Risk Involved in Technology Transfer in China

It is true that that investing in China is lured by the burgeoning GDP growth rate of China, which is one of the highest in the world. There are lots of pros and cons involved for investing companies in China. One needs to get into the details of all the merits and demerits, before decision can be arrived at. There are plenty factors affecting the decisions and each one of them should be scrutinized and analyzed for final conclusion to take shape. On one side, China offers tremendous incentives to foreign investors in terms of tax benefits. It provides 5 years of tax holidays, during which there is total tax exemption for the period of first two years of operations. Henceforth, there shall be 50% rebate on income tax for the next three years. Apart from the reduction in income tax benefits from the standard rate of 33% to 24%, 15%, and even 10%, depending upon the various economic, technology or special development zones in which the business units are established. Even the local Governments of China offer fiscal subsidies and tax refunds to foreign companies. But, this is only the one side of the coin; the other side looks much uglier. [2]

Let us analyze the uglier side. In China foreign collaborators are constantly facing a problem related Intellectual Property Right (IPR). For foreign investors, an issue of technology transfer makes a risky proposition because the world over China is steadily becoming a threat due to its increasing power. Technology can be transferred in three different ways. First, is through trade, second is investment, and the third is technical cooperation. It is the last two, which are more vulnerable to be misused. The law has not explicitly explained, the way technology can be transferred, thereby making a transfer of technology a risky business. The most common way in which technologies are transferred to China by foreign partners, is by joint venture. Under this arrangement, foreign companies provide its technical...