China Passes Law to End Technology Transfers

March 15, 2019
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Investors hoping for an end to the U.S. – China trade war will have something to smile about this Friday. During a legislative session in Beijing this morning, Chinese delegates passed a law that will end forced technology transfers for foreign companies.

New rules, which fall into a larger framework of Chinese investment law, will alleviate many of the concerns that U.S. and European trade partners have complained about in recent years.

Most importantly, this law will meet one of President Trump’s key demands of China, and it could help to speed ongoing negotiations for a new trade deal between the world’s two largest trade partners.

Law Change Announced at National People’s Congress Meeting

The change was announced in front of around 3,000 delegates at the Chinese National People’s Congress session. This is the most important yearly political event on the Chinese calendar.

2,929 delegates voted in favor of the new law, with no votes against, and eight abstentions.

Forced technology transfers in China have been a problem throughout most of the modern era. Current laws require that foreign businesses partner with local entities if they want to operate in the Chinese market. Often, businesses are forced to reveal valuable intellectual property to make these partnerships work. For manufacturers of laptops, smart phones, and other cutting-edge devices, this comes with a risk of intellectual property theft.

In fact, President Trump and other leading politicians have accused Chinese companies of engaging in intellectual property theft on multiple occasions.

According to a 2018 report from the United States Trade Representative, “Chinese theft of American IP currently costs between $225 billion and $600 billion annually.”

Asian Stocks Closed Higher Following News

Asian markets can sometimes lead American stocks in terms of daily sentiment. Markets in China, Japan, and Korea, all responded positively to the news of China’s new law.

The Nikkei in Japan ended the day on Friday +2.80% over the previous close. The Kospi in South Korea gained +0.90%, and the Shanghai Composite Index finished up +0.40%. The Shenzhen Composite also finished in the green, gaining +1.43%.

U.S. trade officials are yet to comment on the news from China. Any positive reaction from President Trump or members of his close circle could provide confidence for American investors this Friday.

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