IV.C.2 

for further discussion).

A media article by China’s official state-run news agency, Xinhua News, reposted on the 

website of the MOF, states that the National IC Fund will adopt a variety of investment 

forms, including equity investment, with a focus on the integrated circuit and microchip 

manufacturing industry, in order to “propel enterprises to upgrade their industrial capacity 

level and implement mergers, restructuring, and standardized enterprise management.” 518 

The article further states that the IC Fund was established “under the guidance” of MIIT and 

MOF, and lists several large SOEs and state-owned financial institutions as key capital 

contributors, including:519

 China Development Bank Capital, a subsidiary of the state-owned policy bank 

CDB;520

 China National Tobacco Corp., a central SOE that administers a quasi-monopoly in 

China’s tobacco sector;

521

 China Mobile Communications Corporation, a central SOE and market leader in 

China’s telecommunications sector;

522

 Beijing E-Town International Investment and Development Co., Ltd. (Beijing ETown), an investment company owned by the municipal government of Beijing,523

which has made several technology-related investments in the United States (see

further discussion below and in Section IV.C.2);

 

517 SEMICONDUCTOR INDUSTRY ASSOCIATION [hereinafter “SIA”], Submission, Section 301 Hearing 6 (Oct. 5, 

2017).

518 National Integrated Circuit Industry Investment Fund Officially Established [Chinese], XINHUA NEWS, Oct.14, 

2014, available at http://www.mof.gov.cn/zhengwuxinxi/caizhengxinwen/201410/t20141014_1149902.html.

519 National Integrated Circuit Industry Investment Fund Officially Established [Chinese], XINHUA NEWS, Oct.14, 

2014, available at http://www.mof.gov.cn/zhengwuxinxi/caizhengxinwen/201410/t20141014_1149902.html.

520 See China Development Bank Capital, available at http://www.cdb-intl.com/eng/about/about.htm. See also

Capital Markets – Company Overview of China Development Bank Capital Corporation Ltd., BLOOMBERG,

available at https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=115838167 (last visited 

Nov. 20, 2017) (“China Development Bank Capital Corporation Ltd. is an investment arm of China Development 

Bank specializing in direct, mezzanine, and fund of fund investments. For direct investments, the firm specializes in 

growth capital, pre-IPO investments, mergers & acquisition, and restructuring. It seeks to make direct investments in 

new energy, healthcare, environmental protection technologies, oil and gas supply, and industrials sectors.”).

521 China Tobacco Overview [Chinese], State Tobacco Monopoly Bureau, available at 

www.tobacco.gov.cn/html/10/1004.html.

522 China Mobile Communications Corporation is administered by SASAC. See SASAC, Enterprise List [Chinese], 

available at http://www.sasac.gov.cn/n2588035/n2641579/n2641645/index.html.

523 Company Introduction [Chinese], BEIJING E-TOWN, 

http://www.etowncapital.com/comcontent_detail/columnsId=36&&i=2&comContentId=2.html, (last visited Nov.20, 

2017). 
IV. Outbound Investment

93

 Shanghai Guosheng (Group) Co., Ltd., an investment company owned by the 

municipal government of Shanghai;

 Tsinghua Unigroup, a company owned by Tsinghua University, a public university, 

which has attempted to make several technology-related investments in the United 

States (see above for further discussion);

 China Electronics Technology Group Corporation, a state-owned defense enterprise 

established under the former Ministry of Electronics Industry (now part of MIIT), 

which describes itself as an “important state-owned backbone enterprise directly 

administered by the central government.”524

A 2017 corporate filing, relating to the acquisition of a National IC Fund-invested company, 

discloses further information on the National IC Fund’s shareholders. The list contains 19 

entities, the largest of which are the government ministry MOF (25.95 percent), China 

Development Bank Capital (23.07 percent), China National Tobacco Corp. (14.42 percent), 

and Beijing E-Town (7.21 percent).525 The fund has used part of this capital to collaborate 

with its founding capital contributors. For example, in February 2015, the fund provided 

Tsinghua Unigroup with CNY 10 billion ($1.6 billion) in equity investment.526

The National IC Fund is part of an “Integrated Circuit Industry Technological Innovation 

Strategic Alliance” established in March 2017 “in conformity with [...] the guiding spirit of

General Secretary Xi Jinping.”

527

 The objective of the alliance is to “implement the ‘Strong 

Internet Nation’ strategy, achieve breakthroughs in cutting-edge core technologies, and 

establish secure and controllable information technology [IT] systems.”528 The alliance 

comprises “62 leading enterprises, higher-education institutions, research academies, and 

social organizations,” and is supported by the Ministry of Science and Technology (MOST), 

NDRC, and MIIT.529

In the period since September 2014, numerous provinces and municipalities have established 

their own IC Funds, or received capital from the National IC Fund to establish other IC-

 

524 See CHINA ELECTRONICS TECHNOLOGY GROUP CORPORATION [Chinese], 

http://www.cetc.com.cn/zgdzkj/_300891/_300895/index.html (last visited Nov.20, 2017).

525 Zhejiang Wansheng Co., Zhejiang Wansheng Co., Ltd. Public Notice In Response to a Letter from the Shanghai 

Stock Exchange Requesting Information Disclosure Regarding the Company’s Issuance of Shares to Acquire Assets 

and Raise Supporting Funds in a Related Party Transaction [Chinese] (Code 603010, Public Notice 2017-042).

526 Press Release, Tsinghua Unigroup, Tsinghua Unigroup Receives CNY 10 Billion Investment from the National 

Integrated Circuit Investment Fund [Chinese] (Feb.14, 2015), available at

http://www.unigroup.com.cn/newscenter/jtxw/2015/0214/138.html. 

527 Press Release, China National Science and Technology Major Project, Integrated Circuit Industry Technological 

Innovation Strategic Alliance Officially Established [Chinese] (Mar. 22, 2017), available at 

http://www.nmp.gov.cn/gzxgz/jcdl/201703/t20170323_5031.htm. 

528 Press Release, China National Science and Technology Major Project, Integrated Circuit Industry Technological 

Innovation Strategic Alliance Officially Established [Chinese] (Mar. 22, 2017), available at 

http://www.nmp.gov.cn/gzxgz/jcdl/201703/t20170323_5031.htm. 

529 Press Release, China National Science and Technology Major Project, Integrated Circuit Industry Technological 

Innovation Strategic Alliance Officially Established [Chinese] (Mar. 22, 2017), available at 

http://www.nmp.gov.cn/gzxgz/jcdl/201703/t20170323_5031.htm.
IV. Outbound Investment

94

related funds.530 Reports on the establishment of IC Funds in Hubei,531 Fujian,532 and Anhui

provinces533 indicate the high degree of Chinese government involvement in establishing the 

funds in order to meet national strategic objectives. According to the SIA, provincial and 

municipal IC funds have raised a staggering sum – more than $80 billion.534

In addition to funds that specifically target the IC sector, China has developed a number of 

other funds directed to all high-technology industries identified in the Made in China 2025 

Notice and Made in China 2025 Roadmap. As reported by the U.S. Chamber of Commerce, 

these funds include: 

(1) Advanced Manufacturing Industry Investment Fund – This fund received initial funding 

of CNY 20 billion ($3 billion), and aims to support all industries prioritized under the 

Made in China 2025 policy.

 

530 The full scope of sub-central IC Funds is difficult to ascertain, as there is no single list published a government 

website. A publication by the news website Sohu lists 13 IC Funds, located in the following localities (in the order 

they were established): (1) Beijing municipality (est. July 2014, capital CNY 30 billion ($4.9 billion)), (2) Hubei 

province (est. August 2015, capital CNY 30 billion ($4.8 billion)), (3) Shenzhen municipality (est. October 2015, 

capital CNY 20 billion ($3.2 billion)), (4) Guizhou province (est. December 2015, capital CNY 1.8 billion ($286 

million)), (5) Hunan province (est. December 2015, CNY 5 billion ($795 million)), (6) Xiamen municipality (est. 

March 2016, capital CNY 16 billion ($2.4 billion)), (7) Sichuan province (est. March 2016, capital CNY 4 billion 

($604 million)), (8) Guangdong province (est. June 2016, capital CNY 15 billion ($2.3 billion)), (9) Shaanxi 

province (est. August 2016, capital CNY 30 billion ($4.5 billion)), (10) Shanghai municipality (est. December 2016, 

capital CNY 28.5 billion ($4.3 billion)), (11) Nanjing municipality (est. December 2016, capital CNY 60 billion 

($9.1 billion)), (12) Wuxi municipality (est. January 2017, capital CNY 20 billion ($3 billion)), and (13) Kunshan 

municipality (est. February 2017, capital 10 billion ($1.5 billion)). See A Compilation of Domestic Integrated Circuit 

Industry Funds in Each Locality [Chinese], SOHU, https://m.sohu.com/n/481699130/.

531 Hubei established an IC Fund in August 2015 with initial funding of CNY 30 billion ($4.4 billion). In March 

2016, a “national storage equipment” base was established in Wuhan, the capital of Hubei, with support from the 

Hubei IC Fund and the National IC Fund. Press Release, Wuhan Municipal Government International and IT Office, 

Construction Begins to Establish National Storage Equipment Base in Our Municipality [Chinese] (Mar. 31, 2016), 

available at http://www.whwx.gov.cn/zhgl/gzdt/201603/t20160331_68082.html; Press Release, Hubei Province 

Science and Technology Office, Hubei Establishes CNY 30 billion Integrated Circuit Industry Investment Fund 

[Chinese] (Aug. 24, 2015), available at http://www.most.gov.cn/dfkj/hub/zxdt/201508/t20150821_121241.htm. 

532 The Fujian Anxin Capital Fund was established in June 2016 with funding from the National IC Fund, with 

pledged capital of at least CNY 46.8 billion ($7.1 billion). Among the fund’s goals is to “promote domestic and 

foreign integrated circuit project acquisitions, technological R&D and the new construction and expansion of 

production lines [...]” At the unveiling of the new fund, National IC Fund Chairman Wang Zhanfu stated: “On one 

hand, we can break through monopolies, protect national security, and implement national strategic objectives. On 

the other hand, we can optimize the industrial composition of domestic mobile integrated circuits, and promote the 

healthy development of industries including manufacturing, materials, and equipment.” Entering the Structure of the 

National Integrated Circuit ‘13th Five-year’ Strategy; Pujiang Recreates New Competitive Advantages [Chinese], 

PUJIANG NEWS, June 25, 2016, available at http://www.jinjiang.gov.cn/htm/20160625/89981.html.

533 The Anhui province IC Fund was established in May 2017 with CNY 30 billion ($4.4 billion) in initial funding. 

Capital contributors to the fund include the National IC Fund, the Chinese Academy of Sciences, the Anhui 

Province Investment Group, and the Hefei Industrial Investment Group. The fund’s activities will promote IC 

industry development in Anhui province through various methods, including equity infusions into subsidiary funds, 

equity investments, and industrial acquisitions. Anhui Province Establishes CNY 30 Billion Integrated Circuit 

Industrial Investment Fund [Chinese], XINHUA NEWS, May 19, 2017, available at

http://www.gov.cn/xinwen/201705/19/content_5195371.htm.

534 SIA, Submission, Section 301 Hearing 6 (Oct. 5, 2017).
IV. Outbound Investment

95

(2) National Strategic Emerging Industries Investment Guiding Fund – This fund received 

initial funding of CNY 40 billion ($6 billion), and focuses on strategic emerging 

industries.

(3) Made in China 2025 Strategic Cooperation – This fund is a strategic partnership between 

CDB and the government ministry MIIT, with funding valued at CNY 300 billion ($44.8

billion). It provides financial support to implementing the Made in China 2025 policy. 

There are also province-level Made in China 2025 funds in Shaanxi, Gansu, and Sichuan 

provinces.535

Moreover, China relies on a web of state-backed investment companies to support outbound 

technology investments. A primary example is Beijing E-Town, which is owned by the 

Beijing municipal government. As noted above, Beijing E-Town is a capital contributor to 

the National IC Fund. According to a 2015 presentation by its General Manager, Wang 

Xiaobo, Beijing E-Town seeks to build a system of funds that includes not only the National 

IC Industry Fund, but also various province- and municipal-level funds, as well as smaller 

VC funds, in order to accelerate industrial clustering, incubate innovation, and cultivate an 

industrial ecosystem.536 As of the end of 2016, Beijing E-Town, on behalf of Beijing 

municipality, had committed CNY 10 billion ($1.5 billion) (and already disbursed CNY 1.6 

billion ($242 million)) to the National IC Fund.537

A specific objective of Beijing E-Town is to cluster technology companies in the Beijing 

Economic-Technological Development Zone.538 A broader objective is to partner with 

domestic industry leaders to promote international acquisitions to acquire a number of key 

technologies in the IC industry – including mobile telecom base chips, RF chips, memory 

chips, insulated-gate bipolar transistors (IGBT) / power electronics, LCD driver chips, CPU 

chips, and MEMS sensor chips – in order to reduce China’s reliance on IC imports. 539 This 

broader objective aligns closely with government policies outlined in the IC Guidelines and 

other documents. 

d) Military Civil Fusion

The Chinese government’s interest in securing advanced technology through outbound 

investment reflects both economic and national security objectives. The close relationship 

 

535 U.S. CHAMBER, MADE IN CHINA 2025: GLOBAL AMBITIONS BUILT ON LOCAL PROTECTIONS 63-64 (2017).

536 Wang Xiaobo, Beijing E-Town General Manager, Presentation at TIF China 2015, Establishing an Investment 

Financing Platform; Promoting Development of the Integrated Circuit Industry [Chinese] (Mar. 2015), available at 

http://www.semi.org/en/sites/semi.org/files/data15/docs/Wangxiaobo_TIF.pdf.

537 CCXR 2017 Credit Report on Beijing E-Town International Investment and Development Co., Ltd. 12 [Chinese] 

(Credit Committee [2017] No. G229-1). See also Wang Xiaobo, Beijing E-Town General Manager, Presentation at 

TIF China 2015, Establishing an Investment Financing Platform; Promoting Development of the Integrated Circuit 

Industry [Chinese] (Mar. 2015), available at 

http://www.semi.org/en/sites/semi.org/files/data15/docs/Wangxiaobo_TIF.pdf.

538 Wang Xiaobo, Beijing E-Town General Manager, Presentation at TIF China 2015 Establishing an Investment 

Financing Platform; Promoting Development of the Integrated Circuit Industry [Chinese] (Mar. 2015), available at 

http://www.semi.org/en/sites/semi.org/files/data15/docs/Wangxiaobo_TIF.pdf.

539 CCXR 2017 Credit Report on Beijing E-Town International Investment and Development Co., Ltd. 15 [Chinese] 

(Credit Committee [2017] No. G229-1).
IV. Outbound Investment

96

between these objectives is reflected in the strategy of “military-civil fusion” (MCF), which is an 

important driver of government policy and outbound investment patterns. In 2016, China 

established the country’s first MCF fund, which allocated CNY 2 Billion ($ 302 million) to fund 

domestic projects and “overseas acquisitions.”540

Elevated as a national strategy by General Secretary Xi Jinping in 2014, MCF embodies China’s 

national strategic philosophy of coordinating the planning of economic development and national 

security (i.e. military-defense) to fully realize the rejuvenation of the Chinese nation.541 MCF 

emphasizes indigenous development, restriction of inbound FDI, and the absorption of foreign 

technologies and know-how in key sectors.542 The People’s Liberation Army (PLA) has drawn a 

direct link between MCF policy and overseas investment.543

In June 2017, General Secretary Xi called for focusing MCF on infrastructure, national defense 

related S&T, weapon and equipment procurement, talent cultivation, and implementing MCF in 

outer space, cyberspace, biology, new energy, and maritime space.544 Fundamentally, MCF 

captures China’s efforts to leverage its economic scale to more effectively capture and apply 

technological innovations in the commercial space in a national defense context. 

As a national strategy, MCF cuts across economic and industrial development, talent acquisition, 

and military modernization plans. It calls for the development of integrated MCF information 

sharing platforms and MCF industry demonstration bases to facilitate S&T resource sharing and 

collaboration between state laboratories, the PLA, and enterprises, including foreign companies 

and Sino-foreign joint ventures.545 

The State Administration for Science, Technology, and Industry for National Defense 

(SASTIND) oversees implementation of MCF policies within industry and coordinates MCF 

action across agencies and local governments. SASTIND’s 2016 and 2017 MCF Special Action 

Plans prioritize expanding defense industry collaborations, “guiding” social investment in 

military projects, including with private enterprises; implementing import substitution plans for 

key defense-related materials; establishing MCF investment funds to promote development of 

dual-use S&T industries; and supporting the “Going Out” for China’s defense industry groups, 

including enhancing cooperation with foreign governments and promoting the diffusion of 

China’s civilian nuclear technologies.546

 

540 Wang Yuxi, First Domestic MCF Transfer Results Fund is Established – Total Scale of 2 Billion RMB [Chinese], 

SICHUAN DAILY, Sept. 22, 2016, available at http://news.china.com.cn/2016-09/22/content_39347495.htm.

541 Xi Urges Efforts to Boost Integrated Military and Civilian Development, XINHUA NEWS, June 21, 2017, available 

at http://news.xinhuanet.com/english/2017-06/21/c_136381507.htm.

542 IGCC Report, 155. 

543 Jiang Luming, Comprehensively Planning an Overall Strategy for National Security and Development [Chinese], 

PLA DAILY June 2, 2016, available at http://www.81.cn/gfbmap/content/2016-06/02/content_146372.htm.

544 Xi Urges Efforts to Boost Integrated Military and Civilian Development, XINHUA NEWS, June 21, 2017, available 

at http://news.xinhuanet.com/english/2017-06/21/c_136381507.htm.

545 See Description of National New Industrial Demonstration Base [Chinese], MIIT, available at 

http://sfjd.miit.gov.cn/BaseInfoAction!findListIndustry.action. See also Notice of the MIIT General Office on 

Organizing the Establishment of the 2015 “National New Industrialization Demonstration Base” (MIIT Gong Xin 

Ting Gui Han [2015] No. 319, May 12, 2015).

546 2017 SASTIND Military-Civilian Fusion Special Action Plan (State Administration of Science, Industry, and 

Industry for National Defense, published June 23, 2017); 2016 SASTIND Military-Civilian Fusion Special Action 
IV. Outbound Investment

97

The State Council Notice on the Issuance of the Next Generation Artificial Intelligence 

Development Plan specifically calls for strengthening MCF in the artificial intelligence (AI)

domain and developing “a new generation of AI technology as a support to command and 

decision-making, military deduction, defense equipment, and other applications.”547

C. Impact of Policies and Implementing Measures on Chinese Investment in the 

United States

This section considers how the policies and implementing measures outlined above impact 

Chinese investment in the United States.

Certain public hearing participants in the investigation have asserted that all Chinese investment 

in the United States is driven by market considerations – not government policy.548 According to 

these participants, government policies and measures are essentially irrelevant to outbound 

investment decisions.549 USTR does not find these statements persuasive.

Certain evidence in the record suggests that Chinese OFDI often reflects commercial 

considerations. These factors include commercial interest in acquiring technology and R&D 

facilities, financial diversification, acquisitions of consumer-oriented assets, localization of 

production inside tariff boundaries, and the possibility of a CNY devaluation.550 

 

Plan (MOST, Guo Gong Ji [2016] No. 204, issued Mar. 16, 2016).

547 State Council Notice on Issuing the Next-Generation of Artificial Intelligence Development Plan § 3(4) (State 

Council, Guo Fa [2017] No. 35, issued Aug. 20, 2017). For full translation and analysis, see Graham Webster, et al., 

China’s Plan to ‘Lead in AI: Purpose, Prospects, and Problems, NEW AMERICA CYBERSECURITY INITIATIVE (Aug. 

1, 2017), available at https://www.newamerica.org/cybersecurity-initiative/blog/chinas-plan-lead-ai-purposeprospects-and-problems/.

548 See, e.g., Wang Guiqing, CCCME, Testimony, Section 301 Hearing 158-9 (Oct. 10, 2017) (business operations 

and acquisitions are “market oriented,” and “[t]here is no intervention by the Chinese government in companies’ 

business decisions”); John Tang, DHH, Testimony, Section 301 Hearing 154 (Oct. 10, 2017) (“Chinese companies 

including our firm have made billions of investments in the U.S. These investments are purely driven by market 

need. [...] [P]olitics does not have an influence on the business decisions.”); CCCME, Submission, Section 301 

Hearing 11 (Sept. 28, 2017) (stating that, “Chinese companies can choose any project independently and there are 

no government-motivated actions.”); DHH, Submission, Section 301 Hearing 7 (Sept. 28, 2017) (“Chinese 

acquisitions overseas (including intellectual property) are not driven by the government, but instead by market 

need.”); CCOIC, Submission, Section 301 Hearing 64-5 (Sept. 26, 2017) (stating that “Chinese companies’ 

investment and acquisition in U.S. companies is normal commercial behavior, with no government direction behind 

it.”).

549 One witness from the China General Chamber of Commerce testified that “every specific acquisition deal is 

decided by the companies based on their own business strategy and market opportunities [...]”. Chen Xu, CHINA 

GENERAL CHAMBER OF COMMERCE [hereinafter “CGCC”], Testimony, Section 301 Hearing 147-48 (Oct. 10, 2017). 

But this witness also underscored the importance of Chinese government policy in shaping and directing outbound 

investment. See, e.g., id. at 176 (observing that, in the context of increased real estate investment into the United 

States, “China’s central bank and China’s central government, of course, will maybe redirect or reconcile the 

direction of China’s investment into the U.S. market. It is very necessary, I think.”); see also id. at 178.

550 RHODIUM, Submission, Section 301 Hearing 3 (Sept. 28, 2017); see also China Investment in Silicon Valley: The 

Rise of Chinese Investment in U.S. Tech Companies, CBINSIGHTS, available at

https://www.cbinsights.com/reports/CB-Insights_China-in-US_webinar.pdf (last visited Nov. 20, 2017). 
IV. Outbound Investment

98

But the record also compels the conclusion that the state plays a vital role in shaping and 

facilitating outbound investment activity. As some participants observe, China is a managed 

economy,551 and the influence of the government is pervasive. As discussed above, a range of 

measures – such as control over foreign exchange, state-backed financing, and outbound 

investment approvals – give the state considerable ability to channel outbound investment to 

effect state policy objectives.552

Below, aggregate data and trends are examined, as well as specific transactions, to show how 

government policies and measures are shaping investment flows. USTR has found that, at 

multiple levels of government – central, regional, and local – the Chinese state has directed and 

facilitated investment in, and acquisition of, U.S. companies and assets in technology-intensive 

sectors and in U.S. technology centers such as Silicon Valley. 

1. Chinese Investment Activity in the United States: Analysis of Data

China’s OFDI has accelerated over the decade since China began to articulate and implement the 

policies outlined in Section IV.B. China’s Ministry of Commerce (MOFCOM) reports that 

China’s OFDI flows totaled $145.7 billion in 2015 and $196.1 billion in 2016 – a new record, 

and a substantial increase over the $21.1 billion reported in 2006.553 Likewise, data from the 

United Nations Conference on Trade and Development (UNCTAD) shows that between 2009 

and 2016, enterprises from China transacted 2,715 cross-border merger and acquisition (M&A)

deals, compared to 1,250 deals in the 1990-2008 period.554

The growth of Chinese investment in the United States is evident in each of the primary sources 

of data: the U.S. Bureau of Economic Analysis (BEA), the China Global Investment Tracker

(AEI), and the China Investment Monitor (Rhodium Group, or “Rhodium”). Based on data 

collected under a balance-of-payments approach, BEA estimates that flows of Chinese OFDI 

into the United States rose by 835 percent, from $1.1 billion in 2011 to $10.3 billion in 2016 (see

Figure 1).555

 

551 See, e.g., James Lewis, CENTER FOR STRATEGIC AND INTERNATIONAL STUDIES [hereinafter “CSIS”], Submission, 

Section 301 Hearing 1-2 (Sept. 2017).

552 For these reasons, the suggestion by certain participants that the Chinese government simply provides “more 

information to the companies” to help them invest is not credible. Liu Chiao, CCOIC, Testimony, Section 301 

Hearing 182 (Oct. 10, 2017).

553 See MOFCOM, NBS, and SAFE Jointly Issue Statistical Bulletin of China's Outward Foreign Direct Investment, 

available at http://hzs.mofcom.gov.cn/article/date/201612/20161202103624.shtml, and the 2006 Statistical Bulletin 

of China's Outward Foreign Direct Investment [Chinese], available at

http://images.mofcom.gov.cn/hzs/accessory/200709/1190343657984.pdf.

554 Calculations based on UNCTAD, Annex Table 12. Number of Cross-border M&As by Region/Economy of 

Purchaser, 1990-2016, available at http://unctad.org/en/Pages/DIAE/World%20Investment%20Report/AnnexTables.aspx.

555 Foreign Direct Investment in the United States, BEA (2017), https://www.bea.gov/iTable/index_MNC.cfm (last 

visited Oct. 25, 2017). BEA collects data from legally mandated surveys of foreign-owned affiliates operating in the 

United States. BEA data cover all completed FDI transactions based on the value of dollars “crossing the border” in 

a year, per the Balance of Payments Guidelines. 
IV. Outbound Investment

99

Although AEI and Rhodium employ different methodologies for collecting investment data, they 

also show an increasing trend over this period.556 AEI data indicate a very large increase (i.e., 

2,460 percent), with investment rising from $2.2 billion in 2011 to $53.7 billion in 2016. In 

2017, Chinese investment in the United States totaled $24.2 billion, representing a significant 

year-on-year decline, but still marking the second-highest annual total on record.557 Likewise, 

Rhodium data shows cumulative Chinese OFDI into the United States growing from a mere $4.9 

billion in 2011 to $45.2 billion in 2016 – an increase of 843 percent.

558

 

Figure 1: Chinese OFDI Flows in the United States559

At the same time, Chinese OFDI has shifted away from predominantly “greenfield” 

investment,560 towards an investment model driven primarily by acquisitions. In 2000, while at 

low levels, greenfield investment constituted 99.6 percent of all Chinese OFDI flows by value; in 

 

556 AEI compiles data from publicly available or voluntarily submitted information, for all announced investment 

transactions over $100 million in value. This data is premised on the entire value of the transaction, including U.S. 

domestic financing (e.g., bonds and loans) for projects. China Global Investment Tracker (Jan. 2018), AMERICAN 

ENTERPRISE INSTITUTE, available at http://www.aei.org/china-global-investment-tracker (last visited Oct. 25, 2017). 

For its part, Rhodium collects data through publicly available or voluntarily submitted information, for completed 

direct investment transactions valued at $500,000 or more. Transaction values are based on the entire value of 

transaction, including U.S. domestic financing (e.g., bonds and loans) for projects. China Investment Monitor

(2017), RHODIUM, available at http://rhg.com/interactive/china-investment-monitor (last visited Oct. 25, 2017).

557 China Global Investment Tracker (Jan. 2018), AEI, available at http://www.aei.org/china-global-investmenttracker (last visited Oct. 25, 2017).

558 China Investment Monitor (2017), RHODIUM, http://rhg.com/interactive/china-investment-monitor (last visited 

Oct. 25, 2017).

559 China Investment Monitor (2017), RHODIUM, http://rhg.com/interactive/china-investment-monitor (last visited 

Oct. 25, 2017).

560 For a definition of Greenfield investment, see Erik Canton, Irune Solera, Greenfield Foreign Direct Investment 

and Structural Reforms in Europe: What Factors Determine Investments?, prepared for the European Commission 

Directorate-General for Economic and Financial Affairs 033 3 (June 2016) (“Three main types of FDI can be 

distinguished, namely cross-border mergers and acquisitions, greenfield investments and the extension of existing 

capacity. According to the definition in the data source this paper focuses on the last two: greenfield investments –

the creation of a firm from scratch by one or more nonresident investors – and the extension of capacity – an 

increase in the capital of already established foreign enterprises. [...] Greenfield FDI thus implies an expansion of 

the capital stock, directly generating new economic activity and jobs. It is also a vehicle for international technology 

spillovers, and can thereby contribute to productivity growth.”). 

0

5

10

15

20

25

30

35

40

45

50

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

$Billions
IV. Outbound Investment

100

2005-2009, greenfield investments accounted for 22.7 percent of OFDI.561 In contrast, from 

2010 to 2016, greenfield investments made up only 7.6 percent of OFDI, whereas acquisitions 

accounted for 92.4 percent (see Figure 2).

Figure 2: Chinese OFDI in the United States: Greenfield vs. Acquisitions562

Chinese SOEs have played an important role in shaping these investment flows. From 2000 to 

2016, 351 of the 1,395 acquisitions (25 percent) were carried out by government-owned 

enterprises, which accounted for 29 percent of the monetary value of these deals.563 

Chinese OFDI also has grown significantly in technology- and innovation-related sectors 

targeted by Chinese industrial policies. Figure 3 reflects the growth in Chinese OFDI flows into 

the United States, with respect to seven sectors – automobiles, aviation, electronics, energy, 

health and biotechnology, industrial machinery (including robotics), and ICT. As this chart 

reflects, aggregate growth for this group of sectors has risen considerably, from $1.9 billion in 

2005 to $9.8 billion in 2016. Annual investment totals were particularly high for this group 

during the 2013-2016 period, when the average annual OFDI was $6.9 billion.

Figure 3: Chinese OFDI in the United States: Technology-related Sectors564

 

561China Investment Monitor (2017), RHODIUM, http://rhg.com/interactive/china-investment-monitor (last visited 

Oct. 25, 2017).

562 China Investment Monitor (2017), RHODIUM, http://rhg.com/interactive/china-investment-monitor (last visited 

Oct. 25, 2017).

563 China Investment Monitor (2017), RHODIUM, http://rhg.com/interactive/china-investment-monitor (last visited 

Oct. 25, 2017). Rhodium defines “government-owned enterprises” as central SOEs under State-Owned Assets 

Supervision Administration and Commission, local SOEs controlled by provincial or municipal governments, 

sovereign investors, and any other entities that have more than 20 percent combined government ownership. 

Sources and Methodology (2017), RHODIUM, http://rhg.com/wp-content/themes/rhodium/interactive/chinainvestment-monitor/sources-and-methodology.html (last visited Oct. 31, 2017). See also Thilo Hanneman, Daniel H. 

Rosen, RHODIUM, CHINESE INVESTMENT IN THE UNITED STATES: RECENT TRENDS AND THE POLICY AGENDA 66

(Dec. 2016).

564 China Investment Monitor (2017), RHODIUM, http://rhg.com/interactive/china-investment-monitor (last visited 

Oct. 25, 2017). The sectors identified in the chart are intended to be a representative basket of technology-related 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Greenfield Acquisitions
IV. Outbound Investment

101

Although trends vary from sector to sector, investment has generally risen significantly across 

each of the seven sectors:565 

 Automotive: Prior to 2014, the largest annual Chinese investment in the U.S. automotive 

industry was $474 million, in 2010. During the 2009-2013 period, the average annual 

investment inflow was $214 million. In 2014, investment flows in this sector increased to 

$771 million, and have risen each subsequent year ($915 million in 2015 and $1.0 billion in 

2016).566

 Aviation: According to Rhodium, prior to 2010 there was no Chinese investment in the U.S. 

aviation industry. In 2010, Chinese OFDI was $5 million in this sector, growing to $401 

million in 2011. The annual average OFDI from 2012 through 2016 was $66 million. 

Chinese worldwide investment patterns are more pronounced in this sector. AEI reports that

in the 2005-2013 period, there were only 7 investment transactions worldwide, totaling $2.5 

billion; since the start of 2014, there have been 17, totaling $19.8 billion (of which $10.4 

billion resulted from a single investment in the United States).

567

 Electronics: From 2009 through 2014, the annual average Chinese investment in the U.S. 

electronics industry was $49 million. In 2015, inflows increased nearly six-fold from the 

prior year to $349 million, and then increased twelve-fold over those levels to $4.2 billion, in 

2016. 

 Energy: Before 2010, the largest annual Chinese investment in the U.S. energy industry was 

$212 million, in 2009. In the first decade of the 21st century, the annual average investment 

 

industries, drawn from Rhodium data, and not a comprehensive list. Other sectors not identified here also may have 

a nexus to technology or innovation.

565 Unless otherwise indicated, data in this paragraph is drawn from China Investment Monitor (2017), RHODIUM, 

http://rhg.com/interactive/china-investment-monitor (last visited Oct. 25, 2017).

566 China Global Investment Tracker (2018), AEI, available at http://www.aei.org/china-global-investment-tracker, 

(last visited Oct. 25, 2017).

567 China Global Investment Tracker (2018), AEI, http://www.aei.org/china-global-investment-tracker, (last visited 

Oct. 25, 2017). AEI data includes announced deals, as well as completed transactions; it is possible that some of 

these transactions have not closed as of the date of publication of this report.
IV. Outbound Investment

102

inflow was a mere $52.6 million. In 2010, investment in this sector rose to $2.8 billion, and 

reached a high of $3.6 billion in 2013; levels declined thereafter. Chinese worldwide 

investment patterns show a clear shift to investment in alternative energy568 since 2013. AEI 

reports that, in the 2005-2013 period, China’s average annual worldwide investment in 

alternative energy was $673 million. This average rose to $4.2 billion during the 2014-2017 

period. As reported by AEI, China’s only investments in the U.S. energy sector in 2016 and 

2017 were in alternative energy, amounting to $150 million and $230 million, 

respectively.569

 Health and Biotechnology: During the 2009-2013 period, annual Chinese investment in the 

U.S. health and biotechnology industry averaged $116 million. In 2014, investment in this 

sector grew rapidly to $1.0 billion, and remained at higher levels in 2015 ($900 million) and 

2016 ($1.0 billion). 

 Information and Communication Technology (ICT): Before 2014, the largest annual 

Chinese investment in the U.S. ICT industry was $1.9 billion, in 2005. In 2009-2013, annual 

average investment inflow was $312 million. In 2014, investment in this sector rose to $5.9 

billion and remained at higher levels in 2015 ($1.3 billion) and 2016 ($3.3 billion). 

 Industrial Machinery (including Robotics): The largest annual inflow of investment in 

industrial machinery and equipment was in 2010, in which investment totaled $218 million. 

Average annual investment fell to $15-$45 million in 2011-2014. Then, in 2015 and 2016, 

investment in this industry returned to near-record high levels of $214 million and $207 

million, respectively. 

2. Effect of State Policies and Implementing Measures on Chinese Acquisitions

Growth in Chinese technology investment coincides with an array of policy statements and 

implementing measures that are geared to promote technology transfer. As discussed in Section 

IV.B, above, over the past 10-15 years, the Chinese government has deployed a series of state 

industrial plans, approval mechanisms, and support measures designed to direct and facilitate 

outbound investment in technology-related sectors.570 The edifice of policies and implementing 

measures has grown more elaborate over time, and increasingly tailored to specific sectors. 

Likewise, aggregate Chinese OFDI in technology has witnessed a substantial increase over this 

period, particularly since 2009.

This apparent temporal relationship is particularly evident in certain sectors and industries, such 

as semiconductors. As discussed in Section IV.B.4, above, the Chinese government announced 

 

568

“Alternative energy” includes non-fossil fuel energy investments, including renewable energy such as wind and 

solar, and nuclear energy. According to AEI data, most of the “alternative energy” investments fall under renewable 

energy, though there are some nuclear transactions, mostly in European countries. China Global Investment Tracker

(2018), AEI, http://www.aei.org/china-global-investment-tracker, (last visited Oct. 25, 2017).

569 China Global Investment Tracker (2018), AEI, http://www.aei.org/china-global-investment-tracker, (last visited 

Oct. 25, 2017). AEI data includes announced deals, as well as completed transactions; it is possible that some of 

these transactions have not closed as of the date of this report’s publication.

570 As discussed in Section IV.B.1., the antecedents of this policy change were present as early as 2000 with the 

introduction of the “Going Out” strategy.
IV. Outbound Investment

103

in 2014 a policy to accelerate the development of the IC industry, including semiconductors. 

Prior to this announcement, global outbound Chinese investment in semiconductor 

manufacturing did not exceed $1 billion in a single year. In 2014, the value of announced 

Chinese acquisitions increased to $3 billion, and in 2015 surged to $35 billion.571

Thus, the aggregate data suggest a possible causal link between state policies and implementing 

measures, on the one hand, and trends in technology-driven OFDI, on the other. Indeed, given 

the scope and scale of these measures, it would be surprising if they had no effect on investment 

flows. 

To further examine the impact of state measures on OFDI, USTR reviewed hundreds of reported 

transactions, in the following technology-intensive sectors: (1) aviation, (2) integrated circuits, 

(3) information technology, (4) biotechnology, (5) industrial machinery, (6) renewable energy, 

and (7) automotive. Several of these transactions are discussed in detail below and are presented 

as representative examples, The analysis is based on publicly available information concerning 

these transactions, and given the difficulty of obtaining information on the precise role of the 

government and CCP in individual cases, there are limits to the information available concerning 

each transaction. 

Nonetheless, the evidence establishes that Chinese government policies and measures have had a 

significant effect on investment in each of the technology-intensive sectors examined. At 

multiple levels of government – central, regional, and local – the Chinese state has directed and 

facilitated the acquisition of U.S. companies and assets in these sectors. In the representative 

examples provided, the transactions align with state objectives and policies, and are often 

undertaken by SOEs that are, by definition, owned and controlled by the government. Even 

when undertaken by companies in which the government does not own an observable controlling 

stake, the transactions identified are frequently guided and directed by the state. CCP members 

often act as board members and officers of these companies, and are responsive to state 

directives. In addition, many of these transactions are funded by state-owned entities or banks, 

often in situations where comparable commercial financing would have been unavailable. 

a) Aviation

Government Policies

Chinese investments in the U.S. general aviation (GA) industry illustrate the role of Chinese 

government policies in directing the commercial activities of Chinese companies.

Obtaining and developing cutting-edge technology in the aviation sector has long been an 

objective of the Chinese government. As discussed above, aviation technology has featured in 

numerous state planning documents, such as the MLP and the State Council Opinions on 

Deepening Reform of the National Defense Science and Technology Industry Investment System,

the measure which called for development of National Defense Science & Technology Social 

 

571 RHODIUM, Submission, Section 301 Hearing 4 (Sept. 28, 2017). Rhodium finds that there is a “readily apparent” 

nexus between Chinese industrial policy and outbound investment in the semiconductor industry. 
IV. Outbound Investment

104

Investment Guidance Catalogue, which specifically targets aviation.

572

 Several five-year plans 

for China’s civil aviation industry underscore the government’s objective of developing this 

technology, 573 as do opinions and directives issued by government ministries such as MOST and 

SASTIND.574 These documents confirm that the pursuit of aviation technology is intended to 

fulfill both civil and military objectives.575 

Reflecting these objectives, Chinese firms have acquired at least 11 U.S. aviation companies, 

established three joint ventures, and signed five cooperation agreements since 2005.

576

 The 

central state-owned Aviation Industry Corporation of China (AVIC)577 leads this investment 

effort, and, since 2010, has spent more than $3 billion acquiring U.S. and European aviation 

companies to address key gaps in general aviation technologies.578 As the successor to the 

Ministry of Aviation Industry, AVIC has implicit responsibility for China’s state-run aviation 

sector.579 AVIC is also the sole domestic supplier of military aircraft to the PLA.580 

 

572 Notice on Issuing the National Medium- and Long-Term Science and Technology Development Plan Outline 

(2006-2020) (State Council, Guo Fa [2005] No. 44, issued Dec. 26, 2005); State Council Opinions on Deepening 

Reform of the National Defense Science and Technology Industry Investment System (State Council, Guo Han 

[2007] No. 9, issued Jan. 30, 2007); Ministry of Industry and Information Technology, Ministry of Science and 

Technology, National Defense Science & Technology Social Investment Guidance Catalogue (Release of 2010 

Edition) (MIIT, MOST, issued Dec. 1, 2012).

573 China Civil Aviation Industry 13th Five-year Development Plan (CAAC, issued Mar. 2017); China Civil 

Aviation Industry 12th Five-year Development Plan (CAAC, issued Apr. 2011).

574 Provisional Measures on the Administration and Approval of Social Investment Projects of National Defense 

Science and Technology Industry (MIIT, Ke Kong Ji [2009] Document No. 1516, issued Dec. 30, 2009) manages 

approval of investments in the National Defense Science & Technology Social Investment Guidance Catalogue; 

Opinions Encouraging Technology Transfer and Innovation and Promoting the Transformation of the Growth Mode 

of Foreign Trade (MOFCOM, NDRC, MOST, GCA, GTA, SIPO, SAFE, Shang Fu Mao Fa [2006] No. 13, issued 

July 14, 2006); 2016 SASTIND Military-Civilian Fusion Special Action Plan (MOST, Guo Gong Ji [2016] No. 204, 

issued Mar. 16, 2016); 2017 SASTIND Military-Civil Fusion Special Action Plan (SASTIND, posted June 23, 

2017). 

575 2017 SASTIND Military-Civil Fusion Special Action Plan, ¶ 2, the action plan identifies three ways in which 

aviation technology is to be shared: (1) deepening “civil participation in the military” (2) advancing military 

transfers to civil, and (3) promoting military-civil resource sharing.

576 See Chad J. R. Ohlandt, et al., RAND, CHINESE INVESTMENT IN U.S. AVIATION, prepared for the U.S.-China 

Economic & Security Review Commission 45, 54-6, (Mar. 29, 2017).

577 AVIC is a state-owned industrial conglomerate that focuses on aerospace manufacturing but offers a wide range 

of goods and services, some of which extend beyond the aerospace sector. See About Us, AVIC, 

http://www.avic.com/en/aboutwebsite/contactus/index.shtml, (last visited Dec. 7, 2017) (“The Aviation Industry 

Corporation of China (AVIC) was founded on November 6th, 2008 through the restructuring and consolidation of 

the China Aviation Industry Corporation I (AVIC I) and the China Aviation Industry Corporation II (AVIC II). We 

are centered on aviation and provide complete services to customers in many sectors - from research and 

development to operation, manufacturing and financing. Our business units cover defense, transport aircrafts, 

helicopters, avionics and systems, general aviation, research and development, flight testing, trade and logistics, 

assets management, finance services, engineering and construction, automobiles and more. We have over 100 

subsidiaries, nearly 27 listed companies and more than 450,000 employees.”). See also Company Overview of AVIC 

International Holding Corporation, BLOOMBERG, 

https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=5480121, (last visited Dec. 7, 2017). 

578 Greg Levesque, Mark Stokes, POINTE BELLO, BLURRED LINES: MILITARY-CIVIL FUSION AND THE ‘GOING-OUT’

OF THE CHINESE DEFENSE INDUSTRY 36 (Dec. 2016). 

579 See About Us, AVIC, http://www.avic.com/en/aboutwebsite/contactus/index.shtml (last visited Dec. 7, 2017).

580 Moody’s Assigns First-time Baa3 Rating to AVIC International, MOODY’S INVESTOR SERVICE (Aug. 30, 2013). 
IV. Outbound Investment

105

AVIC is the focal point of China’s plans to develop a globally competitive aerospace industry. 

The company holds a 38.18 percent stake581 in Commercial Aircraft Corporation of China, Ltd. 

(COMAC), which was established by the Chinese government in 2008 for the purpose of 

designing and producing commercial aircraft, including the C919 single-aisle large commercial 

aircraft. The C919 project has served as a catalyst for COMAC, as well as smaller Chinese 

enterprises along the aerospace supply chain, to work with foreign companies on production 

tooling and manufacturing processes.582 This has allowed Chinese aerospace companies –

including AVIC itself – to acquire foreign know-how and technology, an important step toward 

strengthening China’s domestic aerospace industry.

AVIC’s acquisitions have facilitated the transfer of engine, avionics, and production processes to 

China, resulting in so-called “breakthroughs” in domestic piston engine technology, solutions to 

production bottlenecks, and the development of advanced Unmanned Aerial Vehicles (UAV)

manufacturing (for both Chinese military use and for export to foreign countries).583 Moreover, 

AVIC’s acquisitions have provided China with a fully integrated general aviation aircraft engine 

business encompassing marketing, sales, maintenance, repair, and overhaul (MRO),

manufacturing, and R&D.584 In addition, AVIC acquisitions are supporting its key role in 

developing China’s general aviation infrastructure network585 in line with China’s civil aviation 

industry development plans.586

Chinese Investments in the U.S. General Aviation Sector

Since 2010, AVIC has acquired the following U.S. companies in the GA sector:

 

581 COMMERCIAL AIRCRAFT CORPORATION OF CHINA, 2016 ANNUAL REPORT 54 [Chinese] (Mar. 2017). 

582 See Micah Springut, Stephen Schlaikjer, David Chen, CENTRA Technology, Inc., China’s Program for Science 

and Technology Modernization: Implications for American Competitiveness, prepared for the U.S.-China Economic 

& Security Review Commission 124-25 (2011) (“China’s development of the single-aisle civil airliner C919 is one 

major project involving multiple multinational suppliers, from whom Chinese companies will learn advanced 

production tooling and manufacturing processes. Some of the Chinese companies producing subsystems with 

multinationals will be able to apply their know-how to the J-20 and other military models. Despite both government 

and corporate technology transfer restrictions and intellectual property guarantees, China’s experience working with 

General Electric and the German firm MTU in producing propulsion units for the C919 could help serve the 

development of more reliable military jet engines. AVIC subsidiaries, such as Xi’an Aero-engine PLC, also have 

joint ventures with engine manufacturers Pratt & Whitney, Rolls Royce and Balcke Durr.”). See also Chad J.R. 

Ohlandt, RAND, Implications of China’s Aerospace Industrial Policies 76 (testimony presented before the U.S.-

China Economic and Security Review Commission on Apr. 27, 2016).

583 The Heart of China’s Unmanned Aerial Vehicles Will Be Domestic-Made: Precision Shot to Acquire the TopTier Manufacturers in the United States and Germany [Chinese], PHOENIX MILITARY NEWS, Dec. 6, 2016, available 

at http://news.ifeng.com/a/20161206/50370941_0.shtml; Lin Feng, China’s ‘Trojan Horse’ has Entered the U.S. 

Military Enterprises, VOICE OF AMERICA MANDARIN SERVICE, Apr. 11, 2017. 

584

 Press Release, Continental Motors, AVIC International Announces the Formation of Continental Motors Group 

and Expansion into China, Continental Motors (Apr. 10, 2014) available at

http://www.continentalmotors.aero/xPublications/News%20Releases/AVIC%20International%20announces%20the

%20Founding%20of%20the%20Continental%20Motors%20Group.

585 Cirrus Building China GA Infrastructure, AVIATION INTERNATIONAL NEWS, Apr. 12, 2017.

586 China Civil Aviation Industry 12th Five-year Development Plan (CAAC, issued Apr. 2011); China Civil Aviation 

Industry 13th Five-year Development Plan (CAAC, issued Mar. 2017).
IV. Outbound Investment

106

 Epic Aircraft—acquired by China Aviation Industry General Aircraft Co. (CAIGA), an 

AVIC subsidiary, for $4.3 million in April 2010 after a bankruptcy judge approved the 

asset purchase agreement.587 According to the court, CAIGA’s bid was the highest and 

best offer.588 The acquisition included Epic intellectual property and technology.589

 Teledyne Technologies (Continental Motors and Mattituck Services)—acquired by 

Technify Motors USA Inc., a subsidiary of AVIC International Holding Corporation, in 

December 2010 for $186 million.590 Continental Motors591 is a pioneer in the area of full 

authority digital engine control (FADEC) technology.592

 Cirrus Aircraft—acquired by CAIGA in February 2011 for $210 million.593 At the time 

of purchase, Cirrus was the second largest manufacturer of GA aircraft and the largest 

manufacturer of piston-engine powered GA aircraft.594

 Southern Avionics & Communications Inc.—acquired by Continental Motors Group in 

November 2014.595 Southern Avionics is a leader in avionics sales, installation, and 

service. The company represents most major global avionics manufacturers through 

distribution or representative agreements.596

 United Turbine and UT Aeroparts—acquired by Continental Motors Group in January 

2015.597 United Turbine and UT Aeroparts provide turbine aircraft engine and accessory 

MRO services. 

 Align Aerospace—acquired by AVIC International in April 2015.598 Align provides 

supply chain services for the aerospace industry and distributes fasteners and other 

hardware for aerospace original equipment manufacturers.

 

587 Chinese Firm to Buy Epic Assets, AVIATION INTERNATIONAL NEWS, Apr. 30, 2010. 

588 Chinese Firm to Buy Epic Assets, AVIATION INTERNATIONAL NEWS, Apr. 30, 2010.

589 Chinese Firm to Buy Epic Assets, AVIATION INTERNATIONAL NEWS, Apr. 30, 2010.

590 Press Release, Teledyne Technologies Inc., Teledyne Technologies Agrees to Sell Teledyne Continental Motors 

to AVIC International (Dec.14, 2010).

591 See Continental Motors Inc., BLOOMBERG, https://www.bloomberg.com/profiles/companies/0116585D:UScontinental-motors-inc (last visited Dec. 7, 2017) (stating that, “Continental Motors, Inc. produces aviation products. 

The Company manufactures fuel injected, turbocharged, radial, and horizontally opposed cylinder aircraft piston 

engines for the aerospace industry.”).

592 Bill Cox, FADEC Comes of Age, PLANE & PILOT, Feb. 9, 2010.

593 Norihiko Shirouzu, China to Buy Small U.S. Planemaker, WALL STREET JOURNAL, Mar. 3, 2011. 

594 Chad J. R. Ohlandt, et al., RAND, CHINESE INVESTMENT IN U.S. AVIATION, prepared for the U.S.-China 

Economic and Security Review Commission 49 (Mar. 29, 2017). 

595 Press Release, Continental Motors, Continental Motors Group Announces Completed Acquisition of Southern 

Avionics and Communications (Nov. 24, 2014).

596 Press Release, Continental Motors, Continental Motors Group Announces Completed Acquisition of Southern 

Avionics and Communications (Nov. 24, 2014).

597 Press Release, Continental Motors, Continental Motors Services Acquires United Turbine and UT Aeroparts 

Corporations (Feb. 2, 2015). 

598 Juliet Van Wagenen, AVIC Looks to Up Global Push with Align Aerospace Acquisition, AVIATION TODAY, Apr. 

2, 2015. 
IV. Outbound Investment

107

 Danbury Aerospace—acquired by Continental Motors Group in April 2015.599 Danbury 

Aerospace specializes in engine design and certification.600 In October 2016, Danbury 

operations in San Antonio were closed, resulting in layoffs of 57 people.601 

AVIC International Holding Corporation subsidiary Technify Motors GmbH acquired Germanbased Thielert Aircraft in July 2013.602

 Thielert’s 1.7L engine powered the MQ-10C Gray Eagle 

UAV, a derivative of the General Atomics Predator drone used by the U.S. Air Force (a defense 

article that is export controlled by the International Traffic in Arms Regulations, ITAR).603 This 

engine also has been used in the military versions of the Diamond Aircraft DA42,604 a largely 

composite twin-engine aircraft used for both manned and unmanned surveillance.605

AVIC’s GA acquisitions in the United States align with Chinese government aviation S&T and 

industrial development policy directives. For example, the timing of AVIC’s acquisition of U.S. 

piston engine manufacturers follows the December 2009 release of the National Defense Science 

and Technology Social Investment Guidance Catalogue.

606

 Promulgated by MIIT, which 

regulates the defense industry, the catalogue “guides” domestic investment in defense S&T 

assets, including UAV manufacturing, and piston engine development and manufacturing.607 

The use of the term “social investment608” in Chinese denotes the pursuit of investments which 

 

599 Press Release, Continental Motors, Continental Motors to Purchase Assets from Danbury Aerospace (May 4, 

2015). 

600 Press Release, Continental Motors, Continental Motors to Purchase Assets from Danbury Aerospace (May 4, 

2015). Continental Motors states: “Danbury Aerospace is a holding company that has led the industry in parts 

manufacturing authorization (PMA) and experimental engine technologies for the certified and experimental piston 

engine powered segments of the General Aviation market. [...] Its capabilities include PMA design and certification, 

engine design and certification, operation of a Part 145 Repair Station for piston aircraft engines and parts, 

manufacturing process design, manufacturing system design and production and sales, service and support.”

601 Rye Druzin, Aircraft Engine Manufacturer Shutters San Antonio Factory, Lays Off 56, MY SAN ANTONIO, Oct. 

12, 2016.

602 Press Release, Continental Motors, AVIC International Holding Corporation Acquires the Assets of Thielert 

Aircraft Engines Out of Bankruptcy (July 22, 2013).

603 DEPARTMENT OF DEFENSE, SELECTED ACQUISITION REPORT: MQ-1C UAS GRAY EAGLE 33 (Dec. 31, 2010). 

604 Civil Aviation Safety Investigation Authority, Ministry of Ecology, Sustainable Development, and Energy 

(France), EVENTS ASSOCIATED WITH AN ENGINE MALFUNCTION; THIELERT TAE 125 ENGINES 7 (2014).

available at https://www.bea.aero/etudes/thielert.tae125.engines/thielert.tae125.engines.pdf.

605 Technify Motors GmbH key customers are: manufacturers of new piston engine-powered aircraft; fleets and 

owner/operators of existing aircraft that would convert from gasoline-fueled engines to diesel-fueled engines; 

owner/operators requiring maintenance and spare parts for their diesel-fueled aircraft engines; and 

developers/manufacturers/users of UAVs. AVIC International Holding (HK) Limited notification to the Hong Kong 

Stock Exchange, Very Substantial Acquisition and Connected Transaction and Application for Whitewash Waiver

and Appointment of Independent Financial Adviser and Clawback Offer by AVIC International (HK) Group Limited 

(Sept. 19, 2017). 

606 AVIC’s investment activities in the United States significantly ramped up following the release of the National 

Defense Science & Technology Social Investment Guidance Catalogue, as well as other state aviation industrial 

development policies and the establishment of an aviation industry investment fund, see Mao Haifeng, China’s First 

National Level Aviation Industry Fund Administration Lists Operations, XINHUA NEWS, June 28, 2009, available at

http://www.gov.cn/jrzg/2009-06/28/content_1352458.htm (last visited Feb. 12, 2018).

607 The catalogue specifically identifies manufacturing of unmanned combat aircraft parts, communications, and 

electronic warfare platforms (§ 5.1.1) and the development and manufacturing of aviation piston engines (§ 5.3.1) as 

targets for social investment. See National Defense Science & Technology Social Investment Guidance Catalogue.

608 English translation of Chinese term shehui touzi.
IV. Outbound Investment

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create a positive return to society, including R&D investments that generate a social or public 

benefit, rather than purely profit.609

AVIC’s pursuit of state policies is evident in its public statements:

 During a February 2009 meeting between officials from AVIC and the Civil Aviation 

Administration of China (CAAC), Li Jian, then deputy director of CAAC, stressed that 

the development of the GA industry was far from meeting central government 

requirements of economic and social development. 610 In response, then AVIC officer, 

Xu Zhanbin, replied that the company would promote institutional and technological 

innovation as soon as possible to achieve breakthroughs in the GA market and effectively 

promote industry development.611

 AVIC president Tan Ruisong has noted that the group’s “coordinated development” of its 

non-aviation civilian business and military business embodies China’s Military-Civil 

Fusion (MCF) strategy, as well as aviation industry policies.612 AVIC chairman, Lin 

Zuoming, publicly stated that “AVIC always regards civil-military integration as its 

historical mission.”613

 In July 2010, AVIC, the Tianjin Municipal Government, and China Construction Bank 

set up a CNY 20 billion ($3 billion) private equity fund to acquire dual-use technology 

companies and invest in defense R&D projects that support the restructuring and 

development of China’s aviation industry.614 When announcing the launch of this fund, 

AVIC specifically referenced restructuring in the U.S. GA market, suggesting that one 

objective of this fund was to further acquisitions in the U.S. market.615

Reflecting the extent of government support of AVIC’s commercial activities, both China Exim 

and PBC have provided financing for AVIC acquisitions in the United States.616

AVIC International is in the process of transferring ownership of its U.S. GA subsidiaries (i.e., 

 

609 State Council Guiding Opinions on Innovating Systems for Key Sectors to Encourage Social Investment (State 

Council, Guo Fa [2014] No. 60, issued Nov. 24, 2014, effective Nov. 14, 2014).

610 Press Release, Civil Aviation Administration of China, CAA and AVIC Collaborate on the Future of General 

Aviation [Chinese] (Feb. 18, 2009), available at 

http://www.caac.gov.cn/XWZX/MHYW/200902/t20090218_12250.html.

611 Press Release, Civil Aviation Administration of China, CAA and AVIC Collaborate on the Future of General 

Aviation [Chinese] (Feb. 18, 2009), available at 

http://www.caac.gov.cn/XWZX/MHYW/200902/t20090218_12250.html.

612 Convening of AVIC 2016 Non-Aviation Business & Equity Investment Work Meeting [Chinese], AVIC, (Apr. 23 

2016), available at http://www.avic-intl-capital.com/detail.aspx?cid=1577&siteid=27568. 

613 AVIC, TOGETHER WITH US: SOCIAL RESPONSIBILITY REPORT 2014 8 (June 2015).

614 China’s First Aviation Industry Support Fund Established [Chinese], CHINA AVIATION NEWS, July 12, 2010, 

available at http://www.avic.com/cn/xwzx/jqyw/390801.shtml.

615 China’s First Aviation Industry Support Fund Established [Chinese], CHINA AVIATION NEWS, July 12, 2010, 

available at http://www.avic.com/cn/xwzx/jqyw/390801.shtml. 

616 AVIC International Holding (HK) Limited notification to the Hong Kong Stock Exchange, Very Substantial 

Acquisition and Connected Transaction and Application for Whitewash Waiver and Appointment of Independent 

Financial Adviser and Clawback Offer by AVIC International (HK) Group Limited (Sept. 19, 2017). 
IV. Outbound Investment

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Continental Motors and Cirrus) to a separate AVIC-owned company.617 According to AVIC, the 

“proposed reorganization is being contemplated by the Company as part of a wider restructuring 

campaign being implemented by SASAC.”618 This announcement underscores the extent to 

which the Chinese government oversees and directs, through SASAC, the commercial activities 

of SOEs operating in the United States. 

AVIC Technology Transfer—Achieving Breakthroughs

AVIC’s U.S. GA acquisitions and its transfer of technology appear to conform to a governmentprescribed policy of introducing, digesting, absorbing, and re-innovating foreign acquired 

technology (see IDAR policy discussed in Section I). Research conducted by a Chinese defense 

industry analyst documents this IDAR process in relation to AVIC’s GA engine acquisitions in 

the United States and Europe.619 According to this report, piston engine technology transferred 

to China, including Chinese universities, from several sources – including Continental Motors, 

Thielert Aircraft, and Cirrus Aircraft, as well as joint development agreements covering single 

engine turboprops and piston engines with Cessna – has led to “breakthroughs” in piston engine 

technology and production bottlenecks.620 Key breakthroughs were achieved in gasolinemodified heavy oil technology, electric fuel injection technology, and turbocharging.621

U.S. companies acquired by AVIC now provide ongoing R&D and fill critical nodes in China’s 

GA aircraft and piston engine manufacturing industry. For example, in April 2014, AVIC 

announced the consolidation of “its aircraft engine businesses under a single corporate structure” 

— Hong Kong incorporated Continental Motors Group Limited (CMG).622 Following the 

incorporation of CMG, AVIC expanded its GA technology portfolio by acquiring Danbury 

Aerospace, United Turbine & UT Aeroparts, and Southern Avionics and Communications.623 

According to a company press release, these acquisitions were driven by AVIC’s “special place 

 

617 AVIC International Holding (HK) Limited notification to the Hong Kong Stock Exchange, Potential Continuing 

Connected Transactions (Oct. 24, 2017). 

618 AVIC International Holding (HK) Limited notification to the Hong Kong stock exchange, Very Substantial 

Acquisition and Connected Transaction and Application for Whitewash Waiver and Appointment of Independent 

Financial Adviser and Clawback Offer by AVIC International (HK) Group Limited 15 (Sept. 19, 2017).

619 The Heart of China’s Unmanned Aerial Vehicles Will Be Domestic-Made: Precision Shot to Acquire the TopTier Manufacturers in the United States and Germany [Chinese], PHOENIX MILITARY NEWS, Dec. 6, 2016, available 

at http://news.ifeng.com/a/20161206/50370941_0.shtml.

620 The Heart of China’s Unmanned Aerial Vehicles Will Be Domestic-Made: Precision Shot to Acquire the TopTier Manufacturers in the United States and Germany [Chinese], PHOENIX MILITARY NEWS, Dec. 6, 2016, available 

at http://news.ifeng.com/a/20161206/50370941_0.shtml. 

621 The Heart of China’s Unmanned Aerial Vehicles Will Be Domestic-Made: Precision Shot to Acquire the TopTier Manufacturers in the United States and Germany [Chinese], PHOENIX MILITARY NEWS, Dec. 6, 2016, available 

at http://news.ifeng.com/a/20161206/50370941_0.shtml.

622 Press Release, Continental Motors, AVIC International Announces the Formation of Continental Motors Group 

and Expansion into China (Apr. 10, 2014), available at

http://www.continentalmotors.aero/xPublications/News%20Releases/AVIC%20International%20announces%20the

%20Founding%20of%20the%20Continental%20Motors%20Group.

623 Press Release, Continental Motors Group Announces Completed Acquisition of Southern Avionics and

Communications (Nov. 24, 2014); Press Release, Continental Motors, Continental Motors Services Acquires United 

Turbine and UT Aeroparts Corporation (Feb. 2, 2015); Press Release, Continental Motors, Continental Motors to 

Purchase Assets from Danbury Aerospace (May 4, 2015).
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110

and obligation to bring general aviation products to China.”624

Consolidation of AVIC-acquired GA assets in the United States has provided the company a 

fully integrated GA aircraft engine marketing, sales, MRO, manufacturing, and R&D business.625

As AVIC notes, “CMG is the only global player capable of designing, manufacturing and 

maintaining both gasoline and diesel piston engines.”626

b) Integrated Circuits

Government Policies

As the SIA has observed, “[s]emiconductors are the building blocks upon which U.S. 

technological leadership rests.”627 Semiconductors play a key role in many sectors of the 

economy that are at the forefront of U.S. competitiveness.628 Likewise, a strong domestic IC 

sector is important to U.S. national security.629 

An erosion of U.S. technological leadership in this sector could have significant and potentially 

irreversible effects. As Robert Atkinson of the Information Technology and Innovation 

Foundation (ITIF) has observed:

[I]f America’s technology base was substantially lost, no adjustment of currency decline 

could bring it back because national strength in technology industries is based less on 

cost and more on a complex array of competencies at the firm- and ecosystem-level. For 

example, a firm could not simply buy some semiconductor equipment and start cranking 

out chips. To do that would require not just machines but deep and complex tacit 

knowledge embedded in the firm in workers from the shop floor to research and 

development (R&D) scientists coupled with an innovation ecosystem (universities 

training the right talent, a network of suppliers of materials, etc.). Once those capabilities 

are lost, they are essentially gone, and are very difficult to resurrect.630

 

624 Press Release, Continental Motors, AVIC International Announces the Formation of Continental Motors Group 

and Expansion into China (Apr. 10, 2014), available at

http://www.continentalmotors.aero/xPublications/News%20Releases/AVIC%20International%20announces%20the

%20Founding%20of%20the%20Continental%20Motors%20Group.

625 Press Release, Continental Motors, AVIC International Announces the Formation of Continental Motors Group 

and Expansion into China (Apr. 10, 2014), available at

http://www.continentalmotors.aero/xPublications/News%20Releases/AVIC%20International%20announces%20the

%20Founding%20of%20the%20Continental%20Motors%20Group.

626 Press Release, Continental Motors, AVIC International Announces the Formation of Continental Motors Group 

and Expansion into China (Apr. 10, 2014), available at

http://www.continentalmotors.aero/xPublications/News%20Releases/AVIC%20International%20announces%20the

%20Founding%20of%20the%20Continental%20Motors%20Group.

627 SIA, Submission, Section 301 Hearing 2 (Oct. 5, 2017).

628 SIA, Submission, Section 301 Hearing 2 (Oct. 5, 2017).

629 China’s Technological Rise: Challenges to U.S. Innovation and Security: Hearing Before the House Committee 

on Foreign Affairs, Subcommittee on Asia and the Pacific, 115th Cong. 11 (2017) (Statement of Robert D. 

Atkinson) (emphasis added).

630 China’s Technological Rise: Challenges to U.S. Innovation and Security: Hearing Before the House Committee 

on Foreign Affairs, Subcommittee on Asia and the Pacific, 115th Cong. 4 (2017) (Statement of Robert D. Atkinson).
IV. Outbound Investment

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In recent decades, the Chinese government has repeatedly underscored the importance of 

developing an indigenous IC industry and challenging U.S. leadership in this sector. Since 2014, 

the government has taken concrete steps to realize this objective, mobilizing multiple state actors 

and committing vast sums of money to support the acquisition of foreign IC technology. 

Chinese companies have been close partners in this effort, and have embarked on what one 

participant in the investigation referred to as a “buying spree”631– acquiring a large number of 

foreign IC companies and assets, primarily in the United States.

In its five-year plans for the Chinese economy, the government has consistently flagged the IC 

industry as a national priority:

 In 1991 China’s 8th Five-year National Economic and Social Development Plan 

Outline (8th Five-year Plan) called the development of the domestic integrated circuit 

industry a “main task”632 of the state.633 

 In 1996, China’s 9th Five-year National Economic and Social Development Plan

Outline and 2010 Long-Term Goals (9th Five-year Plan) called for the development 

of new generation integrated circuits, and for China to catch up to global technology 

levels.634

 

 In 2001, the 10th Five-year National Economic and Social Development Plan Outline 

(10th Five-year Plan) called for the focused development of high-tech industries with 

localized breakthroughs and development, as well as using the IDAR approach to 

“vigorously develop the IC and software industry.”635 

 In 2006, China’s 11th Five-year National Economic and Social Development Plan

Outline (10th Five-year Plan) called for the “vigorous” development of integrated 

circuits and other industries at the core of the “digitization trend.”636

 In 2011, China’s 12th Five-year National Economic and Social Development Plan 

Outline (12th Five-year Plan) once again called for rapid development by cultivating 

a group of “backbone enterprises”637 and demonstration bases in the strategic 

emerging industries.638 

 

631 ITIF, Submission, Section 301 Hearing 9 (Oct. 25, 2017). 

632 English translation for Chinese term zhuyao renwu.

633 8th Five-year National Economic and Social Development Plan Outline § 1(3) (adopted by the NPC on Apr. 9, 

1991).

634 9th Five-year National Economic and Social Development Plan Outline and 2010 Long-Term Goals § 2(4) 

(adopted by the NPC on Mar. 17, 1996).

635 10th Five-year National Economic and Social Development Plan Outline Ch. 6 § 3 (adopted by the NPC on Mar. 

15, 2001). 

636 11th Five-year National Economic and Social Development Plan Outline Ch. 10 § 1 (adopted by the NPC on 

Mar. 14, 2006).

637 English translation for Chinese term gugan qiye.

638 12th Five-year National Economic and Social Development Plan Outline Ch. 10 § 2 (adopted by the NPC on 

Mar. 14, 2011).
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 In 2016, China’s 13th Five-year National Economic and Social Development Plan 

Outline (13th Five-year Plan) called for the active promotion of advanced 

semiconductor technology.639

 

A series of other government policies and planning documents echo the consistent message of 

the Five-year Plans. For instance, policies addressing the broad development of science and 

technology call for the support of a domestic IC industry.640 In addition, the government 

released several policies and plans that are specific to the IC industry, and call for its promotion

and development.641

MIIT’s issuance of the Guidelines for the Development and Promotion of the Integrated Circuit 

Industry (IC Guidelines) in 2014 marked a turning point in the evolution of Chinese policy in the 

IC sector. This measure called for establishing a National IC Industry Development Leading 

Small Group, with responsibility for the overall design and coordination of China’s IC industry 

development.642 

The IC Guidelines also called for substantial funding to support the growth of China’s IC 

industry. The IC Guidelines directed the creation of a National IC Fund to mobilize capital from 

large enterprises, financial organizations, and society to invest in the development of China’s IC 

industry and promote industrial upgrading.643 The IC Guidelines also called for policy banks (in 

particular, China Exim and CDB) and commercial banks to provide financial support to the IC 

industry.644

 

639 13th Five-year National Economic and Social Development Plan Outline Ch. 23 § 1 (adopted by the NPC on 

Mar. 16, 2016).

640 These include the Notice on Issuing the National Medium- and Long-Term Science and Technology Development 

Plan Outline (2006-2020) (State Council, Guo Fa [2005] No. 44, issued Dec. 26, 2005); see also Several Supporting 

Policies for Implementing the “National Medium- and Long-Term Science and Technology Development Plan 

Outline (2006-2020)” (State Council, Guo Fa [2006] No. 6, issues Feb. 7, 2006); 11th Five-year Science and 

Technology Development Plan (MOST, issued Oct. 27, 2006); Electronic Information Industry Restructuring and 

Revitalization Plan (State Council, published Apr. 15, 2009); Decision on Accelerating and Fostering the 

Development of Strategic Emerging Industries (State Council, Guo Fa [2010] No. 32, issued Oct. 18, 2010); Notice 

on the National 12th Five-year Science and Technology Development Plan (MOST, issued July 4, 2011); Notice on 

Corporate Income Tax Policies to Further Encourage the Development of the Software and Integrated Circuit 

Industries (State Council, Guo Fa [2011] No. 4, issued Jan. 28, 2011); Notice on Issuing the 12th Five-year National 

Strategic Emerging Industries Development Plan (State Council, Guo Fa [2012] No. 28, issued July 9, 2012); Made 

in China 2025 Notice; Made in China 2025 Roadmap; Ministry of Industry and Information Technology Notice on 

Issuing the Industry Technology Innovation Capacity Development Plan (2016-2020) (MIIT, Gong Xin Bu Gui 

[2016] No. 344, issued Oct. 31, 2016); Notice on Issuing the National 13th Five-year Science and Technology 

Innovation Plan (State Council, Guo Fa [2016] No. 43, issued July 28, 2016); Notice on the 13th Five-year Strategic 

Emerging Industries Development Plan (State Council, Guo Fa [2016] No. 67, issued Nov. 29, 2016).

641 12th Five-year Development Plan for the Integrated Circuit Industry [hereinafter “IC 12th Five-year Plan”] 

(MIIT, issued Feb. 24, 2012); Notice on Issuing Several Policies to Further Encourage the Development of the 

Software and Integrated Circuit Industries (State Council, Guo Fa) 2011] No. 4, issued Jan. 28, 2011); Notice on 

Issuing Several Policies to Encourage the Development of the Software and Integrated Circuit Industries (State 

Council, Guo Fa [2000] No. 18, issued June 24, 2000).

642 IC Guidelines § 4(1).

643 IC Guidelines § 4(2).

644 IC Guidelines § 4(3).
IV. Outbound Investment

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Taken together, the series of policies and plans issued by the Chinese governments set out a 

comprehensive strategy for developing indigenous IC capacity and reducing imports. In these 

documents, the Chinese government disapproves of the fact that China relies on imports of IC 

products, and underscores the importance of achieving a self-sufficient IC industry that is 

capable of meeting domestic demand and contributing to exports.645 Indeed, some plans set 

specific targets for domestic market share to be achieved by Chinese companies,646 and call for a 

technologically advanced and “secure and reliable” IC industry by 2020.647

China’s strategy calls for creating a closed-loop semiconductor manufacturing ecosystem with 

self-sufficiency at every stage of the manufacturing process – from IC design and manufacturing 

to packaging and testing, and the production of related materials and equipment.648 

A central pillar of this strategy is achieving technology transfer through foreign acquisitions. For 

example, the Notice on Issuing the Industrial Technology Innovation Capability Development 

Plan (2016-2020) expressly encourages foreign acquisitions to increase the international 

competitiveness of China’s domestic industry through “technology acquisition”

649 and 

“technology transfer650.”651 The National 13th Five-year Science and Technology Innovation 

Plan calls for the “capture652 of ‘key core technologies’ (electronic components, high-end 

telecom chips, foundational software), integrated circuit equipment, broadband mobile 

communications [...]”.

653

 State plans also underscore the need to apply the IDAR method to 

cultivate the domestic IC industry.

654

 

645 See e.g., Notice on Issuing Several Policies to Encourage the Development of the Software and Integrated Circuit 

Industries (State Council, Guo Fa [2000] No. 18, issued June 30, 2000), which provides at art. 2: “Through 5 to 10 

years of efforts, domestically produced software products are to be able to satisfy a large portion of domestic market 

demand, and achieve a large volume of exports; domestically produced integrated circuit products are to be able to 

satisfy a large portion of domestic market demand, and achieve a certain volume of exports. At the same time, 

further shrink the gap with advanced countries in developing and manufacturing technology.” See also § 1.1.1 of 

the Made in China 2025 Roadmap, which notes that in 2015, China’s domestic IC production was $48.3 billion, 

which satisfied 41 percent of China’s domestic demand. China’s domestic IC production is forecast to reach $85.1 

billion by 2020, meeting 49 percent of China’s domestic demand, and $183.7 billion by 2030, meeting 75 percent of 

China’s domestic demand. Therefore, meeting domestic demand, increasing China’s rate of IC self-sufficiency, and 

at the same time satisfying China’s needs for national security is the greatest requirement and motivation of 

developing China’s IC industry.

646

 See e.g., Notice on the 12th Five-year Strategic Emerging Industries Development Plan (State Council, Guo Fa 

[2012] No. 28, issued July 9, 2012), which provides at § 4(1): “By 2015, raise IC industry value-added domestic 

market share from five percent to 15 percent.”

647 IC Guidelines § 2(3).

648 IC Guidelines § 2(3); Notice on the 12th Five-year Strategic Emerging Industries Development Plan, Box 5.

649 English translation of the Chinese term jishu binggou.

650 English translation of the Chinese term jishu zhuanyi.

651 Ministry of Industry and Information Technology Notice on Issuing the Industry Technology Innovation Capacity 

Development Plan (2016-2020) (MIIT, Gong Xin Bu Gui [2016] No. 344, issued Oct. 31, 2016) (emphasis added).

652 English translation of the Chinese term gongke.

653 Notice on Issuing the National 13th Five-year Science and Technology Innovation Plan Ch. 4 § 1 (State Council, 

Guo Fa [2016] No. 43, issued Aug. 8, 2016).

654 IC 12th Five-year Plan § 3(1), “Guiding Thoughts, Basic Principles, and Development Targets”. (“Strengthen 

introduce, digest, absorb, and re-innovate, and tread a path of method innovation and internationalizing 

development.”).
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114

State funding plays a key role in this acquisition strategy. State policies call on the departments 

under the State Council and all levels of local governments to develop financing measures, 

including policy funds, loan guarantees, and new financial instruments, to support this effort.655 

Ultimately, the objective of these policies is to create competitive Chinese enterprises in the IC 

sector. The policies prioritize the cultivation of strong backbone enterprises to upgrade domestic 

competitiveness and perfect the industrial ecosystem.656 The formation of a favorable industrial 

ecosystem environment is intended to include clusters of upstream and downstream enterprises 

achieving breakthroughs and upgrading along the value chain.657 These enterprises – supported 

by a network of government bodies, investment funds, research institutions, legal organizations, 

and other intermediary organizations – should play a key role in acquiring foreign technology 

and introducing it to the domestic industrial ecosystem.658 The 13th Five-year Science and 

Technology Innovation Plan released in 2016 calls specifically for supporting Beijing and 

Shanghai in building globally influential science and technology innovation centers, including 

internationally competitive high-tech industrial clusters.659 

Chinese Investments in the U.S. Integrated Circuit Sector

In recent years, these policy directives have prompted a flood of foreign acquisitions. Since 

2014, when the government issued the Guidelines, Chinese companies and investors – often 

backed by state capital – have undertaken a series of acquisitions to achieve technology 

breakthrough, shrink the technology gap between China and advanced countries, cultivate 

domestic innovation clusters, and reduce China’s reliance on IC imports. Government leadership 

in these operations is clear. In many cases, the Chinese acquirers openly admit the role played 

by the state in guiding and facilitating these acquisitions.

Below, several Chinese acquisitions of U.S. companies and assets that illustrate this development

are discussed in detail.

Beijing E-Town Chipone/iML

On June 1, 2016, California-based Exar Corporation agreed to sell its subsidiary, Integrated 

Memory Logic Limited (iML), to Beijing E-Town Chipone Technology Co., Ltd. (Beijing ETown Chipone) for $136 million. iML is a leading provider of power management and color 

calibration solutions for the flat-panel display and LED lighting markets.660

 

655 Notice on Issuing Several Policies on Further Encouraging the Development of the Software and Integrated 

Circuit Industries § 4(2) (State Council, Guo Fa [2011] No. 4, issued Jan. 28, 2011); Electronic Information 

Industry Restructuring and Revitalization Plan § 2(12) (State Council, issued Apr. 15, 2009). 

656 IC 12th Five-year Plan § 4(1).

657 IC Guidelines § 4(6).

658 Notice on the 13th Five-year National Strategic Emerging Industries Development Plan § 9(3) (State Council, 

Guo Fa [2016] No. 67, issued Nov. 29, 2016).

659 Notice on Issuing the National 13th Five-year Science and Technology Innovation Plan Ch. 11, § 3 (State 

Council, Guo Fa [2016] No. 43, issued Aug. 8, 2016). 

660 Exar Corporation 8-K filed with the Securities and Exchange Commission on May 31, 2015. Commission File 

No. 0-14225.
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Beijing E-Town Chipone was formed by Beijing E-Town and Chipone Technology Co., Ltd. 

(Chipone). (Beijing E-Town is both a separate entity and a partner with Chipone in forming 

Beijing E-Town Chipone, the vehicle used to acquire iML.) Beijing E-Town is an SOE, and 

provided the largest source of capital for the acquisition of iML.661 As discussed in Section 

IV.B.5, above, Beijing E-Town was established and approved by the Beijing Municipal 

Government in February 2009, and is wholly owned and controlled by the Beijing EconomicTechnological Development Zone State Asset Management Office. 662

Beijing E-Town’s investment strategy reflects Chinese government policy and strategy. 

According to a 2015 presentation by General Manager Wang Xiaobo, Beijing E-Town seeks to 

integrate government leadership and market operations in building a system of funds that 

includes the National IC Fund, provincial/municipal-level funds, and smaller VC funds.663 This 

system of funds seeks to accelerate industrial clustering, incubate innovation, and cultivate an 

industrial ecosystem.664 

A key aspect of Beijing E-Town’s investment philosophy is the objective of clustering 

technology companies in the Beijing Economic-Technological Development Zone.665 According 

to an article on the Beijing Economic-Technological Development Zone website, sources 

familiar with the acquisition say that after Chipone has integrated iML, Chipone plans to move 

iML operations to its headquarters in the Beijing Economic-Technological Development 

Zone.666 

Beijing E-Town’s goal is to partner with domestic industry leaders to promote international 

acquisitions to acquire a number of key technologies in the IC industry – including mobile 

telecom base chips, RF chips, memory chips, IGBT / power electronics, LCD driver chips, CPU 

 

661 To finance the acquisition entity, Beijing E-Town International Emerging Industries Investment Center, which is 

92.83 percent owned by Beijing E-Town, contributed CNY 500 million ($74 million) (45.5 percent), Chipone 

contributed CNY 400 million ($59 million) (36.4 percent), and real-estate company named Beijing Yongchang 

Huanyu contributed CNY 200 million ($30 million) (18.2 percent), for a total of CNY 1.1 billion ($163 million). 

See China’s National Enterprise Credit Information Publicity System [Chinese], available at

http://www.gsxt.gov.cn; Qi Xin Bao database [Chinese], available at http://www.qixin.com; CCXR 2017 Credit 

Report on Beijing E-Town International Investment and Development Co., Ltd. 22 [Chinese] (Credit Committee 

[2017] No. G229-1).

662 CCXR 2017 Credit Report on Beijing E-Town International Investment and Development Co., Ltd. [Chinese] 

(Credit Committee [2017] No. G229-1). 

663 Wang Xiaobo, General Manager Beijing E-Town, Presentation at TIF China 2015, Establishing an Investment 

Financing Platform; Promoting Development of the Integrated Circuit Industry [Chinese] (Mar. 2015), available at 

http://www.semi.org/en/sites/semi.org/files/data15/docs/Wangxiaobo_TIF.pdf.

664 Wang Xiaobo, General Manager Beijing E-Town, Presentation at TIF China 2015, Establishing an Investment 

Financing Platform; Promoting Development of the Integrated Circuit Industry [Chinese] (Mar. 2015), available at 

http://www.semi.org/en/sites/semi.org/files/data15/docs/Wangxiaobo_TIF.pdf.

665 Wang Xiaobo, General Manager Beijing E-Town, Presentation at TIF China 2015, Establishing an Investment 

Financing Platform; Promoting Development of the Integrated Circuit Industry [Chinese] (Mar. 2015), available at 

http://www.semi.org/en/sites/semi.org/files/data15/docs/Wangxiaobo_TIF.pdf.

666 Development Area’s IC Industry Pours a Strong Dose of ‘Chips’ [Chinese], BDA Nov. 11, 2016, available at

http://www.bda.gov.cn/cms/jryz/136640.htm.
IV. Outbound Investment

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chips, MEMS sensor chips. This strategy is intended to effect technology transfer, and in so 

doing, achieve the government’s stated objective of reducing China’s reliance on IC imports.667 

Consistent with this strategy, Beijing E-Town’s partner in the iML acquisition, Chipone, has 

publicly stated that the iML acquisition was undertaken to further Chinese national policy goals 

to limit IC imports. According to Chipone’s press release for the iML acquisition, domestic 

Chinese flat-panel display chip producers have an obligation to substitute domestic production 

for imports, and the acquisition of iML would reduce IC imports in the flat-panel display 

industry.668 

The iML acquisition hinged on Beijing E-Town’s financial support, which took three forms: (1) 

a loan guarantee of CNY 200 million ($30 million) to Chipone;669 (2) the provision of land and 

capital to one of Chipone’s largest customers – the liquid crystal display manufacturer BOE,670

which is also located in the Beijing Economic-Technological Development Zone cluster;671 and 

(3) a financial commitment of CNY 10 billion ($1.5 billion) to the National IC Fund by Beijing 

E-Town on behalf of Beijing municipality,672 which played an indirect role in the acquisition of 

iML.673

Beijing E-Town/Mattson

 

667 Wang Xiaobo, General Manager Beijing E-Town, Presentation at TIF China 2015, Establishing an Investment 

Financing Platform; Promoting Development of the Integrated Circuit Industry [Chinese] (Mar. 2015), available at 

http://www.semi.org/en/sites/semi.org/files/data15/docs/Wangxiaobo_TIF.pdf.

668 Press Release, Chipone, Chipone Announces Acquisition of iML, 1+1>2 Strengthen Future Development New 

Force [Chinese] (Nov. 10, 2016), available at http://www.chiponeic.com/content/details11_299.html.

669 CCXR 2017 Credit Report on Beijing E-Town International Investment and Development Co., Ltd. 19 [Chinese]

(Credit Committee [2017] No. G229-1).

670 Chipone’s LCD Driver Chip Mass Produced for BOE’s 32-inch TV Screen [Chinese], CHIPONE, Oct. 29, 2015, 

available at http://www.chiponeic.com/content/details11_267.html. Wang Xiaobo, General Manager Beijing ETown, Presentation at TIF China 2015, Establishing an Investment Financing Platform; Promoting Development of 

the Integrated Circuit Industry [Chinese] (Mar. 2015), available at 

http://www.semi.org/en/sites/semi.org/files/data15/docs/Wangxiaobo_TIF.pdf.

671 Wang Xiaobo, General Manager Beijing E-Town, Presentation at TIF China 2015, Establishing an Investment 

Financing Platform; Promoting Development of the Integrated Circuit Industry [Chinese] (Mar. 2015), available at 

http://www.semi.org/en/sites/semi.org/files/data15/docs/Wangxiaobo_TIF.pdf.

672 CCXR 2017 Credit Report on Beijing E-Town International Investment and Development Co., Ltd. 12 [Chinese] 

(Credit Committee [2017] No. G229-1).

673 SMIC received an investment of approximately $400 million from the National IC Fund in February 2015. Press 

Release, SMIC Receives Investment from China Integrated Circuit Industry Investment Fund (Feb. 12, 2015), 

http://www.smics.com/eng/press/press_releases_details.php?id=264990. SMIC received another investment of 

approximately $750 million from the Shanghai IC Fund in January 2016. SMIC to Benefit from $3 Billion 

Investment, EE TIMES, Jan. 26, 2016. Beijing E-town also provided CNY 700 million ($111 million) to finance the 

B2 300nm fab, which is located in the Beijing Economic-Technological Development Area (Beijing E-Town 

Investment Strategy - March 2015 [Chinese], slide 13). SMIC is both an investor in and a major customer of 

Chipone. In March 2014, SMIC established China Fortune-Tech Capital with an initial size of CNY 500 million 

($76 million), of which 75 percent came from SMIC and 25 percent came from Finehome Holding Group. (SMIC 

Establishes Fund to Invest in Integrated Circuits [Chinese], SINA FINANCE, Mar. 3, 2014, 

http://finance.sina.com.cn/stock/hkstock/ggscyd/20140303/094118384624.shtml). Chipone lists investment from 

China Fortune-Tech Capital in December 2015 as a major milestone. Chipone IC Timeline, CHIPONE, 

http://www.chiponeic.com/auto/f-course.html. Chipone signed the agreement to acquire iML six months after 

receiving this investment and completed the acquisition 11 months after.
IV. Outbound Investment

117

In December 2015, a wholly-owned subsidiary of Beijing E-Town acquired Mattson 

Technology, Inc. (Mattson), a global semiconductor wafer processing equipment provider.674

Under the terms of the sale, Beijing E-Town acquired all of the outstanding shares of Mattson for 

$3.80 per share in cash. The price “represents a 55 percent premium to the 30-trading day 

average closing price for the period ending December 1, 2015, a 23 percent premium to 

Mattson’s closing stock price on December 1, 2015, and values Mattson’s equity at 

approximately $300 million on a fully diluted basis.”675

According to Beijing E-Town’s 2016 bond prospectus, through this acquisition Beijing E-Town 

acquired the “millisecond anneal, rapid thermal processing, laser etching, and other key 

technologies in the semiconductor chip processing area.”676 Beijing E-Town explained that, 

along with other IC acquisitions, the Mattson acquisition implemented the national strategy of 

“cultivating strategic emerging industries” and “strengthening smart manufacturing 

capability.”677

Uphill Investment Co./Integrated Silicon Solutions (ISSI) 

In June 2015, the shareholders of Integrated Silicon Solutions (ISSI) approved the company’s 

acquisition by Uphill Investment Co. (Uphill), a Chinese investment consortium led by 

SummitView Capital, eTown MemTek, Hua Capital, and Huaqing Jiye Investment Management 

Co. Ltd. 

After several rounds of bidding against U.S.-based Cypress Semiconductor Corp. (Cypress), 

Uphill’s winning bid and final purchase price was $23 per share, yielding a purchase price of 

approximately $765 million678– well in excess of the initial price proposed by ISSI ($18.19 per 

share).679 At the time, industry analysts observed that “ISSI was a particularly desirable 

acquisition for Cypress because of its patents.”680 Nonetheless, Cypress was outbid by its 

Chinese competitor.

Uphill’s acquisition of ISSI was made possible by state support and financing. The Uphill 

consortium was comprised of a network of investment funds working to achieve Chinese state 

objectives:

 

674 Beijing E-Town Dragon Semiconductor Industry Investment Center (Limited Partnership) (E-Town Dragon) is a 

wholly owned subsidiary of Beijing E-Town International Investment & Development Co., Ltd. (Beijing E-Town). 

See CCXR, 2017 CREDIT REPORT ON BEIJING E-TOWN 22 (2017). 

675 Press Release, Mattson Technology, Mattson Technology, Inc. Enters into a Definitive Agreement to be 

Acquired by the Beijing E-Town Dragon Semiconductor Industry Investment Center for $3.80 per Share in Cash, 

(Dec. 1, 2015). 

676 BEIJING E-TOWN INTERNATIONAL INVESTMENT AND DEVELOPMENT CO., LTD. 2016 PUBLIC BOND ISSUANCE 

COLLECTION MANUAL ABSTRACT 1-2-58 [Chinese] (July 14, 2016).

677

 BEIJING E-TOWN INTERNATIONAL INVESTMENT AND DEVELOPMENT CO., LTD. 2016 PUBLIC BOND ISSUANCE 

COLLECTION MANUAL ABSTRACT 1-2-50 [Chinese] (July 14, 2016).

678 BEIJING E-TOWN INTERNATIONAL INVESTMENT AND DEVELOPMENT CO., LTD. 2016 PUBLIC BOND ISSUANCE 

COLLECTION MANUAL ABSTRACT 1-2-58 [Chinese] (July 14, 2016).

679 Integrated Silicon Solutions, Inc. Schedule 14A filed with the SEC: “Uphill Investment Co. Merger Proposal, 

Special Meeting of Stockholders, June 19, 2015” [Chinese] (slides 4, 10).

680 Gary Hilson, ISSI Acquired: An Analyst’s Thoughts, EE TIMES, July 8, 2015. 
IV. Outbound Investment

118

 SummitView Capital: This entity manages the Shanghai Government’s SummitView 

IC and IT Industry Fund, which was jointly established with the Shanghai 

government-owned Venture Capital Guiding Fund of Shanghai in November 2014 in 

response to the State Council’s IC Guidelines.

681

 According to the Shanghai 

Government’s Provisional Measures on the Administration of the Shanghai Venture 

Capital Guiding Fund, the purpose of the Venture Capital Guiding Fund of Shanghai 

is to “vigorously advance indigenous innovation,” and “accelerate the cultivation and

development of strategic emerging industries.”682 The SummitView Capital website 

states that “using high-level national strategy and industrial strategy as the starting 

point, we establish a whole-of-industry investment fund and advance the construction 

and optimization of an industry ecosystem.”683 

 Hua Capital: This fund was established by Tsinghua Holdings and China FortuneTech Capital,684 a fund under the Semiconductor Manufacturing International 

Corporation (SMIC). Hua Capital manages the Beijing government’s Integrated 

Circuit Design and Test Fund.685 According to Hua Capital’s website, the ISSI 

acquisition “has important meaning for filling a void in China’s memory storage 

industry, advancing automotive semiconductors, and maintaining the security of 

domestically produced smart cards.”686

 Beijing E-Town: The investment funds in the consortium are all connected through 

investment from Beijing E-Town, which is part-owner of one of the consortium 

members (eTown MemTek). Beijing E-Town invested CNY 300 million ($49

million) in SummitView Pujiang on December 15, 2014, for a 20.03 percent stake in 

the CNY 1.5 billion ($243 million) fund.687 Likewise, Beijing E-Town invested CNY 

200 million ($32 million) in the Hua Capital-managed Beijing Integrated Circuit 

Design and Test Fund on September 25, 2014, for an 8.96 percent stake in the CNY 

2.232 billion ($362 million) fund.688 Beijing E-Town gave Huaqing Jiye – the only 

“private” company in the consortium – a CNY 247 million ($39 million) 2-year loan 

on November 20, 2015, in relation to the acquisition of ISSI.689 The acquisition was 

also supported by debt financing from Chinese state-owned commercial banks. 

 

681 Shanghai Establishes IC Industry Development Leading Small Group [Chinese], SUMMITVIEW Aug. 18, 2015, 

http://www.summitviewcapital.com/plus/view.php?aid=27.

682 Provisional Measures on the Administration of the Shanghai Venture Capital Guiding Fund, art.1 (Shanghai 

Municipal Government, Hu Fu Fa [2010] No. 37, issued Oct. 26, 2010). 

683 Founding Partners [Chinese], SUMMITVIEW, http://www.summitviewcapital.com/plus/list.php?tid=16, (last 

visited Nov. 3, 2017).

684 Company Profile [Chinese], HUA CAPITAL, http://www.hua-capital.com/about.aspx?id=609, (last visited Nov. 3, 

2017).

685 Integrated Silicon Solutions, Inc. Schedule 14A filed with the SEC: Uphill Investment Co. Merger Proposal, 

Special Meeting of Stockholders [Chinese], June 19, 2015, (slide 10).

686 News [Chinese], HUA CAPITAL, http://www.hua-capital.com/ne ws.aspx, (last visited Nov. 3, 2017).

687 BEIJING E-TOWN INTERNATIONAL INVESTMENT AND DEVELOPMENT CO., LTD. 2016 PUBLIC BOND ISSUANCE 

COLLECTION MANUAL ABSTRACT 1-2-64 [Chinese] (July 14, 2016).

688 BEIJING E-TOWN INTERNATIONAL INVESTMENT AND DEVELOPMENT CO., LTD. 2016 PUBLIC BOND ISSUANCE 

COLLECTION MANUAL ABSTRACT 1-2-65 [Chinese] (July 14, 2016).

689 BEIJING E-TOWN INTERNATIONAL INVESTMENT AND DEVELOPMENT CO., LTD. 2016 PUBLIC BOND ISSUANCE 

COLLECTION MANUAL ABSTRACT 1-2-101 [Chinese] (July 14, 2016).
IV. Outbound Investment

119

Industrial and Commercial Bank of China, in conjunction with the Bank of Beijing 

and Beijing Rural Commercial Bank, reportedly provided the consortium with a $480 

million loan, with a five-year term.690

Seagull/Omnivision 

On January 28, 2016, Seagull International Ltd. and Seagull Acquisition Corp. (collectively, 

Seagull) announced the completion of the acquisition of OmniVision Technologies, Inc. 

(OmniVision) for approximately $1.9 billion.691 OmniVision is a leading developer of advanced 

digital imaging solutions. The company’s CameraChipTM and CameraCubeChipTM products are 

highly integrated, single-chip complementary metal-oxide semiconductor (CMOS) image 

sensors for consumer and commercial applications.692

Seagull is a consortium composed of Hua Capital, CITIC Capital Holdings Limited (CITIC 

Capital), and Goldstone Investment Co., Ltd. (Goldstone). These investment funds are backed 

by state capital and claim to pursue state objectives. CITIC Capital is partly owned by CITIC 

Group,693 which describes itself as “a large state-owned multinational conglomerate.”694 CITIC 

Capital’s investment capital comes primarily from China’s sovereign wealth funds and pension 

funds.695 Goldstone, which is a wholly-owned subsidiary of CITIC Securities,696 stated in 

regulatory filings that the OmniVision investment fulfills Goldstone’s objective of providing 

both a financial return and advancing the development of China’s national integrated circuit 

 

690 Banks Provide $480 Million Loan, Assist Chinese Financial Consortium Acquire ISSI [Chinese], REUTERS, Dec. 

15, 2015. 

691 Omnivision & Hua Capital Management, Citic Capital and Goldstone Investment Announce the Completion of 

the Acquisition of Omnivision by Hua Capital Management, Citic Capital and Goldstone Investment, OmniVision 

Exhibit 99.1. filed with the SEC, Jan. 28, 2016. See also Beijing Ingenic Swallows U.S.’s OmniVision [Chinese], 

CAIXIN, Mar. 9, 2017, http://opinion.caixin.com/2017-03-09/101064177.html (last visited Nov. 3, 2017).

692 Omnivision & Hua Capital Management, Citic Capital and Goldstone Investment Announce the Completion of 

the Acquisition of Omnivision by Hua Capital Management, Citic Capital and Goldstone Investment, OmniVision 

Exhibit 99.1. filed with the SEC, Jan. 28, 2016. See also OmniVision’s camera sensors have been used in Apple's 

iPhone. Hua Capital hires Bank of America for OmniVision deal, SOUTH CHINA MORNING POST, Sept. 19, 2014. 

693 CITIC Group owns a 24.06 percent stake in CITIC Capital. CITIC 2015 ANNUAL REPORT 314 (2016). 

694 See Brief Introduction, CITIC GROUP CORPORATION, 

http://www.group.citic/wps/portal/!ut/p/b1/04_Sj9CPykssy0xPLMnMz0vMAfGjzOI9w8zcLULdQoM9XV1MDRx

NXL283H09DE1cjPQLsh0VAc_K3bQ!/?lctn=1&flag=11 (last visited Jan. 9, 2018) (“CITIC Group was established 

in 1979 by Mr. Rong Yiren with the support of late Chinese leader Deng Xiaoping. Since its inception, CITIC 

Group has been a pilot for national economic reform and an important window on China’s opening to the outside 

world. It has blazed a new trail of development for China's Reform and Opening-up by raising foreign capital, 

introducing advanced technologies, and adopting advanced international practice in operation and management, thus 

building up good reputation both home and abroad” (emphasis added).).CITIC Limited (SEHK: 00267) is one of the 

largest constituents of the Hang Seng Index. As of December 31, 2016, CITIC Limited had total assets of 

HK$7,238 billion ($934 million), total revenue of HK$381 billion ($49.1 billion), and total equity attributable to 

ordinary shareholders of HK$431 billion ($55.6 billion).

695 Ingenic Semiconductor Co. Stock Issuance and Cash Payment to Purchase Assets and Raise Accompanying 

Capital as well as Affiliated Transaction Contingency Plan 27 [Chinese] filed with the Shenzhen Stock Exchange in 

Nov. 2016. 

696 OmniVision Exhibit 99.1. Omnivision & Hua Capital Management, Citic Capital and Goldstone Investment 

Announce The Completion Of The Acquisition Of Omnivision By Hua Capital Management, Citic Capital and 

Goldstone Investment, SEC, filed Jan. 28, 2016. 
IV. Outbound Investment

120

industry.697 Hua Capital, which manages the Beijing government’s Integrated Circuit Design 

and Test Fund, “actively looks for outstanding IC design and test companies to execute 

acquisitions.”698 Hua Capital states on its website that not only will the OmniVision acquisition 

provide a return to investors, but it will also effectively advance the development of China’s 

semiconductor industry.699

The investment funds in the consortium provided two-thirds of the $1.9 billion purchase price, 

with state-owned banks providing the remaining one-third of the purchase price. A consortium 

of Chinese finance entities contributed $1.1 billion, while the state-owned Bank of China (Macao 

Branch) and China Merchants Bank (New York branch) provided loans of $800 million.700 Bank 

of America and China’s sovereign wealth fund, CIC, advised the Chinese consortium on the 

transaction.701

c) Information Technology

Government Policies

The IT sector has long been a focus of Chinese development policy. The 11th Five-year Plan, 

12th Five-year Plan, and 13th Five-year Plan have all emphasized the development of China’s 

IT sector. MIIT issued the IT sector specific plans including the Information Industry 11th Fiveyear Plan702 during the 11th (2006-2010) Five-year Plan period, the Telecom Industry 12th Fiveyear Plan703 during the 12th (2011-2015) Five-year Plan period, and the Information Industry 

Development Guidelines (IT Development Guidelines)

704 during the 13th (2016-2020) Five-year 

Plan period. The 2016 IT Development Guidelines call for “IT industry backbone enterprises to 

launch overseas acquisitions through acquiring bills, acquiring funds, acquiring debt etc.”705

The Chinese government has issued other policies, plans, and decisions that focus on the IT 

sector. For instance, in 2009, the State Council’s Electronic Information Industry Restructuring 

and Revitalization Plan identified information technology as an important driving force of the 

global economy and pointed to the strategic, foundational, and guiding role of the IT sector.706 

 

697 Press Release, Ingenic Semiconductor Co. Stock Issuance and Cash Payment to Purchase Assets and Raise 

Accompanying Capital as well as Affiliated Transaction Contingency Plan 28 [Chinese] (Nov. 2016), filed with the 

Shenzhen Stock Exchange.

698 Press Release, Ingenic Semiconductor Co. Stock Issuance and Cash Payment to Purchase Assets and Raise 

Accompanying Capital as well as Affiliated Transaction Contingency Plan 26-7 [Chinese] (Nov. 2016), filed with 

the Shenzhen Stock Exchange.

699 News [Chinese], HUA CAPITAL, http://www.hua-capital.com/news.aspx (last visited Nov. 3, 2017).

700 Beijing Ingenic Swallows U.S.’s OmniVision [Chinese], CAIXIN, Mar. 9, 2017, http://opinion.caixin.com/2017-

03-09/101064177.html (last visited Nov. 3, 2017).

701 Press Release, OmniVision, OmniVision To Be Acquired By Hua Capital Management, CITIC Capital and 

Goldstone Investment for $29.75 Per Share in Cash (Apr. 30, 2015).

702 Information Industry 11th Five-year Plan (MIIT, published Oct. 30, 2008).

703 Telecom Industry 12th Five-year Development Plan (MIIT, published June 27, 2013).

704 Information Industry Development Guidelines (MIIT and NDRC, Gong Xin Bu Lian Gui [2016] No. 453, issued 

Jan.16, 2017).

705 Information Industry Development Guidelines, Section 5(3) (MIIT and NDRC, Gong Xin Bu Lian Gui [2016] 

No. 453, issued Jan.16, 2017).

706 Electronic Information Industry Restructuring and Revitalization Plan, preamble (State Council, published Apr. 

15, 2009).
IV. Outbound Investment

121

In 2010, the State Council’s SEI Decision identified new-generation information technology as a 

strategic emerging industry.707 In 2011, the State Council’s Notice on Issuing Several Policies 

on Further Encouraging the Development of the Software and Integrated Circuit Industries, 

called for supporting the “Going Out” strategy of enterprises in establishing foreign marketing 

networks and R&D centers to promote IC, software, and IT service exports.708

These government policies and plans call for a particular focus on developing core foundational 

industries, such as new displays, high-end software, and high-end servers.709 To develop these 

technologies, they call for government-industry collaboration, the pursuit of indigenous 

innovation, and “international cooperation.”710 In particular, these plans call for support of 

domestic IC, software, telecom, and new display enterprises that are implementing the “Going 

Out” strategy in the form of acquisitions or equity investment in foreign information technology 

companies to strengthen international competitiveness.711 The plans also call for governmentdirected investment in the IT industry,712 and for financial organizations to support outbound 

investment.713

In 2015 Premier Li Keqiang introduced the “Internet Plus” Action Plan, which calls for the 

integration of the Internet into every aspect of the Chinese economy and society. In particular, in 

the section titled “Expanding Foreign Cooperation,” the plan calls for competitive Chinese 

enterprises to “go out” in groups, via foreign acquisitions, in order to increase their global 

competitiveness in this area.714 The NDRC, Ministry of Foreign Affairs, MIIT, MOFCOM, and 

Cyberspace Administration of China are responsible for supporting this effort.715

 

707 SEI Decision § 3(2).

708 Notice on Issuing Several Policies on Further Encouraging the Development of the Software and Integrated 

Circuit Industries § 4(21) (State Council, Guo Fa [2011] No. 4, issued Jan. 28, 2011).

709 SEI Decision § 3(2).

710 Electronic Information Industry Restructuring and Revitalization Plan § 2(2) (State Council, published Apr. 15, 

2009).

711 Electronic Information Industry Restructuring and Revitalization Plan § 4(5) (State Council, published Apr. 15, 

2009).

712 Electronic Information Industry Restructuring and Revitalization Plan § 4(4) (State Council, published Apr. 15, 

2009). Notice on Issuing Several Policies on Further Encouraging the Development of the Software and Integrated 

Circuit Industries § 2(12) (State Council, Guo Fa [2011] No. 4, issued Jan. 28, 2011).

713 Electronic Information Industry Restructuring and Revitalization Plan § 4(5) (State Council, published Apr. 15, 

2009).

714 Guiding Opinions on the Active Promotion of “Internet +” Action § 3(4.1) (State Council, Guo Fa [2015] 40, 

issued July 04, 2015).

715 Guiding Opinions on the Active Promotion of “Internet +” Action § 3(4.1) (State Council, Guo Fa [2015] 40, 

issued July 04, 2015).
IV. Outbound Investment

122

Likewise, in 2016, the Chinese government released a wave of IT-related plans and policies,716

several of which encourage foreign acquisitions as a means of obtaining technology.717 For 

instance, the Software and Information Technology Services Development Plan (2016-2020)

encourages the use of the “public-private partnership” model, wherein public and private capital 

cooperate, as well as the mobilization of financial services in support of foreign acquisitions.718

Three transactions that reflect and exemplify the impact of these policies are discussed below.

Chinese Investments in the U.S. Information Technology Sector

Ant Financial/EyeVerify

In September 2016, Alibaba’s Ant Financial Services Group (Ant Financial) acquired 100

percent of U.S.-based EyeVerify Inc. (EyeVerify), for an undisclosed amount719 (Bloomberg 

reported a transaction value of $70 million).720 EyeVerify is a creator of biometric verification 

technology. EyeVerify’s patented authentication solution uses existing cameras on smartphones 

to image and pattern match the blood vessels in the whites of the eye. The application protects 

data with a high entropy encryption key which is equivalent to a 50-character complex 

password.721

Government investment and financing was crucial to this transaction. Five months before the 

acquisition, in April 2016, China’s sovereign wealth fund, CIC, and CCB Trust, a subsidiary of 

state-owned China Construction Bank, each leading a consortium, participated in a $4.5 billion 

series B investment in Ant Financial as new strategic investors.722 CIC and CCB Trust were 

joined by existing Ant Financial shareholders, including state-owned China Life and other 

leading Chinese insurance companies, state-owned China Post Group, China Development Bank 

Capital, a wholly-owned subsidiary of the state-owned policy bank, and Primavera Capital 

Group.723 In addition to the state-funding in the Series B described above, China's National 

 

716 Big Data Industry Development Plan (2016-2020) (MIIT, Gong Xin Bu Gui [2016] No. 412, issued Dec. 18, 

2017); Information and Industry Integration Development Plan (2016-2020) (MIIT, Gong Xin Bu Gui [2016] 333, 

issued Nov. 3, 2016); Information and Communications Industry Development Plan (2016-2020) (MIIT, Gong Xin 

Bu Gui [2016] No. 424, issued Dec. 18, 2016); Software and Information Technology Services Development Plan 

(2016-2020) (MIIT, Gong Xin Bu Gui [2016] No. 425, issued Dec. 18, 2016); 13th Five-year Transportation and 

Shipping Informatization Development Plan (Ministry of Transportation, Jiao Gui Hua Fa [2016] 74, issued Apr. 19, 

2016); 13th Five-year Transportation Science and Technology Development Plan (Ministry of Transportation, Jiao 

Ke Ji Fa [2016] 51, issued Mar. 16, 2016).

717 See e.g.., Information and Communications Industry Development Plan (2016-2020) § 3(2)6 (MIIT, Gong Xin 

Bu Gui [2016] No. 424, issued Dec.18, 2016).

718 See Software and Information Technology Services Development Plan (2016-2020) § 5(3) (MIIT, Gong Xin Bu 

Gui [2016] No. 425, issued Dec. 18, 2016).

719 Press Release, EyeVerify, Ant Financial Acquires EyeVerify to Boost Trust, Security, and Convenience of 

Mobile Financial Transaction (Sept. 13, 2016).

720 Alibaba Finance Arm Buys Eye-Scan Startup in First U.S. Foray, BLOOMBERG, Sept. 13, 2016.

721 Press Release, BioConnect and EyeVerify Collaborate to Improve Identity and Authentication in Financial Sector 

(Aug. 30, 2016).

722 Press Release, Ant Financial, Ant Financial Closes $4.5bn Series B Financing (Apr. 26, 2016).

723 Press Release, Ant Financial, Ant Financial Closes $4.5bn Series B Financing (Apr. 26, 2016).
IV. Outbound Investment

123

Social Security Fund acquired a 5 percent stake in Ant Financial through a previous Series A 

round.724

According to Ant Financial’s series B press release, Ant Financial’s “strategic partnership with 

China Investment Corp Capital will support its continued push into international markets.” In 

addition, the press release notes that the “capital raised in the Series B round will be invested 

partly in further development of the company’s cloud computing infrastructure and biometric 

verification technologies.”725

Apex/Lexmark

On November 29, 2016, Lexmark International, Inc. (Lexmark) announced the completion of its 

acquisition by a consortium of investors led by Apex Technology Co., Ltd. (Apex) and PAG 

Capital for $3.6 billion.726 Lexmark manufactures and sells primarily laser printers and toner 

cartridges.727 Prior to the acquisition, the National IC Fund invested CNY 569 million ($86 

million) in Apex.728 

The Chinese consortium paid well over Lexmark’s market capitalization of about $2.2 billion. 

Various other printer companies including Canon, Konica Minolta, and Ricoh are said to have 

considered acquiring Lexmark.729 The largest shareholder (at nearly 70 percent)730 in Apex is 

Ninestar (also known as Zhuhai Seine Technology Co., Ltd.), a company which a U.S. court 

found in 2012 had imported patent-infringing printer cartridges into the United States 

“deliberately and in bad faith.”731 

In its 2015 Annual Report, Apex noted the guiding influence of the Electronics Information 

Manufacturing Industry 12th Five-year Development Plan and the IC Industry 12th Five-year

Development Plan.

732

 Apex also pointed to the encouragement in the State Council’s 2009 

 

724 Alibaba Arm Ant Financial Completes Private Placement of Shares, REUTERS, July 3, 2015. 

725 Press Release, Ant Financial, Ant Financial Closes $4.5bn Series B Financing (Apr. 26, 2016).

726 Press Release, Lexmark, Lexmark Announces Completion of Acquisition by Apex Technology and PAG Asia 

Capital (Nov. 29, 2016). 

727 Technology Hardware, Storage and Peripherals – Company Overview of Lexmark International, Inc., 

BLOOMBERG (last visited Nov. 20, 2017) (“Lexmark International, Inc., together with its subsidiaries, operates as a 

developer, manufacturer, and supplier of printing, imaging, device management, managed print services (MPS), 

document workflow, and business process and content management solutions worldwide. It operates through two 

segments, Imaging Solutions and Services (ISS), and Enterprise Software. The ISS segment offers a portfolio of 

color and monochrome laser printers, laser multifunction products, and dot matrix printers, as well as various 

cartridges, service parts, and other supplies for use in the installed base of laser, inkjet, and dot matrix printers. It 

also provides maintenance, consulting, and systems integration services, as well as MPS offerings, such as asset 

lifecycle management, implementation and decommissioning services, consumables management, remote device 

monitoring and management, and business process optimization services.”).

728 Zhejiang Wansheng Co., Zhejiang Wansheng Co., Ltd. Public Notice In Response to a Letter from the Shanghai 

Stock Exchange Requesting Information Disclosure Regarding the Company’s Issuance of Shares to Acquire Assets 

and Raise Supporting Funds in a Related Party Transaction [Chinese] (Code 603010, Public Notice 2017-042).

729 Charles Brewer, Apex Closes Lexmark Deal; Up Next, HP’s Acquisition of Samsung’s Printer Biz, ENX

MAGAZINE, Dec. 27, 2016.

730 ZHUHAI APEX TECHNOLOGY CO., LTD. 2016 ANNUAL REPORT 72 [Chinese] (2016).

731 Ninestar Tech. Co. v. ITC, 667 F.3d 1373 (Fed. Cir. 2012).

732 ZHUHAI APEX TECHNOLOGY CO., LTD. 2015 ANNUAL REPORT SUMMARY 5-6 [Chinese] (2016).
IV. Outbound Investment

124

Electronic Information Industry Restructuring and Revitalization Plan for outstanding 

enterprises to “go out” and acquire high-tech foreign enterprises to strengthen their international 

competitiveness.733

Genimous/Spigot

In May 2016, China-based Genimous Investment Co., Ltd. (Genimous), formerly a manufacturer 

of electronics products, acquired 100 percent of Spigot Inc. (Spigot), a U.S.-based digital 

marketing company, for over $250 million.734 Genimous was able to complete this transaction 

despite having recorded a net loss, after deducting income from any non-recurring gain or loss,

of CNY 40 million ($6 million) in 2015; that year, it collected only CNY 318 million ($51

million) in revenue, CNY 55 million ($9 million) less than in 2014.735 Spigot is one of the 

world’s leading digital performance-based marketing companies.736 According to its website, 

Spigot’s “proprietary technology platform marries the power of big-data with the flexibility of 

self-training algorithms to produce rapid, hyper-optimized results for clients.”737 

The fact that the Genimous acquisition of Spigot conformed to Chinese industrial policy appears 

to have been instrumental in securing regulatory approval for the acquisition. In response to a 

China Securities Regulatory Commission inquiry about the transaction, Genimous explained that 

in accordance with the Henan Province Provisional Measures on the Administration of Foreign 

Investment Projects, foreign investments under $300 million are managed by the Henan Province 

Development and Reform Commission (Henan DRC). After it was determined that the 

acquisition fell within the “encouraged” industries of the Guiding Catalogue of Foreign 

Investment Industries, the Henan DRC issued the Notice Regarding Genimous Investment Ltd., 

Co. Acquisition in the U.S. of Spigot, Inc., which approved the acquisition.738 

From its founding in 1996, Genimous manufactured and sold electronic products.739 Following 

the Spigot transaction, Genimous radically changed its business model, shifting its focus from 

the manufacture of electronic products to the mobile Internet software industry.740 

 

733 ZHUHAI APEX TECHNOLOGY CO., LTD. 2015 ANNUAL REPORT SUMMARY 5-6 [Chinese] (2016).

734 GENIMOUS INVESTMENT CO., STOCK ISSUANCE AND CASH PAYMENT TO PURCHASE ASSETS AND RAISE THE 

ACCOMPANYING CAPITAL AND AFFILIATED TRANSACTION REPORT 1-1-5 [Chinese] (Apr. 2016).

735 GENIMOUS INVESTMENT CO. 2016 ANNUAL REPORT 7-8 [Chinese] (2017). 

736 GENIMOUS INVESTMENT CO., STOCK ISSUANCE AND CASH PAYMENT TO PURCHASE ASSETS AND RAISE THE 

ACCOMPANYING CAPITAL AND AFFILIATED TRANSACTION REPORT 1-1-855 [Chinese] (Apr. 2016).

737 SPIGOT (Dec. 13, 2017), https://www.spigot.com/.

738 Genimous applied for approval from the Zhengzhou High-Tech Industrial Development Park, which determined 

that the acquisition fell within the “encouraged” industries of the Guiding Catalogue of Foreign Investment 

Industries, and subsequently submitted the application materials to the Zhengzhou Development and Reform 

Commission (Zhengzhou DRC) on November 6, 2015. On November 12, 2015, the Zhengzhou DRC consented to 

the foreign investment project. On November 24, 2015, the Henan DRC issued the Notice Regarding Genimous 

Investment Ltd., Co. Acquisition in the U.S. of Spigot, Inc., which approved the acquisition. See GENIMOUS 

INVESTMENT LTD., CO. RESPONSE TO FEEDBACK FROM “NOTICE ON CHINA SECURITIES REGULATORY COMMISSION’S 

ADMINISTRATIVE PERMIT PROJECT INVESTIGATION SECOND FEEDBACK OPINIONS” 1-1-54 [Chinese] [152981] ,

REVISED VERSION (Dec. 2015).

739 GENIMOUS INVESTMENT CO., STOCK ISSUANCE AND CASH PAYMENT TO PURCHASE ASSETS AND RAISE THE 

ACCOMPANYING CAPITAL AND AFFILIATED TRANSACTION REPORT 1-1-151 [Chinese] (Apr. 2016).

740 GENIMOUS INVESTMENT CO., STOCK ISSUANCE AND CASH PAYMENT TO PURCHASE ASSETS AND RAISE THE 

ACCOMPANYING CAPITAL AND AFFILIATED TRANSACTION REPORT 1-1-156 [Chinese] (Apr. 2016).
IV. Outbound Investment

125

Genimous cites several Chinese government policies and plans in connection with this strategic 

shift and its acquisition of Spigot. For instance, in Genimous’s stock issuance and major 

transaction disclosure, the company points to government policies that support the development 

of the mobile Internet and encourage leading Chinese internet enterprises to expand into the 

international market, as background for the acquisition.741 Genimous’s acquisition of Spigot 

closely mirrors this policy directive. According to Genimous, the purpose of the acquisition of 

Spigot was to acquire quickly foreign technology, human capital, brand, and revenue channels,742

and help Genimous expand into international markets.743

d) Biotechnology

Government Policies

The Chinese government has actively directed and supported the acquisition of biotechnology, 

which is an important component of advanced agricultural technology and medical 

technology.744 The emphasis of these policies has shifted over time, from enhancing food 

security and medical services to advanced manufacturing of biotechnology products. 

A series of five-year plans specifically targets biotechnology. These include the “12th Fiveyear” Biotechnology Development Plan,

745 the “13th Five-year” Biological Industry 

Development Plan746 (which was issued pursuant to the 13th Five-year Plan and the “13th Fiveyear” National Strategic Emerging Industry Development Plan), and the “13th Five-year” 

Biotechnology Innovation Special Plan747 (pursuant to the 13th Five-year Plan and the “13th 

Five-year” Plan for Technology Innovation). 

 

741 GENIMOUS INVESTMENT CO., STOCK ISSUANCE AND CASH PAYMENT TO PURCHASE ASSETS AND RAISE THE 

ACCOMPANYING CAPITAL AND AFFILIATED TRANSACTION REPORT 1-1-155 [Chinese] (Apr. 2016). The company 

cites a range of policies, including the National Focused Support for High-Tech Areas (2008); the Electronic 

Information Industry Reorganization and Revitalization Plan (2009); the IT Industry “Five-year” Development Plan

(2012); the Guiding Catalogue of Industrial Structure Adjustment (2011); and the Internet Plus Action Plan (2015), 

which called for the promotion of the mobile internet and big data, while instructing leading internet companies to 

expand into the international market.

742 GENIMOUS INVESTMENT CO., STOCK ISSUANCE AND CASH PAYMENT TO PURCHASE ASSETS AND RAISE THE 

ACCOMPANYING CAPITAL AND AFFILIATED TRANSACTION REPORT 1-1-104 [Chinese] (Apr. 2016).

743 GENIMOUS INVESTMENT CO., STOCK ISSUANCE AND CASH PAYMENT TO PURCHASE ASSETS AND RAISE THE 

ACCOMPANYING CAPITAL AND AFFILIATED TRANSACTION REPORT 1-1-157 [Chinese] (Apr. 2016).

744 In agriculture, genetically modified (GM) seed varieties can improve food security, output and production, and 

increase exports. See USAID, ABSP II & PROGRAM FOR BIOSAFETY SYSTEMS, BRIEF #1: WHAT IS AGRICULTURAL 

BIOTECHNOLOGY? (2004) (stating that biotechnology in medicine includes biological diagnostics and treatment, 

such as genetic analysis and gene therapy); see also Albert Sasson, MEDICAL BIOTECHNOLOGY: ACHIEVEMENTS,

PROSPECTS AND PERCEMPTIONS, UNITED NATIONS UNIVERSITY (Tokyo: 2005).

745 Notice on the “12th Five-year” Biotechnology Development Plan (MOST, Guo Ke Fa She [2011] No. 588, 

issued Nov. 4, 2011).

746 National Development and Reform Commission Notice on Issuing the “13th Five-year” Biological Industry 

Development Plan (NDRC, Fa Gai Gao Ji [2016] No. 2665, issued Dec. 20, 2016).

747 MOST Notice on Issuing the “13th Five-year” Biotechnology Innovation Special Plan (MOST, Guo Ke Fa She 

[2017] No. 103, issued Apr. 24, 2017).
IV. Outbound Investment

126

Collectively, these “Biotechnology Five-year Plans” direct Chinese enterprises to seek out 

advanced biotechnology overseas, through cooperation in research;748 promoting international 

biotechnology transfer;749 and promoting the acquisition of new products and “key technology” 

through mergers and acquisitions,750 aided by government financial support.751 

Other state planning documents articulate similar objectives. For instance, medical Five-year 

Plans and agricultural Five-year Plans underscore the need for advancing biotechnology752 and 

promoting the use of foreign cooperation and acquisitions as a means of technology transfer.753 

The biopharmaceutical sector is also a major target of the Made in China 2025 policy.754 

The effect of these policies is evident in recent acquisitions of U.S. biotechnology firms. As 

discussed below, both Chinese SOEs and private enterprises have undertaken acquisitions in this 

sector to meet government objectives. Government financial support – including direct grants, 

state-backed investment funds, and debt financing by state-run policy banks – continues to play a 

key role in enabling these transactions.

Chinese Investments in the U.S. Biotechnology Sector

China National Chemical Corp./Syngenta AG 

The acquisition of Swiss-based Syngenta by the China National Chemical Corp. (ChemChina) in 

May 2017 is the largest acquisition or merger ever completed by a Chinese enterprise, with a 

final price of $43 billion on May 18, 2017.755 Through this acquisition, ChemChina gained 

access to a long list of patented genetically modified (GM) seed, agriculture, and biotech 

products cited as targets in Five-year Plans.756 ChemChina also obtained Syngenta’s entire U.S. 

 

748 Notice on the “12th Five-year” Biotechnology Development Plan § 5(6) (MOST, Guo Ke Fa She [2011] 588, 

issued on Nov. 4, 2011).

749 MOST Notice on Issuing the “13th Five-year” Biotechnology Innovation Special Plan § 5(6).

750 National Development and Reform Commission Notice on Issuing the “13th Five-year” Biological Industry 

Development Plan § 8(4).

751 National Development and Reform Commission Notice on Issuing the “13th Five-year” Biological Industry 

Development Plan § 7(3).

752 “12th Five-year” Agricultural Science and Technology Development Plan § 3(1)2 (MOA, posted online Dec. 26, 

2011); Notice on Issuing the “13th Five-year” Agricultural and Rural Science and Technology Innovation Special 

Plan § 4(2), Special Box 7 (MOST, Ministry of Agriculture, Ministry of Education, MIIT, Ministry of Land and 

Resources, Ministry of Environmental Protection, Housing Urban and Rural Construction Department, Ministry of 

Water Resources, SASAC, AQSIQ, State Forestry Administration, Chinese Academy of Sciences, China 

Meteorological, Administration, National Food Administration, State Oceanic Administration, Supply and 

marketing cooperatives, Guo Ke Fa Nong [2017] No. 170, issued June 9, 2017); MOA Notice on Issuing the “13th 

Five-year” Agriculture Science and Technology Development Plan § 1 ¶ 2 (MOA, Nong Ke Jiao Fa [2017] No. 4, 

issued Jan. 25, 2017); the accelerating speed of biotechnology development is also cited as a reason for issuing the 

Ministry of Science and Technology Office Notice on Issuing “13th Five-year” Medical Machinery Science and 

Technology Innovation Special Plan § 1(2) (MOST, Guo Ke Ban She [2017] No. 44, May 26, 2017).

753 “12th Five-year” Agricultural Science and Technology Development Plan § 3(1)5 (MOA, posted online Dec. 26, 

2011); Ministry of Science and Technology Office Notice on Issuing “13th Five-year” Medical Machinery Science 

and Technology Innovation Special Plan § 1(1) § 5(2).

754 Made in China 2025 Roadmap § 10(1).

755 Syngenta AG, Ex-99 (A) 13 (May 23, 2016), on file with the SEC.. 

756 “12th Five-year” Agricultural Science and Technology Development Plan §§ 3(1)2 (MOA, posted online Dec. 

26, 2011); Notice on Issuing the “12th Five-year” Agricultural and Rural Science and Technology Development 
IV. Outbound Investment

127

business, including over 4,000 employees, 33 research sites, and 31 production and supply 

sites.757 

ChemChina is an SOE, and the transaction is directly linked to the “Going Out” strategy, as 

reported by Xinhua News.

758

 As a result of this transaction, two ChemChina executives who are 

also CCP officials – Ren Jianxin and Chen Hongbo – were appointed to the Syngenta board of 

directors, with Ren Jianxin named as chairman of the board.759 The transaction was financed in 

large part by loans from a consortium of Chinese state-run policy banks, municipal policy banks, 

private banks, bonds issued to special purpose vehicles backed by state-owned commercial and 

policy banks and the China Reform Holdings Corporation.760 This financing was made available 

even though a 2016 credit report on the ChemChina Group reported a debt-to-capital ratio of 

74.78 percent.

761

 

Beijing Genomics Institute/Complete Genomics

In January 2013, Beijing Genomics Institute (BGI) acquired Complete Genomics for $117 

million.762 Through the acquisition, BGI gained access to Complete Genomics’ “gene 

sequencing equipment intellectual property rights, and the development of domestic equipment 

production”763– technology that the Chinese government has targeted in related sectoral Fiveyear Plans.764

 In fact, NDRC featured the BGI acquisition of Complete Genomics in its report on 

 

Plan §§ 2(4), 3(2)1 (MOST, Ministry of Agriculture, Ministry of Education, Ministry of Water Resources, Housing 

and Urban-Rural Development, Ministry of Land and Resources, AQSIQ, State Forestry Administration, Chinese 

Academy of Sciences, National Food Administration, China Meteorological Administration, State Oceanic 

Administration, National Federation of Supply and Marketing Cooperatives, issued Mar. 15, 2012); Notice on 

Issuing the “13th Five-year” Agricultural and Rural Science and Technology Innovation Special Plan § 4(2)1. In 

the aforementioned Agriculture Five-year Plans, the importance of developing GMO technology is not only for food 

security, but also for agricultural industrialization strategy. Gene technology in an agricultural context is also part of 

the biotechnology Five-year Plans. MOST Notice on Issuing the “13th Five-year” Biotechnology Innovation 

Special Plan § 4(2)5; Notice on the “12th Five-year” Biotechnology Development Plan § 4(3)2.

757 SYNGENTA, 2016 ANNUAL REVIEW 26 (2016).

758 Financial Watch: Acquisition of Syngenta Obtains Approval Chinese Capital Hugs the Whole World’s Resources 

for a Win-Win Strategy [Chinese], XINHUA NEWS, 2017, available at http://www.gov.cn/xinwen/2017-

04/06/content_5183844.htm.

759 Syngenta AG, Ex-99.(A), A-1 (May 23, 2016), on file with the SEC. Ren Jianxin is the chairman of the CCP 

Committee of ChemChina. Chen Hongbo is secretary of the Hubei Province Discipline Inspection Commission, 

which acts as the local version of the central level Commission responsible for implementing President Xi Jinping’s 

anti-corruption drive. Syngenta AG, Ex-99.(A), A-1 (May 23, 2016), on file with the SEC.

760 Syngenta AG, Schedule 13D 12 (May 18, 2017), on file with the SEC.

761 Dagong Global Credit Rating Co., Ltd., Tracking the Rating Announcement 1, 22 [Chinese] (Da Gong Bao SD 

[2016] No. 242).

762 Shenzhen Beijing Genomics Institute Completes Acquisition of the United States’ Complete Genomics [Chinese], 

GENOMICS Mar. 19, 2013, http://www.genomics.cn/news/show_news?nid=99461.

763 Jiang Jiang, and Han Qi, NDRC INSTITUTE OF INDUSTRIAL ECONOMICS AND TECHNOLOGY ECONOMICS “12TH

FIVE-YEAR” PERIOD GENE DETECTION INDUSTRY DEVELOPMENT REVIEW [Chinese] (Aug. 8, 2017), available at

http://gjss.ndrc.gov.cn/zttp/xyqzlxxhg/201708/t20170802_856974.html.

764 Notice on Issuing the “13th Five-year” Agricultural and Rural Science and Technology Innovation Special Plan

§ 4(2)1; MOST Notice on Issuing the “13th Five-year” Biotechnology Innovation Special Plan §§ 4(1)1, 4(1)3, 

4(2)1.
IV. Outbound Investment

128

biopharmaceutical industry development during the 12th Five-year Plan period, under the section 

heading “overseas acquisitions begin to take shape.”765

BGI has even been a major recipient of assistance from the state policy bank, CDB.766 The 

Shenzhen municipal government has singled out BGI as a target of support in multiple 

government measures, including development of both an international and domestic outsourcing 

industry.767 BGI has received local government grants from the Donghu New Technology 

Development Zone Management Committee Finance Bureau for its Complete Genomics 

subsidiary to develop a local Chinese production base of Complete Genomics sequencer 

machinery. 768 

Although BGI is privately-owned, it has operated at the center of China’s gene research industry 

since participating in the Human Genome Project, and has evident links to the government. BGI 

leadership features multiple officials who held CCP and government positions before joining 

BGI.769

In a company press release, BGI states that, “after the acquisition of U.S. listed company 

Complete Genomics (CG), BGI rapidly achieved technology transformation and re-innovation” 

resulting in the development and production of new gene sequencer machines in 2015 and

 

765 Wang Xuegong, Zhu Jun, Zhong Qian, Li Qian, CHINA BIOPHARMACEUTICAL MANAGEMENT ASSOCIATION, 

REVIEW OF BIOPHARMACEUTICAL INDUSTRY DEVELOPMENT DURING THE 12TH FIVE-YEAR PLAN [Chinese] (Aug. 2, 

2017), available at http://gjss.ndrc.gov.cn/zttp/xyqzlxxhg/201708/t20170802_856972.html.

766 CDB officials have held up BGI as an example of a company that CDB supports. Zheng Zhijie, Servicing 

Innovation Development with Development Type Finance [Chinese], ECONOMIC DAILY Dec. 16, 2016. Zheng Zhijie 

is the Vice Party Secretary, Vice Chairman and President of CDB. Leader Profiles – Zheng Zhijie [Chinese], CDB, 

http://www.cdb.com.cn/gykh/ldbz/zzj (last visited Oct. 26, 2017). In 2010, BGI also received CNY 600 million 

($89 million) in loans from CDB to help BGI purchase sequencing machinery from U.S.-based Illumina. The 

sequencing machines were installed in BGI’s Hong Kong facility, putting BGI “on the path to become world’s 

largest sequencing facility;” Illumina stated that this was the single largest order to date for its technology. Press 

Release, Illumina Inc., Acquisition Puts Beijing Genomics Institute on Path to Become World’s Largest Sequencing 

Facility (Jan.12, 2010), available at https://www.illumina.com/company/news-center/press-releases/press-releasedetails.html?newsid=1374343. CDB Shenzhen Branch referred to BGI as a “[s]trategic emerging industry leading 

enterprise.” See China Development Bank Shenzhen City Branch Injects New Momentum into Upgrading ‘Shenzhen 

Quality’ Sustainability [Chinese], SHENZHEN PRESS GROUP, Jan. 5, 2013, available at

http://www.cbrc.gov.cn/shaanxi/docPcjgView/C4DDC24B06384D3CB47268D0DDDA18AC/600211.html, (last 

visited Oct. 26. 2017).

767 Shenzhen City Economic Trade and Informatization Commission Notice on Issuing the Shenzhen City Service 

Outsourcing Development Plan (2012-2015) § 4(2)2 (Shenzhen City Trade and Informatization Commission, Jing Ji 

Mao Xin Xi Fu Wu Zi [2012] No. 43); Shenzhen City People’s Government Office Notice on Issuing Several 

Measures on Strengthening Enterprise Service Support of Strategic Emerging Industry Development (2012-2013 

Annual) §5(27) (Shenzhen City People’s Government Office, Shen Fu Ban Han [2012] No. 169, issued Nov. 19, 

2012); Notice on Issuing Shenzhen National Innovation City Overall Plan (2008-2015) §4(1)2(Shen Fu [2008] No. 

201, issued Sept. 21, 2008).

768 SHENZHEN BGI HOLDINGS CO., LTD , 2017 FIRST HALF ANNUAL REPORT 129, 138 [Chinese] (Aug. 2017), 

available at www.szse.cn/.

769

 At the management level, the Executive vice President and Director of Strategic Planning at BGI, Yanmei Zhu, 

used to be vice-director of the Yangpu District NDRC, and the Chairman and CEO of BGI Agriculture Group, 

Yonghong Mei, is currently also the director of the China National GeneBank, and previously held the position of 

Deputy Party Secretary and Mayor of Jining City. About BGI/Leadership [Chinese], BGI-Shenzhen, 

http://www.genomics.cn/en/navigation/show_navigation?nid=292 (last visited Nov. 1, 2017).
IV. Outbound Investment

129

2016.770 This achievement is attributed to “focusing on the 18th National Congress of the 

CCP[...] internal governance, foreign relations, and national defense, and governance of the 

Party, the nation, and the military.”771

e) Industrial Machinery and Robotics

Government Policies

Developing advanced industrial machinery, including robotics with industrial applications, is an 

important policy goal of the Chinese government. Chinese authorities hope to increase 

productivity772 at a time of increasing labor costs in China,773 and are attempting to acquire 

advanced technology so that China can join the ranks of high-tech manufacturing economies by 

2025.774 By supporting acquisitions in machinery and robotics, Chinese authorities hope to gain 

access to advanced technology, and they see this technology as vital to meeting Made in China 

2025 policy objectives with respect to the production of large aircraft,775 auto manufacturing,776

agricultural machinery,777 and medical technology.778

Several state planning documents underscore the importance of obtaining technology for 

advanced industrial machinery – for instance, the Robotics Five-year Plan, the Industry 

Technology Innovation Capacity Development Plan (2016-2020)779 (Industry Five-year Plans), 

and the recently released Next-Generation Artificial Intelligence Development Plan780 (AI Plan). 

As these documents make clear, a key strategy for the “transformation and upgrading” of these 

sectors is a combination of government support781 and the use of mergers and acquisitions to 

gain access to foreign technology.782 Authorities have made frequent use of this approach, 

 

770 BGI High-Throughput Gene Sequencer Debut "to Forge Ahead for Five-years" Large-Scale Achievements 

Exhibition [Chinese], BGI (Oct. 11, 2017), http://www.genomics.cn/news/show_news?nid=105368 (last visited 

Nov. 1, 2017).

771 BGI High-Throughput Gene Sequencer Debut "to Forge Ahead for Five-years" Large-Scale Achievements 

Exhibition [Chinese], BGI (Oct. 11, 2017), http://www.genomics.cn/news/show_news?nid=105368 (last visited 

Nov. 1, 2017).

772 Made in China 2025 Notice § 2(3); State Council Notice on Issuing the Next-Generation of Artificial Intelligence 

Development Plan § 3(2) (State Council, Guo Fa [2017] No. 35, issued Aug. 20, 2017).

773 Made in China 2025 Notice, Section 1(2); Notice on Issuing Robotics Industry Development Plan (2016-2020) §

1, ¶ 4 (MIIT, NDRC, MoF, Gong Xin Bu Lian Gui [2016] No. 109, issued Mar. 21, 2016).

774 Made in China 2025 Notice § 1(3), § 2(1).

775 Made in China 2025 Notice § 1(3). See also Zhejiang Wanfeng Technology Development Co. Ltd./Paslin Co.

776 Made in China 2025 Notice § 3(6)2. 

777 Made in China 2025 Notice § 3(6)8.

778 Made in China 2025 Notice § 3(6)2, § 3(6)10.

779 Ministry of Industry and Information Technology Notice on Issuing the Industry Technology Innovation Capacity 

Development Plan (2016-2020) (MIIT, Gong Xin Bu Gui [2016] No. 344, issued Oct. 31, 2016).

780 State Council Notice on Issuing the Next-Generation of Artificial Intelligence Development Plan § 3(2) (State 

Council, Guo Fa [2017] No. 35, issued Aug. 20, 2017).

781 Industry Five-year Plan § 5(3); AI Plan § 4(1); Robotics Five-year Plan § 4(3). 

782 Industry Five-year Plan § 5(5); AI Plan § 4(3). The Robotics Five-year Plan § 4(6) also suggests government 

support for “international cooperation.”; State Council Guiding Opinion on Promoting International Capacity and

Equipment Cooperation § 46(35) (State Council, Guo Fa [2015] No. 30, issued May 13, 2015), also, § 4 of the same 

plan is wholly dedicated to improving “Going Out” capacity, and § 6 is dedicated to “Expanding Policy Support 

Intensity.”
IV. Outbound Investment

130

supporting transactions through grants, state-led policy bank debt financing, and financing 

through state-sponsored investment funds.

Chinese Investments in the U.S. Industrial Machinery and Robotics Sector

Zhejiang Wanfeng Technology Development Co. Ltd./Paslin Co.

The acquisition activities of Zhejiang Wanfeng Technology Development Co. (Wanfeng) 

illustrate the approach outlined above. In 2016, Wanfeng wholly acquired Paslin Co. (Paslin), a 

developer and manufacturer of “complex automated assembly and welding systems,”783 for $302 

million.784 Paslin Co. produces advanced manufacturing robots used primarily in the assembly 

of automobiles.785

To support the acquisition, Shaoxing City provided CNY 300 million ($45 million) to the 

Wanfeng Acquisition Fund, which was able to raise a total of CNY 1 billion ($151 million) from 

Wanfeng and other public and private companies,786 significantly reducing Wanfeng’s own 

capital contribution to the acquisition. In an interview with a Chinese financial daily, Wanfeng 

Director Zhao Yahong attributed the Paslin acquisition to financial assistance from the Wanfeng 

Acquisition Fund.787 Wanfeng is also a recipient of government assistance, including a total of 

CNY 73 million ($11 million) in government grants from a combination of dozens of central and 

local governments.788

Although a private company, Wanfeng cultivates close ties to government authorities. The 

company is part of a family conglomerate, and run by Chen Ailian,

789

 a well-connected CCP 

member who served as a representative from Zhejiang Province at the 12th National People’s 

Congress (NPC) in 2016,790 where she proposed that the government establish a new China 

High-Tech Development Bank policy bank to provide “low-interest medium- and long-term 

loans” and “financial assistance” to enterprises in the high-tech manufacturing industry.791 She 

is also currently a member of the Standing Committee of Shaoxing City’s 8th People’s 

 

783 Our Company, PASLIN, http://www.paslin.com/our-company/ (last visited Oct. 23, 2017).

784 Liang Zhen, Zhejiang Wanfeng Acquires US Robotics Maker Paslin, CHINA DAILY, Apr. 20, 2016.

785 Milestones + History, PASLIN, http://www.paslin.com/milestones-history/ (last visited Oct. 23, 2017).

786 Announcement on the 2016 Zhejiang Shaoxing Transformation and Upgrading Industry Fund Investment into 

Wan Feng Commercial Industry Merger and Acquisition Fund Project [Chinese] (Shaoxing City Financial Bureau, 

issued Feb. 26, 2016).

787 Xu Ning, Foreign Mergers and Acquisitions Adhere to the Industrial Chain and Value Chain High-End 

Extensions [Chinese], JINRONG SHIBAO Aug. 28, 2017, available at http://www.whjr.gov.cn/sinfo-2-36686-0.html 

(last visited Oct. 23, 2017).

788 WANFENG AUTO WHEEL CO. LTD., 2016 ANNUAL REPORT 163-173 [Chinese] (Apr. 11, 2017), available at

www.szse.com. 

789 WANFENG AUTO WHEEL CO. LTD., 2016 ANNUAL REPORT 61-2 [Chinese] (Apr. 11, 2017), available at

www.szse.com. Wanfeng is owned jointly by Chen Ailian’s husband, Wu Liangding, and her son, Wu Jie. Wu 

Liangding is the owner of Rifa Group, and Wu Jie is the President of Rifa Group, another large investment 

company.

790 Representative List, ‘92 Zhejiang Representatives Group’ [Chinese], NPC, 

http://www.npc.gov.cn/delegate/dbmd.action?id=b2 (last visited Oct. 28, 2017).

791 NPC Representative Chen Ailian: Establish the China High-Tech Development Bank [Chinese], 2016 CCP and 

CPPCC Plenary Session Opinions, available at http://zt.ccln.gov.cn/2016lh/tian/39017.shtml (last visited Oct. 23, 

2017).
IV. Outbound Investment

131

Congress,792 the same municipal government which, a year earlier, had chosen her company to 

lead a joint private-public partnership (PPP) investment fund, the Wanfeng Commercial Industry 

Merger and Acquisition Fund (Wanfeng Acquisition Fund).793 

By acquiring Paslin, Wanfeng not only gained access to advanced robotics technology, but also 

supported the objective of the municipal government of Shaoxing City, Zhejiang Province, to 

build a new aircraft manufacturing hub in its jurisdiction. This acquisition was supported by 

substantial government funding. Shaoxing City began issuing policy directives as early as 2012 

in support of developing the city as a center for developing aircraft and aerospace equipment 

manufacturing. For instance, the Shaoxing City Development Strategic Emerging Industry Key 

Field Guiding Catalogue (2013-2015) identified GA manufacturing as a key “emerging 

information industry” and aerospace equipment as an “advanced equipment manufacturing 

industry,” and targeted both for investment and government support.794 Likewise, in 2016, the 

Shaoxing City “13th Five-year” Industry Development Plan stated that developing the city as an 

aviation hub was an important way of developing an “urban industrial development zone”795 in 

Shaoxing, and that such programs should be supported by government measures including 

establishing “industrial funds” and other “preferential policies.”796

Shaoxing City found a willing partner in Wanfeng, which began construction of the Wanfeng 

Aviation Special Village in 2016.797 Consistent with government policies, this site was designed 

to become a hub for aircraft and aerospace equipment manufacturing. The site was visited by 

representatives from the NDRC Planning Division in October 2016, and held up as an example 

of Zhejiang Province’s efforts in “promoting transformation and upgrading of traditional 

manufacturing.”798

Government authorities viewed Wanfeng’s acquisition of Paslin as pivotal to developing the 

aviation hub. According to the Zhejiang Province Financial Office, government support for the 

acquisition is part of “activating a strategic industry,” and plays a role in a larger Shaoxing CityWanfeng joint strategy to develop the Wanfeng Jingyuan High-End Equipment Park through a 

jointly administered fund valued at CNY 1 billion.

799

 Concurrent with financing the Paslin 

 

792 Shaoxing Municipality 8th People’s Congress Standing Committee Member List [Chinese], SHAOXING 

MUNICIPALITY, available at http://sxrd.sx.gov.cn/art/2017/4/17/art_14842_1115531.html (last visited Oct. 28, 

2017).

793 Announcement on the 2016 Zhejiang Shaoxing Transformation and Upgrading Industry Fund Investment into 

Wan Feng Commercial Industry Merger and Acquisition Fund Project [Chinese] (Shaoxing City Financial Bureau, 

issued Feb. 26, 2016).

794 Shaoxing City Government Office Forwards Economic and Information Commission Notice on Shaoxing City 

Development Strategic Emerging Industry Key Fields Guiding Catalogue (2013-2015) (Shaoxing City Government 

Office, Shao Zheng Ban Fa [2012] No. 166, issued Dec. 14, 2012).

795 Shaoxing City “13th Five-year” Industry Development Plan § 4(2), ¶ 8 (Shi Jing Xin Wei, posted June 30, 2016). 

796 Shaoxing City “13th Five-year” Industry Development Plan § 6(2).

797 Development Process [Chinese], WANFENG AUTO HOLDING GROUP, http://www.wfjt.com/develop.php (last 

visited Oct. 30, 2017).

798 National Development and Reform commission Research Team Visits Wanfeng Auto [Chinese], WANFENG AUTO 

HOLDING GROUP, http://www.wfjt.com/news-detail.php?id=971 (last visited Oct. 30, 2017).

799 Zhejiang Shaoxing, Three Ones’ Highly Effectively Deploying Government Industry Funds ‘Energy Storage’ 

Effectiveness [Chinese], ZHEJIANG PROVINCE FINANCIAL OFFICE (May 10, 2017),

http://m.mof.gov.cn/czxw/201705/t20170509_2596548.htm (last visited Oct. 23, 2017).
IV. Outbound Investment

132

acquisition, the fund forged plans to establish “three major functional zones for intelligent

equipment, robotics, and R&D” inside the Wanfeng Jingyuan High-End Equipment Park, 

designed to form the “core of the Wanfeng Aviation Village.”

800

This transaction exemplifies China’s IDAR approach to transferring foreign technology. Within 

one year of acquiring Paslin, Wanfeng has already invested CNY 800 million ($118 million) in 

developing high-end robotics manufacturing capacity – based on technology acquired from 

Paslin – in Shaoxing City.801 The use of Paslin’s robotic manufacturing technology is described 

in a Shaoxing City government report as an “important force in Shaoxing’s, even Zhejiang’s, 

future aviation manufacturing industry.”802 As Chen Ailian stated, “by going through overseas 

mergers and acquisitions, we can absorb advanced technology, obtain brand value and sales 

channels, enter the high-end market, and greatly enhance Shaoxing enterprises’ position in global 

market competition.”803 In its Report on Development of China’s Outward Investment and 

Economic Cooperation 2016, MOF explained that, through the Paslin acquisition, Wanfeng 

successfully “obtained key technology for the field of robotics.”804

Northern Heavy Industries Group Co. Ltd./Robbins Co.

Northern Heavy Industries Group (NHI), an SOE owned by China’s central government, 

acquired the Robbins Company (Robbins) through a “three-phase merger,” beginning in 2016. 805 

NHI first invested heavily in Robbins, then increased its stake to 61 percent, and intends to 

acquire a 100 percent stake in the future. 806 Through this transaction, NHI gained access to 

Robbins’ manufacturing capacity with respect to “advanced, underground construction 

machinery.”807 As an SOE, NHI pursues state policy goals, including “the four upgrades 

(technological upgrades, market upgrades, management upgrades, and talent upgrades), and 

major equipment and high-end sets [of products],” which the company describes as “the major 

striking direction.”808 China Exim was the only bank that financed NHI’s acquisition of 

 

800 Zhejiang Shaoxing, Three Ones’ Highly Effectively Deploying Government Industry Funds ‘Energy Storage’ 

Effectiveness [Chinese], ZHEJIANG PROVINCE FINANCIAL OFFICE (May 10, 2017),

http://m.mof.gov.cn/czxw/201705/t20170509_2596548.htm (last visited Oct. 23, 2017).

801 Zhejiang Zhaoxing, Three Ones’ Highly Effectively Deploying Government Industry Funds ‘Energy Storage’ 

Effectiveness [Chinese], ZHEJIANG PROVINCE FINANCIAL OFFICE (May 10, 2017),

http://m.mof.gov.cn/czxw/201705/t20170509_2596548.htm (last visited Oct. 23, 2017).

802 Zhejiang Zhaoxing, Three Ones’ Highly Effectively Deploying Government Industry Funds ‘Energy Storage’ 

Effectiveness [Chinese], ZHEJIANG PROVINCE FINANCIAL OFFICE (May 10, 

2017),http://m.mof.gov.cn/czxw/201705/t20170509_2596548.htm (last visited Oct. 23, 2017).

803 Wang Dandong, Our City Introduces Encouraging Privately Operated Enterprise Going Out Three Year Action 

Plan for 12 Industry Leaders to Enter the List of Cultivated Multinational Companies [Chinese], SHAOXING DAILY,

July 25, 2017, available at http://www.sx.gov.cn/art/2017/7/25/art_126_1144927.html (last visited Oct. 23, 2017).

804 MOFCOM, Report on Development of China’s Outward Investment and Economic Cooperation 2016 148 (Dec. 

2016). 

805 About Us, THE ROBBINS COMPANY, http://www.therobbinscompany.com/about/ (last visited Oct. 20, 2017). This 

is NHI’s second significant acquisition in the high-tech tunnel boring machinery field, following on the acquisition 

of NFM Technologies of France. In a similar “three-stage merger” pattern, NHI first acquired 70 percent of NFM 

Technologies in 2007, and increased its ownership stake to 100 percent in 2011. History, NFM TECHNOLOGIES, 

http://www.nfm-technologies.com/-History-.html (last visited Nov. 1, 2017).

806 About Us, THE ROBBINS COMPANY, http://www.therobbinscompany.com/about/ (last visited Oct. 20, 2017). 

807 About Us, THE ROBBINS COMPANY, http://www.therobbinscompany.com/about/ (last visited Oct. 20, 2017). 

808 Group Introduction [Chinese], NHI, http://www.china-sz.com/jituanjianjie/ (last visited Oct. 20, 2017). 
IV. Outbound Investment

133

Robbins,809 and China Exim identified the acquisition as an “important project”810 and an 

“international industrial capacity cooperation” project.811 As such, the transaction qualified for 

China Exim’s “Two Preferential” loan programs, which generally provide financing on belowmarket terms.812

 

Midea Group Co., Ltd./Kuka AG (2017)

In 2017 the Midea Group Co., Ltd. (Midea) bought €3.7 billion ($4.2 billion) worth of shares to 

expand its original 13.51 percent share in Kuka AG (Kuka) to 94.55 percent.

813

 Kuka AG is 

based in Germany, but has substantial assets in the United States.814 Midea explained that the 

transaction would promote “transformation and upgrading,”815 noting that by “taking KUKA as a 

platform, we will continue the layout of industrial robots, commercial robots, service robots and 

artificial intelligence, and actively develop key components in the field of industrial 

automation.”816

Although Midea is privately owned,817 the acquisition relied on financing from a consortium of 

banks headed by Chinese state-led policy banks. In particular, China Exim provided €770 

 

809 Exim Bank Liaoning Branch Actively Promotes Supply-side Reform Deploys the Role of Policy-type Finance 

Functions to Support Liaoning Equipment Manufacturing Industry Transformation and Upgrading [Chinese], THE 

EXPORT IMPORT BANK OF CHINA, http://english.eximbank.gov.cn/tm/nineteen/list_1198_30375.html, (last visited 

Oct.20, 2017).

810 EXPORT-IMPORT BANK OF CHINA, ANNUAL REPORT2016, 57. The two preferential programs are the 

Concessional Loan and Preferential Export Buyer’s Credit programs.

811 First Half Year Liaoning Province Equipment Manufacturing Foreign Investment Grows Three Fold [Chinese], 

Policy Office of the NDRC Old Industrial Base Revitalization Division (July 28, 2017), 

http://dbzxs.ndrc.gov.cn/zttp/dwkf/201707/t20170728_855981.html (last visited Oct. 28, 2017);

Exim Bank Liaoning Branch Actively Promotes Supply-side Reform Deploys the Role of Policy-type Finance 

Functions to Support Liaoning Equipment Manufacturing Industry Transformation and Upgrading [Chinese], THE 

EXPORT IMPORT BANK OF CHINA, http://english.eximbank.gov.cn/tm/nineteen/list_1198_30375.html (last visited 

Oct. 20, 2017).

812 EXPORT-IMPORT BANK OF CHINA, ANNUAL REPORT2016, 37. The two preferential programs are the 

Concessional Loan and Preferential Export Buyer’s Credit programs. These loans generally have a subsidized 

interest rate of 2-3 percent and a term of 15-20 years. See THE EXPORT IMPORT BANK OF CHINA, TWO 

PREFERENTIAL” LOAN BUSINESS INTRODUCTION [Chinese], slide 5 (2013).

813 MIDEA GROUP CO., LTD 2016 ANNUAL REPORT 77 (Mar. 31, 2017), available at www.szse.cn. 

814 About Kuka, KUKA, https://www.kuka.com/en-us/about-kuka/. The company’s U.S. locations comprise: KUKA 

Assembly and Test Corporation (Saginaw, MI); KUKA College USA - Shelby Township (Shelby Township, MI); 

KUKA ROBOTICS CORPORATION (Shelby Township, MI); KUKA Systems North America LLC (Sterling 

Heights, MI); KUKA Toledo Production Operations LLC (Toledo, OH); Reis Robotics USA Inc. d/b/a KUKA 

Industries (Carpentersville, IL); Swisslog Healthcare – Chicago Office (Schaumburg, IL); Swisslog Healthcare –

Dallas Office (Farmers Branch, TX); Swisslog Healthcare – North America Headquarters (Denver, CO); Swisslog 

Healthcare – North Carolina (Kannapolis, NC); Swisslog Healthcare – Philadelphia Office (Bensalem, PA); 

Swisslog Healthcare – Seattle Office (Kirkland, WA); Swisslog Logistics – Americas Regional Headquarters 

(Newport News, VA); Swisslog Logistics – Midwest Office (Mason, OH); Swisslog Logistics – West Coast Office 

(Salida, CA).

815 MIDEA GROUP CO., LTD 2016 ANNUAL REPORT 44 (Mar. 31, 2017), available at www.szse.cn.

816 MIDEA GROUP CO., LTD 2016 ANNUAL REPORT 44 (Mar. 31, 2017), available at www.szse.cn.

817 Midea Group is 34.75 percent owned by Midea Holding Co., Ltd., the parent, which is 94.55 percent owned by 

He Xiangjian (individual), who also owns 1.2 percent of Midea Group directly. Other shareholders hold less than 3 

percent of shares each. MIDEA GROUP CO., LTD 2016 ANNUAL REPORT 83, 86 (Mar. 31, 2017), available at

www.szse.cn.
IV. Outbound Investment

134

million ($870 million) in loans,818 and in a press release, linked this loan to the “One Belt One 

Road” and to promoting “international industrial capacity and equipment manufacturing 

cooperation” strategies, both of which are part of the “Going Out” strategy. China Exim states 

that the acquisition will “assist in optimizing the domestic robotics industry layout, promote the 

process of multi-industry production automation, and enhance China’s intelligent manufacturing

technology level.”

819

 

f) Renewable Energy

Government Policies

In the early 2000s, Chinese companies attempted significant oil and shale investments in the 

United States to improve China’s energy security820 and gain access to advanced technology.821 

After the major oil SOE China National Offshore Oil Corp. (CNOOC), one of China’s major 

state-owned oil companies, failed in its bid to acquire Unicol in 2005,822 it signed a series of 

shale gas “drill and carry”823 agreements with foreign companies in 2010.824 CNOOC’s attempts 

to invest in such drill and carry deals in the United States fell off after CNOOC acquired 

Canada’s Nexen in 2013 for $15 billion.825 Nexen is a company with advanced shale gas 

technology,826 of the kind targeted by Chinese development plans.827

Beginning in 2014, Chinese outbound investments in the U.S. energy sector declined 

significantly, especially in oil and gas. This decline appears to reflect a significant drop in 

 

818 Export-Import Bank of China Guangdong Branch Participates in Signing Ceremony for Bank Conglomerate for 

Financing Acquisition of Midea’s KUKA [Chinese], XINHUA NEWS, Aug. 21, 2017, available at

http://www.gd.xinhuanet.com/newscenter/2017-08/21/c_1121516160.htm.

819 Export-Import Bank of China Guangdong Branch Participates in Signing Ceremony for Bank Conglomerate for 

Financing Acquisition of Midea’s KUKA [Chinese], XINHUA NEWS, Aug. 21, 2017, available at

http://www.gd.xinhuanet.com/newscenter/2017-08/21/c_1121516160.htm.

820 For instance, in the 12th Five-year Energy Development Plan, Part 2, Chapter 2, one of the “basic principles” is 

to “improve energy security and the level of [energy] guarantee,” see State Council Notice on Issuing the 12th Fiveyear Energy Development Plan (State Council, Guo Fa [2013] No. 2, issued Jan. 1, 2013).

821 The Notice on Issuing the Shale Gas Development Plan (2011-2015) (NDRC, MoF, MLR, NEA, Fa Gai Neng 

Yuan [2012] No. 612, issued Mar. 23, 2012), at § 2(2)1(1), specifically calls for employing the IDAR methodology 

to gain and re-innovate advanced technology.

822 David Barboza, Andrew Ross Sorkin, Chinese Company Drops Bid to Buy U.S. Oil Concern, THE NEW YORK 

TIMES, Aug. 3, 2005, available at http://www.nytimes.com/2005/08/03/business/worldbusiness/chinese-companydrops-bid-to-buy-us-oil-concern.html.

823 Drill and carry agreements are transactions in which one company invests in another company by covering the 

costs of ongoing or future development/drilling. This lowers the capital expenditure of the target company, and 

gives the investing company a share of the resulting asset once it is in operation. 

824 CNOOC entered into two drill and carry agreements with the Chesapeake Energy Corporation in 2010. See

Chesapeake Energy Corporation, 2010 Form 10-K 3, 113 (Mar. 1, 2011), on file with the SEC; see also Jenny 

Mandel, Will U.S. Shale Technology Make the Leap Across the Pacific?, E&E NEWS, July 17, 2012, 

https://www.eenews.net/stories/1059967354.

825 Press release, Nexen Company, Nexen Announces Completion of Acquisition by CNOOC Limited (Feb. 25, 

2013); Euan Rocha, CNOOC Closes $15.1 Billion Acquisition of Canada’s Nexen, REUTERS, Feb. 25, 2013.

826Operations - Shale Gas / Oil, NEXEN COMPANY, available at

http://www.nexencnoocltd.com/en/Operations/ShaleGasOil.aspx (last visited Dec. 27, 2017).

827 See, e.g., State Council Notice on Issuing the 12th Five-year Energy Development Plan (2011-2015) (State 

Council, Guo Fa [2013] No. 2, Jan. 1, 2013).
IV. Outbound Investment

135

commodity prices;828 restrictions on investment related to an internal corruption crackdown 

carried out by the CCP and heavily focused on the energy industry;829 and growing attention to 

pollution and greenhouse gases, as reflected in the 2014 revision of the Environmental 

Protection Law of the People’s Republic of China.

830

 

Nonetheless, in recent years, Chinese investment appears to have grown in the renewable energy 

sector (see Section IV.C.1, above). For instance, as reported by AEI, China’s investments in the 

U.S. energy sector in 2016 and 2017 were in alternative energy. 831

The Chinese government has issued several policies to support the development of renewable 

energy technologies. Both the 12th Five-year Renewable Energy Development Plan 832 and 13th

Five-year Renewable Energy Development Plan 833 touch on the need to develop renewable 

energy for the sake of “ensuring energy security, protecting the ecological environment, and 

responding to climate change.”834 Wind, solar, and hydroelectric power all play an important 

role in the development of renewable energy technologies. 

Renewable energy equipment was listed as a “Key Sector” for development in the Made in 

China 2025 Notice.

835

 The more detailed Made in China 2025 Roadmap calls for 90 percent of 

Chinese electricity needs to be met by Chinese electricity producers by 2020, and for 30 percent

of energy production to be exported by 2020.836 Likewise, the Made in China 2025 Roadmap

seeks to have renewable energy equipment containing Chinese IP exceed 80 percent of China’s 

domestic market by 2025.837

As discussed below, these policies have directed and influenced Chinese outbound investment in 

the renewable energy sector.

Chinese Investments in the U.S. Renewable Energy Sector

Hanergy Holding Group Ltd. 

 

828 Henry Sanderson, Aniji Raval, David Sheppard, Explainer: Why Commodities have Crashed, FINANCIAL TIMES, 

Aug. 24, 2015.

829 Perspectives on Energy Sector Corruption and Anti-Corruption [Chinese], CENTRAL COMMISSION FOR 

DISCIPLINE INSPECTION AND MINISTRY OF SUPERVISION OF THE PEOPLE'S REPUBLIC OF CHINA (Jul. 30, 2014), 

http://www.ccdi.gov.cn/lt/llsy/czfb/201407/t20140730_45795.html.

830 Environmental Protection Law of the People’s Republic of China (adopted Dec. 26, 1989, amended Apr. 24, 

2014).

831 China Global Investment Tracker (Jan. 2018), AEI, available at http://www.aei.org/china-global-investmenttracker, (last visited Oct. 25, 2017). AEI data includes announced deals, as well as completed transactions; it is 

possible that some of these transactions have not closed as of the date of this report’s publication.

832 National Development and Reform Commission Notice on Issuing the 12th Five-year Renewable Energy 

Development Plan (NDRC, Fa Gai Neng Yuan [2012] No. 1207, issued July 31, 2012).

833 National Development and Reform Commission Notice on Issuing the 13th Five-year Renewable Energy 

Development Plan (NDRC, Fa Gai Neng Yuan [2016] No. 2619, issued Dec. 2016).

834 National Development and Reform Commission Notice on Issuing the 13th Five-year Renewable Energy 

Development Plan, Preamble and § 1(1).

835 Made in China 2025 Notice § 3(6)(7).

836 Made in China 2025 Roadmap § 7(1)2.

837 Made in China 2025 Roadmap § 7(1)2.
IV. Outbound Investment

136

Since 2012, Hanergy Holding Group Ltd. (Hanergy) has acquired several U.S. and European 

companies specializing in thin-film solar technology. Hanergy was founded in 1994, and aims to 

be the largest thin-film solar technology producer in the world.838 The advanced technology 

gained from these acquisitions contributed to Hanergy winning the “Made in China Top Ten 

Outstanding Quality Product Contribution Award” from the Made in China 2025 Summit Forum 

on November 25, 2017.839 In Hanergy’s press release on winning the award, Hanergy attributed 

its success to foreign acquisitions made between 2012 and 2014, and the company’s desire to 

meet goals set out in the 13th Five-year Energy Development Plan and realize Made in China 

2025 goals through its solar film production.

In 2011, CDB extended a CNY 30 billion ($4.7 billion) line of credit to Hanergy, which 

provided “various types of financing services, including investment, loans, debt, leasing, and 

certification” to support Hanergy’s development.840 According to the official Hanergy press 

release on the CDB line of credit, the funding was intended to “assist Hanergy in introducing, 

digesting, and absorbing the world’s advanced solar energy power technology.”841

The CDB line of credit appears to have fueled a buying spree. In 2013, Hanergy acquired 

Solibro, a world-leading German CIGS842 thin-film module manufacturer843 for CNY 200 

million ($33 million). Hanergy had already acquired two U.S. companies by 2014 – Global 

Solar Energy844 and MiaSolé.845 These acquisitions gave Hanergy access to advanced CIGS 

technology, which enabled the company to achieve potential solar cell efficiency of nearly 20

percent.

846

 And in 2015, Hanergy acquired U.S.-based Alta Devices,847 an award-winning thinfilm solar technology producer. Alta Devices had been named to MIT’s list of “Most Disruptive 

Companies” and broke multiple world records for solar cell efficiency.848

Hanergy’s efforts to acquire thin-film solar cell technology align with government policy 

objectives. This fact is evident in the Solar Energy Power Technology Development “12th Five-

 

838 Thin-film Solar Power Generation, HANERGY, http://www.hanergy.com/en/industry/industry_310.html (last 

visited Nov. 15, 2017).

839 Press Release, Hanergy, Hanergy Wins “Made in China Top Ten Outstanding Quality Product Contribution 

Award” [Chinese] (Dec. 8, 2017), available at http://www.hanergy.com/content/details_37_24993.html. 

840 Zhao Xiaohui, Tao Junjie, China Development Bank Will Provide CNY 30 billion to Hanergy Group to Support 

Development of Clean Energy [Chinese], XINHUA NEWS, Nov. 11, 2013, 

http://www.ccchina.gov.cn/Detail.aspx?newsId=15735&TId=57 (last visited Nov. 6, 2017). 

841 Hanergy Holding Group Obtains CNY 30 billion in China Development Bank Financial Support – Accelerating 

Clean Energy Development – Expanding Overseas Business [Chinese], HANERGY

http://www.hanergy.com/mobile/content/details_37_924.html (last visited Nov. 6, 2017) (emphasis added).

842 Copper indium gallium selenide (CIGS) solar cells are one of three types of mainstream thin-film solar cells, a 

technology some analysts predict will be the market leader in thin-film technology due to “advantages on [sic] cost, 

flexibility, weight, and manufacturability.” See Thin-Film Photovoltaic (PV) Cells Market Analysis to 2020, 

SUN&WIND ENERGY, http://www.sunwindenergy.com/news/thin-film-photovoltaic-pv-cells-market-analysis-2020 

(last visited Nov. 6, 2017).

843 About Us, SOLIBRO, http://solibro-solar.com/en/company/about-us/ (last visited Nov.16, 2017).

844 HANERGY THIN FILM POWER GROUP LTD, 2013 ANNUAL REPORT 249 (Mar. 24, 2014).

845 HANERGY THIN FILM POWER GROUP LTD, 2013 ANNUAL REPORT 6 (Mar. 24, 2014).

846 HANERGY THIN FILM POWER GROUP LTD, 2013 ANNUAL REPORT 6 (Mar. 24, 2014).

847 HANERGY THIN FILM POWER GROUP LTD, 2015 ANNUAL REPORT 49 (Mar. 31, 2016).

848 Company Highlights, ALTA DEVICES, https://www.altadevices.com/about-overview/ (last visited Nov. 6, 2017); 

HANERGY THIN FILM POWER GROUP LTD, 2015 ANNUAL REPORT 5 (Mar. 31, 2016).
IV. Outbound Investment

137

year” Special Plan,

849 which affirmed the state objective of “break through scaling key 

equipment design and manufacturing bottlenecks in CIGS thin-film solar cell production 

lines.”850 Likewise, Hanergy’s president and chairman, Li Hejun, attributed his company’s 

success in acquiring these companies and becoming a world leader in thin-film solar panels to 

“the strong support of the local Party committee and government.”851 Li Hejun serves in the 

Chinese People’s Political Consultative Conference (CPPCC) and is the vice chairman of the 

National Federation of Industry and Commerce.852 

Chinese authorities have pointed to Hanergy as an example of “unceasingly enlarging the area of 

investment in developed countries in Europe and America.”853 In an article on Hanergy’s 

acquisition of MiaSolé, the Chinese consulate in San Francisco reportedly stated that the Chinese 

government has begun to restrict large loans to companies in the solar industry, now that the 

investments “have caused this industry to expand capacity by 17 times.”854

Goldwind/Renewable Energy Systems Americas 

In 2016, Goldwind Americas (Goldwind) acquired a 160 MW wind project from Renewable 

Energy Systems Americas in a “balance of plant”855 deal worth $250 million.856 Through the 

transaction, Goldwind obtained the ability to install 64 of its own Permanent-Magnet Direct 

Drive (PMDD) 2.5 MW wind turbines in the United States,857 the same technology Goldwind 

acquired through previous overseas transactions. A May 2016 report states that once complete, 

the wind project will become Goldwind’s largest U.S. wind project to date.858

Goldwind is a subsidiary of Xinjiang Goldwind Technology Holding Co., Ltd., a company 

whose three largest shareholders are (1) undisclosed shareholders from the Hong Kong Stock 

 

849 Notice on Issuing Solar Energy Power Technology Development “12th Five-year” Special Plan (MOST, Guo Ke 

Fa Ji [2012] No. 198, issued Mar. 27, 2012).

850 Notice on Issuing Solar Energy Power Technology Development “12th Five-year” Special Plan § 4(2)2(3).

851 Zhang Zhirong, Li Xinyuan Agricultural Rate of Investment Promotion Small Group Team Arrives at Hangery 

Holding Group to Inspect and Present [Chinese], GUIGANG NEWS NET Aug. 31, 2017, available at

http://www.gxgg.gov.cn/news/2017-08/140463.htm (last visited Nov. 6, 2017).

852 Li Hejun Introduction [Chinese], HANERGY http://www.hanergy.com/about/mrLi.html (last visited Nov. 6, 2017).

853 MOFCOM, Report on Development of China’s Outward Investment and Economic Cooperation 2016 132 (Dec. 

2016). 

854 Hanergy Completes U.S. Thin Film Solar Energy Firm Acquisition [Chinese], MOFCOM (Jan. 17, 2013), 

http://dwtztj.hzs.mofcom.gov.cn/article/i/jyjl/l/201301/20130100005202.shtml (last visited Nov. 6, 2017).

855 This “balance of plant” deal is an agreement between RES, which supplies and installs the infrastructure for the 

project as a contractor, and Goldwind, which installs the wind turbines – here, Goldwind’s China-produced 2.5 MW 

PMDDs. See Press Release, Goldwind, Goldwind Americas Signs 160 MW Texas Deal with RES (May 17, 2016); 

Press Release, Goldwind, Rattlesnake Stirs Texas, available at http://www.goldwindamericas.com/rattlesnake-stirstexas; XINJIANG GOLDWIND SCIENCE & TECHNOLOGY CO., LTD., OVERSEAS SUPERVISION REPORT 7 [Chinese] 

(Aug. 25, 2017).

856 XINJIANG GOLDWIND SCIENCE & TECHNOLOGY CO., LTD., OVERSEAS SUPERVISION REPORT 6-7 [Chinese] (Aug. 

25, 2017), available at www.goldwind.com.cn. Goldwind Americas’ parent company, Goldwind Holdings, 

provided bridge financing and “construction and tax equity financing and a long-term ERCOT fixed price hedge for 

power production.” See Press Release, Xinjiang Goldwind Technology Holding Company, Goldwind Americas 

Signs 160 MW Texas Deal with RES (May 17, 2016).

857 XINJIANG GOLDWIND SCIENCE & TECH CO., LTD, 2016 ANNUAL REPORT 18 [Chinese] (Mar. 2017).

858 Texas Wind-Power Project Acquired, CHINA DAILY (USA), May 23, 2016.
IV. Outbound Investment

138

Exchange (18.23 percent), (2) the SOE Xinjiang Wind Energy Ltd., Co. (13.74 percent), and (3) 

the central SOE China Three Gorges New Energy Ltd., Co. (10.52 percent).859

The PMDD technology that Goldwind now produces and is exporting to the United States is 

technology that Goldwind gained by acquiring a 70 percent share of German company Vensys in 

March 2008.860 Goldwind’s acquisition of Vensys was financed through a €4.9 million ($7

million) equity investment and a €36.34 million ($54 million) “financing guarantee” loan861 with 

the China Construction Bank as the guarantor.862 At the time, MOFCOM pointed to the 

acquisition of Vensys as an example of “German Enterprises Actively Undertaking Technology

Transfer to China,”863 and as an example of the effectiveness of the “Financing Guarantee” 

policy bank loan program.864 

The Goldwind 2016 Annual Report points to the 13th Five-year Plan’s push to have “three to 

five equipment manufacturing enterprises fully attain international advanced levels, and clearly

increase market share” as one of Goldwind’s “policy considerations” for future development 

planning.865

g) Automotive

Government Policies 

Since 2004, the Chinese government has issued a series of plans to encourage technological 

development in the automotive sector:

 The NDRC 2004 Policy on Development of the Automotive Industry866 established the 

basis for China’s automotive industrial policy after WTO accession. It includes specific 

provisions on mandating approvals of foreign investments,867 in addition to long-term 

 

859 XINJIANG GOLDWIND SCIENCE & TECH CO., LTD, 2016 ANNUAL REPORT 53 [Chinese] (Mar. 2017).

860 Press Release, Xinjiang Goldwind Technology Holding Company, Announcement on Acquiring German Vensys 

Energy Holding Company §4(1) [Chinese] (Jan. 25, 2008), available at www.szse.cn. 

861 The “Financing Guarantee” loan is a special loan program from Chinese policy banks in which a Chinese 

enterprise can guarantee a loan for a foreign enterprise, and by using a Chinese loan, gain access to lower interest 

loan financing to “lower the cost of financing”. See, Credit Business [Chinese], CHINA CONSTRUCTION BANK,

available at http://www.ccb.com/tokyo/cn/service/244780.html (last visited Nov. 1, 2017).

862 Press Release, Xinjiang Goldwind Technology Holding Company, Announcement on Acquiring German Vensys 

Energy Holding Company §5(2)2 (Jan. 25, 2008). This loan scheme allows a Chinese bank, in this case CCB, to 

back Goldwind, which otherwise may not have qualified for a loan large enough for the transaction. Credit Business 

[Chinese], CHINA CONSTRUCTION BANK, available at http://www.ccb.com/tokyo/cn/service/244780.html (last 

visited Nov. 1, 2017).

863 Overview of German Wind Industry, Current Situation and Prospects of Cooperation with China § 2(1) 

[Chinese], MOFCOM’S GERMAN COUNSELLOR’S OFFICE (Dec. 14, 2009), 

http://munich.mofcom.gov.cn/article/ztdy/201005/20100506926532.shtml (last visited Nov. 1, 2017).

864 Overview of German Wind Industry, Current Situation and Prospects of Cooperation with China § 2(4) 

[Chinese], MOFCOM’S GERMAN COUNSELLOR’S OFFICE (Dec. 14, 2009), available at 

http://munich.mofcom.gov.cn/article/ztdy/201005/20100506926532.shtml (last visited Nov. 1, 2017).

865 XINJIANG GOLDWIND SCIENCE & TECH CO., LTD, 2016 ANNUAL REPORT 12 (Mar. 2017).

866 Policy on Development of the Automotive Industry (NDRC, Order No. 8, issued May 21, 2004).

867 Policy on Development of the Automotive Industry, arts. 43, 44.
IV. Outbound Investment

139

objectives to create global well-known brands868 and indigenously develop electric, 

hybrid, and alternative fuel technologies.869 

 The State Council’s 2009 Plan on Adjusting and Revitalizing the Auto Industry pledges 

CNY 10 billion ($1.4 billion)870 in government financing over three years to promote 

technological progress, part of China’s CNY 4 trillion ($586 billion)871 stimulus plan. 

The financing would go toward targeted support for safer, fuel-efficient, environmentally 

friendly vehicles; filling domestic supply chain gaps; and creating collective platforms 

for technology R&D and testing in the auto parts sector.872

 The 2009 Opinions on Promoting the Sustainable and Healthy Development of China’s 

Exports of Automotive Products873 targets a 10 percent share of global auto parts exports 

for Chinese automakers by 2020.874 The Opinions also call for improvements in the 

composition of exports to include a higher share of indigenous brands and passenger 

sedans, as well as new energy vehicles.875

 The 2013 MIIT Guiding Opinions on Accelerating and Promoting Industry Mergers and 

Restructuring set a target to establish three to five globally competitive, large-scale 

domestic automakers through mergers and acquisitions among existing players and a 

consolidation of their respective global assets.876

 China identified NEVs as one of the priority research areas in the 2006 (MLP),

877 and 

NEVs were selected as one of China’s seven SEIs, as set forth in the 2012 12th Five-year

Strategic Emerging Industries Development Plan.

878 Pursuant to these plans, the EnergySaving and New-Energy Automotive Industry Development Plan (2012-2020),

879 which 

 

868 Policy on Development of the Automotive Industry, art. 3.

869 Policy on Development of the Automotive Industry, art. 8.

870 Plan on Adjusting and Revitalizing the Auto Industry § 4(9) (State Council, Issued Mar. 20, 2009).

871 In 2008, the dollar value of this stimulus plan was reported as $586 billion. See, China Seeks Stimulation, THE 

ECONOMIST, Nov. 10, 2008. Due to subsequent appreciation of the CNY against the USD, the plan would now be 

worth approximately $600 billion. 

872 Plan on Adjusting and Revitalizing the Auto Industry § 4(9) (State Council, Issued Mar. 20, 2009).

873 Opinions on Promoting the Sustainable and Healthy Development of China’s Exports of Automotive Products 

(MOFCOM, NDRC, MIIT, MOF, General Administration of Customs, and General Administration of Quality 

Supervision, Inspection and Quarantine, Shang Chan Fa [2009] No. 523, issued Oct. 23, 2009).

874 Opinions on Promoting the Sustainable and Healthy Development of China’s Exports of Automotive Products §

2(2) (MOFCOM, NDRC, MIIT, MOF, General Administration of Customs, and General Administration of Quality 

Supervision, Inspection and Quarantine, Shang Chan Fa [2009] No. 523, issued Oct. 23, 2009).

875 Opinions on Promoting the Sustainable and Healthy Development of China’s Exports of Automotive Products §

2(2) (MOFCOM, NDRC, MIIT, MOF, General Administration of Customs, and General Administration of Quality 

Supervision, Inspection and Quarantine, Shang Chan Fa [2009] No. 523, issued Oct. 23, 2009).

876 Guiding Opinions on Accelerating and Promoting Industry Mergers and Restructuring § 2(1) (MIIT, NDRC, 

MOF, and nine other ministries, Gong Xin Bu Lian Chan Ye [2013] No. 16, published Jan. 22, 2013).

877 Notice on Issuing the National Medium- and Long-Term Science and Technology Development Plan Outline 

(2006-2020) § 3(36) (State Council, Guo Fa [2005] No. 44, issued Dec. 26, 2005).

878 Notice on Issuing the 12th Five-year National Strategic Emerging Industries Development Plan § 3(7).

879 Energy-Saving and New-Energy Automotive Industry Development Plan (2012-2020) § 3(2) (State Council, Guo 

Fa [2012] No. 22, issued June 28, 2012).
IV. Outbound Investment

140

was issued in 2012, sets ambitious targets for increasing the production and consumption 

of NEVs in China (see Section II.B.2(a) above for further discussion).

The Chinese government has made clear that outbound investment is an important part of this 

strategy. For instance, the 2009 Plan on Adjusting and Revitalizing the Automotive Industry

states:

Formulate policies corresponding to aspects including technological development, 

government procurement, and financing channels; guide automotive manufacturing 

enterprises in making the development of indigenous brands a priority for enterprise 

strategy; support automotive manufacturing enterprises to use multiple methods, 

including indigenous development, coordinate development, and domestic and foreign 

acquisitions, to develop indigenous brands.880

State-owned entities have played an important role in China’s automotive sector. Two of China’s 

three largest automakers – First Automotive Works (FAW) and Dongfeng Motor – are central 

SOEs administered by SASAC. Several other automakers, including SAIC, are owned by 

provincial governments.881 The market leaders in China in terms of sales are SOEs, and these 

firms are the principal beneficiaries of government-mandated joint ventures with foreign 

carmakers.882

State-owned policy banks have provided financial support to Chinese automakers investing 

overseas. For example, the provincial state-owned automaker Chery Motors signed a strategic 

cooperation agreement with China Exim that involved a CNY 10 billion ($1.4 billion) loan to 

finance overseas expansion.883 When China Exim in 2012 highlighted its support for China’s 

outbound investment, it listed Chery alongside major steel, machinery and petrochemical 

companies.884

Chinese Investments in the U.S. Automotive Sector

AVIC-Pacific Century Motors/Nexteer Automotive

AVIC, the central SOE tasked with developing China’s aviation industry, has been an active 

investor in the U.S. automotive sector. 

 

880 Plan on Adjusting and Revitalizing the Automotive Industry § 3(6).

881 State Asset Report Independent Interpretation of 48 Central and 18 Local SOEs Enter the 2017 Fortune World 

500 List [Chinese], http://www.sasac.gov.cn/n2588025/n2588164/n4437287/c7428253/content.html. The “500 

List” includes BAIC Group and GAC Group as local state owned auto manufacturers.

882 A June 2015 article lists the leading brands in China as: (1) Volkswagen (VW -FAW – SAIC joint venture); (2) 

Chang’an; (3) Hyundai (Hyundai – BAIC joint venture); (4) Buick (GM – SAIC joint venture); (5) Ford (Ford –

Chang’an joint venture). Vehicle Sales Rankings in China: Strong Performance for Domestic Brands, Changan 

Ranked Second Behind Market Leader Volkswagen, AUTOMOTIVE WORLD, June 1, 2015.

883 Patti Waldmeir, Chery Gets $1.5bn Loans from China Exim Bank, FINANCIAL TIMES, Dec. 8, 2008.

884 Economic Daily: Export-Import Bank of China Strategy Transformed into Innovation Development [Chinese], 

THE EXPORT IMPORT BANK OF CHINA (Oct. 30, 2012), 

http://www.eximbank.gov.cn/tm/medialist/index_26_16570.html.
IV. Outbound Investment

141

In 2010, Pacific Century Motors purchased Nexteer Automotive, a maker of steering systems, 

from General Motors,885 in a deal with an estimated value of $450 million.886 At the time, 

Pacific Century Motors was owned by an investment company under the Beijing municipal 

government. In 2011, majority ownership of Pacific Century Motors was transferred to the 

central SOE AVIC, which acquired a 51 percent stake in the firm.887 As a result, AVIC is now 

the majority owner of Nexteer Automotive.

AVIC/Hilite International

In May 2014, ACIF Electromechanical Systems Co., Ltd. (AVICEM), a subsidiary of AVIC, 

acquired Hilite International, a German-headquartered company with operations in the United 

States and China, in a deal valued at €473 million ($629 million).888 Hilite International 

describes itself as “a global supplier of leading automotive system solutions” with “engine, 

transmission and emission control products [that] are used to improve fuel efficiency and reduce 

emissions for passenger cars and commercial vehicles.” 889 The company’s U.S. operations 

comprise three units: (1) a sales and R&D center in Orion, Michigan; (2) a production site for 

camphasing valves, on/off & PWM solenoids, cylinder deactivation valves and integrated 

solenoid module assemblies in Whitehall, Michigan; and a (3) production site for machining of 

rotors and stators for camphasers, assembly and testing of camphasers, and coil armature 

assemblies for 4WD and AWD applications in Dallas, Texas.890 Hilite’s China operations 

comprise a Shanghai office that coordinates the firm’s sales, purchasing, and engineering 

activities for Asia, and a plant in Changshu, Jiangsu province, which makes DCT components 

and VVT phasers and valves.891

AVIC/Henniges Automotive

In June 2015, AVIC purchased 51 percent of the shares of Henniges Automotive, a producer of 

sealing and anti-vibration solutions for high-end automobiles.892 The remaining 49 percent of 

Henniges was acquired by BHR, an investment firm backed by Bank of China, one of China’s 

four large state-owned commercial banks, and the Chinese funds Bohai Industrial Investment 

Funds and Shanghai Ample Harvest (a subsidiary of Shanghai Harvest Fund).893 The entire 

acquisition was valued at around $600 million.894

 

885 Press Release, General Motors, GM Finalizes Sale of Nexteer to Pacific Century Motors (Nov. 29, 2010).

886 G.M. Sells Parts Maker to a Chinese Company, NEW YORK TIMES, Nov. 29, 2010.

887 State-owned AVIC Buys US-based Nexteer, CHINA DAILY, Apr. 11, 2011.

888 Press Release, Hilite International, Hilite International Accelerates Global Growth Prospects with New Owner 

AVICEM (May 29, 2014).

889 Press Release, Hilite International, Hilite International Opens New Plant in China (Dec. 6, 2011). 

890 Locations – USA, HILITE INTERNATIONAL, http://www.hilite.com/corporate/locations/usa.html (last visited Nov. 

20, 2017).

891 Locations – USA, HILITE INTERNATIONAL, http://www.hilite.com/corporate/locations/usa.html (last visited Nov. 

20, 2017).

892 AVIC Agrees to Acquire the U.S. Automotive Parts Manufacturer Henniges [Chinese], CNSTOCK, June 30, 2015, 

http://news.cnstock.com/news,bwkx-201506-3477281.htm. 

893 BHR Acquires Henniges Automotive, BHR Partners (Sept. 8, 2015); BHR and AVIC Auto Acquire Henniges 

Automotive, PR NEWSWIRE, Sept. 15, 2015.

894 BHR and AVIC Auto Acquire Henniges Automotive, PR NEWSWIRE, Sept. 15, 2015.
IV. Outbound Investment

142

Wanxiang Acquisitions in the NEV Sector

In 2013, A123 Systems, which produces lithium batteries for electric vehicles, was purchased by 

the U.S. subsidiary of Wanxiang Group, Wanxiang America Corp., for $257 million.895 In 2014, 

Fisker Automotive, a plug-in vehicle producer, was sold in bankruptcy to Wanxiang America, a 

subsidiary of Wanxiang Group, for $149 million.896

Lithium batteries are a focal point of NEV development in China, and the Chinese government 

has restricted market access for foreign battery makers in China’s fast growing NEV industry.897 

Lithium-ion batteries are used in the automotive sector for start-stop technology, and for use in 

electric and hybrid vehicles. The automotive sector presents a significant growth opportunity for 

lithium-ion batteries.898 

Wanxiang Group has been classified as a nationally important corporation by the State Council, 

and it receives government support in exchange for fulfilling national policy objectives.899

Wanxiang received at least $6.5 million in Chinese government subsidies in 2015,900 and 

received approximately $8.8 million in government subsidies in 2016.

901 Based on the 

company’s 2015 annual report, Wanxiang’s chairman has been a member of the NPC,

902 and one 

board member has received a special salary from the State Council.903

3. Leveraging “International Innovation Resources” Through Engagement with 

Silicon Valley

The Chinese leadership is pursuing an “innovation-driven” strategy for civilian and military 

development, seeking to become a science and technology superpower 904and emerge as a 

leading innovator by 2030.905 In pursuit of this agenda, Chinese investment activities have been 

particularly prevalent in U.S. technology centers such as Silicon Valley and Boston. 

 

895 Chinese Firm Wins A123 Despite U.S. Tech Transfer Fears, REUTERS, Jan. 29, 2013.

896 J. Voelcker, Fisker Assets Sold for $149 Million to Wanxiang, Chinese Parts Maker, GREEN CAR REPORTS, Feb. 

15, 2014; China’s Wanxiang Wins U.S. Bankruptcy Auction for Fisker Automotive, REUTERS, Feb. 14, 2014.

897 Chinese Battery Manufacturers Increasing Their Ternary Battery Production Volume, MEHR NEWS AGENCY, 

Aug. 29, 2016.

898 Lithium-ion Battery Market to Reach $41 Bn, INDUSTRIAL MINERALS, Sept. 2, 2013; Insight: Electric Car 

Revolution Brightens Outlook for a Medley of Metals, THE PENINSULA Oct. 5, 2016. A marginal increase in electric 

vehicle units translates into a large increase in battery demand; for example, each Tesla electric vehicle contains 

battery capacity of approximately 85,000 watt-hours (Wh), compared to just 5 Wh for an average cell phone. 

899 Joyson Electronics Receives RMB 14.95 Million for a Great and Strong New Energy Vehicle Industry [Chinese], 

NINGBO JOYSON ELECTRONICS HOLDING LTD CORP. (Apr. 16, 2014), available at

http://www.joyson.cn/index.php?a=shows&catid=84&id=169.

900 WANXIANG GROUP, 2015 ANNUAL REPORT 131 [Chinese] (2015).

901 WANXIANG GROUP, 2016 ANNUAL REPORT 132 [Chinese] (2015).

902 WANXIANG GROUP, 2015 ANNUAL REPORT 53 [Chinese] (2015).

903 WANXIANG GROUP, 2015 ANNUAL REPORT 53 [Chinese] (2015).

904 English translation of the Chinese term keji chuangxin qiangguo.

905 Xi Jinping: Comprehensively Advance an Innovation Driven Development Strategy, Advance New Leaps in 

Realizing National Defense and Military Construction [Chinese], XINHUA NEWS, Mar. 13, 2016, 

http://news.xinhuanet.com/politics/2016lh/2016-03/13/c_1118316426.htm. See also the official strategy released on 

innovation-driven development: CCP State Council Releases the “National Innovation-Driven Development 
IV. Outbound Investment

143

According to data from CB Insights, China-based investors have engaged in technology 

investments (i.e., corporate, VC, angel, private equity, etc.) amounting to $19 billion in the 

United States, across 641 different deals, since 2012, with particular focus on AI, robotics, and 

augmented or virtual reality.906 China’s sovereign wealth fund, CIC, is reportedly taking steps to 

begin direct investment in U.S. technology start-ups.907 In recent years, Chinese investment 

activities have accounted for approximately 10 percent of all U.S. venture deals per year, and 

have started to receive greater attention.908

Chinese investments in U.S. technology start-ups are part of a multifaceted technology and 

knowledge transfer strategy. This strategy is reflected in several national plans, including the 

Made in China 2025 policy, the “Internet Plus” Artificial Intelligence Three-Year Action 

Implementation Plan, the Robot Industry Development Plan (2016-2020),

909 and the 13th Fiveyear National Science and Technology Innovation Plan. The Next-Generation Artificial 

Intelligence Development Plan, released in July 2017, calls for a “Going Out” strategy that 

includes overseas mergers and acquisitions, equity investments, VC, and the establishment of 

research and development centers abroad.910

Reflecting these objectives, Chinese entities have established research centers and “talent bases” 

in Silicon Valley, directly funded and partnered (e.g., joint laboratories) with academic research 

institutions, and actively recruit top talent through government programs. 

For example, iFlytek, a prominent Chinese AI start-up focused on intelligent voice recognition 

and speech-to-text products established an office in Silicon Valley in 2016.911 According to 

iFlytek’s website, it receives 863 program funding912 for speech technology and is recognized as 

a key software enterprise under the National Planning and Layout of Key Software 

Companies.913 iFlytek also serves as the leading unit on MIIT’s “Working Group on Technical 

 

Strategy Guidelines [Chinese], XINHUA NEWS, May 19, 2016, http://news.xinhuanet.com/politics/2016-

05/19/c_1118898033.htm.

906 From China with Love: AI, Robotics, AR/VR Are Hot Areas For Chinese Investment In US, CB INSIGHTS, Aug. 1, 

2017.

907 Theodore Schleifer, Chinese investors are making moves to increase their spending in Silicon Valley, RECODE,

Oct. 29, 2017. To date, China Investment Corporation investments in U.S. tech start-ups have been through 

investments in VC firms as a limited partner. 

908 Paul Mozur, Jane Perlez, Chinese Tech Investment Flying Under the Radar, Pentagon Warns, NEW YORK TIMES, 

Apr. 7, 2017.

909 Release of the Robot Industry Development Plan [Chinese], NATIONAL DEVELOPMENT AND REFORM 

COMMISSION (Apr. 26, 2016), http://www.ndrc.gov.cn/zcfb/zcfbghwb/201604/t20160427_799898.html.

910 State Council Notice on the Issuance of the New Generation Artificial Intelligence Development Plan (State 

Council, Guo Fa [2017] No. 35, issued July 8, 2017), http://www.gov.cn/zhengce/content/2017-

07/20/content_5211996.htm.

911 iFlytek – Why is it One of the ‘World’s Most Intelligent Companies’? [Chinese], ECONOMICS DAILY, Aug. 17, 

2017, http://www.ce.cn/cysc/tech/gd2012/201708/17/t20170817_25062923.shtml.

912 The 863 program is a National High-Tech R&D Program which provides funding to promote advances in 

technology. See National High-tech R&D Program (863) Program, MOST, available at

http://www.most.gov.cn/eng/programmes1 (last visited Dec. 22, 2017).

913 Administrative Measures for Accreditation of National Planning and Layout Key Software Enterprises (SAT, 

MOFCOM, and MIIT, Fa Gai Gao Ji [2005] No. 2669, issued Dec. 20, 2005), pursuant to the Several Policies on 

Encouraging the Development of the Software and Integrated Circuit Industry (State Council, Guo Fa [2000] No. 
IV. Outbound Investment

144

Standards for Interactive Chinese Language Technology.”914 In addition, iFlytek operates from 

the Anhui Hefei High-tech Industry Development Zone, one of at least 28 MIIT designated 

national-level MCF bases.915 MCF bases seek to foster development of China’s high-tech 

industry to support military modernization and economic development.916

A number of major Chinese technology companies have established offices and laboratories in 

Silicon Valley, and there are even a number of new incubators that seek to establish closer 

engagement with start-ups. These same companies, in turn, are cooperating with the Chinese 

government to establish technology centers within China, often in the form of local government 

initiatives that focus on emerging and dual-use technologies. 

For instance, in 2014, the Hangzhou Hi-Tech Venture Capital Co. Ltd., a company owned by the 

municipal government of Hangzhou,917 founded the Hangzhou Silicon Valley Incubator,918

located in Redwood City, California.919 As of late 2016, the incubator had supported 30 projects, 

investing a total of $3.4 million, and attracting 41 overseas projects to settle or plan to return to 

Hangzhou, which has the official goal of becoming “China’s Silicon Valley.” 920 Projects 

promoted in the incubator include autonomous driving and smart vehicles, robotics, and the 

conversion of exhaust gas into electrical energy.921

In this context, it is important to consider that the “Going Out” strategy is part of a dual “Going 

Out and Drawing In” approach. While China incentivizes domestic companies to invest abroad, 

it also encourages innovative enterprises from Silicon Valley and worldwide to establish 

operations in China under the “Drawing In”

922 strategy. For example, the concept of “Drawing 

 

18, issued June 24, 2000). Becoming an accredited “key software enterprise” requires companies to submit 

corporate records, including contracts, exports, and financial data, to the China Software Industry Association for 

examination. Accredited “key software companies” receive preferential tax treatment, notably a corporate income 

tax rate of 10 percent. See also Company Profile, IFLYTEK, http://www.iflytek.com/about/index.html (last visited 

Nov. 8, 2017).

914 Company Profile, IFLYTEK, http://www.iflytek.com/about/index.html (last visited Nov. 8, 2017).

915 Description of National New Industrial Demonstration Base [Chinese], MIIT (Feb. 2012), 

http://sfjd.miit.gov.cn/BaseInfoAction!findListIndustry.action; Huai Chuai, Let the World Hear 

‘Anhui’s Voice’—Hefey High Tech Industry Development Zone Smart Language Industry’s Concentrated 

Development Base Quest [Chinese], ANHUI DAILY, May 4, 2016, 

http://www.iflytek.com/content/details_135_2092.html

916 Description of National New Industrial Demonstration Base [Chinese], MIIT (Feb. 2012), 

http://sfjd.miit.gov.cn/BaseInfoAction!findListIndustry.action.

917 Company profile available on Hangzhou municipal government website, available at 

http://www.hangzhou.gov.cn/art/2015/11/12/art_810110_1100.html (last visited Jan. 9, 2018).

918 Hangzhou Silicon Valley Incubator Going Out to Promote 41 Overseas High-tech Projects [Chinese], 

HANGZHOU NEWS, Dec. 6, 2016, http://hznews.hangzhou.com.cn/jingji/content/2016-12/06/content_6410731.htm; 

Hangzhou, Cross-Border Venture Capital Investment Gradually Improving [Chinese], HUANQIU NET, Dec. 21, 

2016, http://finance.huanqiu.com/roll/2016-12/9838718.html. 

919 The Journey to Knowledge Acquisition: Hangzhou Silicon Valley Incubator “Accomplish Great Things with 

Little Effort [Chinese], HANGZHOU NET, Sept. 26, 2017, http://hznews.hangzhou.com.cn/jingji/content/2017-

09/26/content_6671062.htm.

920 Hangzhou Silicon Valley Incubator Going Out to Promote 41 Overseas High-tech Projects [Chinese], 

HANGZHOU NEWS Dec. 6, 2016, http://hznews.hangzhou.com.cn/jingji/content/2016-12/06/content_6410731.htm. 

921 Hangzhou Silicon Valley Incubator Going Out to Promote 41 Overseas High-tech Projects [Chinese], 

HANGZHOU NEWS Dec. 6, 2016, http://hznews.hangzhou.com.cn/jingji/content/2016-12/06/content_6410731.htm. 

922 English translation of Chinese term zou jin lai or yinjin.
IV. Outbound Investment

145

In” regularly appears in the context of MOST initiatives and high-tech parks administered by 

local governments.923 

Below, this dual “Going Out and Drawing In” approach is discussed in the context of the 

activities of Zhongguancun Development Group (ZGC Group). 

Zhongguancun and the Zhongguancun Development Group

ZGC Group is an SOE established in April 2010 by the Beijing municipal government in order to 

accelerate development of Zhongguancun,924 a Beijing-based technology park vying with other 

localities to become China’s next Silicon Valley.925 ZGC Group is actively seeking 

opportunities to expand its overseas presence, particularly in the United States’ Silicon Valley. 

The ZGC Group website states:

[W]e are accelerating the expansion of overseas operations with a view toward “One 

Belt One Road” and the internationalization of Zhongguancun, in accordance with the 

concept of “drawing in, going out, and localization,” we are establishing a “one 

office, one fund, one center” constellation of operations in Silicon Valley, and are 

constructing a platform that links Zhongguancun to Silicon Valley through reciprocal 

exchanges. And by emulating the Silicon Valley model, we are undertaking an 

expansion of our operations toward innovation resource cluster areas and national 

strategic node areas in North America, Europe, and elsewhere, advancing the global 

distribution of Zhongguancun enterprises and accelerating the internationalization of 

Zhongguancun.926

In pursuit of these objectives, ZGC Group established the ZGC Group Silicon Valley Incubator 

Center in December 2012. According to ZGC Group, this center is “ZGC Group’s trial base for 

establishing a branch entity in the United States’ Silicon Valley.”927 It is located inside the 

Zhongguancun Hanhai Science and Technology Park, established by another Chinese company, 

Beijing Hanhai Zhiye Investment Management Co., Ltd.,928 a subsidiary of Beijing Hanhai 

Holdings Group.929 The Zhongguancun Hanhai Science and Technology Park is designed to 

 

923 See, e.g., Aligning to the Standards, Promote the Close Promotion of Science and Technology—Take Advantage 

of Strength, Build a Science Technology Innovation Center [Chinese], SHENZHEN MUNICIPAL SCIENCE AND 

TECHNOLOGY INNOVATION COMMITTEE, (Nov. 18, 2016), available at http://www.szsti.gov.cn/news/2016/11/18/1.

924 About Us [Chinese], ZHONGGUANCUN DEVELOPMENT GROUP, http://www.zgcgroup.com.cn/about/index.html 

(last visited Jan. 11, 2018).

925 Vying for “China Silicon Valley” [Chinese], XINHUA NEWS, Apr. 20, 2017, 

http://news.xinhuanet.com/fortune/2017-04/20/c_129557023.htm.

926 Group Overview [Chinese], ZHONGGUANCUN DEVELOPMENT GROUP, 

http://www.zgcgroup.com.cn/about/intro.html (last visited Jan. 11, 2018).

927 ZGC Group Silicon Valley Incubator Center Established and Open for Business [Chinese], ZHONGGUANCUN 

DEVELOPMENT GROUP, Dec. 6, 2012, http://www.zgcgroup.com.cn/news/details_16_927.html.

928 Zhongguancun Hanhai Silicon Valley Science and Technology Park Reaches Out Feelers to Silicon Valley to 

Influence the World [Chinese], PEOPLE’S DAILY, Nov. 14, 2012, http://usa.people.com.cn/n/2012/1114/c241376-

19581508.html.

929 Beijing Hanhai Holdings Group manages numerous science and technology parks outside China, and in 

introducing these overseas projects on its website, states: “In recent years, Beijing Hanhai Holdings Group, under 

the resolute guidance of leaders at all levels, including the national Ministry of Science and Technology, the 
IV. Outbound Investment

146

serve as an incubator for U.S and Chinese ventures and to facilitate Chinese investment in the 

United States, promoting the combination of “drawing in930” – i.e., attracting investment and 

talent to China – and implementing the “Going Out” strategy.931

In October 2014, ZGC Group established ZGC Capital Corporation, a wholly-owned subsidiary 

based in Santa Clara, California.932 Subsequently, in May 2016, the ZGC Innovation Center @ 

Silicon Valley, co-founded by ZGC Capital Corporation and the California-based fund C.M. 

Capital,933 officially began operations in Silicon Valley.934 The project is described by ZGC 

Capital Corporation as the “core of the Zhonggguancun overseas strategy,” as a means of 

“advancing the going out of capital from Zhongguancun and the drawing in of advanced 

technology and talent,” and as a way to use a “‘fund plus incubator’ model” in order to “guide 

and support projects to come to Zhongguancun for industrial application.”935 An article by 

Xinhua News, republished on the Chinese government’s principal website, characterizes the ZGC 

Innovation Center @ Silicon Valley as “a strategic step” for Zhongguancun to establish a foreign 

presence and “leverage innovation resources.”936

ZGC Capital Corporation has been actively engaged in Silicon Valley. To date, the company’s 

investments there include Meta, an augmented reality platform; Everstring, a forecasting 

platform; and Optimizely, which helps corporate entities improve user conversion and activity.937 

ZGC Capital Corporation has also invested in a series of local Silicon Valley funds, including 

Danhua, Plug & Play, and KiloAngel.938 

 

Ministry of Commerce, and the Beijing municipal government, [...] has actively developed ‘Drawing In’ and 

‘Going Out’ international science and technology exchange platforms [...] [and has] actively explored and guided 

the internationalization development of China’s science and technology incubators.” Overseas Parks [Chinese], 

HANHAI HOLDINGS, http://www.hanhaiholding.com/overseas.aspx (last visited Jan. 11, 2018); Hanhai Holdings

[Chinese], HANHAI HOLDINGS, http://www.hanhaiholding.com/ (last visited Jan. 11, 2018).

930 English translation of Chinese term yin jin lai.

931 Zhongguancun Development Group Leaders Guidance Work Touring Zhongguancun Hanhai Science and 

Technology Park [Chinese], HANHAI HOLDINGS, Jan. 3, 2014, http://www.hanhaiholding.com/newscon.aspx?id=80. 

See also U.S. Silicon Valley Zhongguancun Hanhai Science and Technology Park [Chinese], HANHAI HOLDINGS, 

http://www.hanhaiholding.com/overseascon.aspx?id=66 (last visited Jan. 11, 2018). 

932 About Us, ZGC CAPITAL CORPORATION, http://zgccapital.com/about-us/ (last visited Jan. 11, 2018).

933 Company Overview of CM. Capital Corporation, BLOOMBERG,

https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=3375306 (last visited Jan. 11, 2018) 

(“C.M. Capital Corporation is a private equity and VC arm of C.M. Capital (De) Inc. The firm also makes direct and 

indirect real estate investments. It also provides investment advisory services for various Cha Group affiliates. C.M. 

Capital Corporation was founded in 1969 and is based in Palo Alto, California.”).

934 About Us [Chinese], ZGC INNOVATION CENTER @ SILICON VALLEY, http://zgccapital.com/cn/about-us/. See also 

Zhongguancun Silicon Valley Innovation Center to Build a Bridge of innovation and Cooperation for Sino-US 

Enterprises [Chinese], PEOPLE’S DAILY, May 12, 2016, http://world.people.com.cn/n1/2016/0512/c1002-

28346254.html. 

935 About Us [Chinese], ZGC INNOVATION CENTER @ SILICON VALLEY, http://zgccapital.com/cn/about-us/. See also 

Zhongguancun Silicon Valley Innovation Center to Build a Bridge of innovation and Cooperation for Sino-US 

Enterprises [Chinese], PEOPLE’S DAILY, May 12, 2015, http://world.people.com.cn/n1/2016/0512/c1002-

28346254.html. 

936 Zhongguancun Development Group Sets Up Innovation Center in Silicon Valley [Chinese], XINHUA NEWS, May 

12, 2016, http://www.gov.cn/xinwen/2016-05/12/content_5072814.htm.

937 Structure of Overseas Funds, ZHONGGUANCUN CAPITAL, http://zgccapital.com/overseafund/.

938 Structure of Overseas Funds [Chinese], ZHONGGUANCUN CAPITAL, http://zgccapital.com/overseafund/.
IV. Outbound Investment

147

In parallel, the company has engaged in talent recruitment. For example, in September 2017, 

ZGC Innovation Center @ Silicon Valley held a “Beijing-Silicon Valley Talent and Technology 

Summit” in Santa Clara, attended by the Acting Mayor of Beijing Chen Jining and the PRC’s 

San Francisco Consul General Luo Linquan. At the event, ZGC Capital Corporation described 

its ongoing efforts to identify overseas talent and technology that can “make a contribution to 

Beijing’s science and technology innovation development.”939 Furthermore, ZGC Group 

maintains an active partnership with Stanford University.940

D. China’s Acts, Policies, and Practices are Unreasonable 

As Sections IV.A-IV.C confirm, China has engaged in a wide-ranging, well-funded effort to 

direct and support the systematic investment in, and acquisition of, U.S. companies and assets to 

obtain cutting-edge technology, in service of China’s industrial policy. USTR finds these acts, 

policies, and practices to be unreasonable under 19 U.S.C. § 2411(b)(1). 

The “unreasonable” conduct of a foreign government is defined as an act, practice, or policy as 

one that “while not necessarily in violation of, or inconsistent with, the international legal rights 

of the United States is otherwise unfair and inequitable.”941 In determining reasonableness, 

USTR also takes into account, to the extent appropriate, whether foreign firms in the United 

States are provided reciprocal opportunities to those denied U.S. firms.942 

China’s acts, policies, and practices are unreasonable because they are directed and supported by 

the government, and unfairly target critical U.S. technology with the goal of achieving 

dominance in strategic sectors. As discussed in Section IV.B, China has directed enterprises to 

pursue outbound investment with the express objective of acquiring and transferring technology. 

China has articulated this objective in numerous state planning documents and policies, in 

furtherance of both military and economic goals. China has also drawn on a range of tools to 

implement this approach – for instance, through the control that it exercises over SOEs, statebacked banks, and investment funds, and through its outbound investment approval regime.943

 

As a result of these efforts, investments are often “politically driven and financially supported by 

Chinese government funds.”944 In short, the Chinese government has the means and authority to 

prevail (and does prevail) on Chinese firms on where to invest, what to invest, and how much to 

invest.

 

939 Beijing Municipality Silicon Valley Talent and S&T Summit Held in the United States; Advances Synergies in 

Chinese and U.S. Innovation Resources [Chinese], PEOPLE’S DAILY, Sept. 21, 2017,

http://world.people.com.cn/n1/2017/0921/c1002-29550670.html.

940 In May 2013, ZGC Group partnered with Stanford University to establish the Zhongguancun-Stanford New 

Emerging Technologies Innovation Investment Fund. This fund, established with Stanford physics professor 

Shoucheng Zhang, has raised $91.25 million to support innovative and disruptive technology projects from Stanford 

and Silicon Valley, and the funds are also to be used in cooperation with the Zhongguancun Development Group 

Silicon Valley International Incubation Center to guide and support technology projects to settle in Beijing’s 

Zhongguancun. Overseas Investment Platform [Chinese], ZHONGGUANCUN GROUP, 

http://www.zgcgroup.com.cn/business/overseas_funds.html.

941 19 U.S.C. § 2411(d)(3)(A).

942 19 U.S.C. § 2411(d)(3)(D). 

943 See Section IV.B.

944 WILEY REIN, Submission, Section 301 Hearing 4 (Sept. 28, 2017) (quoting Ryan Morgan, Two Sessions: Made in 

China 2025, APCO Forum (Mar. 26, 2017)).
IV. Outbound Investment

148

In market-based transactions, economic actors generally look to maximize return on their 

investment in making foreign investment and acquisition decision. Firms looking to acquire and 

invest in a foreign country generally seek integration, synergy, and efficiencies from these 

transactions.945 

Likewise, investment funds seek financial returns. With respect to sovereign wealth funds, the 

“Santiago Principles” set out widely recognized practices and principles, developed and 

supported by members of the International Working Group of Sovereign Wealth Funds, 

including China’s China Investment Corporation (CIC). As described in the Santiago Principles, 

The [sovereign wealth fund’s] investment decisions should aim to maximize risk-adjusted 

financial returns in a manner consistent with its investment policy, and based on 

economic and financial grounds.946 

CIC ostensibly aims to “increase the return of China’s currency reserve above that of sovereign 

debt holding.”947 

Market-based considerations, however, do not appear to be the primary driver of much of 

China’s outbound investment and acquisition activity in areas targeted by its industrial policies. 

Instead, China directs and supports its firms to seek technologies that enhance China’s 

development goals in each strategic sector. 

Indeed, many of the Chinese firms that engage in overseas acquisitions in manufacturing do not 

appear to possess the firm-specific ownership advantages normally associated with acquiring 

firms, such as core technology, management and organizational skills, or brand names.948 

Instead, Chinese firms’ comparative advantages rest with having a large domestic market and the 

support the government provides to Chinese outbound direct investment.949 

The unreasonableness of China’s acts, policies, and practices is also evident in the non-reciprocal 

treatment of U.S. firms and investment in China. As discussed in Section II, China’s investment 

 

945 Chinese Investments in the United States: Impacts and Issues for Policymakers: Hearing Before the U.S.-China 

Econ. & Sec. Rev. Comm’n, 115th Cong. 113 (2017) (statement of Robert D. Atkinson).

946 INT’L WORKING GRP. ON SOVEREIGN WEALTH FUNDS, SOVEREIGN WEALTH FUNDS GENERALLY ACCEPTED 

PRINCIPLES AND PRACTICES: SANTIAGO PRINCIPLES 8 (2008).

947 KEITH BLACK, CHARTERED ALTERNATIVE INV. ANALYST ASS’N, INVESTMENT STRATEGIES OF SOVEREIGN 

WEALTH FUNDS (2016); see also CIC Culture Consensus, CIC (Dec. 8, 2017), http://www.chinainv.cn/wps/portal/!ut/p/a1/jZJNb4JAEIZ_DVf2FQmgt60ffIlt0hpxLwYNriTAEtiWv19Ke2mio3ObyfNkJu8uEyxlos

6-CpnpQtVZ-dML57iFg8niHRESvgb3sEpep1EY76wBONwFLN-2SH_l_PkLnwe2uwFgexbC5UuwdGcJEDrPbhTHKQfgLx_BJ7aTwAP8tszQSKxTQPh0sCv28wAlTII0ClSB45rIiYkKU6jV_mwOvT1JNMtPklb_PW_GyH8VXrppsbMND3vSmVkmVunlVl4JZyVZ1m

6X-SNdVuqBRFWLxVe6_7Bm90WyA!/dl5/d5/L2dBISEvZ0FBIS9nQSEh.

948 Bijiun Wang, Huiyao Wang, Chinese Manufacturing Firms’ Overseas Direct Investment (ODI): Patterns, 

Motivations and Challenges, in RISING CHINA: CHALLENGES AND OPPORTUNITIES 100 (Jane Golley and Ligang 

Song ed. 2011), available at https://ssrn.com/abstract=1907170,105.

949 Bijiun Wang, Huiyao Wang, Chinese Manufacturing Firms’ Overseas Direct Investment (ODI): Patterns, 

Motivations and Challenges, in RISING CHINA: CHALLENGES AND OPPORTUNITIES 107 (Jane Golley and Ligang 

Song ed. 2011).
IV. Outbound Investment

149

and administrative approval regime imposes substantially more restrictive requirements than the 

United States. U.S. firms face numerous barriers, such as sectoral restrictions, joint venture 

requirements, equity caps, and technology transfer requirements when they seek to access to the 

Chinese market. Chinese firms do not face anything remotely approaching these types of 

restrictions when investing in the United States. 

Indeed, China’s state-directed outbound investment regime works in tandem with its nonreciprocal treatment of U.S. firms. A recent study notes the following characteristics regarding 

China’s strategic foreign acquisitions:

 To achieve its industrial policy objectives in a sector, China uses sovereign wealth funds 

and other state-backed actors to obtain foreign knowledge and expertise through foreign 

acquisitions;

 Foreign companies become more susceptible to Chinese acquisitions because of the 

difficult investment and market access environment in China; and

 Chinese firms are willing to bear losses in foreign markets both for their investments and 

sales as a cost of acquiring foreign proprietary technology, in part because the Chinese 

government will make up a portion of their loss.950

Certain participants in our investigation have asserted that Chinese firms invest in the United 

States based solely on commercial considerations, and that the Chinese government does not 

intervene in its firms’ daily operations.951 They assert that any technology and other intellectual 

property transferred during the merger and acquisition process is based on fair valuation and 

mutual assent of the parties.952 Thus, in their view, China’s policies and practices are not 

unreasonable. 

These submissions are not persuasive. The above findings – based on a comprehensive 

assessment of government policies and investment transactions – leave no room for doubt 

concerning the role of the Chinese government. This is not to suggest that the Chinese 

government directs and supports every Chinese investment in the United States, but China’s 

intervention has been decisive in transactions involving advanced technology in sectors that the 

government deems strategic.

The fact that many mergers and acquisition deals result in commercial advantages for the parties, 

as certain participants claim, does not negate these findings. The existence of possible mutual 

commercial benefit to the parties does not alter the reality that China directs and supports foreign 

investment in the United States to achieve industrial policy goals. In fact, China has begun 

 

950 Chinese Investments in the United States: Impacts and Issues for Policymakers: Hearing Before the U.S.-China 

Econ. & Sec. Rev. Comm’n, 115th Cong. 111 (2017) (statement of Robert D. Atkinson).

951 CGCC, Submission, Section 301 Hearing 15 (Sep 28, 2017).

952 CGCC, Submission, Section 301 Hearing 15 (Sep 28, 2017).
IV. Outbound Investment

150

limiting “irrational” overseas investment to encourage outbound investment that “enhances 

China’s technical standards, research and development.”953 

In sum, as one participant in the investigation has observed:

No one can object to a country trying to increase its innovative capabilities or 

research productivity, but it is the methods China uses that are a problem....China 

aggressively pursues illicit technology transfer and intervenes to support Chinese 

firms against foreign competitors. Illicit acquisition of foreign technology has 

been promoted by the government policy since China opened its economy. The 

greater concern is that long standing Chinese practices on technology acquisition 

are now married to an aggressive, well-funded industrial policy.954

E. China’s Acts, Policies, and Practices Burden U.S. Commerce

To be actionable, the unreasonable act, policy, or practice of a foreign country must burden or 

restrict U.S. commerce.955 The acts, policies, and practices identified above burden U.S. 

commerce. 

Under market conditions, FDI in the United States, including investment from China, benefits 

the U.S. economy. In the high-tech sector, FDI plays a critical role in the industry’s growth, 

supports employment, and makes a significant contribution to research and development 

spending, exports, and value-added activities.956 With respect to employment, one commentator 

notes that Chinese-owned firms in the United States have actually “ramped up local spending 

and employment because they benefit from abundant U.S. high-tech talent, clustering effects, 

freedom to innovate and the rule of law driving the American innovation environment.”957

However, such benefits must be considered in the broader context of U.S. competitiveness in the 

global economy. As a general matter, FDI does not benefit the U.S. economy to the extent that it 

is directed to serve the Chinese government’s industrial policy objectives – specifically, to 

acquire technology and build national champions within China – and is fueled by financial 

support not available in the private market. 

Here, the Chinese government has directed and supported the acquisition of key U.S. companies 

and assets to promote technology transfer, in pursuit of both military and economic objectives. 

These acts, policies, and practices burden U.S. commerce in three ways. 

First, China’s acts, policies, and practices threaten the competitiveness of U.S. industry, 

especially in the sectors deemed important in China’s industrial policy. As discussed in Section 

IV.B, China seeks to use foreign acquisitions and investments to upgrade its domestic industries 

 

953 WILEY REIN, Submission, Section 301 Hearing 4 (Sep 28, 2017) (quoting China Codifies Crackdown on 

‘Irrational’ Outbound Investment, BLOOMBERG (Aug. 18, 2017)).

954 James Lewis, CSIS, Submission, Section 301 Hearing 5 (Sept. 27, 2017). 

955 19 U.S.C. §2411(b)(1). 

956 See High-Tech Industries: The Role of FDI in Driving Innovation and Growth 2017, SELECTUSA, available at

https://www.selectusa.gov/servlet/servlet.FileDownload?file=015t0000000U1eE.

957 RHODIUM, Submission, Section 301 Hearing 5 (Sep 28, 2017).
IV. Outbound Investment

151

and, ultimately, degrade, reduce, or replace U.S. competition in key sectors. These key sectors 

include the aviation, integrated circuits (IC), information technology (IT), biotechnology, 

industrial machinery and robotics, renewable energy, and automotive industries. Subsidies and 

other government policies and practices supporting Chinese outbound investment give Chinese 

firms an unfair advantage in acquiring technology assets abroad, which undermines U.S. firms’ 

ability to compete in the global marketplace on a level playing field.

As a direct consequence of the Chinese government’s unfair and market-distorting action, 

Chinese firms are expected to gain increased market share in these industries at the expense of 

U.S. firms, whose market share will decline in both U.S. and global markets.958 The loss of

market share could also force U.S. firms to shift their research and development programs, and 

other investment programs, into areas that may be less profitable and dynamic, which further 

erodes their long-term competitiveness. Moreover, the unprecedented scale of Chinese OFDI 

support policies suggest that Chinese firms will be able to gain significant market share at the 

expense of U.S. firms, threatening U.S. competitiveness in these high-technology industries. 

In the IC sector, for example, China’s National IC Fund has been used to support numerous 

technology-related outbound investments in the United States. The President’s Council of 

Advisors on Science and Technology concluded that the “concerted push by China to reshape the 

market in its favor, using industrial policies backed by over one hundred billion dollars in 

government-directed funds, threatens the competitiveness of U.S. industry and the national and 

global benefits it brings.” 959 Furthermore, if strategic foreign acquisitions lead to a dominant 

Chinese domestic semiconductor industry, downstream industries may do less business with U.S. 

firms, making it more difficult for them to survive over time. Indeed, the Mercator Institute 

assesses that “if Chinese enterprises prove capable of using this technology effectively, a 

hollowing out the technology leadership of industrial countries in pillar industries is possible.”960

Second, China’s acts, policies, and practices undermine the ability of U.S. firms to sustain 

innovation. In true market competition, foreign firms may often spur innovation and 

productivity spillovers to local economies when they bring technology and knowledge with 

them.961 In this case, however, that does not appear to be happening. Unlike companies in prior 

waves of OFDI to the United States, “virtually all Chinese firms are less productive than their 

U.S. counterpart.”962 Chinese firms invest in the United States to learn from U.S. firms, not the 

 

958 See Ryan Morgan, Two Sessions: Made in China 2025, APCO Forum (Mar. 26, 2017) (“Businesses in China are 

not only facing competition from domestic firms that are slowly catching up, but also face the risk of Chinese firms 

acquiring their international competitor. A business that becomes Chinese through acquisition can then receive 

government support and other domestic advantages, potentially putting their foreign business competition at an 

immediate and severe competitive disadvantage both domestically and globally.”)

959 Wayne M. Morrison, CONG. RESEARCH. SERV., RL 33536, CHINA-U.S. TRADE ISSUES 65 (2017) (emphasis 

added).

960 Jost Wübbeke, et. al., MERICS, MADE IN CHINA 2025: THE MAKING OF A HIGH-TECH SUPERPOWER AND 

CONSEQUENCES FOR INDUSTRIAL COUNTRIES 54 (Dec. 2016).

961 Chinese Investments in the United States: Impacts and Issues for Policymakers: Hearing Before the U.S.-China 

Econ. & Sec. Rev. Comm’n, 115th Cong. 13 (2017) (statement of Robert D. Atkinson).

962 Chinese Investments in the United States: Impacts and Issues for Policymakers: Hearing Before the U.S.-China 

Econ. & Sec. Rev. Comm’n, 115th Cong. 13 (2017) (statement of Robert D. Atkinson).
IV. Outbound Investment

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other way around.963 This policy harms innovation by essentially transferring technologies from 

efficient and productive firms in the United States to less innovative and less productive firms in 

China. Such a policy, combined with government intervention and support in China, damages 

U.S. companies and harms global welfare.964

Third, China’s acts, policies, and practices distort pricing with respect to investments in the 

critical market for IP-intensive sectors. As outlined above, the Chinese government provides 

extensive support to its firms in connection with foreign acquisitions. This support places U.S. 

competitors at a disadvantage by artificially inflating the prices of potential acquisition targets.

965

 

In other words, critical assets are not being sold and priced under true market conditions – a fact 

that threatens to distort the entire IP market. The result is that China is “exporting” its marketdistorting policies to the United States and the world in critical high-technology industries.

Unlike China, the United States does not have a broad-based industrial policy through which the 

government directs and supports foreign investment by firms. Thus, U.S. technology enterprises 

are at a distinct competitive disadvantage, since they are forced to compete with the extensive 

support and intervention of the Chinese state.

966

 

 

963 Chinese Investments in the United States: Impacts and Issues for Policymakers: Hearing Before the U.S.-China 

Econ. & Sec. Rev. Comm’n, 115th Cong. 13 (2017) (statement of Robert D. Atkinson).

964 Lee Branstetter, Submission, Section 301 Hearing 3 (Sept. 28, 2017). 

965 WILEY REIN, Submission, Section 301 Hearing 5 (Sep 28, 2017).

966 WILEY REIN, Submission, Section 301 Hearing 5 (Sep 28, 2017).
153

V. Unauthorized Intrusions into U.S. Commercial Computer Networks and CyberEnabled Theft of Intellectual Property and Sensitive Commercial Information

A. Introduction

For over a decade, the Chinese government has conducted and supported cyber intrusions into 

U.S. commercial networks targeting confidential business information held by U.S. firms. 

Through these cyber intrusions, China’s government has gained unauthorized access to a wide 

range of commercially-valuable business information, including trade secrets, technical data, 

negotiating positions, and sensitive and proprietary internal communications. These acts,

policies, or practices by the Chinese government are unreasonable or discriminatory and burden 

or restrict U.S. commerce. 

Section V.B of this report will first detail the cyber actions taken by the Chinese government 

against U.S. companies including the theft of confidential business information that would have 

provided a competitive economic advantage. Section V.B will then analyze how the Chinese 

government’s cyber intrusions support its industrial policy goals and how this activity has 

continued in recent years. Section V.C concludes that China’s actions are unreasonable and 

Section V.D explains the economic burden on and harm felt by targeted U.S. companies.

Experts have acknowledged that China’s cyber activities represent a grave threat to U.S. 

competitiveness and the U.S. economy. Starting in 2008, experts expressed concern that China’s 

cyber intrusions were becoming more frequent, more targeted, and more sophisticated.967 As one 

expert has noted, “[w]hereas before the activities were targeted at government and military 

networks..., the new intrusions went beyond state-on-state espionage to threaten American 

technological competitiveness and economic prosperity.”968 The Office of the National 

Counterintelligence Executive added in 2011 that “Chinese actors are the world’s most active 

and persistent perpetrators of economic espionage.”969

As discussed in more detail below, evidence from U.S. law enforcement and private sources 

indicates that the Chinese government has used cyber intrusions to serve its strategic economic 

objectives. Documented incidents of China’s cyber intrusions against U.S. commercial entities 

align closely with China’s industrial policy objectives. As the global economy has increased its 

dependence on information systems in recent years, cyber theft became one of China’s preferred 

methods of collecting commercial information because of its logistical advantages and plausible 

deniability.970 

 

967 See e.g., Shane Harris, China’s Cyber Militia, NAT’L J., May 31, 2008. (citing remarks of a senior official from 

the U.S. Director of National Intelligence).

968 HANNAS, ET AL., CHINESE INDUSTRIAL ESPIONAGE: TECHNOLOGY ACQUISITION AND MILITARY MODERNIZATION, 

217 (2013). 

969 OFFICE OF THE NATIONAL COUNTERINTELLIGENCE EXECUTIVE, FOREIGN SPIES STEALING US ECONOMIC SECRETS 

IN CYBERSPACE: REPORT TO CONGRESS ON FOREIGN ECONOMIC COLLECTION AND INDUSTRIAL ESPIONAGE, 2009-

2011 i (Oct. 2011). 

970 A number of public submissions provided to USTR state that the Chinese government has no reason to conduct 

cyber intrusions or commit cyber theft for commercial purposes, see CHINA GENERAL CHAMBER OF COMMERCE

[hereinafter “CGCC”], Submission, Section 301 Hearing 16 (Sept. 28, 2017); that the US has not provided evidence 

of such actions by China, that China is also a target of cyberattacks, and that the two countries should work together 
V. Unauthorized Intrusions into U.S. Commercial Computer Networks and Cyber-Enabled Theft of Intellectual 

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The Chinese and American presidents reached a commitment on refraining from the cyberenabled theft of intellectual property (IP) and other confidential business information for 

commercial advantage in September 2015.971 The United States has been closely monitoring 

China’s cyber activities and the evidence indicates that China continues its policy and practice, 

spanning more than a decade, of using cyber intrusions to target U.S. firms to access their 

sensitive commercial information and trade secrets. For example, as described in more detail 

below, in September 2017 the U.S. Department of Justice filed an indictment against Chinese 

nationals for intruding into U.S. commercial networks and stealing commercially sensitive 

information. Cybersecurity firms have linked the firm for which these individuals worked to the 

Chinese government.972

Because cyber intrusions depend on deception and obfuscation, the acts, policies, and practices at 

issue by their nature impair the comprehensive collection and analysis of all relevant 

information. Businesses are often unaware that their computer networks have been 

compromised by an infiltration,973 and those that are aware of such intrusions are often 

apprehensive about sharing publicly the details of any compromise. Accordingly, this report has 

drawn upon information in the public domain from both private parties and U.S. law 

enforcement. However, publicly available information necessarily represents only a fraction of 

all relevant activity. 

B. China’s Acts, Policies, and Practices Regarding Unauthorized Intrusions into 

U.S. Commercial Computer Networks and Cyber-Enabled Theft of Intellectual 

Property and Sensitive Commercial Information

1. The Chinese Government’s Extensive Cyber Activities 

The Chinese government’s cyber intrusions into U.S. firms’ networks have been well 

documented by private cybersecurity companies. For example, McAfee’s 2011 Night Dragon

report documents advanced persistent threat, or APT, activity from China against global oil, 

energy, and petrochemical companies “targeting and harvesting sensitive competitive proprietary 

operations and project-financing information with regard to oil and gas field bids and 

operations.”974

 

to address cybersecurity issues. See CHINA CHAMBER OF INTERNATIONAL COMMERCE [hereinafter “CCOIC”], 

Submission, Section 301 Hearing 68-70 (Sept. 39, 2017); CHINA CHAMBER OF COMMERCE FOR IMPORT AND EXPORT 

OF MACHINERY AND ELECTRONIC PRODUCTS [hereinafter “CCCME”], Submission, Section 301 Hearing 12 (Sept. 

27, 2017). The discussion and accompanying references that follow establish a record of China’s cyber intrusions 

and cyber theft. That China may also be a target of cyberattack is outside the scope of this investigation. 

971 Press Release, The White House, Fact Sheet: President Xi Jinping’s State Visit to the United States (Sept. 25, 

2015).

972 INSIKT GROUP, Recorded Future Research Concludes Chinese Ministry of State Security Behind APT3, 

RECORDED FUTURE (May 17, 2017) (last visited Jan. 10, 2018).

973 See VERIZON, 2017 DATA BREACH INVESTIGATIONS REPORT (2017).

974 MCAFEE FOUNDSTONE PROFESSIONAL SERVICES & MCAFEE LABS, GLOBAL ENERGY CYBER ATTACKS: “NIGHT 

DRAGON” 3 (Feb. 10, 2011).
V. Unauthorized Intrusions into U.S. Commercial Computer Networks and Cyber-Enabled Theft of Intellectual 

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Verizon’s 2013 Data Breach Investigations Report concluded that “State-affiliated actors tied to 

China are the biggest mover in 2012. Their efforts to steal IP comprise about one-fifth of all 

breaches in this dataset.” 975 Moreover, 95% of the espionage cases976 in the dataset were 

attributed to threat actors in China, which “may mean that other threat groups perform their 

activities with greater stealth and subterfuge. But it could also mean that China is, in fact, the 

most active source of national and industrial espionage in the world today.” 977

In 2013, the cybersecurity firm Mandiant released a detailed report connecting the theft of 

hundreds of terabytes of data by China’s People’s Liberation Army (PLA) General Staff 

Department, Third Department (3PLA), Second Bureau— a signals intelligence component of 

the PLA, known by its Military Unit Cover Designation as Unit 61398978 and referred to by 

Mandiant as “Advanced Persistent Threat 1” or “APT1.”979 At the time of the report, Mandiant 

estimated that Unit 61398 was “staffed by hundreds, and perhaps thousands of people based on 

the size of Unit 61398’s physical infrastructure.”980 The report includes details on more than 

3,000 indicators associated with APT1 and Mandiant’s attribution of the cyber incidents to the 

3PLA.981

 

975 VERIZON, 2013 DATA BREACH INVESTIGATIONS REPORT 5 (2013) (“State-affiliated actors tied to China are the 

biggest mover in 2012. Their efforts to steal IP comprise about one-fifth of all breaches in this dataset.”). 

976 The report defined this as “state-sponsored or affiliated actors seeking classified information, trade secrets, and 

intellectual property in order to gain national, strategic, or competitive advantage”. VERIZON, 2013 DATA BREACH 

INVESTIGATIONS REPORT 11 (2013). 

977 VERIZON, 2013 DATA BREACH INVESTIGATIONS REPORT 21 (2013).

978

 MANDIANT, APT1: EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS 3 (2013); see also Mark Stokes, 

PROJECT 2049 INSTITUTE, THE PLA GENERAL STAFF DEPARTMENT THIRD DEPARTMENT SECOND BUREAU: AN 

ORGANIZATIONAL OVERVIEW OF UNIT 61398, 3-4 (July 27, 2015) (“Signals intelligence (SIGINT), or technical 

reconnaissance in PLA lexicon, advances the interests of the Chinese Communist Party (CCP) and the People’s 

Republic of China (PRC). The PLA’s SIGINT community consists of at least 28 technical reconnaissance bureaus 

(TRBs)... The Second Bureau (Unit 61398) is one of the largest among the 12 operational bureaus that comprise the 

GSD Third Department.”).

979 An “APT” or “Advanced Persistent Threat” uses multiple phases to break into a computer network, avoid 

detection, and harvest valuable information over the long term. Advanced Persistent Threats: How They Work, 

SYMANTEC, https://www.symantec.com/theme.jsp?themeid=apt-infographic-1 (last visited Jan. 10, 2018).

980 MANDIANT, APT1: EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS 3 (2013).

981 MANDIANT, APT1: EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS 5 (2013). 
V. Unauthorized Intrusions into U.S. Commercial Computer Networks and Cyber-Enabled Theft of Intellectual 

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156

According to Mandiant, this unit of the 3PLA stole data from at least 141 organizations, 115 of 

which are based in the United States, representing 20 major business sectors. The victims of these 

intrusions match industries that China has identified as strategic priorities, including four of the 

seven “strategic emerging industries” that China identified in its 12th Five-year Plan.982 The table 

below illustrates the number of 3PLA victims by sector in Mandiant’s data set.

Mandiant identified a wide range of commercial sector targets of 3PLA, including information 

technology, energy, financial services, food and agriculture, metals and mining, electronics, and 

chemicals. According to the report, 3PLA has stolen a wide range of sensitive commercial 

information from these victims including:

 product development and use, including information on test results, system designs, 

product manuals, parts lists, and simulation technologies;

 manufacturing procedures, such as descriptions of proprietary processes, standards, and 

waste management processes;

 business plans, such as information on contract negotiation positions and product pricing, 

legal events, mergers, joint ventures, and acquisitions;

 policy positions and analysis, such as white papers, and agendas and minutes from 

meetings involving high ranking personnel;

 e-mails of high-ranking employees; and

 

982 MANDIANT, APT1: EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS 3, 24 (2013). 

Source: MANDIANT APT1: EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS

24 (2013).
V. Unauthorized Intrusions into U.S. Commercial Computer Networks and Cyber-Enabled Theft of Intellectual 

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157

 user credentials and network architecture information.983 

The Mandiant report suggests that a reasonable inference from the evidence it has collected is that 

intrusions conducted by this unit of the 3PLA supported commercial interests in China. For 

example, the report points to a company involved in a wholesale industry whose network was 

compromised by 3PLA for over two and half years. During this time, 3PLA reportedly stole

countless files from the victim.984 According to the report, the 3PLA unit repeatedly accessed 

the e-mail accounts of several executives, including the CEO and General Counsel.985 The 

Mandiant report states that at the same time as these intrusions were occurring:

[M]ajor news organizations reported that China had successfully negotiated a doubledigit decrease in price per unit with the victim organization for one of its major 

commodities. This may be coincidental; however, it would be surprising if APT1 could 

continue perpetrating such a broad mandate of cyber espionage and data theft if the 

results of the group’s efforts were not finding their way into the hands of entities able to 

capitalize on them.”986

2. The United States Department of Justice Indicted Chinese Government Hackers in 

May 2014

In May 2014, the United States Department of Justice (DOJ) announced an indictment against 

five 3PLA officers for cyber intrusions and economic espionage directed against U.S. firms.987

These five officers were assigned to 3PLA’s Second Bureau, Unit 61398, which Mandiant had 

identified as APT1 the year prior. 988 The 3PLA officers were charged with cyber intrusions into 

the computer networks of six U.S. victims: Westinghouse Electric Company (Westinghouse), 

SolarWorld Americas, Inc. (SolarWorld), United States Steel Corporation (U.S. Steel), 

Allegheny Technologies, Inc. (ATI), Alcoa Inc. (Alcoa), and the United Steel, Paper and 

Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Services Workers International

Union (USW).989

The intrusions by the 3PLA were conducted at times when each of the victims had a significant 

business relationship or business issue with China.990 In addition, each of the victims operate in 

a sector that the Chinese government has prioritized for development.

991 The indictment alleges 

 

983 MANDIANT, APT1: EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS 25 (2013).

984 MANDIANT, APT1: EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS 25 (2013).

985 MANDIANT, APT1: EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS 25 (2013). 

986 MANDIANT, APT1: EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS 25 (2013).

987 U.S. v. Wang Dong et al., (W. D. Pa. May 1, 2014) (Crim. No. 14-118 W.D.Pa.); see also Mark Stokes, PROJECT 

2049 INSTITUTE, THE PLA GENERAL STAFF DEPARTMENT THIRD DEPARTMENT SECOND BUREAU: AN 

ORGANIZATIONAL OVERVIEW OF UNIT 61398, 3 (July 27, 2015).

988

 See Mark Stokes, PROJECT 2049 INSTITUTE, THE PLA GENERAL STAFF DEPARTMENT THIRD DEPARTMENT 

SECOND BUREAU: AN ORGANIZATIONAL OVERVIEW OF UNIT 61398 (July 27, 2015); see also MANDIANT, APT1:

EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS 3 (2013).

989 U.S. v. Wang Dong et al., 4-8 (W. D. Pa. May 1, 2014). 

990 U.S. v. Wang Dong et al., 13-26 (W. D. Pa. May 1, 2014). 

991 See e.g., The Plan for the Adjustment and Revitalization of the Steel Industry (State Council, published Mar. 20, 

2009); 12th Five-year Steel Industry Development Plan (MIIT, Gong Xin Bu Gui [2011] No. 480, issued Oct. 24, 
V. Unauthorized Intrusions into U.S. Commercial Computer Networks and Cyber-Enabled Theft of Intellectual 

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that “the defendants conspired to hack into American entities, to maintain unauthorized access to 

their computers and to steal information from those entities that would be useful to their 

competitors in China, including state-owned enterprises (SOEs).”992 In some cases, the 

indictment alleges that the defendants stole trade secrets that “would have been particularly 

beneficial to Chinese companies at the time they were stolen.”993 In other cases, the indictment

alleges that the defendants “stole sensitive, internal communications that would provide a 

competitor, or an adversary in litigation, with insight into the strategy and vulnerabilities of the 

American entity.”994 Meanwhile, during the period relevant to the cyber intrusions, the 

indictment states:

Chinese firms hired the same PLA Unit where the defendants worked to provide 

information technology services. For example, one SOE involved in trade litigation 

against some of the American victims mentioned herein hired the Unit, and one of the coconspirators charged herein, to build a ‘secret’ database designed to hold corporate 

‘intelligence’.

995

 

a) SolarWorld

The indictment alleges that in 2012, while SolarWorld was litigating a petition it had filed 

against solar imports from China, the 3PLA stole thousands of sensitive files from SolarWorld. 

According to the indictment, these files included:

(1) cash-flow spreadsheets maintained by the Chief Financial Officer that would enable a 

Chinese competitor to identify the length of time that SolarWorld might survive a 

financial or market shock; (2) detailed manufacturing metrics, technological innovations, 

and production line information that would enable a Chinese competitor to mimic 

SolarWorld’s proprietary production capabilities without the need to invest time or 

money in research and development; (3) specific production costs for all manufacturing 

inputs that would enable a Chinese competitor to undermine SolarWorld financially 

through targeted and sustained underpricing of solar products; and (4) privileged 

attorney-client communications related to SolarWorld’s ongoing trade litigation with 

 

2011); 12th Five-year Solar Power Development Plan, (NEA, Guo Neng Xin Neng [2012] No. 194, issued July 7, 

2012); Medium-Long Term Nuclear Power Development Plan (NDRC, issued Oct. 2007).

992 Press Release, Department of Justice, U.S. Charges Five Chinese Military Hackers for Cyber Espionage Against 

U.S. Corporations and a Labor Organization for Commercial Advantage (May 19, 2014), available at 

https://www.justice.gov/opa/pr/us-charges-five-chinese-military-hackers-cyber-espionage-against-us-corporationsand-labor.

993 Press Release, Department of Justice, U.S. Charges Five Chinese Military Hackers for Cyber Espionage Against 

U.S. Corporations and a Labor Organization for Commercial Advantage (May 19, 2014), available at 

https://www.justice.gov/opa/pr/us-charges-five-chinese-military-hackers-cyber-espionage-against-us-corporationsand-labor.

994 Press Release, Department of Justice, U.S. Charges Five Chinese Military Hackers for Cyber Espionage Against 

U.S. Corporations and a Labor Organization for Commercial Advantage (May 19, 2014), available at 

https://www.justice.gov/opa/pr/us-charges-five-chinese-military-hackers-cyber-espionage-against-us-corporationsand-labor.

995 U.S. v. Wang Dong et al., 3 (W. D. Pa. May 1, 2014). 
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China, including confidential Question and Answer documents submitted to the 

Department of Commerce that were not discoverable by the Chinese respondents.996 

According to DOJ, “such information would have enabled a Chinese competitor to target 

SolarWorld’s business operations aggressively from a variety of angles.997

The indictment alleges that data were stolen from SolarWorld on at least twelve occasions, 

including during the following the incidents:

 On May 3 and May 9, 2012, the 3PLA stole files and e-mails from SolarWorld 

employees, including three senior SolarWorld executives.998 The May 3 cyber 

intrusion occurred one day after the Coalition for American Solar Manufacturing 

led by SolarWorld issued a public analysis criticizing China’s new Five-year Plan 

for Solar Photovoltaic Industry999 and about two weeks before the U.S. 

Department of Commerce announced its preliminary determination in a trade 

complaint SolarWorld had filed against Chinese producers of solar cells.1000

 On July 27, 2012, the 3PLA stole e-mails and files belonging to five 

employees,1001 just two days after SolarWorld’s parent company filed a trade 

complaint with the European Commission against Chinese producers of solar 

modules and components.1002

 Between May 9 and September 26, 2012, the 3PLA conducted at least twelve 

more intrusions into and exfiltrations from SolarWorld’s computers.1003 The 

intrusion on September 26, 2012 occurred on the same day that SolarWorld filed a

second trade complaint against Chinese solar products with the European 

 

996 U.S. v. Wang Dong et al., 18 (W. D. Pa. May 1, 2014). 

997 Press Release, Department of Justice, U.S. Charges Five Chinese Military Hackers for Cyber Espionage Against 

U.S. Corporations and a Labor Organization for Commercial Advantage (May 19, 2014), available at 

https://www.justice.gov/opa/pr/us-charges-five-chinese-military-hackers-cyber-espionage-against-us-corporationsand-labor.

998 U.S. v. Wang Dong et al., 17, 34, 35 (W. D. Pa. May 1, 2014).

999 COALITION FOR AMERICAN SOLAR MANUFACTURING, ANALYSIS: CHINA'S NEW FIVE-YEAR PLAN FOR SOLAR 

CALLS FOR ESCALATION IN GOVERNMENT SPONSORSHIP OF EXPORT-INTENSIVE, PRICE-SUBSIDIZED TRADE (May 2, 

2012), available at http://www.americansolarmanufacturing.org/news-releases/05-02-12-chinas-five-year-plan.htm.

1000 U.S. v. Wang Dong et al., 17 (W. D. Pa. May 1, 2014). 

1001 U.S. v. Wang Dong et al., 35 (W. D. Pa. May 1, 2014). 

1002 EU ProSun filed an anti-dumping complaint against certain photovoltaic products from China on July 25, 2012 

with the European Commission. See European Commission, Notice of initiation of an anti-dumping proceeding 

concerning imports of crystalline silicon photovoltaic modules and key components (i.e. cells and wafers) 

originating in the People’s Republic of China, 2012/C 269/04 (Sept. 9, 2012)

1003 Fact Sheet, International Trade Administration, Department of Commerce, Commerce Finds Dumping and 

Subsidization of Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled into Modules from the People’s 

Republic of China (2012), available at http://ia.ita.doc.gov/download/factsheets/factsheet_prc-solar-cells-ad-cvdfinals-20121010.pdf.
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Commission,

1004 about one week before SolarWorld testified to the U.S.

International Trade Commission about the harm caused by certain Chinese solar 

products,1005 and two weeks before the U.S. Department of Commerce announced 

its final affirmative determination in its trade complaint against Chinese producers 

of solar cells.

1006

As described more below in Part D, SolarWorld testified that these intrusions have resulted in 

significant harm to its business, including the loss of a competitive advantage and a loss of a 

return on its significant investment in a new solar technology.1007

b) U.S. Steel

According to the indictment, between February 8 and 23, 2010, 3PLA actors sent spearphishing

e-mails with malware to U.S. Steel employees to gain unauthorized access to its network.1008 On 

February 26, 2010, a 3PLA actor accessed at least one U.S. Steel computer and stole computer 

hostnames and descriptions for more than 1,700 U.S. Steel computers, including servers used for 

network security, applications for U.S. Steel employees’ mobile devices, and physical access to 

U.S. Steel's facilities.1009 The 3PLA actor then took steps to identify and exploit vulnerable 

servers on that list.1010 In February 2010, at the same time as these cyber intrusions were 

occurring, U.S. Steel was a petitioner in two trade remedy investigations in the United States 

against imported steel products from China.1011 The Chinese respondents named in these two 

 

1004 EU ProSun filed an anti-subsidies complaint against certain photovoltaic products from China on September 26, 

2012 with the European Commission. See European Commission, Notice of initiation of an anti-subsidy proceeding 

concerning imports of crystalline silicon photovoltaic modules and key components (i.e. cells and wafers), 

originating in the People's Republic of China, 2012/C 340/06 (Nov. 8, 2012).

1005 On October 3, 2012, the U.S. International Trade Commission held a hearing on the matter of certain 

photovoltaic products from China. See USITC, Inv. Nos. 701-TA-481 and 731-TA-1190, “Key Dates”, available at

https://www.usitc.gov/investigations/701731/2012/crystalline_silicon_photovoltaic_cells_and_modules/final.htm

1006 On October 10, 2012, the U.S. Department of Commerce announced its affirmative final determinations in the 

antidumping and countervailing duty investigations of imports of certain photovoltaic cells from China. See Fact 

Sheet, INTERNATIONAL TRADE ADMINISTRATION, DEPARTMENT OF COMMERCE, Commerce Finds Dumping and 

Subsidization of Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled into Modules from the People’s 

Republic of China (2012).

1007 Juergen Stein, SOLARWORLD AMERICAS INC. [hereinafter “SolarWorld”], Testimony, Section 301 Hearing 76

(Oct. 10, 2017).

1008 U.S. v. Wang Dong et al., 20 (W. D. Pa. May 1, 2014). “In a spear-phishing attack, a target recipient is lured to 

either download a seemingly harmless file attachment or to click a link to a malware- or an exploit-laden site. The 

file, often a vulnerability exploit, installs a malware in a compromised computer. The malware then accesses a 

malicious command-and-control (C&C) server to await instructions from a remote user. At the same time, it usually 

drops a decoy document that will open when the malware or exploit runs to hide malicious activity.” TREND MICRO 

INC., SPEAR-PHISHING EMAIL: MOST FAVORED APT ATTACK BAIT, RESEARCH PAPER 2012 (2012), available at

http://www.trendmicro.com/cloud-content/us/pdfs/security-intelligence/white-papers/wp-spear-phishing-emailmost-favored-apt-attack-bait.pdf.

1009 U.S. v. Wang Dong et al., 21 (W. D. Pa. May 1, 2014).

1010 U.S. v. Wang Dong et al., 21 (W. D. Pa. May 1, 2014).

1011 These two cases involved oil country tubular goods (OCTG), which are steel piping used by oil and gas 

companies and seamless standard line pipes (SSLP), which are steel pipes specifically constructed without a welded 

seam down the length of the pipes. See Department of Commerce, ITA Case No. A-570-943, A-570-956, and C570-957.
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investigations include the operating companies of several Chinese SOEs, including the Baosteel 

Group.1012

In U.S. Steel’s submission to USTR in connection with this investigation, U.S. Steel explains 

that the second hack “resulted in the exfiltration of highly sensitive commercial secrets regarding 

[its] development of lightweight, high-strength steel.”

1013 U.S. Steel responded by filing claims 

under Section 337 of the Trade Act before the U.S. International Trade Commission (USITC) 

against Baosteel, which it claims “was known to be one of the beneficiaries of China’s statesponsored cyber-attacks.”1014

 

c) ATI

According to the indictment, on April 13, 2012, the 3PLA actors stole usernames and passwords 

for thousands of ATI employees.1015 The stolen network credentials would have provided wideranging access to the company’s computers and sensitive information.1016 In 2012, ATI was 

engaged in a joint venture with Baosteel in Shanghai, which manufactures precision rolled 

stainless steel strips.1017 On April 12, 2012, one day before the 3PLA exfiltrated these 

credentials, ATI officials met with officials from Baosteel in Shanghai for a board meeting1018

related to their joint venture. 

d) United Steel Workers (USW)

According to the indictment, the 3PLA stole sensitive information from USW computer 

networks on two separate occasions.1019

The indictment alleges that in January 2012, at the same time that USW was preparing a public 

campaign to counter what it viewed as a wide array of unfair Chinese government policies, 

3PLA stole sensitive information from USW computer networks.

1020

 On January 31, 2012, USW

issued a statement from its International President, calling on the U.S. Government to take action 

to protect the U.S. automobile and auto parts industry from “China’s predatory, protectionist and 

 

1012 Baosteel Group (now known as Baowu Steel) is a state-owned enterprise wholly-owned by China’s State-owned 

Assets Supervision and Administration of Commission. See SASAC website for the full list, available at

http://www.sasac.gov.cn/n2588035/n2641579/n2641645/index.html (last visited Jan. 23, 2018).

1013 U.S. STEEL CORPORATION, Submission, Section 301 Hearing (Sept. 28, 2017).

1014 U.S. STEEL CORPORATION, Submission, Section 301 Hearing (Sept. 28, 2017).

1015 U.S. v. Wang Dong et al., 22-3 (W. D. Pa. May 1, 2014).

1016 U.S. v. Wang Dong et al., 21-3 (W. D. Pa. May 1, 2014).

1017 See Global Joint Ventures – Shanghai STAL Precision Stainless Steel Co., Ltd (STAL), ATI, available at

https://www.atimetals.com/businesses/joint-ventures/Pages/default.aspx. See also Allegheny Technologies 

Incorporated, 2012 Form 10-K.

1018 U.S. v. Wang Dong et al., 21-3 (W. D. Pa. May 1, 2014). Two months prior to this intrusion, the joint venture 

announced it was selling off its loss-making stainless steel assets to the Baosteel Group, its parent company for 

RMB 2.6 billion. The sale of assets to the Baosteel Group was the largest M&A transaction in China announced that 

month. See BAOSHAN IRON AND STEEL LTD. RELATED PARTY TRANSACTIONS REPORT. Report No. 2012-005, 24 

(Feb. 29, 2012); See MIIT, MERGER AND RESTRUCTURING MONTHLY REPORT, VOL. 2, available at

http://merger.miit.gov.cn/observation/briefing/2012-03-23/381.html.

1019 U.S. v. Wang Dong et al., 7 (W. D. Pa. May 1, 2014).

1020 U.S. v. Wang Dong et al., 23 (W. D. Pa. May 1, 2014)
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illegal trade practices.”1021 USW through its trade counsel also released a report on Chinese auto 

policies that threaten the U.S. jobs in the auto industry on January 31, 2012.

1022

 Meanwhile, on 

the same day, the 3PLA gained unauthorized access to USW computers, and stole e-mails from 

six senior USW employees, including USW’s International President, most of whom were 

personally and publicly involved in formulating USW strategy towards combatting China’s trade 

practices in this sector.1023 

On March 7, 2012, 3PLA actors again gained unauthorized access to USW employees’ emails1024 at a critical period for USW as it was considering whether to request an extension of 

tariffs imposed on Chinese tires that would expire in September 2012.

1025

 USW announced in 

September 2012 that it would not seek an extension of the tariffs, but revealed in its September 

announcement that it had notified the Administration in March that it would not seek an 

extension.

1026

 The 3PLA stole e-mails from the inboxes of six senior employees that included 

sensitive, non-public, and deliberative information about USW trade strategy, including its 

decision not to seek an extension of the tariffs, which would not be announced publicly for 

another six months.

1027

 

e) Westinghouse

Westinghouse was affected by four major cyber intrusions by the 3PLA – one occurring in May 

2010, one in late December 2010, and two in early January 2011.1028 According to the 

indictment, the PLA obtained at least 1.4 gigabytes of data, the equivalent of roughly 700,000 

pages of e-mail messages and attachments from Westinghouse’s computers,1029 including: trade 

secrets; technical and design specifications; network credentials; and, sensitive e-mails belonging 

to senior decision-makers.1030 

In 2010, Westinghouse was building four AP1000 power plants in China and negotiating other 

terms of the construction, including technology transfers, with State Nuclear Power Technology 

 

1021 U.S. v. Wang Dong et al., 24 (W. D. Pa. May 1, 2014)

1022 See Statement of Terence Stewart, Jan. 31, 2012 available at: http://assets.usw.org/releases/china-trade/Final-SSPress-Release.pdf. See also LAW OFFICES OF STEWART & STEWART, CHINA’S SUPPORT PROGRAMS FOR 

AUTOMOBILES AND AUTO PARTS UNDER THE 12TH FIVE YEAR PLAN (Jan. 2012). 

1023 U.S. v. Wang Dong et al., 24-5 (W. D. Pa. May 1, 2014).

1024 U.S. v. Wang Dong et al., 25 (W. D. Pa. May 1, 2014).

1025 Imported Chinese tires became subject to a tariff for a period of three years starting on September 26, 2009, after 

the USW successfully petitioned the USITC for relief. See Certain Passenger Vehicle and Light Truck Tires from 

the People’s Republic of China, Investigation No. TA-421-7, USITC Publication No. 4085.

1026 USW announced on September 24, 2016 that it would not seek an extension of the tariffs. USW Acclaim Success 

of Trade Relief for Tire Sector; Extension Not Requested, UNITED STEELWORKERS (Sept. 24, 2012), available at: 

http://www.usw.org/news/media-center/releases/2012/usw-acclaim-success-of-trade-relief-for-tire-sector-extensionnot-requested. The USW announcement states that it notified the Administration of its decision in March before the 

renewal request deadline

1027 U.S. v. Wang Dong et al., 25-6 (W. D. Pa. May 1, 2014).

1028 U.S. v. Wang Dong et al., 4, 15-6. (W. D. Pa. May 1, 2014).

1029 U.S. v. Wang Dong et al., 16 (W. D. Pa. May 1, 2014).

1030 U.S. v. Wang Dong et al., 2, 4, 15-6 (W. D. Pa. May 1, 2014).
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Corporation (SNPTC), a Chinese SOE.

1031 At the same time, a 3PLA actor stole confidential and 

proprietary technical and design specifications for pipes, pipe supports, and pipe routing within 

the AP1000 plant buildings.1032 The stolen trade secrets and technical information would permit 

a competitor to build a power plant without having to invest in associated research and 

development costs that had been borne by Westinghouse in the past.1033 

Additionally, in 2010 and 2011, while Westinghouse was exploring other business ventures with 

SNPTC, a 3PLA actor stole sensitive, non-public, and deliberative e-mails belonging to senior 

decision-makers responsible for the Westinghouse business relationship with SNPTC.1034 In 

January 2011, as the 3PLA were infiltrating Westinghouse’s servers and exfiltrating its 

information, Westinghouse announced the signing of two agreements with SNPTC.1035

f) Alcoa

The indictment alleges that on February 1, 2008, Alcoa announced that it was entering into a 

partnership with a Chinese SOE, Chinalco to acquire an interest in a foreign mining company.1036

After the announcement, on February 20, 2008, the 3PLA obtained access to nearly 3,000 Alcoa 

e-mails through a spearphishing message that installed malware into Alcoa’s computer system.

1037

 The stolen e-mails included internal discussions among Alcoa’s senior managers regarding 

the acquisition of the foreign mining company.1038

The facts of each of these incidents provides a chilling warning to U.S. companies that engage or 

seek to engage in business in China or seek to challenge China’s trade practices through legal 

means. If a company operates in a sector that China deems strategic to its economic interests or 

particularly if it has business relations with an SOE, the company must risk being targeted by 

Chinese government hackers for cyber intrusions and cyber theft, putting sensitive commercial 

information about its products, business strategy, and other matters at risk. These firms are 

forced to operate on the assumption that they are under constant surveillance by the Chinese 

government’s extensive system of corporate surveillance and control, which is discussed in 

greater detail in Section VI of this report.1039

 

1031 U.S. v. Wang Dong et al., 14 (W. D. Pa. May 1, 2014); see also China signs first engineering contracts for 

Westinghouse AP1000-derived CAP1400 reactor, POWER ENGINEERING, Nov. 29, 2010. Foreign Companies Eyeing 

Chinese Nuclear Power Market, SINOCAST, COMTEX NEWS NETWORK, Dec. 2, 2010; First Concrete Pour for 

Haiyang Unit 2 Completed in Record Time; 4 AP1000 Units Now Under Construction in China, PR NEWSWIRE, 

June 25, 2010. 

1032 U.S. v. Wang Dong et al., 14-5 (W. D. Pa. May 1, 2014). 

1033 U.S. v. Wang Dong et al., 14-5 (W. D. Pa. May 1, 2014). 

1034 U.S. v. Wang Dong et al., 16 (W. D. Pa. May 1, 2014)

1035 Westinghouse, China extend AP1000 reactor agreement, POWER ENGINEERING, Jan. 20, 2011, available at

http://www.power-eng.com/articles/2011/01/westinghouse--china.html.

1036 U.S. v. Wang Dong et al., 26 (W. D. Pa. May 1, 2014); see also Eric Onstad, Lucy Hornby, Chinalco and Alcoa 

buy stake in Rio Tinto, NY TIMES (Feb. 1, 2008).

1037 U.S. v. Wang Dong et al., 26-7 (W. D. Pa. May 1, 2014). 

1038 U.S. v. Wang Dong et al., 27 (W. D. Pa. May 1, 2014). 

1039Andrew Browne, China's Big Brother Is Watching You Do Business, WALL STREET J., May 23, 2017.
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3. China’s Institutional Framework Supports Cyber Intrusions into U.S. Commercial 

Networks

As discussed in detail in other sections of this report, China relies primarily on a state-led 

approach to technology development and economic growth.1040 Through an extensive planning 

system, China identifies certain sectors and technologies for development and fosters national 

champions to achieve dominance in both domestic and global markets.1041 China’s industrial 

plans and innovation goals, such as Made in China 2025,1042 aim to provide support and 

assistance through the use of state resources to Chinese companies and commercial sectors.1043

At the same time, China maintains an extensive state sector and uses state-invested enterprises

and other mechanisms as instruments to achieve the government’s economic objectives. 

As noted above in Section IV.B.5, China’s policy of “military-civil fusion” calls for the 

development of integrated information sharing platforms to facilitate science and technology 

(S&T) resource sharing and collaboration between state laboratories, the PLA, and enterprises.1044

China’s government-directed cyber capabilities exist alongside an institutional framework that 

provides state-invested enterprises and national champions with privileged access to various 

forms of Chinese government support and information.

Indeed, the U.S. government has evidence that the Chinese government provides competitive 

intelligence through cyber intrusions to Chinese state-owned enterprises through a process that 

includes a formal request and feedback loop, as well as a mechanism for information exchange 

via a classified communication system.

For example, according to U.S. government information, China National Offshore Oil 

Corporation (CNOOC), a state-owned enterprise, submitted formal requests to Chinese 

intelligence services seeking intelligence information on several U.S. oil and gas companies and 

on U.S. shale gas technology. One instance occurred in January 2012 in the context of 

commercial negotiations between a U.S. company (“U.S. Company 1”), CNOOC, and the PRC 

Ministry of Agriculture regarding oil leaks that had occurred at a facility jointly owned and 

operated by U.S. Company 1 and CNOOC in June 2011.

 

1040 See Section I.C. 

1041 See Section I.C. 

1042 See Section I.C for more information on the Made in China 2025 policy.

1043 For example, China’s Made in China 2025 policy documents set out targets for developing ten key industries. 

U.S. CHAMBER OF COMMERCE, MADE IN CHINA 2025: GLOBAL AMBITIONS BUILT ON LOCAL PROTECTIONS 17-18 

(2017) (stating that the policy “appears to provide preferential access to capital to domestic companies to promote 

their indigenous [research and development] capabilities, enhance their competitiveness, and support their ability to

acquire technology from abroad.”). U.S. CHAMBER OF COMMERCE, MADE IN CHINA 2025: GLOBAL AMBITIONS 

BUILT ON LOCAL PROTECTIONS 6 (2017) (“In concert with the 13th Five-Year Plan, Internet Plus Action Plan, and 

other state-led development plans, [Made in China 2025] constitutes a broader strategy to use state resources to alter 

and create comparative advantage in these sectors on a global scale.”). EUROPEAN CHAMBER OF COMMERCE IN 

CHINA, CHINA MANUFACTURING 2025: PUTTING INDUSTRIAL POLICY AHEAD OF MARKET FORCES 1 (2017) (stating 

that the policy’s references to “‘indigenous innovation’—along with mentions of the need to realise ‘selfsufficiency’ . . . suggests that Chinese policies will further skew the competitive landscape in favour of domestic 

companies.”). 

1044 See Description of National New Industrial Demonstration Base, MIIT, 

http://sfjd.miit.gov.cn/BaseInfoAction!findListIndustry.action
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In January 2012, these Chinese intelligence services provided CNOOC information ahead of and 

during negotiations with U.S. Company 1. The information that the intelligence services provided 

to CNOOC included details on U.S. Company 1’s position in the negotiation. CNOOC attributed 

their ultimate success in the negotiation with U.S. Company 1 to the information that CNOOC 

had received from the intelligence services. According to information the U.S. Government has 

access to, senior Chinese Intelligence officials, including a PLA director, Liu Xiaobei, endorsed 

the use of the intelligence information during CNOOC’s negotiations with U.S. Company 1.

In a second instance, in July 2012, CNOOC requested that Chinese Intelligence provide specific 

information on five named U.S. oil and natural gas companies. Specifically, CNOOC sought 

information on:

-U.S. Company 2’s operations, asset management, and the movements of its senior 

personnel;

-U.S. Company 3’s developments in shale gas technology; and

-The status of U.S. Company 4 and U.S. Company 5’s research in certain areas, including 

lab procedures, fracking technology and fracking formulae.

These examples illustrate how China uses the intelligence resources at its disposal to further the 

commercial interests of Chinese state-owned enterprises to the detriment of their foreign partners 

and competitors.

Available evidence also indicates that China uses its cyber capabilities as an instrument to achieve 

its industrial policy and S&T objectives. Indeed, based on available information on China’s cyber 

intrusions, experts have concluded that China’s cyber intrusions and cyber theft align with its 

industrial policy goals.1045 For example:

As noted above, Mandiant observed in its 2013 report that “organizations in all industries 

related to China’s strategic priorities are potential targets of APT1’s comprehensive cyber 

espionage campaign.” The victims of the intrusions in Mandiant’s data set match 

 

1045 During the hearing for this investigation, Richard Ellings of the Commission on the Theft of American 

Intellectual Property and the President of the National Bureau of Asian Research, was asked whether there is a 

correlation between China’s industrial plans and reported cyber intrusions directed against U.S businesses. Mr. 

Ellings testified in response: “Absolutely. In fact, the whole history of cyber intrusions and more broadly industrial 

espionage from China correlates with all the Five-year Plans, the Indigenous Innovation Policy that came out 10 

years ago, 12 years ago, 11 years ago, current Five-year Plan, 2025 Plans. This is, as I said, kind of a standard that 

is given out to the country and to accomplish the goals set out in these plans becomes a measure by which cadres 

and entities throughout the country, their performance is measured. So they have tremendous incentive. So all of 

our tracking, whether they be through the court cases that make it into the public realm, whether cyber intrusion 

surveys and studies, Verizon did one, the Mandiant one, and so on, they all show a correlation between the priorities 

of the Chinese government at any time and the kinds of industrial espionage undertaken.” Richard Ellings, 

COMMISSION ON THE THEFT OF AMERICAN INTELLECTUAL PROPERTY [hereinafter “IP Commission”], Testimony, 

Section 301 Hearing 51 (Oct. 10, 2017). 
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industries that China has identified as strategic priorities in its five year plan and S&T 

development plans.1046 

In a review of cybertheft by a group associated with China’s intelligence services, 

cybersecurity firm Novetta found the group targeting entities including Fortune 500 

companies and firms with innovative information technology.1047 Such targeting 

converged with China’s strategic interests and the aims of China’s 11th Five Year plan 

for the 2006-2011 period.1048 

In 2015, one cybersecurity expert testified to the U.S.-China Economic and Security 

Review Commission that “China’s commercial cyber espionage activity likely supports 

Communist Party central planning policies designed to provide a competitive advantage 

for Chinese companies.”1049 

SolarWorld, in its submission to USTR, stated: “In our view, Chinese hacking and technology 

theft is pervasive and encouraged by the Chinese Government, as demonstrated by the 2014 

indictment of the Chinese People’s Liberation Army and as driven by China’s Five Year Plans, 

which target specific high-tech and developing industries.”1050

The 3PLA’s cyber theft of trade secrets from Westinghouse, documented in the DOJ indictment,

is illustrative of how China uses cyber theft as one of multiple instruments to achieve its state-led 

technology development goals. During China’s 12th Five-year planning period (2011-2015), 

China issued several documents demonstrating its commitment to developing “indigenous” 

nuclear power technology capabilities. For example, the 12th Five-year Science and Technology

Development Plan expressly states that China should “comprehensively master” Westinghouse’s 

AP1000 nuclear power design technology and “indigenously” complete standard designs at 

domestic facilities.1051 The plan also states that China should establish demonstration power 

plants for CAP1400 technology, which is China’s domestic nuclear design technology based on 

Westinghouse’s AP1000 design with its input.1052 In addition, China’s 12th Five-year Energy 

Technology Development Plan contains specific references to developing the AP1000 and 

similar technologies through a process of “indigenization with outside support.”1053

 

1046 MANDIANT, APT1: EXPOSING ONE OF CHINA’S CYBER ESPIONAGE UNITS 24 (2013). 

1047 NOVETTA, OPERATION SMN: AXIOM THREAT ACTOR GROUP REPORT 4, 8-9 (2014). Such innovative technology 

includes telecommunications equipment manufacturers, infrastructure providers, integrated circuit manufacturers, 

software vendors, pharmaceutical and cloud computing companies, networking equipment manufacturers, and 

energy firms.

1048 NOVETTA, OPERATION SMN: AXIOM THREAT ACTOR GROUP REPORT 9-10 (2014).

1049 Hearing on Commercial Cyber Espionage and Barriers to Digital Trade in China: Hearing Before the U.S.-

China Econ. & Sec. Rev. Comm’n (June 15, 2015) (Statement of Jen Weedon), available at

https://www.uscc.gov/sites/default/files/Weedon%20Testimony.pdf; see also Richard J. Ellings, IP COMMISSION, 

Submission, Section 301 Hearing 3-4 (Sept. 28, 2017); but see James Lewis, CENTER FOR STRATEGIC AND 

INTERNATIONAL STUDIES [hereinafter “CSIS”], Submission, Section 301 Hearing 4 (Sept. 2017).

1050 SOLARWORLD, Submission, Section 301 Hearing 2 (Oct. 20, 2017). 

1051 Notice on Issuing the 12th Five-year Science and Technology Development Plan (2011-2015) § 3, Item 6

(MOST, Guo Ke Fa Ji [2011] No. 270, issued July 4, 2011).

1052Notice on Issuing the 12th Five-year Science and Technology Development Plan (2011-2015) § 3, Item 6

(MOST, Guo Ke Fa Ji [2011] No. 270, issued July 4, 2011). 

1053 12th Five-year Plan for Energy Technology (2011-2015), § 2.2, § 4.3 (NEA, issued Dec. 2011).
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For Westinghouse to operate in China, Westinghouse was required to invest through a joint 

venture controlled by an SOE,

1054 SNPTC, and in order to win the bid it had to agree to transfer 

all relevant technology for the AP1000 to the SOE.

1055 This circumstance is hardly unique to 

Westinghouse. Section II of this report details how China uses its restrictive foreign investment 

regime to put pressure on U.S. companies to transfer technology to Chinese enterprises, often 

state-owned enterprises. As described above, according to the DOJ indictment, 3PLA actors stole 

thousands of files from Westinghouse’s computers, including: trade secrets; technical and design 

specifications; network credentials; and sensitive e-mails belonging to senior decision-makers, 

while commercial negotiations between Westinghouse and SNPTC were ongoing.1056

In sum, China first expressly identified through its industrial policies a U.S. technology that 

China sought to indigenize. China then required technology transfer to an SOE in order for the 

U.S. company holding the technology to be able to access the China market. China then used its 

cyber capabilities to steal commercially sensitive information, including trade secrets,

negotiating positions and technical designs, from the U.S. company that could provide the SOE 

with an advantage in its business dealings with the U.S. company.

4. China’s Recent Cyber Intrusion Activities Against U.S. Commercial Networks

Beginning in 2014, the United States began stepping up pressure on China for its cyber 

intrusions into U.S. firms and the theft of commercial information through a number of 

mechanisms. In September 2015, then-U.S. President Obama and Chinese President Xi reached 

a commitment that “neither country’s government will conduct or knowingly support cyberenabled theft of intellectual property, including trade secrets or other confidential business 

information, with the intent of providing competitive advantages to companies or commercial 

sectors.”1057 The United States has been closely monitoring China’s cyber activities since this 

 

1054 See e.g., Catalogue of Industries for Guiding Foreign Investment, (2007 Amendment) (NDRC, MOC Order No. 

57, issued Oct. 31, 2007) , Part IV, para. 4 “Catalogue of Restricted Industries for Foreign Investment.”

1055 Westinghouse Wins Nuclear Power Bid, CHINA DAILY, Dec. 27, 2006 (“According to the [chief representative of 

Westinghouse China], the company's success can be mainly attributed to three factors: advanced technology, 

competitive pricing and an offering of all-round technology transfer... [The CEO of] Westinghouse, earlier told 

China Daily that Westinghouse will fully co-operate with its Chinese customers to transfer all technology as 

requested”); See Foreign Companies Eyeing Chinese Nuclear Power Market, SINOCAST, COMTEX NEWS NETWORK, 

Dec. 2, 2010 (Westinghouse delivered “more than 75,000 pieces of documents to Chinese customers as part of a 

technology transfer agreement, hoping to consolidate its leading status in the world's largest nuclear power market. 

The World Nuclear Association (WNA) believes that it is just because Westinghouse Electric agrees to transfer 

technology in its contracts with Chinese customers that it successfully wins the bid to build AP1000 nuclear reactors 

in China.”).

1056 U.S. v. Wang Dong et al. at 4.

1057 Press Release, The White House, Fact Sheet: President Xi Jinping’s State Visit to the United States (Sept. 25, 

2015), https://obamawhitehouse.archives.gov/the-press-office/2015/09/25/fact-sheet-president-xi-jinpings-statevisit-united-states. DOJ reaffirmed the 2015 joint statement in October 2017: “Both sides will continue their 

implementation of the consensus reached by the Chinese and American Presidents in 2015 on U.S.-China 

cybersecurity cooperation... [including] (2)that neither country’s government will conduct or knowingly support 

cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with 

the intent of providing competitive advantage to companies or commercial sectors[.]” See Press Release, First U.S.-

China Law Enforcement and Cybersecurity Dialogue (Oct. 6, 2017), available at

https://www.justice.gov/opa/pr/first-us-china-law-enforcement-and-cybersecurity-dialogue.
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consensus was reached, and the evidence indicates that cyber intrusions into U.S. commercial 

networks in line with Chinese industrial policy goals continue.

Beijing’s cyber espionage against U.S. companies persists and continues to evolve. The U.S. 

Intelligence Community judges that Chinese state-sponsored cyber operators continue to support 

Beijing’s strategic development goals, including its S&T advancement, military modernization, 

and economic development.

In September 2017, the DOJ filed an indictment against three Chinese nationals who “were 

owners, employees and associates of the Guangzhou Bo Yu Information Technology Company 

Limited1058 (Boyusec), a company that cybersecurity firms have linked to the Chinese 

government.1059 Three firms, all with operations in the United States, are named in the indictment 

as victims: Moody’s Analytics, Siemens AG, and Trimble Inc. The cyber intrusions against 

Trimble continued until March 2016 (and the related conspiracy which continued until “at least 

May 2017”1060), targeted the three named firms to steal confidential business and commercial 

information and work product.1061

Specifically, in 2015 and 2016, Trimble was working to develop a new global navigation satellite 

systems product that “combined software with a relatively low cost antenna to significantly 

improve the positioning accuracy of mobile devices”1062 (Commercial GNSS Project). 

“Beginning no later than December 2015, and continuing through March 2016, the coconspirators targeted the servers within Trimble’s network,” and by the middle of January 2016 

the hackers had “accessed Trimble’s network and copied, packaged, and stole computer files 

containing commercial business documents and data” related to the GNSS project.”

1063

 In 

addition to the theft of market research and strategy information, the stolen files also included 

“confidential and proprietary schematic design for the hardware receiver equipment”1064 and “two 

directory lists [...] listed files containing the names of a Trimble engineer related to the 

Commercial GNSS Project.”

1065

 “In total, conspirators stole at least 275 megabytes of data, 

including compressed data, which included hundreds of files that would have assisted a Trimble 

competitor in developing, providing, and marketing similar software and subscriptions services, 

without incurring millions of dollars in research and development costs.”

1066

 According to the 

 

1058 U.S. v. Wu Yingzhou et al., (September 13, 2017) (Crim. No. 17-247 W.D.Pa.).

1059 There have been many public reports linking the firm Boyusec with China’s Ministry of State Security (MSS) 

and/or the PLA’s cyber unit. For example, a report from a private cybersecurity firm, Recorded Future, published on 

May 17th, 2017, links Boyusec to the Chinese Ministry of State Security. The report alleges that the known threat 

actor group “APT3” is in fact Boyusec and is directly linked to the Chinese state. Insikt Group, Recorded Future 

Research Concludes Chinese Ministry of State Security Behind APT3, RECORDED FUTURE, May 17, 2017 (linking 

these attacks to the MSS). See also Siemens, Trimble, Moody’s breached by Chinese Hackers, U.S. Charges,

REUTERS, Nov. 27, 2017 (linking Boyusec hacks to the PLA).

1060 U.S. v. Wu Yingzhou et al., at 3.

1061 U.S. v. Wu Yingzhou et al., at 3-9.

1062 U.S. v. Wu Yingzhou et al., at 7.

1063 U.S. v. Wu Yingzhou et al., at 8.

1064 U.S. v. Wu Yingzhou et al., at 8.

1065 U.S. v. Wu Yingzhou et al., at 9.

1066 U.S. v. Wu Yingzhou et al., at 9.
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indictment, intended customers of the Commercial GNSS Project included construction, land 

survey, and agricultural sectors and the technology had no military applications.1067

Similarly, U.S. cybersecurity firms have concluded that cyber intrusions against U.S. firms by 

Chinese state-sponsored and supported hackers since September 2015 have decreased or become 

more difficult to detect, but none has concluded that the activity has ceased entirely.1068 In June 

2016, the cybersecurity firm FireEye1069 stated in a report that while cyber intrusions appear to be 

less voluminous, the attacks appear to now be more focused.1070 According to the report, FireEye 

observed 262 cyber intrusions from late 2015 through mid-2016, conducted by 72 different

China-based groups whose identities range from “government and military actors, contractors, 

patriotic hackers, and even criminal elements.”1071 Of the 262 observed intrusions, 182 involved 

the networks of private and public U.S. entities.1072 FireEye recorded that in April and May 2016, 

“three groups compromised the networks of four firms headquartered in the United States, 

Europe, and Asia that are involved in the manufacturing of semiconductors and chemical

components used in the production of semiconductors.”1073

One of the more notable exceptions to the observed decline comes from APT10, which is believed 

by several cybersecurity firms to be a Chinese cyber espionage group.

1074 In late 2016, BAE 

Systems and PricewaterhouseCoopers reported that they had been investigating a campaign of 

intrusions, referred to as “Operation Cloud Hopper” by APT10 against several major IT managed 

service providers, including some U.S. companies.1075 According to BAE, APT10’s targeting is 

consistent with “industries that align with China’s 13th Five-year Plan which would provide 

valuable information to advance the domestic innovation goals held within China.”1076 FireEye 

believes that APT10’s activities historically have been “in support of Chinese national security 

 

1067 U.S. v. Wu Yingzhou et al., at 7.

1068 FIREEYE, REDLINE DRAWN: CHINA RECALCULATES ITS USE OF CYBER ESPIONAGE 12-14 (2016). 

1069 FireEye is now the parent company of Mandiant. 

1070 Robert Hackett, China's Cyber Spying on the U.S. Has Drastically Changed, FORTUNE, June 25, 2016, 

(interviewing Laura Galante of FireEye). See also FIREEYE, REDLINE DRAWN: CHINA RECALCULATES ITS USE OF 

CYBER ESPIONAGE 4 (2016). FireEye concludes that Chinese cyberintrusions and cybertheft were decreasing since 

mid-2014 due to a number of factors including “ongoing [Chinese] military reforms, widespread exposure of 

Chinese cyber operations, and actions taken by the U.S. government.” Id. at 4; see also IP COMMISSION, UPDATE TO 

THE IP COMMISSION REPORT (2017) (“cyberattacks may have declined in volume since about 2014, although 

whether this is a result of a crackdown in China on responsible units in the People’s Liberation Army (PLA) or other 

factors is not entirely clear.”). Other commenters note the decrease in activity linking it to the September 2015 joint 

statement as well as ongoing Chinese PLA reorganization, see, for example, James Lewis, CSIS, Submission, 

Section 301 Hearing 5 (Sept. 2017); and Erin Ennis, U.S.-CHINA BUSINESS COUNCIL [hereinafter “USCBC”], 

Testimony, Section 301 Hearing (Oct. 10, 2017) (referring to FireEye’s June 2016 report concluding “a notable 

decrease in reports by American companies of intrusions from suspected Chinese hackers.”).

1071 FIREEYE, REDLINE DRAWN: CHINA RECALCULATES ITS USE OF CYBER ESPIONAGE 15 (2016).

1072 FIREEYE, REDLINE DRAWN: CHINA RECALCULATES ITS USE OF CYBER ESPIONAGE 12 (2016). 

1073 FIREEYE, REDLINE DRAWN: CHINA RECALCULATES ITS USE OF CYBER ESPIONAGE 13 (2016).

1074 See e.g., FireEye, APT10 (MenuPass Group): New Tools, Global Campaign Latest Manifestation of 

Longstanding Threat (Apr. 6, 2017); See also BAE Systems, APT10 – Operation Cloud Hopper, (2017). 

1075 PWC, BAE SYSTEMS, APT10 – OPERATION CLOUD HOPPER (2017), available at https://www.pwc.co.uk/cybersecurity/pdf/cloud-hopper-report-final-v4.pdf.

1076 PWC, BAE SYSTEMS, APT10 – OPERATION CLOUD HOPPER 15 (Apr. 2017).
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goals, including acquiring valuable military and intelligence information as well as the theft of 

confidential business data to support Chinese corporations.”1077

BAE notes that APT10’s activities use a strategy that is difficult to trace.1078 By targeting IT 

managed service providers, APT10 is seeking the ability “to move laterally onto the networks of 

potentially thousands of other victims” and “has been observed to exfiltrate stolen intellectual 

property” while evading a network’s defenses.1079 BAE concludes that APT10 has increased its 

sophistication and has “significant staffing and logistical resources, which have increased over 

the last three years, with a significant step-change in 2016.”

1080

 

Another cybersecurity firm, Fidelis Cybersecurity, concluded that APT10 installed malware on 

the website of the National Foreign Trade Council (NFTC), such that when U.S. member 

companies registered for NFTC’s board meeting scheduled for March 2017, the malware would 

be executed on their computers.

1081 According to Fidelis Cybersecurity, this particular malware 

would allow APT10 to exploit vulnerabilities known to exist within the user’s applications.1082

NFTC board members that may have sought to register for the meeting include a large group of 

leading U.S. companies across a wide range of commercial sectors.1083

The data set since September 2015 is necessarily more limited than the extensive data collected 

over the last decade on Chinese cyber intrusions and cyber theft. Notwithstanding an apparent 

decline in the observed number of cyber incidents, the continued use of cyber intrusions by the 

Chinese government targeting U.S. companies remains a serious problem. State-sponsored cyber 

intrusions originating from China into U.S. commercial networks occur alongside China’s 

institutional framework for promoting its industrial and technological development through a 

state-led model in which state-owned enterprises and national champions are the recipients of 

extensive state support. In sum, the evidence indicates that China continues its policy and 

practice, spanning more than a decade, of conducting and supporting cyber-enabled theft and

intrusions into the commercial networks of U.S. companies. This conduct provides the Chinese 

 

1077 APT10 (MenuPass Group): New Tools, Global Campaign Latest Manifestation of Longstanding Threat, 

FIREEYE, Apr. 6, 2017, https://www.fireeye.com/blog/threat-research/2017/04/apt10_menupass_grou.html.

1078 PWC, BAE SYSTEMS, APT10 – OPERATION CLOUD HOPPER (Apr. 2017).

1079 PWC, BAE SYSTEMS, APT10 – OPERATION CLOUD HOPPER 8 (Apr. 2017).

1080 PWC, BAE SYSTEMS, APT10 – OPERATION CLOUD HOPPER 5 (Apr. 2017). FireEye, in April of 2017 agreed that 

APT10 had expanded their operations. See APT10 (MenuPass Group): New Tools, Global Campaign Latest 

Manifestation of Longstanding Threat, FIREEYE, Apr. 6, 2017.

1081 Operation TradeSecret: Cyber Espionage at the Heart of Global Trade, FIDELIS CYBERSECURITY (Apr. 6, 2017), 

https://www.fidelissecurity.com/TradeSecret.

1082 Operation TradeSecret: Cyber Espionage at the Heart of Global Trade, FIDELIS CYBERSECURITY (Apr. 6, 2017).

1083 According to NFTC’s website, board members include: ABB Incorporated, Amazon, Amgen, Applied Materials, 

Baxter International, British American Tobacco, Caterpillar Incorporated, Chevron, Cisco Systems, Inc., The CocaCola Company, ConocoPhillips, Inc, Corning Incorporated, Deloitte & Touche, LLP, Dentons US LLP, DHL 

Express (USA) Inc., E.I. du Pont de Nemours & Company, eBay Inc., Ernst & Young LLP, ExxonMobil 

Corporation, FCA US LLC, FedEx Express, Fluor Corporation, Ford Motor Company, General Electric Company, 

Google Inc., Halliburton Company, Hanesbrands Inc., Hewlett Packard Enterprise Company, HP Inc, 

IBM Corporation, Johnson Controls, KPMG, LLP, Mars Incorporated, Mayer Brown LLP, McCormick & 

Company, Inc., Microsoft Corporation, Mondelēz International, Occidental Petroleum Corporation, Oracle 

Corporation, Pernod Ricard USA, Pfizer Inc., PMI Global Services Inc, PricewaterhouseCoopers LLP, Procter & 

Gamble Company, Qualcomm Incorporated, Siemens Corporation, TE Connectivity, Toyota Motor Sales, USA, 

Incorporated, United Technologies Corporation, UPS, Visa Inc, and Wal-mart Stores. 
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government with unauthorized access to intellectual property, trade secrets, or confidential 

business information, including, but not limited to, technical data, negotiating positions, and 

sensitive and proprietary internal business communications. Indeed, the U.S. Chamber of 

Commerce in its submission states that the “U.S. industry does not believe there has been a full 

cessation of cyber enabled IP theft, and we urge the Trump Administration to ensure the Chinese 

government upholds the agreement.”1084

C. China’s Acts, Policies, and Practices Regarding Cybertheft of Intellectual 

Property Are Unreasonable

As described above, the statute defines an “unreasonable” act, policy, or practice as one that 

“while not necessarily in violation of, or inconsistent with, the international legal rights of the 

United States is otherwise unfair and inequitable.”1085 The statute expressly provides that acts, 

policies, or practices that are unreasonable includes those that deny fair and equitable provision 

of “adequate and effective protection of intellectual property rights notwithstanding the fact that 

the foreign country may be in compliance with the specific obligations of the Agreement on 

Trade-Related Aspects of Intellectual Property Rights.”1086

It is the longstanding policy of the United States, most recently reaffirmed in 2014 in 

Presidential Policy Directive 28 (PPD-28), that “[t]he collection of foreign private commercial 

information or trade secrets is authorized only to protect the national security of the United 

States or its partners and allies. It is not an authorized foreign intelligence or 

counterintelligence purpose to collect such information to afford a competitive advantage to 

U.S. companies or U.S. business sectors commercially.”

1087

In fact, China’s activities stand in contrast to domestic and international standards adopted 

around the world. Many countries prohibit and even criminalize the unauthorized intrusions 

into computer networks in certain circumstances, including intrusions that result in 

misappropriation of trade secrets.1088 Moreover, countries around the world have repeatedly 

condemned activities by government actors to misappropriate trade secrets for commercial

purposes. For example, leaders of the 21-member Asia-Pacific Economic Cooperation

(APEC), which includes China, in November 2016 “reaffirm[ed] that economies should not 

conduct or support information and communications technology (ICT)-enabled theft of 

intellectual property or other confidential business information, with the intent of providing 

 

1084 U.S. CHAMBER OF COMMERCE, Submission, Section 301 Hearing 38 (Oct. 3, 2017).

1085 19 U.S.C. § 2411(d)(3)(A).

1086 19 U.S.C. § 2411(d)(3)(B)(i)(II).

1087 Presidential Policy Directive – 2014 Directive on Signals Intelligence Activities, Daily Comp. Pres. Docs. 

Section 1(c) (Jan. 17th, 2014), https://obamawhitehouse.archives.gov/the-press-office/2014/01/17/presidentialpolicy-directive-signals-intelligence-activities.

1088See e.g., In the UK, Computer Misuse Act, 1990, § 1(1)(a); in Ireland, Criminal Damage Act, 1991, § 5(1); in 

Sweden, Lag (1990:409) Protection of Business Secrets Act and Brottsbalken [BrB][Criminal Code] 4:9c (Swed); in 

Italy, C.p. 615.ter; in Germany, Strafgesetzbuch [STGB][Penal Code] S (202)(2) and (303)(b); in Japan, 

[Unauthorized Computer Access Act], Law No. 128 of 1999, art. 3(2).
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competitive advantages to companies or commercial sectors.”

1089

 Similarly, in November 

2015, at the Antalya Summit, the G20 Leaders’ Communique stated: “In the ICT environment, 

just as elsewhere, states have a special responsibility to promote security, stability, and 

economic ties with other nations. In support of that objective, we affirm that no country should 

conduct or support ICT-enabled theft of intellectual property, including trade secrets or other 

confidential business information, with the intent of providing competitive advantages to 

companies or commercial sectors.”

1090

 

The fact that a wide group of countries, including China have condemned ICT-enabled theft of 

intellectual property by foreign governments reinforces the conclusion that government acts, 

policies, and practices involving cyber theft of trade secrets for a commercial purpose is 

unreasonable.

Claims that there is no meaningful distinction between the Chinese government’s cyber 

activities and that of other countries, including the United States, are not valid. China’s cyber 

intrusions are unique from those of Western market economies because the intrusions occur 

within the framework of China’s extensive state-driven economic development model, which 

has no parallel in Western market economies. Not only does the United States not rely on 

extensive industrial policy tools to identify specific commercial sectors and commercial 

technologies for development, the United States does not have national champions and stateowned enterprises to implement such policies. In other words, U.S. companies “do not have the 

advantage of leveraging government intelligence data for commercial gain.”1091

Moreover, China’s troubling track record of using cyber intrusion and cyber theft to target U.S. 

companies in sectors prioritized by China’s industrial policies is “hurting the case for free trade” 

because “[m]utually beneficial economic exchange occurs only when there is acceptance of the 

rule of law. If the legal protection of property rights is ignored, free exchange makes much less 

sense: One side just takes from the other.”1092

 

1089 Fact Sheet: 24th Annual APEC Economic Leaders’ Meeting ̧ White House Office of the Press Secretary (Nov. 

20, 2016), available at https://obamawhitehouse.archives.gov/the-press-office/2016/11/20/fact-sheet-24th-annualapec-economic-leaders-meeting. In addition, the APEC leaders adopted a series of best practices on trade secret 

protection and enforcement against misappropriation that recognizes that APEC economies should consider 

applying criminal liability for the willful theft of trade secrets that can arise through electronic intrusions for a 

commercial advantage. See https://ustr.gov/sites/default/files/11202016-US-Best-Practices-Trade-Secrets.pdf.

1090 G20 LEADERS' COMMUNIQUE, ANTALYA SUMMIT ¶26 (Nov. 2015), available at http://g20.org.tr/g20-leaderscommenced-the-antalya-summit/. In September 2017, the G7 issued the following G7 ICT and Industry Ministers' 

Declaration, “reaffirm[ing] that no country should conduct or support ICT-enabled infringement or misappropriation 

of intellectual property, including trade secrets or other confidential business information, with the intent of 

providing competitive advantages to companies or commercial sectors.” G7 ICT and Industry Ministers’ Declaration 

Making the Next Production Revolution Inclusive, Open and Secure (Sept. 26 2017). 

1091 Cyber Espionage and the Theft of U.S. Intellectual Property and Technology: Hearing Before the House of 

Representatives Committee on Energy and Commerce Subcommittee on Oversight and Investigations (July 9, 2013)

(statement of Larry M. Wortzel).

1092 Derek Scissors, Chinese Economic Espionage Is Hurting the Case for Free Trade, HERITAGE (Nov. 19, 2012),

http://www.heritage.org/trade/report/chinese-economic-espionage-hurting-the-case-free-trade.
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Based on the foregoing factors, China’s acts, policies, and practices of cyber intrusions into the 

computer networks of U.S. business and the theft of firms’ sensitive commercial information 

are unreasonable.

D. China’s Acts, Policies, and Practices Regarding Cybertheft of Intellectual 

Property Burden U.S. Commerce

China’s cyber intrusion and cyber theft activities harm U.S. business interests in a variety of 

ways. It can be difficult to assess the full burden on U.S. commerce because of chronic under 

reporting, companies being unaware that their network have been compromised or being unaware 

of the extent of the damage done. Nevertheless, a recent survey conducted by the Bureau of 

Industry and Security (BIS) contains the responses of more than 8,000 companies in the United 

States about the impact they face from malicious cyber activity from all sources. Respondents 

noted the following impacts in descending order:

Source: U.S. Department of Commerce, Bureau of Industry and Security, Ongoing Defense 

Industrial Base Assessment.

First and foremost, cyber intrusions and cyber theft damage company performance and 

competitiveness, and result in lost sales, lost revenue, disruption of supply chains, lost business 

opportunities, and failure to achieve return on investment. For example, SolarWorld in its

submission to USTR in connection with this investigation stated that the Chinese government’s 

cyber-theft of its proprietary business information “resulted in more than $120 million in 

damages in the form of lost sales and revenue” because Chinese producers entered the market 

29

32

54

83

113

140

148

173

264

649

825

930

0 200 400 600 800 1000

Exit from Foreign Markets/ Segments

Exit from Product/ Business Line

Theft of Software/ Source Code

Significant Change in R&D Strategy

Revised Approach to International Partnerships

Exfiltration of CSI

Damage to IT Infrastructure

Damage to Company Systems

Loss of Sales/ Business Interruption

Costs From Damage Assessment/Remediation

IT Downtime

Major New Investment in Cyber Security

Number of Respondents
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earlier than expected based on the proprietary information taken.1093 SolarWorld’s statement 

also provided the following:

The injury to SolarWorld and other solar manufacturers is particularly acute, given the 

[Chinese] government subsidized Chinese producers of solar cells and panels, who 

appear to have benefited from the stolen trade secrets, have been flooding the U.S. 

marked with dumped products, since 2012, driving nearly 30 U.S. companies out of 

business, and leaving the U.S. solar manufacturing industry on the brink of collapse.1094

At the hearing, Solar World America’s CEO, Jürgen Stein, testified:

[SolarWorld’s] efforts to stay ahead of the Chinese wave of illegally dumped and 

subsidized lower power and quality imports were thwarted by the hacking and theft of 

proprietary information about the [passivated emitter rear contact (PERC)] process that 

we had innovated. Between May and September 2012, exactly the time we brought this 

technology to mass production, SolarWorld's IT system was hacked 13 times by Chinese 

military hackers. Now, armed with our proprietary data and armed with our cost data, we 

saw our Chinese competitors leap overnight into PERC technology that we had innovated 

and with economic information that would unfairly enhance their positions in price 

negotiations.

By early 2014, a prominent Chinese-based solar rival, JA Solar, announced it was 

converting to PERC technology, and it began mass production of PERC in May of that 

year.1095 By early 2015, Chinese-based Trina announced its own PERC conversion and 

came to the market later that year with a comparable PERC technology.

While the five Chinese military hackers have never been brought to justice in this 

country, we firmly believe that were it not for their economic espionage and theft from 

SolarWorld Americas, Chinese solar producers like JA Solar and Trina would have taken 

far longer to make the leap into PERC technology. State-sponsored hacking and theft by 

China greatly weakened SolarWorld's first-mover status and again left SolarWorld 

vulnerable to China's relentless effort to take over the U.S. solar industry through the sale 

of solar cells and panels below the cost of production.1096

In a post-hearing submission to USTR, SolarWorld stated: 

Perhaps the greatest loss that SolarWorld has sustained, and continues to sustain, as a 

result of the Chinese government's cyberhacking is the unfair loss of its competitive 

advantage, thereby resulting in significant losses in market leadership, sales, and 

profitability.... SolarWorld has invested in significant R&D and in the application of new 

 

1093 SOLARWORLD, Submission, Section 301 Hearing 3-6 (Oct. 20, 2017) (“SolarWorld strongly believes that this 

[early entry of Chinese solar competitors] was the result of information stolen from SolarWorld’s systems and 

provided to SolarWorld’s Chinese competitors.”).

1094 SOLARWORLD. Submission, Section 301 Hearing 5-6 (Sept. 28, 2017).

1095 In its post-hearing submission, SolarWorld provided a correction that JA Solar announced it had launched its 

PERC product in October 2013. SOLARWORLD, Submission, Section 301 Hearing 5 (Oct. 20, 2017).

1096 Juergen Stein, SOLARWORLD, Testimony, Section 301 Hearing 76 (Oct. 10, 2017).
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technologies in its manufacturing process, all with the goal of moving solar technology 

forward and successfully competing with the unfairly-priced solar cell and module 

imports from manufacturers in Asia. These efforts, however, were lost almost overnight 

when Chinese state-backed actors infiltrated SolarWorld’s systems and stole its 

proprietary information. This loss has been devastating to SolarWorld. As explained in 

[SolarWorld CEO’s] testimony, SolarWorld worked for eight years on the development 

of the state-of-the-art Passivated Emitter Rear Contact (PERC) technology.' After years 

of R&D, SolarWorld became the first manufacturer to industrialize PERC cell 

production, an advantage, based on the price premium for the state-of-the-art technology 

and high-quality materials used to produce quality product, that we expected to remain 

for several years. Instead, SolarWorld's significant investments in this technology -

estimated at approximately $60 million in R&D and $600 million total in setting up all

production sites, equipment and processes – have been undercut by Chinese 

competitors.1097

As the SolarWorld example illustrates, Chinese cyber theft of commercially sensitive 

information often takes place in industries that the Chinese government has prioritized for statesupport, and the victims often operate in U.S. industries that are already suffering from the result 

of China’s other policy tools. 

Moreover, U.S. companies often lack effective recourse under U.S. or Chinese law after they 

have been a victim of a Chinese cyber intrusion or cyber theft to recover the damages they 

incurred from such activity. As described above, the practical and financial challenges of 

litigation prevented U.S. Steel from being able to seek legal relief against its well-funded 

Chinese SOE adversary in litigation.1098

In addition, there are significant remediation costs a company must incur after a cyber intrusion. 

Even if the hackers are ultimately unable to monetize all the information they have stolen, the 

victim must expend significant resources to deal with the potential implications. Cyber 

intrusions and cybertheft can lead to service disruptions that interrupt a firm’s sales or other 

operations.1099 According to one study, it takes on average 191 days to identify that a data 

breach has occurred, and 66 days to contain it.1100 Containing a data breach requires “forensic 

and investigative activities, assessment and audit services, crisis team management and 

communications to executive management and board of directors.”1101 

 

1097 SOLARWORLD, Submission, Section 301 Hearing 2-4 (Oct. 20, 2017).

1098 U.S. STEEL, Submission, Section 301 Hearing 2 (Sept. 28, 2017).

1099 MCAFEE, CSIS, THE ECONOMIC IMPACT OF CYBERCRIME AND CYBER ESPIONAGE 10 (July 2013).

1100 PONEMON INSTITUTE, 2017 COST OF DATA BREACH STUDY 3 (June 2017).

1101 PONEMON INSTITUTE, 2017 COST OF DATA BREACH STUDY 3 (June 2017). The report details these activities 

further: “Conducting investigations and forensics to determine the root cause of the data breach; Determining the 

probable victims of the data breach; Organizing the incident response team; Conducting communication and public 

relations outreach; Preparing notice documents and other required disclosures to data breach victims and regulators; 

Implementing call center procedures and specialized training.” Id. at 29.
V. Unauthorized Intrusions into U.S. Commercial Computer Networks and Cyber-Enabled Theft of Intellectual 

Property and Sensitive Commercial Information

176

Even after a data breach is contained, companies bear significant additional burdens including 

“legal expenditures . . . identity protection services and regulatory interventions.”1102

Reputational damage is also a burden that companies in many instances bear after experiencing 

cyber intrusion or cyber theft. After such breaches, experts observe that a company’s valuation 

may decrease from a drop in stock prices after the company publicly reports that it has been 

hacked.1103

At the macro-level, one study concluded that cyber intrusions and cyber theft have a significant 

impact on U.S. employment. A report by the Center for Strategic and International Studies 

(CSIS) and McAfee, found that cybercrime from all sources costs approximately 200,000 jobs 

annually in the United States.1104 According to CSIS, “Cybercrime is a tax on innovation and 

slows the pace of global innovation by reducing the rate of return to innovators and 

investors...For developed countries; cybercrime has serious implications for employment. The 

effect of cybercrime is to shift employment away from jobs that create the most value. Even small 

changes in GDP can affect employment.”1105

For all of the foregoing reasons, China’s cyber activities targeting U.S. companies poses 

significant costs on U.S. companies and burdens U.S. commerce.

 

1102 PONEMON INSTITUTE, 2017 COST OF DATA BREACH STUDY 3 (June 2017).

1103 MCAFEE, CSIS, THE ECONOMIC IMPACT OF CYBERCRIME AND CYBER ESPIONAGE at 12-13. The report notes that 

valuation drops typically do not appear to be permanent; however, financial transactions and lost expectations 

occurring during the window of any valuation drop would reasonably have an impact on the firm.

1104 Press Release, McAfee and CSIS: Stopping Cybercrime Can Positively Impact World Economies (June 9, 

2014), https://www.mcafee.com/us/about/news/2014/q2/20140609-01.aspx.

1105 Press Release, McAfee and CSIS: Stopping Cybercrime Can Positively Impact World Economies (June 9, 

2014), https://www.mcafee.com/us/about/news/2014/q2/20140609-01.aspx. 
177

VI. Other Acts, Policies, and Practices of China 

A. Introduction

The Federal Register Notice also invited comments from interested parties on other acts, policies 

and practices of China relating to technology transfer, intellectual property (IP), and innovation 

that might be included in this investigation, and/or might be addressed through other applicable 

mechanisms.1106 The following issues were cited by interested parties as acts, policies, and 

practices of China that may warrant investigation. While the following actions may well meet 

the Section 301 standards of unreasonable or discriminatory acts, policies, and practices that 

burden or restrict U.S. commerce, this investigation does not make that determination. These 

matters warrant further investigation. Going forward, USTR will identify the best tools to 

address them including, but not limited to, more intensive bilateral engagement, WTO dispute 

settlement, and/or additional Section 301 investigations.

 

1. Measures Purportedly Related to National Security or Cybersecurity

Stakeholders report that China increasingly is incorporating into its commercial regulations 

protections allegedly needed for “national security” or “cybersecurity” purposes.

1107 Many of 

China’s regulations are new or in draft form and their effect on U.S. companies is still coming 

into view. Companies have raised particular concerns about the Cybersecurity Law of the 

People’s Republic of China (Cybersecurity Law). The Cybersecurity Law, which came into 

effect in June 2017, generally establishes security reviews for a broad range of IT products and 

services1108; imposes restrictions on the cross-border flow of data; requires data localization for 

certain parties and types of data; and authorizes the development of national cybersecurity 

standards that exceed the burden and scope of international standards.1109

The Cybersecurity Law’s provision requiring the implementation of a cybersecurity-specific 

multilevel protection scheme for information and communications technology (ICT) products 

used in network security appears to reinforce China’s Regulations on Classified Protection of 

Information Security, also known as the Multi-Level Protection Scheme (MLPS), about which 

 

1106 See Appendix A.

1107 These cyber-security measures/protections include: Administrative Measures for New Internet Services Security 

Assessments (Draft), Baseline for Cybersecurity Classified Protection: Special Security Requirements for Mobile 

Interconnection (Draft), Catalogue of Network (Cyber) Critical Equipment and Cybersecurity Specific Products, 

Controllability Evaluation Index for Security of Information Technology Products, Part 1: General Principles 

(Draft), Controllability Evaluation Index for Security of Information Technology Products, Part 2: Central 

Processing Unit (Draft), Controllability Evaluation Index for Security of Information Technology Products, Part 5: 

General Purpose Computer (Draft), Cryptography Law of the People’s Republic of China (Draft), Cybersecurity 

Law, National Security Law of the People’s Republic of China, Key Network and Specialized Equipment Security 

Products Catalogue, Regulations on Classified Protection of Information Security (MLPS), and Information 

Security Technology – Security Controllable Level Evaluation Index of Information Technology Products: Part 2: 

Central Processing Unit (Draft).

1108 For a discussion of security review processes and requirements for disclosure of sensitive information, see

Section II.C. of this report.

1109 See, e.g., NAT’L FOREIGN TRADE COUNCIL [hereinafter “NFTC”], Submission, Section 301 Hearing 4 (Sept. 28, 

2017) (explaining that particularly with respect to cloud service providers, China is the only country addressing 

national security concerns by pressuring the transfer of technology).
VI. Other Acts, Policies, and Practices of China

178

the United States has expressed concern since adoption in 2007.

1110

 In general, the MLPS is a 

system that classifies ICT products and components according to their level of national security. 

It is reportedly aimed at promoting indigenous innovation by mandating that products used in 

Chinese information networks at a certain level of national security importance be developed and 

produced by entities owned or controlled by the government.1111 

With regard to data localization, a number of interested parties discussed Chinese policies that 

require certain “critical information infrastructure providers” to store their data on servers in 

China.1112 As the U.S. Chamber of Commerce explained, if a foreign company is forced to 

localize a valuable set of data or information in China, whether for R&D purposes or simply to 

conduct their business, it will have to assume a significant amount of risk that its data or 

information may be misappropriated or misused, especially given the environment in China, 

where companies face significant legal and other uncertainties when they try to protect their data 

and information.

1113

 As noted further, “Chinese laws, such as the National Security, 

Cybersecurity, and recently passed National Intelligence Laws, give authorities expansive 

latitude to gain access to companies’ physical facilities and digital information.”1114

Fears about data misappropriation are also raised by Article 37 of the Cybersecurity Law, which 

prohibits critical information infrastructure operators from exporting “personal information” or 

“important data” unless they have first gone through a security assessment. While some other 

jurisdictions require companies to ensure an adequate level of protection for personal 

information transferred abroad, typically these rules are strictly limited to personal information. 

An extension to “important data” would therefore appear to sweep in much of the business data 

that is otherwise routinely and freely transferred cross-border by multinationals operating in 

other jurisdictions.

1115 Moreover, as the general scope of these security assessments is still being 

defined, it remains worth monitoring whether China will ultimately impose stricter requirements 

for “personal information” exports than what is now found in international practice.

Stakeholders also raised concerns with China’s encryption regulations and the China 

Compulsory Certification (CCC) testing regime for information security products. While these 

measures have been in force since 2009, until 2017 they were limited to companies seeking to 

sell to China’s government. However, in June 2017, the Cybersecurity Administration of China 

 

1110 INFORMATION TECHNOLOGY & INNOVATION FOUNDATION [hereinafter “ITIF”], Submission, Section 301 

Hearing (Sept. 28, 2017).

1111 U.S. CHAMBER OF COMMERCE [hereinafter “U.S. Chamber”], Submission, Section 301 Hearing 32 (Oct. 3, 

2017); SEMICONDUCTOR INDUSTRY ASS’N [hereinafter “SIA”], Submission, Section 301 Hearing 11-2 (Oct. 5, 

2017).

1112 The definition given for “critical information infrastructure operators” in the Cybersecurity Law (adopted by the 

Twentieth Session of the Twelfth NPC on Nov. 7, 2016, effective June 1, 2017) is vague and it is unclear how 

broadly it will be interpreted. See Cybersecurity Law, art. 31 (“The national government, on the basis of a network 

security level protection system, will prioritize protection of important industries and fields including public 

communications and information services, energy, transport, water utilities, finance, public services, and egovernment affairs, as well as other critical information infrastructure that may result in serious damage to national 

security, people’s livelihoods, and the public interest as soon as it is destroyed, loses its functionality or experiences 

a data breach.”).

1113 See, e.g., U.S. CHAMBER, Submission, Section 301 Hearing 33-4 (Oct. 3, 2017). 

1114 See, e.g., U.S. CHAMBER, Submission, Section 301 Hearing 10, 34 (Oct. 3, 2017). 

1115 U.S. CHAMBER, Submission, Section 301 Hearing 10, 34 (Oct. 3, 2017). 
VI. Other Acts, Policies, and Practices of China

179

released the Catalogue of Critical Network Equipment and Network Security Products (First 

Batch),

1116 which expanded the restrictions beyond government procurement to 15 categories of 

commercial products, including routers, anti-spam software, servers, and other technology 

products.1117 These and other final and draft regulations raise substantial concerns for U.S. 

stakeholders.

2. Inadequate Intellectual Property Protection 

Inadequate protection of IP has been a top concern for American companies doing business in 

China for many years.1118 Stakeholders identified numerous IP protection problems including 

trade secret theft1119 and bad faith trademarking.1120 With regard to patents, stakeholders also 

asserted that Chinese government-owned entities were responsible for substantial 

infringement.1121 Stakeholders were further concerned about widespread counterfeiting in China

and the distribution of counterfeit products over the Internet.1122 Counterfeiting occurs in a wide 

 

1116 Four Department Notice on Announcing the Catalogue of Critical Network Equipment and Network Security 

Products (First Batch) (National Internet Information Office, MIIT, Public Security Bureau, Certification and 

Accreditation Administration, issued June 1, 2017).

1117 TELECOMMUNICATIONS INDUSTRY ASS’N [hereinafter “TIA”], Submission, Section 301 Hearing 3 (Sept. 28, 

2017).

1118 See e.g., AM. BAR ASS’N [hereinafter “ABA IPL”], Submission, Section 301 Hearing 2 (Sept. 27, 2017); ABRO 

INDUSTRIES [hereinafter “ABRO”], Submission, Section 301 Hearing 1 (Sept. 28, 2017); AM. APPAREL &

FOOTWEAR ASS’N [hereinafter “AAFA”], Submission, Section 301 Hearing 2, 4 (Sept. 28, 2017); AM. BRIDAL &

PROM INDUSTRY ASS’N [hereinafter “ABPIA”], Submission, Section 301 Hearing 2-3 (Sept. 28, 2017); AM 

CHAMBER OF COMMERCE SHANGHAI [hereinafter “Am. Cham. Shanghai”], Submission, Section 301 Hearing 1 

(Sept. 28, 2017); AM. CHEMISTRY COUNCIL [hereinafter “ACC”], Submission, Section 301 Hearing 3 (Sept. 27, 

2017); AM. SUPERCONDUCTOR CORP. [hereinafter “AMSC”], Submission, Section 301 Hearing 2-3 (Sept. 28, 

2017); BIOTECHNOLOGY INNOVATION ORG. [hereinafter “BIO”], Submission, Section 301 Hearing 1-2 (Sept. 28, 

2017); BONUMOSE BIOCHEM [hereinafter “Bonumose”], Submission, Section 301 Hearing 3-4 (Sept. 27, 2017); LEE 

BRANSTETTER, Submission, Section 301 Hearing 4 (Sept. 28, 2017); Stephen Zirschky, Submission, Section 301 

Hearing 2 (Sept. 28, 2017); BSA THE SOFTWARE ALLIANCE [hereinafter “BSA”], Submission, Section 301 Hearing

2 (Sept. 28, 2017); JACK CHANG, Submission, Section 301 Hearing 4 (Sept. 28, 2017); COMPTIA, Submission, 

Section 301 Hearing 2 (Sept. 28, 2017); CONGRESSMAN PASCRELL, Submission, Section 301 Hearing 4 (Sept. 28, 

2017); CONSUMER TECHNOLOGY ASS’N [hereinafter “CTA”], Submission, Section 301 Hearing 2 (Sept. 28, 2017); 

James Lewis, CENTER FOR STRATEGIC & INT’L. STUDIES [hereinafter “CSIS”], Submission, Section 301 Hearing 6 

(Sept. 27, 2017); DAIS ANALYTIC CORP. [hereinafter “Dais”], Submission, Section 301 Hearing 2 (Sept. 27, 2017); 

COMM’N ON THE THEFT OF INTELLECTUAL PROPERTY [hereinafter “IP Commission”], Submission, Section 301 

Hearing 3 (Sept. 28, 2017); MOTOR & EQUIPMENT MANUFACTURERS ASS’N [hereinafter “MEMA”], Submission, 

Section 301 Hearing 2 (Sept. 28, 2017); MICHELMAN, Submission, Section 301 Hearing 2 (Oct. 6, 2017); NAT’L. 

ASS’N OF MANUFACTURERS [hereinafter “NAM”], Submission, Section 301 Hearing 2 (Sept. 28, 2017); NFTC, 

Submission, Section 301 Hearing 2 (Sept. 28, 2017); PHRMA, Submission, Section 301 Hearing 2 (Sept. 22, 2017); 

SIA, Submission, Section 301 Hearing 1 (Oct. 5, 2017); STEWART & STEWART, Submission, Section 301 Hearing 2 

(Sept. 28, 2017); U.S. CHAMBER, Submission, Section 301 Hearing 5 (Oct. 3, 2017); U.S. CHINA BUSINESS COUNCIL

[hereinafter “USCBC”], Submission, Section 301 Hearing 2 (Sept. 28, 2017); U.S. COUNCIL FOR INT’L BUSINESS

[hereinafter “USCIB”], Submission, Section 301 Hearing 1-2 (Sept. 28, 2017); WILEY REIN, Submission, Section 

301 Hearing 12, 14 (Sept. 28, 2017). 

1119 SIA, Submission, Section 301 Hearing 15-16 (Oct. 5, 2017); ABA IPL, Submission, Section 301 Hearing 3-4 

(Sept. 27, 2017).

1120 CTA, Submission, Section 301 Hearing 3-4 (Sept. 28, 2017).

1121 CATHERINE LIN-HENDEL, Submission, Section 301 Hearing (Aug. 28, 2017); SKADDEN, ARPS. SLATE,

MEAGHER & FLOM LLP [hereinafter “Skadden”], Submission, Section 301 Hearing 20 (Sept. 28, 2017). 

1122 AAFA, Submission, Section 301 Hearing 2, 4 (Sept. 28, 2017); ABPIA, Submission, Section 301 Hearing 1-2

(Sept. 28, 2017).
VI. Other Acts, Policies, and Practices of China

180

range of product categories, including medicines, consumer electronics, toys, computer 

accessories, clothing and footwear, formalwear, automobile parts, and semiconductors.1123

Stakeholders also raised concerns over inadequate IP enforcement mechanisms available in 

China. Although some stakeholders submit that the legal framework has improved, many 

reported substantial obstacles to civil enforcement and ineffective and inconsistent criminal and 

administrative enforcement by the government of China.1124 Stakeholders further stated that 

enforcement problems are exacerbated by insufficient governmental coordination, insufficient 

political will by Chinese officials, and inadequate resources and capacity to address IP 

problems.1125

3. China’s Anti-Monopoly Law

A number of submissions asserted that China uses the Anti-Monopoly Law of the People’s 

Republic of China (AML) as a means to obtain U.S. IP, citing as examples the AML agencies’ 

multiple draft guidelines. Other submissions raised general concern regarding use of the AML 

for industrial policy purposes, and several complained about poor procedural protections in 

enforcement of the AML and about certain enforcement actions allegedly addressing abuse of 

dominance in the exercise of IP rights. 

In regard to the concerns raised on IP guidelines, submissions cited the State Administration of 

Industry Commerce (SAIC) 2015 Rules on the Prohibition of Conduct Eliminating or Restricting 

Competition by Abusing Intellectual Property Rights (SAIC Rules) and the March 2017 draft 

State Council Anti-Monopoly Commission Guidelines Against Abuse of Intellectual Property 

Rights (Guidelines).1126 For example, there were concerns with Article 7 of the SAIC Rules, 

which recognizes IP as an “essential facility,” with one submission noting that this provision 

could allow SAIC to treat any unilateral refusal to license as an “abuse of IPR.”1127

In regard to enforcement, several submissions asserted that Chinese AML authorities use the 

AML as a tool to advance industrial policy rather than to protect competition.1128 While some 

submissions noted improvements in AML enforcement, they also noted continued concerns with 

 

1123 See, e.g., COMPTIA, Submission, Section 301 Hearing 7 (Sept. 28, 2017); CHINA CHAMBER OF INTERNATIONAL

COMMERCE [hereinafter “CCOIC”], Submission, Section 301 Hearing 24-9 (Sept. 26, 2017); ABPIA, Submission, 

Section 301 Hearing 1 (Sept. 28, 2017); U.S. CHAMBER, Submission, Section 301 Hearing 36 (Oct. 3, 2017).

1124 ABA IPL, Submission, Section 301 Hearing 2, 4 (Sept. 27, 2017); CTA, Submission, Section 301 Hearing 4 

(Sept. 28, 2017); MEMA, Submission, Section 301 Hearing 3-4 (Sept. 28, 2017); NAM, Submission, Section 301 

Hearing 13-4 (Sept. 28, 2017); USCBC, Submission, Section 301 Hearing 2 (Sept. 28, 2017).

1125 MEMA Submission, Section 301 Hearing 3-4 (Sept. 28, 2017); NAM, Submission, Section 301 Hearing 13-4 

(Sept. 28, 2017). 

1126 See, e.g., Stephen Ezell, ITIF, Testimony, Section 301 Hearing 21 (Oct. 10, 2017); NAM, Submission, Section 

301 Hearing 9, 13 (Sept. 28, 2017).

1127

 SIA, Submission, Section 301 Hearing 13 (Oct. 5, 2017).

1128 See, e.g., USCIB, STATEMENT ON CHINA’S COMPLIANCE WITH ITS WTO COMMITMENTS 15 (Sept. 20, 2017); 

USCIB, Submission, Section 301 Hearing 1-2 (Sept. 28, 2017).
VI. Other Acts, Policies, and Practices of China

181

transparency and due process,1129 and alleged discriminatory enforcement against certain foreign 

companies.1130 

4. China’s Standardization Law

According to stakeholder submissions, China’s recently enacted Amendments to the 

Standardization Law of the People’s Republic of China (Standardization Law Amendments) raise 

concerns related to whether U.S. companies will be required to transfer valuable IP or license it 

on non-market terms as a condition of participation in standards setting bodies.

1131

 Stakeholders 

assert that the amendments impose unique and potentially damaging requirements on enterprises 

to publicly disclose functional indicators and performance indicators of their products or 

services, which may result in unnecessary costs and risks.1132 Furthermore, the Amendments 

reportedly endorse a preference for indigenous innovation in Chinese standards, to the detriment 

of U.S. and other non-Chinese companies.

1133

 

5. Talent Acquisition

Certain participants in the investigation emphasized the challenges posed by China’s acquisition 

of U.S. engineers and other professional employees in technology-related companies. For 

instance, the Semiconductor Industry Association (SIA) has observed a “notable shift from 

M&A to a more sophisticated process of acquiring hundreds of talented engineers and managers 

from foreign companies.”1134 As SIA explains:

It has been reported that Chinese state-owned firms have been highly successful in 

recruiting this high-tech engineering talent, which is enabled by massive Chinese 

government subsidies that allow for salaries to be offered at high, non-market rates. 

Often high-level managers are lured away from target companies with compensation 

packages four or five times the market rates. These managers then target key former 

employees in technology development, manufacturing and facilities, promising outsized 

compensation.1135

The Chinese government has issued a number of medium- and long-term plans for talent 

development,1136 while pursuing initiatives that actively encourage the recruitment of foreign 

 

1129 AM. CHAMBER OF COMMERCE CHINA, 2017 AMCHAM CHINA WHITE PAPER 38 (2017).

1130 See, e.g., USCIB, Submission, Section 301 Hearing 2 (Sept. 28, 2017); WILEY REIN, Submission, Section 301 

Hearing 6-8 (Sept. 28, 2017); IP COMM’N, Submission, Section 301 Hearing 8 (Sept. 28, 2017). 

1131 U.S. CHAMBER, Submission, Section 301 Hearing 26 (Oct. 3, 2017); WILEYREIN, Submission, Section 301 

Hearing 6-7 (Sept. 28, 2017).

1132 U.S. CHAMBER, Submission, Section 301 Hearing 26 (Oct. 3, 2017).

1133 PRC Standardization Law Amendments, art. 20 (promulgated by the Fifth Session of the Twelfth NPC on Dec. 

29, 1988, amended by the Thirtieth Session of the Twelfth NPC on Nov. 4, 2017).

1134 SIA, Submission, Section 301 Hearing 15 (Oct. 5, 2017).

1135 SIA, Submission, Section 301 Hearing 15-6 (Oct. 5, 2017).

1136 For instance, to improve the quality of high-skilled labor in the economy, the CCP Central Committee and the 

State Council issued the Outline of the National Medium- and Long-Term Talent Development Plan in 2010. See 

Outline of the National Medium- and Long-Term Talent Development Plan (CCP Central Committee and State 

Council, Zhong Fa [2010] No. 6, issued Apr. 1, 2010); Wang Huiyao, CHINA’S NATIONAL TALENT PLAN: KEY 

MEASURES AND OBJECTIVES, BROOKINGS INSTITUTE, 23 (Nov. 2010).
VI. Other Acts, Policies, and Practices of China

182

talent and Chinese persons overseas to boost national competitiveness. These plans establish 

specific targets for attracting “talented” individuals and cut across technical specializations, 

finance, and high-technology domains.1137

China’s talent acquisition activities are global in their scope and scale, but reportedly have been 

particularly concentrated in top U.S. universities and Silicon Valley. With support from various 

government programs and entities, notably the China Association of Science and Technology, 

Chinese enterprises reportedly have begun establishing “talent bases” in China and the United 

States to support cutting-edge R&D and the active recruitment of top talent. For instance, 

Chinese government plans prioritize the pursuit of human capital in artificial intelligence 

(AI).

1138 And, as the SIA submission indicates, Chinese companies have reportedly lured top 

talent from foreign companies by paying well above market compensation—enabled by 

government financing, direction, and support.1139 These activities may provide a key conduit for 

technology transfer from the United States to China.

B. Conclusion

USTR acknowledges the importance of these issues and agrees with stakeholders that the matters 

warrant further investigation. A number of concerns of this nature have previously been raised 

in USTR’s annual proceedings under Special 301 and the annual review of China’s WTO 

accession compliance. A range of tools may be appropriate to address these serious matters 

including more intensive bilateral engagement, WTO dispute settlement, and/or additional 

Section 301 investigations. 

 

1137 See, e.g., Notice on Issuing the “Medium- and Long-Term Financial Sector Talent Development Plan” (People’s 

Bank of China, China Banking Regulatory Commission, China Securities Regulatory Commission, China Insurance 

Regulatory Commission, Yin Fa [2011] No. 18, promulgated Jan. 24, 2011); Notice on Launching Stage-Wise 

Evaluation Work for the “Medium- and Long-Term Plan to Establish Technical Specialization Talent Teams (2010-

2020) (Ministry of Human Resources and Social Security, promulgated on May 27, 2013); Medium- and Long-Term

Plan to Establish High-Skilled Talent Teams (Ministry of Human Resources and Social Security, promulgated in 

2011).

1138 State Council Notice on the Issuance of the New Generation Artificial Intelligence Development Plan (State 

Council, Guo Fa [2017] No. 35, promulgated on July 8, 2017), available at

http://www.gov.cn/zhengce/content/2017-07/20/content_5211996.htm; see also An Overview of Overseas Offshore 

Talent Innovation Base, CAST, http://www.cast.org.cn/n200675/n202200/n202372/c400650/content.html.

1139 SIA, Submission, Section 301 Hearing 15-6 (Oct. 5, 2017); Huang Yijun, Chen Liangrong, He Yunting, 

Interview with Ziguang Group Chairman Zhao Weiguo, TIANXIA NEWS, Nov. 1, 2015; Taiwan Semiconductor 

Leader Jumps to the Mainland, INITIUM MEDIA, Oct. 7, 2015; David Manners, Micron Sues Ex-Employees Working 

for China DRAM Companies, ELECTRONICS WEEKLY, Apr. 7, 2017. 
APPENDIX A
Federal Register / Vol. 82, No. 163 / Thursday, August 24, 2017 / Notices 40213 

ADDRESSES: Submit completed loan 

applications to: U.S. Small Business 

Administration, Processing And 

Disbursement Center, 14925 Kingsport 

Road, Fort Worth, TX 76155. 

FOR FURTHER INFORMATION CONTACT: A. 

Escobar, Office of Disaster Assistance, 

U.S. Small Business Administration, 

409 3rd Street SW., Suite 6050, 

Washington, DC 20416, (202) 205–6734. 

SUPPLEMENTARY INFORMATION: The notice 

of an Administrative declaration for the 

State of CALIFORNIA, dated 07/31/ 

2017, is hereby amended to establish the 

incident closing date as 08/01/2017. 

Incident: Detwiler Fire. 

Incident Period: 07/16/2017 through 

08/01/2017. 

All other information in the original 

declaration remains unchanged. 

(Catalog of Federal Domestic Assistance 

Number 59008) 

Linda E. McMahon, 

Administrator. 

[FR Doc. 2017–17915 Filed 8–23–17; 8:45 am] 

BILLING CODE 8025–01–P 

OFFICE OF THE UNITED STATES 

TRADE REPRESENTATIVE 

[Docket No. USTR–2017–0016] 

Initiation of Section 301 Investigation; 

Hearing; and Request for Public 

Comments: China’s Acts, Policies, and 

Practices Related to Technology 

Transfer, Intellectual Property, and 

Innovation 

AGENCY: Office of the United States 

Trade Representative. 

ACTION: Notice of initiation of 

investigation; hearing; and request for 

comments. 

SUMMARY: The United States Trade 

Representative has initiated an 

investigation pursuant to the Trade Act 

of 1974, as amended (the Trade Act), to 

determine whether acts, policies, and 

practices of the Government of China 

related to technology transfer, 

intellectual property, and innovation are 

actionable under the Trade Act. The 

inter-agency Section 301 Committee is 

holding a public hearing and seeking 

comments in connection with this 

investigation. 

DATES: The United States Trade 

Representative initiated the 

investigation on August 18, 2017. The 

schedule and due dates are as follows: 

To be assured of consideration, 

written comments and requests to 

appear at the hearing must be submitted 

by Thursday, September 28, 2017 at 

11:59 p.m. The request to appear must 

include a summary of testimony. 

Tuesday, October 10, 2017: The 

Section 301 Committee will convene a 

public hearing in the main hearing room 

of the U.S. International Trade 

Commission, 500 E Street SW., 

Washington, DC 20436, beginning at 

9:30 a.m. If necessary, the hearing may 

continue on the next business day. 

To be assured of consideration, posthearing rebuttal comments must be 

submitted by Friday, October 20, 2017 

at 11:59 p.m. 

ADDRESSES: You should submit written 

comments through the Federal 

eRulemaking Portal: http://

www.regulations.gov. Follow the 

instructions for submitting comments in 

section II below. For alternatives to online submissions, please contact 

Gwendolyn Diggs at (202) 395–3150 

before transmitting a comment and in 

advance of the relevant deadline. 

FOR FURTHER INFORMATION CONTACT: For 

procedural questions concerning written 

comments or participating in the public 

hearing, contact Gwendolyn Diggs at 

(202) 395–3150. Direct all other 

questions regarding this notice to 

William Busis, Deputy Assistant U.S. 

Trade Representative for Monitoring 

and Enforcement and Chair of the 

Section 301 Committee, or Katherine 

Linton and Arthur Tsao, Assistant 

General Counsels at (202) 395–3150. 

SUPPLEMENTARY INFORMATION

A. The President’s Memorandum 

On August 14, 2017, the President 

issued a Memorandum (82 FR 39007) to 

the United States Trade Representative 

stating inter alia: 

China has implemented laws, policies, and 

practices and has taken actions related to 

intellectual property, innovation, and 

technology that may encourage or require the 

transfer of American technology and 

intellectual property to enterprises in China 

or that may otherwise negatively affect 

American economic interests. These laws, 

policies, practices, and actions may inhibit 

United States exports, deprive United States 

citizens of fair remuneration for their 

innovations, divert American jobs to workers 

in China, contribute to our trade deficit with 

China, and otherwise undermine American 

manufacturing, services, and innovation. 

The Memorandum included the 

following instruction: 

The United States Trade Representative 

shall determine, consistent with section 

302(b) of the Trade Act of 1974 (19 U.S.C. 

2412(b)), whether to investigate any of 

China’s laws, policies, practices, or actions 

that may be unreasonable or discriminatory 

and that may be harming American 

intellectual property rights, innovation, or 

technology development. 

Pursuant to the President’s 

Memorandum, on August 18, 2017, the 

United States Trade Representative 

initiated an investigation under section 

302(b) of the Trade Act (19 U.S.C. 

2412(b)) to determine whether acts, 

policies, and practices of the 

Government of China related to 

technology transfer, intellectual 

property, and innovation are 

unreasonable or discriminatory and 

burden or restrict U.S. commerce. 

B. The Chinese Government’s Acts, 

Policies and Practices 

The acts, policies and practices of the 

Government of China directed at the 

transfer of U.S. and other foreign 

technologies and intellectual property 

are an important element of China’s 

strategy to become a leader in a number 

of industries, including advancedtechnology industries, as reflected in 

China’s ‘‘Made in China 2025’’ 

industrial plan, and other similar 

industrial policy initiatives. The 

Chinese government’s acts, policies, and 

practices take many forms. The 

investigation initially will consider the 

following specific types of conduct: 

First, the Chinese government 

reportedly uses a variety of tools, 

including opaque and discretionary 

administrative approval processes, joint 

venture requirements, foreign equity 

limitations, procurements, and other 

mechanisms to regulate or intervene in 

U.S. companies’ operations in China, in 

order to require or pressure the transfer 

of technologies and intellectual property 

to Chinese companies. Moreover, many 

U.S. companies report facing vague and 

unwritten rules, as well as local rules 

that diverge from national ones, which 

are applied in a selective and nontransparent manner by Chinese 

government officials to pressure 

technology transfer. 

Second, the Chinese government’s 

acts, policies and practices reportedly 

deprive U.S. companies of the ability to 

set market-based terms in licensing and 

other technology-related negotiations 

with Chinese companies and undermine 

U.S. companies’ control over their 

technology in China. For example, the 

Regulations on Technology Import and 

Export Administration mandate 

particular terms for indemnities and 

ownership of technology improvements 

for imported technology, and other 

measures also impose non-market terms 

in licensing and technology contracts. 

Third, the Chinese government 

reportedly directs and/or unfairly 

facilitates the systematic investment in, 

and/or acquisition of, U.S. companies 

and assets by Chinese companies to 

obtain cutting-edge technologies and 


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40214 Federal Register / Vol. 82, No. 163 / Thursday, August 24, 2017 / Notices 

intellectual property and generate largescale technology transfer in industries 

deemed important by Chinese 

government industrial plans. 

Fourth, the investigation will consider 

whether the Chinese government is 

conducting or supporting unauthorized 

intrusions into U.S. commercial 

computer networks or cyber-enabled 

theft of intellectual property, trade 

secrets, or confidential business 

information, and whether this conduct 

harms U.S. companies or provides 

competitive advantages to Chinese 

companies or commercial sectors. 

In addition to these four types of 

conduct, interested parties may submit 

for consideration information on other 

acts, policies and practices of China 

relating to technology transfer, 

intellectual property, and innovation 

described in the President’s 

Memorandum that might be included in 

this investigation, and/or might be 

addressed through other applicable 

mechanisms. 

C. Relevant Provisions of the Trade Act 

Section 302(b)(1)(A) of the Trade Act 

authorizes the United States Trade 

Representative to initiate an 

investigation to determine whether 

conduct is actionable under section 301 

of the Trade Act. 

Actionable conduct under section 

301(b)(1) includes, inter alia, acts, 

policies and practices of a foreign 

country that are unreasonable or 

discriminatory and burden or restrict 

U.S. commerce. Unreasonable actions 

are those that while not necessarily in 

violation of, or inconsistent with, the 

international legal rights of the United 

States are otherwise unfair and 

inequitable. 

Pursuant to section 302(b)(1)(B), the 

United States Trade Representative has 

consulted with appropriate advisory 

committees. The United States Trade 

Representative also has consulted with 

members of the inter-agency Section 301 

Committee. On the date of initiation, the 

United States Trade Representative 

requested consultations with the 

Government of China concerning the 

issues under investigation, pursuant to 

section 303(a)(1) of the Trade Act (19 

U.S.C. 2413(a)(1)). 

Pursuant to section 304(a)(2)(B) of the 

Trade Act, 19 U.S.C. 2414(a)(2)(B), the 

United States Trade Representative 

must determine within 12 months from 

the date of initiation of the investigation 

whether any act, policy, or practice 

described in section 301 of the Trade 

Acts exists and, if that determination is 

affirmative, what action, if any, to take. 

II. Request for Comments and To 

Testify at the Hearing 

A. Topics and Schedule 

The Office of the U.S. Trade 

Representative (USTR) invites written 

comments on: 

1. The acts, policies, and practices of 

the Chinese government described in 

Section I.B above. 

2. Information on other acts, policies 

and practices of China relating to 

technology transfer, intellectual 

property, and innovation as described in 

the President’s Memorandum, which 

might be included in this investigation, 

and/or might be addressed through 

other applicable mechanisms. 

3. The nature and level of burden or 

restriction on U.S. commerce caused by 

the applicable acts, policies and 

practices of the Government of China, 

and/or any economic assessment of that 

burden or restriction. 

4. The determinations required under 

section 304 of the Trade Act, that is, 

whether actionable conduct exists under 

section 301(b) and what action, if any, 

should be taken. 

To be assured of consideration, USTR 

must receive initial written comments 

by 11:59 p.m. on September 28, 2017, in 

accordance with the instructions in 

section II.B below. 

The Section 301 Committee will 

convene a public hearing in the main 

hearing room of the U.S. International 

Trade Commission, 500 E Street SW., 

Washington DC 20436, beginning at 9:30 

a.m. on October 10, 2017. Persons 

wishing to appear at the hearing must 

provide written notification of their 

intention and a summary of the 

proposed testimony by 11:59 p.m. on 

September 28, 2017, in accordance with 

the instructions in section II.B below. 

Remarks at the hearing may be no longer 

than five minutes to allow for possible 

questions from the Section 301 

Committee. The deadline for submission 

of post-hearing rebuttal comments is 

11:59 p.m. on October 20, 2017. 

Indicate in the ‘‘Type Comment’’ field 

if you are submitting a request to appear 

at the hearing, and include the name, 

address and telephone number of the 

person presenting the testimony. A 

summary of the testimony should be 

attached by using the ‘‘Upload File’’ 

field. The file name should include the 

name of the person who will be 

presenting the testimony. 

B. Requirements for Submissions 

Persons submitting a notification of 

intent to testify, a summary of 

testimony, or written comments must do 

so in English, and must identify this 

matter (on the reference line of the first 

page of the submission) as ‘‘Section 301 

Investigation: China’s Acts, Policies, 

and Practices Related to Technology 

Transfer, Intellectual Property, and 

Innovation.’’ 

To be assured of consideration, you 

must submit written comments, requests 

to testify, and summaries of testimony 

by 11:59 p.m. on September 28, 2017. 

The deadline for submitting rebuttal 

comments is 11:59 p.m. on October 20, 

2017. 

All submissions must be in English 

and sent electronically via 

www.regulations.gov using docket 

number USTR–2017–0016. You must 

make any alternative arrangements in 

advance of the relevant deadline and 

before transmitting a comment by 

contacting Gwendolyn Diggs at (202) 

395–3150. 

To make a submission via 

www.regulations.gov, enter Docket 

Number USTR–2017–0016 on the home 

page and click ‘‘Search.’’ The site will 

provide a search-results page listing all 

documents associated with this docket. 

Find the reference to this notice and 

click on the button labeled ‘‘Comment 

Now.’’ For further information on using 

the www.regulations.gov Web site, 

please consult the resources provided 

on the Web site by clicking on ‘‘How to 

Use Regulations.gov’’ on the bottom of 

the home page. 

The www.regulations.gov Web site 

allows users to provide comments by 

filling in a ‘‘Type Comment’’ field, or by 

attaching a document using an ‘‘Upload 

File’’ field. USTR prefers that you 

provide submissions as an attached 

document. If a document is attached, it 

is sufficient to type ‘‘see attached’’ in 

the ‘‘Type Comment’’ field. USTR 

prefers submissions in Microsoft Word 

(.doc) or Adobe Acrobat (.pdf) format. If 

the submission is in another file format, 

please indicate the name of the software 

application in the ‘‘Type Comment’’ 

field. File names should reflect the 

name of the person or entity submitting 

the comments. 

Indicate in the ‘‘Type Comment’’ field 

if you are submitting a request to appear 

at the hearing, and include the name, 

address and telephone number of the 

person presenting the testimony. The 

file name should include who will be 

presenting the testimony. 

Please do not attach separate cover 

letters to electronic submissions; rather, 

include any information that might 

appear in a cover letter in the comments 

themselves. Similarly, to the extent 

possible, please include any exhibits, 

annexes, or other attachments in the 

same file as the comment itself, rather 

than submitting them as separate files. 


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Federal Register / Vol. 82, No. 163 / Thursday, August 24, 2017 / Notices 40215 

For any comments submitted 

electronically containing business 

confidential information, the file name 

of the business confidential version 

should begin with the characters ‘‘BC’’. 

Any page containing business 

confidential information must be clearly 

marked ‘‘BUSINESS CONFIDENTIAL’’ 

on the top of that page and the 

submission should clearly indicate, via 

brackets, highlighting, or other means, 

the specific information that is business 

confidential. If you request business 

confidential treatment, you must certify 

that the information is business 

confidential and would not customarily 

be released to the public. Filers of 

submissions containing business 

confidential information also must 

submit a public version of their 

comments. The file name of the public 

version should begin with the character 

‘‘P’’. The ‘‘BC’’ and ‘‘P’’ should be 

followed by the name of the person or 

entity submitting the comments or 

rebuttal comments. If these procedures 

are not sufficient to protect business 

confidential information or otherwise 

protect business interests, please contact 

Katherine Linton at 202–395–3150 to 

discuss whether alternative 

arrangements are possible. 

We will post comments in the docket 

for public inspection, except business 

confidential information. You can view 

comments on the https://

www.regulations.gov Web site by 

entering docket number USTR–2017– 

0016 in the search field on the home 

page. 

William L. Busis, 

Chair, Section 301 Committee, Office of the 

United States Trade Representative. 

[FR Doc. 2017–17931 Filed 8–23–17; 8:45 am] 

BILLING CODE 3290–F7–P 

DEPARTMENT OF TRANSPORTATION 

Federal Motor Carrier Safety 

Administration 

[Docket No. FMCSA–2017–0042] 

Qualification of Drivers; Exemption 

Applications; Diabetes Mellitus 

AGENCY: Federal Motor Carrier Safety 

Administration (FMCSA), DOT. 

ACTION: Notice of applications for 

exemption; request for comments. 

SUMMARY: FMCSA announces receipt of 

applications from 43 individuals for an 

exemption from the prohibition in the 

Federal Motor Carrier Safety 

Regulations (FMCSRs) against persons 

with insulin-treated diabetes mellitus 

(ITDM) operating a commercial motor 

vehicle (CMV) in interstate commerce. If 

granted, the exemptions would enable 

these individuals with ITDM to operate 

CMVs in interstate commerce. 

DATES: Comments must be received on 

or before September 25, 2017. 

ADDRESSES: You may submit comments 

bearing the Federal Docket Management 

System (FDMS) Docket No. FMCSA– 

2017–0042 using any of the following 

methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

online instructions for submitting 

comments. 

• Mail: Docket Management Facility; 

U.S. Department of Transportation, 1200 

New Jersey Avenue SE., West Building 

Ground Floor, Room W12–140, 

Washington, DC 20590–0001. 

• Hand Delivery: West Building 

Ground Floor, Room W12–140, 1200 

New Jersey Avenue SE., Washington, 

DC, between 9 a.m. and 5 p.m., e.t., 

Monday through Friday, except Federal 

holidays. 

• Fax: 1–202–493–2251. 

Instructions: Each submission must 

include the Agency name and the 

docket number(s) for this notice. Note 

that all comments received will be 

posted without change to http://

www.regulations.gov, including any 

personal information provided. Please 

see the Privacy Act heading below for 

further information. 

Docket: For access to the docket to 

read background documents or 

comments, go to http://

www.regulations.gov at any time or 

Room W12–140 on the ground level of 

the West Building, 1200 New Jersey 

Avenue SE., Washington, DC, between 9 

a.m. and 5 p.m., e.t., Monday through 

Friday, except Federal holidays. The 

FDMS is available 24 hours each day 

e.t., 365 days each year. If you want 

acknowledgment that we received your 

comments, please include a selfaddressed, stamped envelope or 

postcard or print the acknowledgement 

page that appears after submitting 

comments online. 

Privacy Act: In accordance with 5 

U.S.C. 553(c), DOT solicits comments 

from the public to better inform its 

rulemaking process. DOT posts these 

comments, without edit, including any 

personal information the commenter 

provides, to http://www.regulations.gov, 

as described in the system of records 

notice (DOT/ALL–14 FDMS), which can 

be reviewed at http://www.dot.gov/ 

privacy. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Christine A. Hydock, Chief, Medical 

Programs Division, (202) 366–4001, 

fmcsamedical@dot.gov, FMCSA, 

Department of Transportation, 1200 

New Jersey Avenue SE., Room W64– 

224, Washington, DC 20590–0001. 

Office hours are 8:30 a.m. to 5 p.m., e.t., 

Monday through Friday, except Federal 

holidays. If you have questions 

regarding viewing or submitting 

material to the docket, contact Docket 

Services, telephone (202) 366–9826. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Under 49 U.S.C. 31136(e) and 31315, 

FMCSA may grant an exemption from 

the FMCSRs for a two-year period if it 

finds ‘‘such exemption would likely 

achieve a level of safety that is 

equivalent to or greater than the level 

that would be achieved absent such 

exemption.’’ The statute also allows the 

Agency to renew exemptions at the end 

of the two-year period. 

The 43 individuals listed in this 

notice have requested an exemption 

from the diabetes prohibition in 49 CFR 

391.41(b)(3). Accordingly, the Agency 

will evaluate the qualifications of each 

applicant to determine whether granting 

the exemption will achieve the required 

level of safety mandated by statute. 

The physical qualification standard 

for drivers regarding diabetes found in 

49 CFR 391.41(b)(3) states that a person 

is physically qualified to drive a CMV 

if that person: 

Has no established medical history or 

clinical diagnosis of diabetes mellitus 

currently requiring insulin for control. 

The Agency established the current 

requirement for diabetes in 1970 

because several risk studies indicated 

that drivers with diabetes had a higher 

rate of crash involvement than the 

general population. 

FMCSA established its diabetes 

exemption program, based on the 

Agency’s July 2000 study entitled ‘‘A 

Report to Congress on the Feasibility of 

a Program to Qualify Individuals with 

Insulin-Treated Diabetes Mellitus to 

Operate in Interstate Commerce as 

Directed by the Transportation Act for 

the 21st Century.’’ The report concluded 

that a safe and practicable protocol to 

allow some drivers with ITDM to 

operate CMVs is feasible. The 

September 3, 2003 (68 FR 52441), 

Federal Register notice in conjunction 

with the November 8, 2005 (70 FR 

67777), Federal Register notice provides 

the current protocol for allowing such 

drivers to operate CMVs in interstate 

commerce. 

FMCSA notes that section 4129 of the 

Safe, Accountable, Flexible and 

Efficient Transportation Equity Act: A 

Legacy for Users requires the Secretary 

to revise its diabetes exemption program 

established on September 3, 2003 (68 FR 


rmajette on DSKBCKNHB2PROD with NOTICES
APPENDIX B
Section 301 Investigation: China’s Acts, Policies, and Practices Related to Technology Transfer, 

Intellectual Property, and Innovation

Off-Camera Hearing to be held at the U.S. International Trade Commission

500 E Street SW., Washington DC 20436

October 10, 2017, 9:30 a.m.

Panel One

1. Richard Ellings, Commission on the Theft of American Intellectual Property 

2. Stephen Ezell, Information Technology and Innovation Foundation

3. Erin Ennis, U.S. China Business Council

4. Owen Herrnstadt, International Association of Machinists and Aerospace Workers

Panel Two 

1. Juergen Stein, SolarWorld Americas

2. Daniel Patrick McGahn, American Superconductor Corporation

3. William Mansfield, ABRO Industries

Panel Three

1. Scott Partridge, American Bar Association, Intellectual Property Law Section

2. Scott Kennedy, Center for Strategic & International Studies 

3. JIN, Haijun, China Intellectual Property Law Society

Panel Four

1. CHEN, Zhou and LIU, Chao, China Chamber of International Commerce

2. XU, Chen and LIU, Xinze, China General Chamber of Commerce

3. John Tang, Esq. and JIANG, Qi, DHH Law Office

4. WANG, Guiqing, Chamber of Commerce, Import and Export of Machinery
APPENDIX C
1

Section 301 Investigation of China’s Technology Transfer, Intellectual 

Property, and Innovation-Related 

Acts, Practices, and Policies:

Summary of Public Submissions

American Apparel and Footwear Association (AAFA)

AAFA is a national trade association that represents companies and suppliers in the 

apparel, footwear, and other sewn products industries competing in the global market. AAFA 

indicates that the Section 301 investigation should identify areas where China has fallen short of 

its IPR commitments, and it underscores that the sale of counterfeit products on Chinese ecommerce sites is widespread. AAFA draws attention to parasite brands, which it describes as 

“counterfeit variants” and which imitate brands and sell counterfeit versions of products in 

China. AAFA states that China’s first-to-file trademark system leads to inadequate protections 

that exacerbate the problem. AAFA submits that Chinese laws and policies largely ignore the 

rights of patent owners by allowing or even requiring them to transfer knowledge to competitors, 

SOEs, or other parties. 

American Bar Association Intellectual Property Law (APA IPL) Section

The ABA IPL Section provided comments in writing and at the hearing, indicating that 

IPR protections in China had improved in recent years but that widespread deficiencies remain.

A major concern is that the Chinese government effectively forces technology transfer via the 

imposition of mandatory licensing terms, which may include terms on ownership in 

improvements, indemnifications and others. The ABA IPL Section adds that a lack of trade 

secret protections in China is a longstanding concern of U.S. companies, citing instances in 

which U.S. companies brought trade secret actions in Chinese courts and at the U.S. International 

Trade Commission based on allegations of trade secret misappropriations occurring in China.

Furthermore, the IPL section also identifies a range of issues with respect to trademark, 

copyright, and patent protections. According to the IPL section, these issues have received 

inadequate attention and resources from the Chinese government, and are exacerbated by 

Chinese copyright laws that fall short of international norms. Although several important laws 

and regulations have been passed by the Chinese government to enhance patent protection, 

additional improvements must be made to meaningfully protect the rights of patent holders. The 

IPL Section identifies various obstacles to U.S. patent holders attempting to pursue patent 

infringement actions in China.

American Bridal & Prom Industry Association, Inc. (ABPIA)

ABPIA is a non-profit, nationwide trade-association that represents members of the 

formalwear industry, including designers, manufacturers, retailers, and trade publications. 

ABPIA submits that its members are seriously harmed by the sale of counterfeit goods on 

“thousands” of e-commerce websites largely based in China, which target U.S. customers, 

including by using U.S. manufacturers’ trademarks, and original and proprietary marketing 
2

images. ABPIA also states that counterfeit goods circumvent customs duties by being falsely 

designed as “gifts.” ABPIA recommends that USTR widen the scope of its 301 review to 

examine new legislation, more effective border controls, and restricting flows to the Chinese 

bank accounts of counterfeiters. 

ABRO Industries

ABRO provided comments in writing and at the hearing, and is a small American 

company affected by counterfeits emanating from China. The company manufactures nonelectronic consumer goods in the United States and China and sells third country markets. 

ABRO submits that China has received insufficient acknowledgment for its anti-counterfeiting 

efforts, adding that ABRO was ultimately successful in combatting the theft of its IP by adapting 

to the Chinese system and working closely with regional and provincial governments in China.

American Foundry Society (AFS)

AFS is a trade and technical association for the North American metal-casting industry, 

with more than 8,000 members representing nearly 2,000 metal-casting firms, suppliers, and 

customers. Many AFS members have been harmed by Chinese governmental practices in the 

broader metal-casting industry. China is the largest producer of all types of metal-castings, and 

many Chinese foundries are SOEs, which receive significant levels of both direct and indirect 

financial support from the Chinese government. Furthermore, the Chinese government both 

directly and indirectly influences commercial decisions by SOEs. Collectively, these 

government actions have enabled Chinese foundries to produce metal-castings at significantly 

lower prices than can be produced by AFS members. AFS members are additionally concerned 

by the implementation and localization targets published in the Made In China 2025 industrial 

plan. AFS submits that Chinese policies and financial supports to MIC 2025 target industries 

will benefit Chinese manufacturers over foreign firms, making it increasingly difficult for AFS 

firms to compete. Finally, AFS states that its members have suffered from investment caps in 

China pursuant to the Catalogue Guiding Foreign Investment, which forces U.S. companies to 

engage in joint ventures with Chinese companies in the agricultural processing, automotive, and 

telecom industries. These requirements create opportunities for both the Chinese government 

and Chinese stakeholders to request concessions like technology transfer from foreign companies 

during negotiations.

American Chamber of Commerce in Shanghai (AmCham)

AmCham is an independent business chamber with more than 3,000 members from over 

1,500 companies, including 75 percent of American Fortune 500 companies with operations in 

China, along with hundreds of smaller companies. AmCham reports that its members face a 

difficult policy environment in China, with forced technology transfer, limited market access, 

and basic fairness issues increasingly shifting the local market in favor of Chinese companies.

AmCham states that the Chinese government uses both implicit and explicit actions to create an 

unequal playing field for U.S. companies. Member companies have complained of insufficient 

IP protections and tech transfer pressures in the form of product approval regulations and joint 

venture requirements, as well as pressure to demonstrate “Good Corporate Citizenship” by 
3

transferring new business models and technologies to Chinese entities. AmCham submits that 

China uses its considerable resources and influence to create an unfair advantage for its domestic 

companies, and these practices have made it more difficult to both operate in China and grow 

American companies.

American Chemistry Council (ACC)

ACC is an organization that represents the leading companies engaged in the business of 

chemistry. Many of ACCs members have complained of significant difficulties in bringing their 

products to the Chinese markets. When exporting chemicals to China, companies have been 

required to disclose an amount of proprietary information sufficient for product duplication. As 

a result, ACC members’ IP has been stolen by Chinese companies, who then recreate the 

products and sell them at lower prices. Additionally, ACC submits that the Chinese government 

has engaged in both unreasonable and discriminatory practices. These include discriminatory 

patenting laws and the failure to pursue criminal prosecution of Chinese companies that steal IP.

American Superconductor Corporation (AMSC)

AMSC submitted comments in writing and testified at the hearing, and is an American 

energy technologies company that provides wind turbine designs, systems, and engineering 

services to reduce the cost of wind energy. AMSC experienced the theft of its intellectual 

property by a Chinese SOE, Sinovel Wind Group. AMSC explains that in 2007 it began

supplying core electrical components and software to Sinovel. Over the course of their 

relationship, AMSC discovered that Sinovel had bribed an AMSC employee to steal technology 

from a U.S. server. AMSC submits that the theft is substantiated by emails and Skype messages 

that demonstrate the actual IP transfer and involvement in the cyber-theft by senior-level Sinovel 

officials. As a result, AMSC believes that over 8,000 wind turbines amounting to 20 percent of 

China’s turbines are running on stolen AMSC software; and importantly, most of the wind 

turbines operating on stolen software are owned by large state-owned enterprises. In response to 

the theft, the U.S. Department of Justice brought still-pending criminal actions in the United 

States, while AMSC has pursued various civil legal actions in China. AMSC expresses concern 

that it has received fair and equitable consideration in China, as Chinese courts dismissed several 

of its actions for an asserted lack of evidence. AMSC states that it has lost over $1.6 billion in 

company value, along with 70 percent of its workforce since March 2011 as a direct consequence 

of the stolen technology.

Biotechnology Innovation Organization (BIO)

BIO is a non-profit organization comprised of 1,000 biotechnology companies, academic 

institutions, state biotechnology centers, and related organizations in almost all 50 states and a 

number of foreign countries. BIO members have suffered from IP theft by Chinese companies, 

resulting in the production of copycat products sold in China. BIO members generally share 

concerns in China over IPR protection and enforcement; market access challenges; innovation 

policies that discriminate against foreign companies; lack of transparency in rule administration; 

lack of meaningful industry engagement in the rules-making process; regulatory requirements 
4

and technical standards that are more trade restrictive than necessary; and restrictive 

pharmaceutical pricing policies that blunt innovation in the global bioscience industry.

Bonumose Biochem LLC

Bonumose Biochem is a small, start-up business in the biochemical industry. Bonumose 

describes an instance of IP theft it experienced after it purchased 100 percent of the IP rights to 

the production of a chemical compound. According to Bonumose, an individual with ties to the 

Chinese government illegally revealed confidential information to the Tianjin Institute of 

Industrial Biotechnology (TIIB), a division of the Chinese government-owned Chinese Academy 

of Sciences. Bonumose submits that it is now unable to obtain a patent in China for its lawfully 

acquired intellectual property. 

Lee Branstetter

Lee Branstetter is a Professor of Economics and Public Policy at Carnegie Mellon 

University. According to Prof. Branstetter, the Chinese government and its state-owned 

enterprises have over the past few decades extracted technology from foreign companies in a 

premeditated and systematic fashion, with the aim of displacing leading multinational firms with 

Chinese firms in global markets. He adds that technology transfer in China is neither voluntary 

nor market driven, but occurs under duress. Prof. Branstetter posits that foreign firms must 

transfer technology or be excluded from the world’s largest market and multinationals that 

complain likely retribution. He adds that China is adept at playing foreign companies against 

one another, as a firm’s refusal to transfer technology may lead to a market opportunity for a 

foreign competitor. He states further that numerous studies demonstrate that China’s 

enforcement of its intellectual property laws is uneven and biased against foreign firms. To 

combat these problems, Branstetter proposes a number of legal and policy initiatives to 

discourage the Chinese government from engaging in these practices. 

BSA | The Software Alliance (BSA)

BSA is the leading trade association representing the global software industry before 

governments and in the international marketplace. Both BSA and its members have significant 

concerns about Chinese policies and practices that limit Chinese market access and reduce the 

competitiveness of BSA members operating in China. Four primary areas of concern are foreign 

direct investment restrictions, including policies relating to Value-Added Telecommunications 

Services (VATS); restrictions on cross-border data transfers; disclosure requirements for source 

code and enterprise standards; and the development and imposition of China-specific technical 

standards. BSA additionally states that market access barriers work in tandem with pressures to 

transfer technology or intellectual property. As a result, many companies may only access the 

Chinese market in exchange for putting their intellectual property at risk. This amounts to U.S. 

businesses being forced to choose between protecting their IP or being closed out of the world’s 

largest market for technology products.

Jack Chang
5

Jack Chang is an attorney with years of professional experience working in China. He 

serves as the Chairman of the Quality Brands Protection Committee and is presently Special 

Counsel to L Brands International. Previously, he served as Senior IP Counsel for Asia for 

General Electric from 2006 to 2014, and prior to that was in the in-house legal department of 

Johnson & Johnson where he helped set up the company’s Asia/Shanghai Office. In his 

submission, Mr. Chang indicates that trademark counterfeiting, bad faith trademark registrations, 

copyright piracy, and the theft of trade secrets remain challenging for some businesses in China, 

but outlines ways in which the Chinese government has attempted to improve the IP landscape. 

Furthermore, Chang asserts that he has not encountered laws, policies, or practices that force 

technology transfer and that such transfer occur based on business considerations. 

China Chamber of Commerce for Import and Export of Machinery and Electronic 

Products (CCCME)

CCCME submitted comments in writing and at the hearing, and is an independent, nonprofit membership-based industry association based in China. CCCME and its members believe 

that Chinese and U.S. companies have experienced improved IP protections in China in recent 

years. CCCME characterizes assertions of Chinese government-driven tech transfer, forced 

licensing arrangements, and acquisitions as unfounded. CCCME contends that any joint 

ventures and transfers of technology are done free of government interference and based on

market conditions. CCCME asserts that Chinese laws are not unreasonable or discriminatory 

because they apply equally to U.S. and Chinese companies. CCCME adds that because Chinese 

firms are also targeted by cyber-attacks, it is improper to blame the Chinese government for 

those attacks. CCCME encourages the USTR to avoid undertaking unilateral action against 

China and to discontinue the Section 301 investigation.

China Chamber of International Commerce (CCOIC)

CCOIC submitted comments in writing and at the hearing, and is a national chamber of 

commerce representing enterprises, associations, and organizations that engage in international 

commercial activities in China. CCOIC expresses concern that the Section 301 investigation is 

unilateral in nature, and cautions that action pursuant to the investigation may trigger a trade war

harming businesses and individuals in both countries. CCOIC contends that there is no evidence 

that Chinese acts, policies, or practices are discriminatory or unreasonable, as IP protections and

the overall business environment in China have substantially improved, and the Chinese 

government treats Chinese and foreign firms equally. CCOIC states there is no evidence that the 

Chinese government pressures foreign companies to transfer their technology to Chinese 

companies. The Chinese central government has specifically prohibited local governments from 

forcing technology transfer and CCOIC therefore believes that any decision to transfer or license 

technologies to Chinese parties is done freely pursuant to market considerations. CCOIC 

submits that there is no evidence that a Chinese measure governing inbound technology licensing 

conflicts with market-oriented principles. CCOIC contends that Chinese investment and 

acquisition in U.S. companies is done pursuant to normal commercial behavior without 

government directives. CCOIC maintains that there is no evidence that either the Chinese 

government or Chinese military deployed hackers to invade U.S. commercial networks for 

commercial interests. 
6

China Enterprise Confederation (CEC)

CEC is a national Chinese economic organization that functions as a link between the 

Chinese government and Chinese businesses, with membership that consists of enterprises, 

entrepreneurs, and business associations. CEC maintains that China’s acts, practices, and 

policies are neither unreasonable nor discriminatory. CEC indicates that U.S. companies are not 

forced to transfer technologies to Chinese companies, and that even when faced with investment 

restrictions, they can instead license their technologies to Chinese companies. CEC adds that 

China’s policies and practices are consistent with international standards, and that China has 

significantly improved the broader business climate through better IP protections and increased 

market access. 

China General Chamber of Commerce (CGCC)

CGCC submitted comments both in writing and at the hearing. CGCC is a U.S. nonprofit organization that represents Chinese enterprises operating within the United States. CGCC 

contends that the Section 301 investigation is misguided because the acts, policies, and practices 

of the Chinese government are neither unreasonable nor discriminatory. CGCC outlines legal 

and policy reforms that strengthen IP protections in China and adds that the government has 

undertaken additional measures for IP protection, including the establishment of specialized IP 

courts and an action plan joined by 12 governmental bodies titled “The Action Plan for 

Protecting Foreign Companies’ Intellectual Property Rights”. This plan is the first of its kind, 

and chief amongst its goals is the implementation of harsh punishments for violations of IP rights 

and piracy laws.

CGCC states that U.S. companies are overwhelmingly treated as equals to Chinese 

domestic companies. CGCC contends that China’s preferential procurement standards are not 

uncommon at the international level and it adds that any technology transfers or joint ventures 

are undertaken in good faith and free of Chinese government pressure. CGCC adds that Chinese 

firms operate independently of government influence, and make decisions—including those 

relating to acquisitions—consistent with management structures comparable to those found in 

U.S. firms. CGCC concludes that it is unable to comment about cyber-theft and the role that the 

Chinese government may play because none of CGCC’s member companies have been affected.

China Intellectual Property Law Society (CIPL)

CIPL commented in writing and at the hearing, submitting that there is no basis for a 

determination that Chinese laws or regulations are either unreasonable or discriminatory for 

purposes of the Section 301 investigations. CIPL emphasizes that China’s legal system is 

profoundly transformed, accompanied by strengthened IPR protections for both Chinese and 

foreign firms. CIPL provides a detailed outline of the evolution of China’s IP laws and reforms 

beginning in the 1980s. CIPL acknowledges that further steps to strengthen IPR enforcement 

should be taken and it addresses a number of U.S. concerns reflected in the Section 301 

investigation. CIPL also submits that there is no direct evidence of adverse impacts caused by 
7

TIER on cross border technology transactions, and that Article 24 of TIER is consistent with free 

market standards of fairness.

Computing Technology Industry Association (CompTIA)

CompTIA is a non-profit trade association that represents the information technology 

industry. CompTIA submits that U.S. companies confront significant challenges when trying to 

sell IT products in China. China is implementing a number of high-level programs in an opaque 

fashion, which in some cases amount to discriminatory import substitution plans. CompTIA 

identifies a number of other protectionist policies that harm U.S. IT companies including the 

forced transfer of technology and IP to Chinese joint venture partners, weak enforcement against 

widespread IP theft, discrimination against foreign IP under the guise of national security, 

barriers imposed via China-specific standards, cloud computing and telecommunications market 

access barriers, and massive funding and subsidy programs for the development and acquisition 

of information and communications technologies.

Coalition of Service Industries (CSI)

CSI is the leading industry association devoted exclusively to helping a broad spectrum 

of America’s service businesses and workers compete in world markets. CSI submits that U.S. 

firms face increasingly difficult competitive circumstances in China, which uses opaque rules, 

licensing requirements, discriminatory practices, selective regulatory enforcement, and other 

barriers to support Chinese firms at the expense of foreign competition. CSI adds that in spite of 

various commitments by China’s government, the Chinese business environment continues to 

present significant challenges for U.S. services suppliers including in the form of localization 

requirements, equity caps that trigger technology transfer, and the forced submission of 

proprietary source code and encryption measures to Chinese officials. Affected sectors include 

data and technology, telecommunications, banking and securities, insurance, and express 

delivery. 

Consumer Technology Association (CTA)

CTA represents entrepreneurs, technologists, and innovators operating within the 

consumer technology industry. Their membership includes companies from every facet of the 

consumer technology industry, including manufacturers, distributors, developers, retailers, and 

integrators. CTA states that its members have encountered a range of market barriers that have 

negatively impacted business operations in China. CTA members suffer from inadequate IPR 

protections in China, which contribute to rampant trademark counterfeiting and copyright piracy. 

Additionally, members have reported that technology transfer or IP transfer to Chinese parties is 

necessary in exchange for market access. CTA acknowledges that it is unaware of official laws 

“on the books” that require technology transfer, it reports that officials pressure foreign 

companies to transfer technology through oral communications to limit the creation of written 

evidence. CTA adds that “secure and controllable” standards discriminate against foreign 

technology; and although CTA acknowledges that some “secure and controllable” laws have 

been repealed, it submits that others still are simply re-named or re-implemented at the 

provincial or local levels. CTA states that it has received “numerous” reports of individuals 
8

with ties to the Chinese government who have hacked U.S. companies’ computer networks to 

steal proprietary data and IP with the intent of assisting Chinese industry.

Dais Analytic Corporation (Dais)

Dais creates nanotechnology-based applications for heating and cooling, water treatment, 

and energy storage. It commends China for improvements in IPR protections and enforcement, 

but identifies key areas for improvement, including IPR protections embodied in employment 

agreements and the need for public disclosure of all rules and regulations governing joint 

ventures. Dais explains that a potential Chinese joint venture partner cited the requirements JV 

rules and regulations that were not clearly and publicly outlined to pressure Dais to disclose its 

sensitive IP, which the Chinese company used improperly.

DHH Washington DC Law Office (DHH)

DHH provided comments in writing and at the hearing, and is the Washington, D.C.

branch of the Beijing DHH law firm, which focuses primarily on servicing U.S. and Chinese 

clients on international trade matters and cross-border investment. DHH provides background 

on provision of China’s patent, copyright, and trademark laws, and notes the creation of 

specialized intellectual property courts in China. DHH asserts that Chinese practices related to 

tech transfer, IP protections, and innovation are not unreasonable or discriminatory and do not 

burden or restrict U.S. commerce. DHH submits that IP protections have significantly improved 

over the last few decades. DHH also contends that Chinese acquisitions of U.S. companies are 

market driven and are not directed by the Chinese government.

International Association of Machinists and Aerospace Workers, (IAM) AFL-CIO

IAM, which provided comments in writing and at the hearing, represents several hundred 

thousand active and retired workers throughout North America. IAM contends that the U.S. 

transfer of technology to China has negatively affected U.S. aerospace workers. China has relied 

on transferred production and other technology from Western companies to develop its domestic 

aerospace industry, and in the process, China has pitted Western competitors against one another 

for access to China’s growing aviation market. This dynamic negatively impacts the U.S. 

industrial base in different, but related ways, including the loss of jobs and skills associated with 

the transferred technology and production, additional job losses occurring as China uses

transferred technologies to develop its own aerospace companies that will compete directly with 

U.S. aerospace firms and their suppliers, and job losses in technological production.

Commission on the Theft of Intellectual Property (IP Commission) 

The IP Commission provided comments in writing and at the hearing, and is an 

independent and bipartisan initiative of American leaders in both the private and public sectors 

formed in 2012 to document and assess the causes, scale, and dimensions of international 

intellectual property theft. The IP Commission finds China to be the worst infringer of American 

IP, stemming primarily from Chinese policies and laws. While the IP Commission identifies 

recent improvements including specialized IP courts and a new IP enforcement “Action Plan,” IP 
9

Commission data and other studies show a strong link between China’s stated industrial 

priorities and IP theft. 

Additionally, the Commission cites examples of “brazen” Chinese attempts to steal 

American intellectual property, including the targeting of American industrial tradeshows to 

elicit sensitive information from firm representatives; the systematic tracking of the National 

Science Foundation grantees and research of scientists at universities across the nation; the 

attempted theft of Medrobotics intellectual property; the theft and attempted sale of IBM’s 

source code by a former IBM software engineer to China’s National Health and Family Planning 

Commission; the attempted acquisition of U.S. nuclear secrets from the Tennessee Valley 

Authority by a Chinese national and China Nuclear Power, an SOE; and the hacking of the 

computer networks of major U.S. defense contractors resulting in the theft of sensitive military 

and export controlled data by a Chinese national. In the view of the IP Commission, these 

examples collectively suggest rampant Chinese theft of American IP and sensitive information.

The Commission indicates that China effectuates forced technology transfer and theft

including via industrial espionage, conditioning market access on technology transfer, tactical 

employment of vague regulations and laws to pressure U.S. firms into transferring their IP to 

avoid litigation, and localization requirements that force U.S. firms to house sensitive data on the 

Chinese mainland. According to the IP Commission, these practices inflict significant damage to 

every sector of the U.S. economy. While precise quantification of these damages is difficult, the 

Commission draws on a variety of data sources, proxies, and economic models to estimate that 

Chinese theft of American IP currently costs between $225 billion and $600 billion annually.

Information Technology Industry Council (ITI)

ITI is a policy and advocacy organization for innovation companies. ITI submits that 

China is a crucial, yet difficult market for companies in the technology sector. ITI points to 

restrictions on cross-border data flows, requirements for disclosure of IP, and discrimination 

against U.S. cloud services providers as creating significant negative impacts on U.S. technology 

companies. ITI adds that the Cybersecurity Law, along with subsequent guidance and 

regulations, is particularly problematic for U.S. technology companies. In particular, ITI states 

that firms in the cloud services industry may be forced to transfer valuable IP, surrender use of 

their brand names, and hand over operation and control of their businesses to Chinese companies 

in order to participate in the Chinese market. ITI provides that initiation of a JV may be valuable 

under certain circumstances, but that JV requirements in China are problematic when required 

and when the Chinese partner’s control over the JV is non-negotiable. ITI raises concerns over 

Chinese standard setting that is inconsistent with pre-established international standards, along 

with “secure and controllable” standards that discriminate against foreign technologies.

Information Technology & Innovation Foundation (ITIF)

ITIF provided comments in writing and at the hearing, and submits that China has 

systematically ignored the spirit—and often the letter—of its commitments under its WTO 

obligations. According to ITIF, in China’s quest to become a global innovation leader, it 

assimilates foreign technologies through tech transfer inducements, mandates joint ventures, and 
10

conditions market access in exchange for transfer of important IP. ITIF further submits that the 

Chinese state directs M&A and FDI activity to target and acquire foreign enterprises with 

leading technologies in key industrial sectors, ranging from semiconductors to manufacturing. 

ITIF adds that these acquisitions and investment in foreign companies are often orchestrated by 

SOEs to serve strategic state goals. ITIF states that Chinese acquisitions are complemented by 

aggressive cyber-theft programs to steal key foreign technologies and knowledge. ITIF provides 

that together, these mercantilist policies pose a direct and existential threat to the U.S. advanced 

technology industry as a whole, and have caused an estimated 3.4 million American job losses 

from 2001 to 2015.

Scott Kennedy, Center for Strategic & International Studies 

Scott Kennedy commented in writing and at the hearing, and is the Deputy Director, 

Freeman Chair in China Studies and the Director for the Project on Chinese Business and 

Political Economy at CSIS. In his submission, Kennedy stresses the widespread impact that 

Chinese IP policies and practices have on the structure of supply chains and the health of 

business models. China’s broad industrial policy is to drive its economy up the value-added 

chain and toward advanced technologies. To effectuate these industrial goals, China has 

developed policies that foster technological creation and innovation, and encourage foreign 

acquisitions through both cooperative and coercive means. While Mr. Kennedy acknowledges 

that unilateral penalties may be appropriate, he maintains that any action undertaken by the 

United States should be accompanied by: 1) long-term engagement with stakeholders in China; 

2) support for international fora like the WTO, that develop IP standards and adjudicate disputes; 

3) collaboration with U.S. allies and other nations harmed by Chinese practices; and 4) 

strengthening of the legal, educational, and commercial environment for IP protection and 

development within the United States.

Dr. Catherine Lin-Hendel

Dr. Lin-Hendel is a small business owner who has experienced patent infringement by Chinese 

SOEs. Dr. Lin-Hendel submits that the value of her intellectual property which has been stolen 

is upwards of hundreds of millions of dollars. She further states that all of the infringing entities’ 

websites—which utilize her intellectual property—are accessible from the United States. Dr. 

Lin-Hendel also states that she has attempted to resolve the dispute with the infringing entities, 

but has been unable to do so in China. In addition to her written submission, Dr. Lin-Hendel 

provides a number of letters, emails, and tables outlining her various patents which have been 

infringed.

The Los Angeles Area Chamber of Commerce (LACC)

LACC is a business association representing companies in the greater Los Angeles area. 

LACC recommends that the USTR drop the 301 investigation, and instead address IP concerns 

in a “more precise and effective” manner that will not negatively affect the positive aspects of 

the U.S. relationship with China.

James Lewis, Center for Strategic and International Studies
11

CSIS is a bipartisan, non-profit policy research organization. James Lewis submits on 

behalf of CSIS that the central issue with respect to the 301 investigation is not IP theft, but the 

unfair treatment of U.S. companies in China. Mr. Lewis outlines the range of policy tools 

utilized by the Chinese government to build “national champions” and drive economic growth. 

These include the licit and illicit acquisition of foreign technologies, generous subsidies and nontariff barriers, abuse of power by the Chinese government to extract concessions or block foreign 

competition in the Chinese market, forcible coproduction policies, and IP theft and cyber 

espionage. According to Mr. Lewis, IP theft and cyber-espionage are of particular concern 

because they play an important role in the acquisition of technologies necessary to drive the 

broader Chinese industrial policy. Additionally, Mr. Lewis provides that many companies have 

been complacent in pushing back against illicit Chinese activity for fear of retribution; and many 

do not believe the U.S. will take action to support them against Chinese retaliation. 

Motor & Equipment Manufacturers Association (MEMA)

MEMA represents 1,000 vehicle suppliers that manufacture and remanufacture new

original equipment and aftermarket components and systems for use in passenger cars and heavy 

trucks. MEMA submits that China is a large and important trading partner for its member 

companies but that the China market remains a challenge for motor vehicle suppliers. MEMA 

states that policies and practices that place IPR at risk include technology localization 

requirements stemming from with government industrial planning; a pending ban on the use of 

Virtual Private Networks; China’s cybersecurity laws; its system of duties and value added taxes 

that is increase usage of counterfeit products; and the inadequate enforcement of IP laws.

Michelman

Michelman is a family-owned small business that develops and manufactures materials 

for coatings used in printing, food and medical packaging, advanced composite materials, and 

industrial manufacturing. Michelman states that the IPR landscape in China has improved, and 

that violations of IP laws in China no longer take place with impunity. Michelman adds that, a 

number of challenges remain in IP protection in China. In 2016, Michelman discovered that four 

Chinese companies were selling primer for digital printers with strikingly similar profiles to the 

primer that Michelman had sold in China for several years. After conducting an analysis of the 

primers, Michelman suspects that the products sold by the Chinese companies are in fact 

relabeled Michelman primers. At this stage, Michelman has only consulted with outside legal 

counsel, but believes that to take even low-level action (e.g. a cease and desist letter) against the 

suspected companies could result in crippling retaliatory legal action.

National Association of Manufacturers (NAM)

NAM is the largest manufacturing association in the United States, representing more 

than 14,000 businesses of all sizes in every industrial sector and in all 50 states. NAM submits 

that the Chinese market is a consistent trouble spot for U.S. manufacturers, as they face a range 

of market-distorting and harmful industrial policies. These including investment restrictions, 

licensing and approval processes, localization requirements, measures that encourage technology 
12

transfer and restrict cross-border data flows, weaknesses in trade secrets protections, and policies 

and enforcement practices in IP-related areas such as standards-setting and competition law. 

National Foreign Trade Council (NFTC)

NFTC represents more than 200 companies, with membership spanning the U.S. 

economy. NFTC states that overall IP landscape in China is improved, but that foreign firms and 

investors continue to face innovation-related difficulties in China. NFTC outlines challenges 

that disadvantage foreign firms including the indigenous innovation product accreditation 

system, measures that preclude U.S. companies from offering cloud services in China except by 

transferring valuable IP and control of operations to Chinese companies, poor trade secrets 

protections, disclosure requirements in standards creating processes, technology licensing 

measures, and others. 

Congressman Bill Pascrell

Congressman Pascrell is the Ranking Member of the House of Representatives Ways and 

Means Subcommittee on Trade. He expresses the concern that a number of Chinese policies and 

practices diminish IP rights in China, including burdensome approval requirements for the 

import and export of clinical investigational materials, and discrimination against innovators 

lacking localized manufacturing capacities. Congressman Pascrell calls on the Chinese Food and 

Drug Administration to establish an a patent dispute resolution mechanism prior to the marketing 

of generic competition and spotlights increasing sales of falsified and counterfeit medicines in 

China that not only violate intellectual property rights but pose health and safety risks. 

Pharmaceutical Research and Manufacturers of America (PhRMA)

PhRMA represents companies that invent, manufacture, and distribute valuable 

medicines globally. In its submission, PhRMA states that the pharmaceuticals industry holds 

longstanding concerns over lack of regulatory data protection, ineffective patent enforcement, 

and inconsistent patent examination guidelines. PhRMA outlines a series of proposed Chinese 

policies and reforms in regulatory data protection, patent enforcement, and patent examination 

that may address its member companies’ longstanding concerns. It contends that continued 

engagement by the U.S. and other stakeholders will help ensure the full implementation of these 

necessary reforms.

Rhodium Group

Rhodium is an economic research firm that combines policy experience, quantitative 

economic tools and on-the-ground research to analyze disruptive global trends. Rhodium 

outlines key findings from its long-term study of Chinese FDI in the United States. Rhodium 

notes that Chinese investment has significantly increased in the U.S., and has spread to all 

sectors of the U.S. economy, and it adds that while data do not support any definitive 

conclusions about causality between industrial policy and Chinese investment patterns in 

general, the relationship between industrial policy and targeted investment in individual sectors 

is readily apparent. Rhodium cites the example of the semiconductor industry, where both 
13

private investors and Chinese government funds have embarked on an unprecedented buying 

spree of assets along the semiconductor production chain in Asia, Europe, and North America. 

Rhodium also states that further analysis of drivers of Chinese FDI must be undertaken to better 

understand the relationship between the recent and extraordinary deployment of state financing 

with “traditional” FDI transactions.

Semiconductor Industry Association (SIA)

SIA represents the U.S. semiconductor industry, which is one of America’s top export

industries. SIA asserts that China pressures U.S. semiconductor companies to develop their IP 

within China, or transfer their IP to Chinese entities. This practice has long concerned U.S. firms 

across sectors, and has continued to plague the semiconductor industry in spite of a decade of 

dialogue on this issue. SIA provides that China has made progress in conforming to the rulesbased trading system since its WTO accession, however SIA’s member companies continue to 

experience challenges in China. SIA states that Chinese state directed subsidies in the form of 

investment funds, credit lines, and grants target companies and technologies at all levels of the 

semiconductor development and fabrication lifecycle. SIA adds that semiconductor companies 

face pressure to disclose or transfer their IP. This pressure is exhibited in a variety of laws, rules, 

and policies that may induce or force the localization of semiconductor design or manufacturing 

processes to achieve compliance and induce technology transfer as a condition of market access. 

SIA points to further challenges semiconductor firms have experienced, including secure and 

controllable requirements, the imposition of non-market terms in licensing and technology 

contracts, widespread counterfeiting, and the theft or misappropriation of trade secrets and other 

IP.

Skadden, Arps, Slate, Meagher & Flom, LLP (Skadden)

Skadden’s submission is on behalf of a client that has operated in China and has suffered 

from intellectual property theft. The theft caused a loss of millions of dollars of sales, market 

share, good will, and reputation. The submission contains extensive business confidential 

information and thus has received confidential treatment.

SolarWorld

SolarWorld submitted comments in writing and at the hearing. SolarWorld is one of a 

group of U.S. entities targeted by five Chinese military hackers in May 2014. SolarWorld 

submits that the Chinese government-backed theft of its intellectual property inflicted a 

particularly acute injury to the company, along with other U.S. solar manufacturers. SolarWorld 

provides that government-subsidized Chinese solar cells and panels that benefitted from the 

stolen trade secrets have flooded the U.S. market since 2012. According to SolarWorld, this has 

driven nearly 30 U.S. manufacturing firms out of business and has left the U.S. solar 

manufacturing industry on the brink of collapse. SolarWorld adds that the DOJ indictment 

against Chinese military hackers outlines the scope of the hack, along with the degree of 

involvement of Chinese SOEs, and the orchestrated timing of the hack with the dumping of solar 

panels into the U.S. market. 
14

Stewart and Stewart

Terence P. Stewart is the managing partner of Stewart and Stewart, a firm that has 

represented various U.S. manufacturing and agricultural industries in trade proceedings and 

negotiations. Stewart submits that the United States should be deeply concerned about China’s 

laws, regulations, and practices that distort trade flows and restrict foreign technology leaders, 

leading to unsustainable trade imbalances. Stewart describes industries that have been subject to 

technology transfer requirements, including in the automotive, semiconductor, and high speed 

rail sectors. Technology transfer requirements are imposed on firms in these industries through 

forced joint venture requirements and the imposition of technology licensing terms. Stewart 

notes the elimination of explicit technology transfer requirements in the Chinese automotive 

sector, but submits that subsequently enacted policies achieve technology transfer using less 

explicit means. Stewart provides a detailed outline of China’s WTO accession obligations, and 

reiterates concerns laid out in previous USTR reports on China.

Telecommunications Industry Association (TIA)

TIA represents approximately 250 manufacturers and suppliers of high-tech 

telecommunications networks and services in the U.S. and around the world. TIA members are 

concerned over China’s growing slate of security rules that disadvantage U.S. exporters. In its 

submission, TIA outlines specific policies and their attendant authorizing legislation,that are 

harmful to its members. These include: security testing of ICT products by the Chinese 

government as a requirement for market entry; equity caps and operational restrictions on cloud 

computing; restrictions on cross-border data flows; standards-setting approaches that depart from 

global norms; and the implementation of its competition policy. TIA adds that China is 

increasingly excluding foreign ICT equipment from many Chinese information networks in a 

variety of industries.

US-China Business Council (USCBC)

USCBC, which testified at the hearing, represents 200 American companies engaged in 

business across all industries and sectors in China. In its submission, USCBC references a 

number of surveys it conducted with its member companies that demonstrate significant 

concerns over technology transfer and IP protections in China. USBC firms report slow 

improvement in Chinese IP protections, and many also face acute tech transfer pressure. 

USCBC firms view China’s IP protections as slowly improving. To effectuate tech transfer, 

USCBC firms cited the use of opaque and discretionary administrative approval processes, 

mandatory joint venture requirements, foreign equity limitations, discriminatory government 

procurement programs, and preferences for localization and domestic IP. USCBC adds that U.S. 

companies seeking to operate in China face an unbalanced negotiating environment. Although 

negotiations involving tech transfer or other equity restrictions are generally part of normal 

business negotiations, USCBC states that Chinese companies have an inherently stronger 

position relative to their foreign negotiating partners. USCBC recommends that the U.S. should 

pursue improved IP protections for American firms through reforms of harmful Chinese policies, 

but urges the USTR to avoid protectionism and seek reforms consistent with market-driven 

principles.
15

U.S. Chamber of Commerce

The U.S. Chamber is the world’s largest business federation representing the interests of 

more than 3 million businesses of all sizes, in all sectors and regions, as well as state and local 

chambers and industry associations. The Chamber submits that insufficient IP protections is 

consistently one of the top regulatory challenges facing Chamber members. The Chamber 

outlines a number of core elements of China’s regulatory regime that are both restrictive and 

burden U.S. companies. These include: equity caps that create investment barriers; state 

sponsored acquisitions of R&D intensive products; administrative licensing procedures which 

enables the state to influence negotiations between Chinese and foreign companies, resulting in 

non-market based terms; discriminatory technology licensing policies; discriminatory standardssetting practices; forced security reviews that expose source code and other sensitive IP; and 

localization requirements that discriminate against foreign companies and make IP vulnerable to 

exposure. The Chamber further emphasizes that there is a fundamentally asymmetric playing 

field, where foreign companies face immensely restrictive policies and barriers when trying to 

operate in China, while Chinese companies face few to no reciprocal barriers when operating in 

global markets.

United States Council for International Business (USCIB)

USCIB members include top U.S. based global companies and professional services 

firms from every sector of the economy, with operations in every region of the world. USCIB 

identifies a range of Chinese government policies and practices that disadvantage U.S. firms 

relative to their Chinese competitors. Specifically, USCIB submits that China is utilizing its 

Anti-Monopoly Law in a discriminatory manner to target foreign companies’ intellectual 

property, and as a policy tool to support its national industrial policy objectives. The 

discriminatory application of this law is aided by procedural inadequacies that make it difficult 

for companies to mount an effective defense. USCIB additionally points to FDI limitations and 

joint venture requirements in a number of sectors, which limit competition and encourage the 

transfer of technology to Chinese companies. USCIB also describes how the Cybersecurity Law

and related measures disadvantage U.S. companies in the Chinese market.

United States Steel Corporation (U.S. Steel)

U.S. Steel asserts that the Chinese government has been conducting cyber-theft 

operations in the United States against American companies for years and that U.S. Steel was the 

subject of Chinese cyber-hacking attacks on the company’s network, and another attack 

involving phishing that resulted in the exfiltration and exploitation of its confidential business 

information. While U.S. Steel notes that the United States indicted five Chinese military 

officials for computer hacking and economic espionage in connection with the hacks of U.S. 

Steel and others, it states that no further action was taken on behalf of the victims. U.S. Steel 

recommends that the scope of the investigation include how to improve procedures and perhaps 

trade laws such that victims of cyber-theft can obtain redress. 
16

Wiley Rein, LLP

Wiley Rein is a law firm based in Washington, D.C. Wiley submits that a web of 

industrial policies is designed to absorb, assimilate, and re-innovate foreign technology and IP to 

help Chinese firms gain a global advantage across a broad spectrum of industries. Wiley outlines 

a variety of Chinese policies designed to provide competitive advantages to Chinese firms, 

including via industrial policy and state support for technology acquisitions, overbroad national 

security laws and regulations; state-supported theft of trade secrets and other IP, and biased 

enforcement of the competition law. Wiley concludes that the Chinese government engages in a 

wide variety of unreasonable and discriminatory policies and practices that significantly burden 

U.S. commerce by causing U.S. companies to suffer direct harm. Wiley submits that these 

policies and practices ultimately inhibit companies’ ability to invest in future growth and 

innovation.

YANG Gouhua

Yang Gouhua is a Professor of Law at Tsinghua University in Beijing, China. Prof. Yang 

submits that the transfer of technology to a Chinese enterprise, and the terms of those transfers 

are a product of voluntary agreements undertaken by the parties. He further asserts that there is 

no external intervention which forcibly pressures firms to transfer technology. Prof. Yang also 

states that non-market based licensing schemes merely safeguard the legitimate rights and 

interests of licensees, who he asserts hold a weak position in international technology transfer 

negotiations. Prof. Yang also submits that Chinese acquisitions in the United States are normal 

commercial activities not subject to the central government’s direction, and that both the United 

States and China should work to strengthen cooperation to combat cybercrime.

Stephen Zirschky

Stephen Zirschky is an attorney with over 30 years of experience working in-house in 

multinational corporations, and has been engaged in extensive business transactions with 

Chinese companies since 1994. He states that there is a clear system of discretionary 

administrative approval processes, along with other restrictions, adopted by China that pressure 

transfer of IP to Chinese companies and/or SOEs. Mr. Zirschky states that often the language in 

Chinese licensing and business registration forms are unclear on technology transfer 

requirements, but officials within regional Chinese centers clarify in person that transfer of 

technology is expected. Subsequent to the induced technology transfer, governmental agencies 

or SOEs obtain the technology “for review”, and U.S. companies then discover their product has 

been copied and sold by different Chinese companies. Mr. Zirschky explains that many 

companies do not come forward to comment on this practice out of fear that they will lose access 

to the Chinese market.
APPENDIX D
2017 Catalogue Guiding Foreign Investment “Restricted” Category Industries

Sector Chinese co-investor 

req.?

Chinese investor 

control req.?

Specific foreign ownership caps (if specified) and other 

restrictions

Agriculture, Forestry, Animal Husbandry, Fishery and Related Industries

1 Selection and breeding of new types of agricultural goods, and 

production of seeds X X

Mining

2 Exploration and development of oil and natural gas (including coalbed 

methane, oil shale, oil sands and shale gas)

X

(CJVs/EJVs only)

3 Surveying and mining of special and rare coal X X

4 Surveying and mining of graphite

Manufacturing

5 Publications printing X X

6 Rare earth smelting, separation, and tungsten smelting X

(CJVs/EJVs only)

7 Manufacture of whole vehicles and special vehicles

X

Chinese parties shall hold no less than 50% of shares. Each 

foreign party can have max. 2 JVs manufacturing the same type of 

vehicles (passenger/ commercial/ motorcycle). If foreign co.’s 

Chinese partner merges with another domestic auto manufacturer, 

foreign company not bound by the “2 JV” limit

8 Design, manufacture and repair of ships (including subparts) X X

9 Trunk, regional aircraft design, manufacturing and maintenance, 3-ton 

and above helicopter design and manufacturing, ground, surface effect 

of aircraft manufacturing and unmanned aerial vehicles, manufacture 

of aircraft for ground or water surface effects; design and manufacture 

of unmanned aerial vehicle and aerostatics

X X

10 General aircraft design, manufacture, and maintenance X

(CJVs/EJVs only)

11 Production of satellite television receiving and broadcasting equipment 

and key parts

Electricity, Gas, and Water Production and Supplies

12 Construction and operation of nuclear power plants X X

13 Construction and operation of electricity grids X X

14 Construction and operation of gas, heat supply, and water drainage 

networks in cities with a population of more than 500,000 X X

Transportation, Shipping, Storage, and Postal Industries

15 Construction and operation of main line railroad networks X X

16 Passenger train transportation companies X X

17 Domestic water transport companies / international maritime transport 

companies

X

(Int’l maritime transport 

cos. are CJVs/EJVs 

only)

X

(Domestic water 

transport cos.)

18 Construction and operation of civil airports X X

19 Public air transport company X X Foreign and affiliated enterprise investment not to exceed 25% 

and the legal representative shall have Chinese nationality 

20 General aviation companies – agricultural, forestry, and fisheriesrelated general aviation companies 

X (Ag. / forestry / 

fisheries-related general 

aviation cos. must be 

JVs)

X (Other general 

aviation cos.) 

Company’s legal representative must have Chinese nationality
Information Transmission, Software, and IT Services

21 Telecommunications companies 

X X

Value-added telecom services: foreign investment ratio no more 

than 50%, except e-commerce; basic telecom business: Chinese 

majority control

Wholesale and Retail Trade

22 Procurement and wholesale of rice, wheat, and corn 

23 Shipping agents X X

24 Construction and operation of gas stations 

X X

Retail operations over 30 chain stores established by the same 

foreign investor that sell different types and brands from multiple 

suppliers must have majority Chinese control 

Finance and Insurance

25 Banks 

X X

Individual Chinese commercial banks: no one foreign financial 

institution or the affiliates it controls or jointly controls as a 

founder or a strategic investor shall own more than 20%; no 

combination of foreign financial institutions or the affiliates they 

control or jointly control as a founder or strategic investor shall 

own more than 25% 

26 Insurance companies X Foreign stake in life insurance companies must not exceed 50% 

27 Securities companies X X

28 Future trading companies X X

Leasing and Business Services

29 Market research 

X

(Generally CJVs/EJVs 

only)

X

(Radio/TV 

listener/viewership 

market research 

must be Chinese 

majority 

controlled)

Scientific Research, Technology Services, and Geological Survey Industries

30 Survey and mapping companies X X

Education

31 Pre-school, general, high school, and higher education institutions – X (CJVs only) X Pre-schools, ordinary senior high schools, and higher learning 

institutions are limited to Chinese parties playing the leading role

Healthcare and Social Work Services

32 Medical institutions X

(CJVs/EJVs only)

Cultural, Sports, and Entertainment Companies

33 Radio and television program production and film production X

(CJVs only)

34 Construction and management of movie theaters X X

35 Performance agency companies X X

Source: Catalogue of Industries for Guiding Foreign Investment (2017Amendment) (NDRC and MOFCOM, Order No. 4, issued June 28, 2017).

Note that the above list reflects all the industries in the “restricted” category. Not all of “restricted” industries are subject to JV requirements. Some “restricted” industries are also included in the “encouraged” 

list
APPENDIX E
Appendix E: Statement of the Office of IP and Industry Research Alliances (IPIRA) 

at the University of California, Berkeley

The Office of IP and Industry Research Alliances (IPIRA) at the University of California, 

Berkeley, licenses its inventions and other IP rights around the world for various purposes, 

including humanitarian purposes. Companies in China sometimes inform IPIRA that TIER 

imposes mandatory terms to all entities licensing or importing technologies into China. For the 

following three reasons the Regents of the University of California (through UC Berkeley) is 

unable to accept the following terms:

(1) TIER requires the University (the licensor) to guarantee that the University’s IP rights do 

not infringe other IP rights, including those that are owned by third parties. It is not feasible for 

the University to make this determination. It is the company’s own due diligence to perform. 

Even if the University were to perform a relevant search and analysis in an attempt to meet the 

requirement, the search and analysis result would immediately become obsolete due to the 

issuance of patents and/or creation of new IP rights anywhere around the world. In a typical 

license the search and analysis, i.e., a “freedom to operate analysis” and/or an “infringement 

analysis” is a duty that falls to the licensee (based on the products it intends to commercialize), 

not the licensor. The University’s license states that it makes no representation that practice of 

the licensed rights do not infringe other IP rights.

(2) TIER requires the University to guarantee or warrant that a given IP right is suitable for, or 

must work for, a particular commercial purpose. This requirement goes beyond what the 

University can accept or state in an IP license. Instead, the University in all of its licensing 

transactions states the opposite, that the IP rights are provided without warranty or guarantee or 

suitability for a particular commercial purpose. That is, put simply, the provided rights are 

merely IP rights that were invented in the course of performing research, not a product. 

(3) TIER’s mandatory provision on improvements is similarly unacceptable to the University. 

The University always reserves the right to practice the licensed invention for its own 

educational and research purposes. It also extends that right to others in the nonprofit sector. 

The University needs the freedom to continue to practice the invention and to make 

improvements for and on its own behalf (and for the global nonprofit research community). If 

the University were to agree on the future disposition of yet-to-be invented improvements, that 

agreement could stifle research, academic freedom, and could sweep in the rights of future 

inventors (or authors of copyrights) without their knowledge or consent. Typical university IP 

licenses limit the scope to a stated priority patent application and claims in continuing (and/or 

corresponding foreign patents) that are entitled to the priority filing date of that application.

Since the University is unable to accept the TIER terms stated above, in order to mitigate and 

minimize risks, the University has to identify a licensee that can accept standard terms in these 

areas – for example, a U.S. affiliate of a Chinese company. The University has been informed 

that Chinese IP law is in a state of flux and that the former demands may not be required in every 

license in every situation. The University is submitting the items above, with the hope that 

changes to Chinese IP law will give Chinese licensees more latitude in obtaining IP rights that 

arise from academic research.