U.S.-China Economic & Security Review Commission
Field Investigation on “China as an Emerging Regional and Technology Power: Implications for U.S. Economic and Security Interests”
University of California, San Diego
La Jolla, CA
I join Chairman Robinson in thanking Ambassador Ellsworth for focusing the Commission’s attention on the important topic before us and on the unique perspective offered on these issues by the California university and high-technology communities. I also would like to personally commend Dean Peter Cowhey, Professor Susan Shirk and the faculty and staff of the Graduate School of International Relations/Pacific Studies for their outstanding effort in developing this two-day event.
As the Chairman mentioned, we were recently in Columbia, South Carolina investigating the impact of outsourcing and offshoring the U.S. manufacturing base. The story is devastating, alarming and rapidly escalating. Action in the Congress to attempt to manage it is all but inevitable. But there is more to the offshoring story than manufacturing, as the people of California well know. In corporations’ relentless search for lower costs and favorable quarterly earnings reports, high-tech and IT services are moving with increasing frequency to India, China and elsewhere. Some argue that along with these investments in manufacturing capacity and R&D facilities overseas, the United States may also be offshoring some of its capacity to innovate. The United States has always been a leader in technology development, and during difficult economic times pulled itself up through R&D and innovation. Losing our technological edge is likely to have dire consequences for both our economy and our national security.
We appear to be mortgaging a broad array of assets, pieces of our country’s economic future in a historic stampede for short term gains in corporate profitability and consumer prices. The mantra or public refrain from the apologists for this spectacle has been that the buggy-whip old manufacturing economy had to yield for the U.S. to concentrate on the new American services economy and technological innovation. Now we know, however, that the service economy is being exported as well, cheered on this week by Administration officials such as the Chairman of the president’s Council of Economic Advisors. More alarming and still poorly understood is the extent to which and in what ways our high technology capacity and skills are following the same pattern. That is why we are here today in the beautiful locale of southern California.
Companies have, in the past, faced ultimatums when entering the China market. As a condition of investment, some U.S. companies have been required (implicitly, if not always explicitly) to transfer technology and high-tech manufacturing skill to China. Now that China has entered the WTO, such conditionality is supposed to end. It is “WTO-illegal”, as they say. We want to know if it has, in fact, ended. Moreover, there appear to be other significant factors driving companies to send high-tech services and R&D activities to China, including proximity to a critical mass of manufacturing. For whatever reasons, there is no doubt that U.S. and other foreign companies are helping accelerate China’s technological advancement. A key issue needing exploration is whether China has been able to successfully leap frog in its technological advancement due to these technology transfers.
Furthermore, technological advancement is fueling China’s military modernization. China has focused much of its strategy and doctrine on advancements in informational and electronic warfare, some of it under a fanciful rubric of so-called “asymmetrical warfare”, “assassin’s mace” weapons, and other tools and concepts whereby an inferior power might defeat a superior power. If advancement in this area is in any way being fueled by U.S. technology exchanges with China, then we must understand this and fashion appropriate U.S. policies to minimize any security concerns.
In the region as a whole, China is a high-tech manufacturing powerhouse for companies throughout East Asia, particularly Taiwan. We need to understand what this means for Taiwan’s security, and for U.S. security interests, that is our alliances and friendships in the region.
Along with my fellow Commissioners, I look forward to what should be an insightful two days of discussion.