New China worries: the Chinese military is snapping up the latest in cutting-edge Western technology. Is that good?

• Author: Segal, Adam

In June of this year, the U.S. Commerce Department published new controls on the export of "dual-use" technology to China. As Assistant Secretary of Commerce Christopher A. Padilla told Congress, the goal is "to expand and promote legitimate civilian trade, while prudently hedging against the uncertainties of a significant military expansion program in China." While the new rules deserve praise for their explicit focus on the types of technologies that are most likely to make a contribution to Chinese military capabilities, their impact is limited by the uncomfortable truth that the United States can no longer control transfer of most of these technologies in an integrated world economy.

From the U.S. perspective, China is the poster child for the double-edged nature of the globalization of technology. More countries, not just China, now have access to the technologies that underpin a modern military. China, however, is engaged in a concerted effort to modernize its military, and defense spending has increased at a double digit rate for the last fifteen years. Most visibly, destroyers, fighter jets, and submarines have been bought, primarily from Russia. According to the Pentagon, though, China is also an active buyer of information technology, microelectronics, aerospace, and other commercial technologies that can be adopted for military purposes. Few of these technologies are unique to the United States, and the People's Liberation Army, often through front companies, has found suppliers in the European Union, South Korea, Israel, and Japan.

Globalization has also raised the efficiency of Chinese defense industries. Traditionally, the Chinese defense sector was afflicted with the worst pathologies of the state-owned, centrally planned economy: low productivity, overcapacity, a lack of understanding of final markets, a dearth of management skills, and technological backwardness.

Since the late 1990s, the government has invested a great deal of money in these industries. But the most notable progress, according to a recent RAND study, has occurred in sectors such as shipbuilding and information technology where Chinese firms now compete and cooperate with foreign companies.

Thus, the security risks from technology trade with China are high, but so are the potential economic benefits. Last year, U.S. high-tech exports to China grew by 44 percent to $17.7 billion. China is or will soon be the largest market in a number of critical technology...