China is a master at forcing western companies to hand over critical intellectual property in exchange for short term access to the Chinese market.  Future, History, Now asks what are the lessons that can be learned from history, what is happening today and what impact could this have on the future?

First, a loose historical analogy: the Roman and Persian empires had been at loggerheads for centuries and by the late 500s and early 600s AD this battering finally came to its fatal end.  Wars were frequent. Cities and entire territories exchanged sides on a regular basis.  Plagues struck both empires, wiping between a third and a half of their populations, leaving both weak and desperate for manpower and allies.

One willing group of allies for both sides were the tribes of the Arabian peninsula. Both the Romans and the Persians trained them, armed them, pointed them in the direction of their enemies and paid them to fight. Over the decades the Arabs developed a significant military capability and knowledge of the strengths and weaknesses of both sides.

This use of allies was not unusual.  One of the reasons for the strength and endurance of the Roman Empire was its use of auxiliaries – native soldiers who fought either using their traditional specialties or in Romanised fashion.  Many of these auxiliaries units were posted outside their home territories to avoid possible conflicts of interest.

Arab auxiliaries, however, followed in the footsteps of other auxiliary groups who got the better of their Roman masters. The Western Roman Empire made use of Huns and Germanic tribes.  Alaric, the leader of the Visigoths, had worked on behalf of the Roman Empire.  He turned on them and sacked Rome in 410AD.  Even the Huns had been used by the Romans, before they succumbed to temptation and attacked their former masters.

United by the religious movement founded by the Prophet Mohammad, the Arabs turned on their former paymasters and defeated the Romans in the battle of Yarmuk in 636 and crushed them.  Six years later Egypt, Syria and Palestine were all under Arab rule, snatched from their Roman rulers.  The Arabs also attacked their Persians paymasters and wiped out the remnants of the Persian army by 642 and the last Persian emperor died in 651AD. The Eastern Roman Empire (Byzantium) would hobble on for an astounding 800 more years before Constantinople finally fell to the Turks, kicking off the Age of Exploration and colonisation by western Europeans in the Americas, Africa and Asia.

One of the key lessons from the experience of the Western Roman Empire, Eastern Roman Empire and Persia is that it makes sense to leverage the military assets and capabilities of client states so long as you remain much bigger and more powerful.  When you rely on allies who are only a little less powerful, or are your equals in a particular geographic area, bad things start to happen.

Whilst you could immediately start to think of geopolitical parallels today, our focus is on strategic industries, such as aerospace and trains.

Germany and France, through its Airbus interest, and the US, through its Boeing interest, have long dominated the global aerospace sector for passenger aircraft.  Over the past two decades they expanded the reach of their supply chains to include a number of other countries, such as Japan. 

This has helped them to secure sales in those countries and has enabled them to spread the risks.  Likewise, Germany, France and Japan have dominated the high-speed rail sector through interests in ICE, TGV and the Shinkansen.

These countries were the Roman and Persian Empire equivalents of their industries.  They were dominant and confident enough in their technical and commercial superiority to allow smaller countries and smaller companies to share in the development of sub components for their machines, similar to a Roman ally or auxiliary.

By the late 1990s and early 2000s China looked like another ally or auxiliary country.  Its industrial base was relatively small and its technical prowess was relatively low, confined to low value products.  In the high tech battle between the US and Europe, bringing in smart Chinese workers at a fraction of the cost of your own people would enable you to compete better against your European or American competitors.

And like the Romans and Persians trained, armed and paid their Arab auxiliaries to fight against Romans or Persians, Europeans and Americans have done the same with the Chinese: Chinese companies helped European companies beat American companies; Chinese companies helped American companies beat European companies.

In 2007, China’s first high speed commercial railway line was introduced. Based on imported trains and trains manufactured in China under technology transfer agreements with foreign train makers, including Alstom (France) Siemens (Germany), Bombardier Transportation (Germany) and Kawasaki Heavy Industries (Japan).  Today most of the trains and their subcomponents are manufactured in China, by Chinese companies.  Many of the foreign train manufacturers are suing their Chinese technology transfer partners for patent theft.  When California announced its plans for a high-speed rail network some of the strongest bids came from Chinese companies, backed by low cost Chinese government financing.  These companies had literally not existed a few years before.

China is also moving into the aerospace sector with similar speed.  Comac, for example, was founded in 2008 and has developed its ARJ21 a wide body long range aircraft in cooperation with Bombardier (Canadian branch) and others.  It will compete directly with Boeing and Airbus.

As with the Arabs in the late 500s and early 600s China today is doing what is right for China and doing it very well.  The Romans and Persians did not expect that the Arab tribesmen that they were arming to fight their enemies would end up with a politically coherent leadership and defeat them militarily and culturally.  They did not expect the devastating plagues that would leave them weakened and unmanned.  They almost had an excuse for their policies.

But China is a huge country in terms of landmass and even larger in terms of population.  It has a long and fabulous recorded history and has dominated its end of the Eurasian continent for hundreds of years.  Its people are hard working, inventive and determined to restore China to its former greatness.  Its leadership thinks in 5 to 50 year time horizons.  They can make things on a scale that is impossible in other countries.

In contrast, American, Japanese and European companies handing over core technology for a short term sale to China seems spectacularly stupid, irresponsible and short sighted.  This is not just an issue about corporate myopia.  It is an issue caused by a fundamental lack of understanding of how the West became successful in the first place, and of how a successful historical past is no guarantee of a successful historical future.