Foreign Direct Investment as a Vehicle for Deploying Cleaner Technologies: Technology Transfer and the Big Three Automakers in China

Paper, Fletcher School of Law & Diplomacy, Tufts University

Author: Kelly Sims Gallagher, Senior Associate, Energy Technology Innovation Policy research group

Belfer Center Programs or Projects: Science, Technology, and Public Policy; Energy Technology Innovation Policy

The number of cars on the road in China is expected to double every six years at current growth rates.  Currently, there are no Chinese fuel-efficiency standards for automobiles, and pollution-control standards are weak.  China is already a net importer of oil, and will be an increasingly large source of demand for world oil supplies as the number of automobiles in China increases.  Motor vehicles are also now the leading source of urban air pollution in China.  The Chinese government has indicated that it wants to avoid a heavy dependence on foreign oil and prevent the worsening of air pollution, but China’s domestic technological capacity for clean automobile production is almost entirely dependent on foreign technology transfer.  The U.S. Big Three automakers have all formed joint ventures in China and are in the process of transferring technology to their Chinese partners. 

The central purpose of this research is to investigate the extent to which international technology transfer through foreign direct investment (FDI) is an effective mechanism for the deployment of cleaner technologies in developing countries.  This dissertation provides three empirical case studies of Beijing Jeep, Shanghai GM, and Chang’An Ford based on dozens of interviews in the U.S. and China.  The main findings are that: (1) U.S. firms transferred outdated automotive pollution-control technologies to China; (2) U.S. FDI helped to deploy somewhat cleaner automotive technologies, but their potential environmental benefit is being outweighed by having so many more vehicles on the road; (3) automotive technologies that were transferred were not necessarily updated in tandem with updates made to equivalent foreign models; and, (4) U.S. firms did not strongly contribute to improving Chinese automotive technological capabilities because little knowledge was transferred along with the product.  Finally, one further implication from this study is that there appear to be limits to leapfrogging to substantially cleaner automotive technologies through technology transfer from foreign firms.  These barriers can be overcome through international investment rules, U.S. and Chinese government policy, and the goodwill of foreign firms, but probably most effectively by Chinese regulations. 

Key Words: technology transfer, foreign direct investment, energy efficiency, passenger vehicles, automobiles, oil consumption, air pollution, China, Ford, GM, and DaimlerChrysler

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