China Has No Law Forcing Foreign Companies to Transfer Technology

China allows investors to use equipment, IPRs, know-how and other proprietary rights as the alternatives to capital contribution.

As claimed on many US medias now that China has forced foreign companies to transfer technology as condition to invest in China, as a Chinese legal professional, I think I need clarify this legal issue to my audience. In my opinion, there is no law forcing foreign investors to transfer the technology as a mandatory condition to access China market.

In China FDI law, the major statutes regulating the technology transfer for FDI are Law of Chinese-Foreign Contractual Joint Venture Law (“CJV Law”), Law of Chinese-Foreign Equity Joint-Venture Law (“EJV Law”) and Law of Wholly Foreign-Owned Enterprises (“WFOE Law”). Like many US state law, China allows investors to use equipment, IPRs, know-how and other proprietary rights as the alternatives to capital contribution. This is not the condition but option. Generally, what to invest or how to arrange the investment in the joint venture is up to consensus between parties in case of JVs or to the foreign investor’s own decision in case of WFOEs.

In EJV Law, the law does provide guidance for the technology transfer agreement between parties. One of important provisions, among other things, says, “as of the expiration of the term of the technology transfer agreement, the party importing technology is entitled to continuing to use the imported technology.” The guidance provided in EJV is very general. There are a lot of room to detail how to execute technology transfer agreement between parties to the JV. Notwithstanding, however, there is no mandatory condition to force foreign investors to transfer their technology.

Be aware, like laws in many other countries, China does have rules for compulsory licensing patent in certain circumstances by complying with principles in TRIPs.

The general policy guidance in China is to encourage investment with advanced technologies and to restrict investment with outdated technologies in consideration of environmental protection, public safety and security. This policy has been very clear in many statutes and FDI guidance. Unless the technology is prohibited or restricted, subject to certain rules of public/national security, to use technology to invest in China is widely open for foreign investors. In all perspectives, technology transfer is about contractual terms between investors, which is total different from mandatory transfer by government.

So, the claims about China has forced foreign investors to transfer technologies as the condition to invest in China is groundless and not true.

For many people who have concerns about technology transfer issue in China, we suggest you seek professional opinion, choose proper investment vehicle and negotiate terms with the business partner, so you can well control your assets and your investment in China.



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