Ceilidh

Michael Zey
futurist3000@aol.com

BEIJING -- In his two decades pursuing contracts in China for General Electric
Co., Delbert Williamson's strategy was always simple: Sell the most power
equipment at the best price.

But by the time Mr. Williamson sat down at a banquet at the historic Diaoyutai
State Guesthouse in Beijing last March, to celebrate the award of a $900
million contract for high-tech electricity-generation turbines, the formula
for GE's success in China had changed dramatically.

In addition to offering a competitive price, Mr. Williamson had to agree
to share sophisticated GE technology with two Chinese companies that wanted
to eventually make the equipment themselves.

Mr. Williamson, then GE's president of global sales, was reluctant to open
his company's technology vault. But GE had little choice. To be considered
in the bidding for equipment contracts totaling several billion dollars,
GE and its competitors were required to form joint ventures with the state-owned
Chinese power companies. GE was also required to transfer to their new
partners technology and advanced manufacturing guidelines for its "9F"
turbine, which GE had spent more than a half billion dollars to develop.

"It was a difficult negotiation," says Mr. Williamson, 65 years old, who
retired this month after 45 years with GE. "They're interested in having
total access to technology and we're interested in protecting the technology
that we made significant financial investment in."

Chinese scientists call it "technology for market." Instead of selling
toys, textiles and television sets, China wants to compete in telecommunications,
health care, power generation and a range of other advanced manufacturing
sectors. So it's pushing for crown jewels of technology from companies
that want access to China's exploding marketplace.

Those demands fall into a gray area of international trade law and economic
development strategy. China officially agreed to phase out many tariffs
and technology-transfer requirements as part of its entry in December 2001
to the World Trade Organization, the group of 146 countries that oversees
the global trading system. But China didn't sign a key piece of the WTO
agreement that would have prohibited its top planning agency from making
such demands, and government negotiators have continued to ask foreign
companies to transfer technology to local partners or to set up research
centers to train local engineers.

"That's the trade-off they have to deal with -- short-term sales for long-term
competition," says William Reinsch, president of the Washington-based National
Foreign Trade Council, a lobbying group for U.S. multinationals.

No party to the deals has accused China of violating WTO rules, and the
Beijing government has consistently maintained that it fully complies with
its trade agreements. At the same time, the lure of mammoth Chinese markets
makes multinationals hesitant to raise the issue.

In an effort to gain easier access to markets in China, Motorola Inc. has
poured more than $300 million into 19 technology-research centers in the
country. A Microsoft Corp. center in Beijing now employs more than 200
researchers. Siemens AG says it has spent more than $200 million since
1998 working with a Chinese academic institute to develop a mobile-phone
technology that the government wants to be the country's standard, and
which may be compatible only with phone systems in China.

Trade experts say China isn't alone among developing countries in pushing
for foreign technology, but the size of its new markets give Chinese negotiators
enormous leverage. Japan demanded similar transfers in the 1960s and 1970s
when it was rebuilding industries after World War II. The exchanges helped
forge the economic and political alliance between the U.S. and Japan, but
later haunted some U.S. companies when Japanese rivals went on to outpace
their American partners in electronics and other industries.

Chinese competition isn't imminent in the most advanced industries. In
the past, even after obtaining expertise from multinational corporations,
state-owned companies lacked the depth of engineering expertise necessary
to fully exploit the technology and become competitive in global markets.

Ted Dean, a consultant with BDA China Ltd., says the major telecom firms,
including Nokia Corp., and Telefon AB L.M. Ericsson, were either pressured
or required to form joint ventures with Chinese companies to manufacture
telecom equipment in the past. But after the partnerships expired, many
of the Chinese partners couldn't succeed independently, as cellphone and
telecom technology rapidly advanced beyond the know-how they had obtained.

Some companies balk at the demands, too. U.S. companies sometimes can shield
technologies through U.S. trade rules, which prohibit the export of particular
technologies. China has pressed Intel Corp. to build a plant for its most
sophisticated silicon wafer in the country for years, for example, but
the U.S. government won't allow that. Similarly, those rules block GE from
sharing a key element of its turbine technology.

Nonetheless, in the big power-generation contract, GE managers knew from
the beginning that they would have to give up some high-end technology.
The magnitude of China's power needs convinced executives that the market
there was worth pursuing regardless of the technology demands.

The U.S. market for power-generation equipment currently is very weak,
the result of a years-long spending spree to expand capacity by independent
energy companies and utilities. China, on the other hand, is expected to
spend more than $10 billion a year building power plants in the near future.
GE also had licensed turbine technology previously, including as part of
a now-defunct venture with the French company, Alstom SA. GE executives
say they thought China would eventually get the technology one way or another.

China is rushing to satisfy booming demand for electricity, driven by surging
economic and industrial development. The country's 1.3 billion residents
often face brownouts with power supply running short by more than 10%,
and total demand for electric power growing at 15% a year, according to
energy experts. The government hopes to add thousands of additional megawatts
of power-generation capacity in the next decade.

In 2002, GE, Mitsubishi Heavy Industries, Siemens and other foreign companies
were invited to bid on contracts to supply 23 power turbines to six regional
utilities. The demand for technology transfers was spelled out in the state
planning office's request for bids.

GE has a long history in China. A GE steam turbine installed outside Shanghai
in 1917 was only recently retired. When China first began opening its doors
two decades ago, Jack Welch, GE's former chairman and chief executive,
began looking to sell aircraft engines, power turbines, medical equipment
and light bulbs. By the early 1990s, GE was assembling medical diagnostic
machines in China. More recently, GE Chairman and Chief Executive Jeffrey
Immelt opened a research center in Shanghai and expanded a medical manufacturing
facility in Beijing.

GE's Mr. Williamson took his first business trip to China in the early
1980s. Soon, GE Power Systems, recently renamed GE Energy, was selling
big coal- and natural-gas-fired steam turbines to China's electric utilities.

In simple terms, a turbine is any motor in which air, wind or steam spins
blades on a shaft to create energy or perform a task -- from windmills
that pump water to hydroelectric generators that use the force of water
behind a dam to make electricity. Modern turbines such as the ones built
by GE and its competitors are highly complex, 40-ton devices capable of
generating enormous amounts of electricity using super-heated natural gas
to spin the shafts. The precise shape of three rows of blades inside a
turbine, temperatures reached by the fuel powering them, and the strength
and composition of the materials used to make them dramatically affect
the level of power each design produces.

For instance, the small gas turbines produced by a partnership between
GE and a Chinese government-owned company in the 1980s were capable of
generating about 40 megawatts of electricity per hour -- enough to power
40,000 homes. By contrast, the GE gas turbines sold by Mr. Williamson,
while cheaper to install and cleaner for the environment, generate close
to 300 megawatts, or enough to serve about 300,000 homes.

Before the deal with GE last year, Chinese manufacturers had mastered only
the technology required for making much less efficient steam-powered turbines.
That technology was acquired in part through previous joint ventures with
companies such as the power systems division of Westinghouse Electric Co.,
now owned by Siemens. At least two Chinese companies now export turbines
to Southeast Asia and the Middle East.

But the Chinese government wanted the technology behind the vastly more
efficient gas-fired turbines. GE has been a leader in turbine technology
developed jointly by its aircraft engine and power systems divisions in
conjunction with the U.S. Department of Energy.

Liang Weiyan, a power-engineering expert with the Chinese Academy of Engineering
who participated in the negotiations, says he and other Chinese officials
hoped to get drawings for the entire turbine -- including the modeling
and mathematics behind the shape of the turbine's blades, how the blades
were cooled while rotating, the chemistry behind the blade's makeup, and
the thermal protective coating on the first row of blades, where temperatures
are the highest.

Negotiators for GE and the two Chinese companies worked at six different
sites in China for more than three months to craft a deal. In the end,
GE won an order for 13 of its advanced 9F turbines. Mitsubishi won a smaller
deal to supply 10 power turbines, and as part of the agreement also agreed
to share technology with Chinese partners.