“The idea of dividing up the intellectual property part of the content and not having them in China was part of the strategy from the beginning,” he said.

McGahn thought he'd planned for every contingency to keep AMSC safe. He also believed the company could find a way to have both partners benefit. He was wrong on both counts.

Chinese businesses have proven very good at copying Western goods and methods. This even appears to be true of espionage itself. China didn't invent intellectual property theft; it's just doing it on an unprecedented scale.

Willy Shih, a professor at Harvard Business School who has testified before Congress about business dealings between the U.S. and China, takes a historical view of intellectual property theft. In the 1870s, American textile companies would send employees to work in British factories. They would take notes on textile equipment and bring back the information. The Russians and East Germans stole U.S. computer and chip designs during the Cold War.

“And similar things have been true of Korean companies and Japanese companies,” said Shih. “I would argue that it's a normal development pattern.”

Good Timing
C hina's been helped by good timing. It's emerging as a global economic power at a time when nearly every secret worth stealing sits on a computer server. U.S. intelligence agencies fear that Chinese spies have already siphoned terabytes of data from thousands of Western companies.

Stealing information, however, isn't the same as being able to use it. The Soviets ended up generations behind their U.S. rivals in computing technology because they couldn't advance the cloned equipment fast enough. Shih said that for the Chinese to succeed at the current game, they will need to build a research and development culture that can supersede their skills at mimicry.

“Many countries go through an imitation phase, but the real challenge is moving to an innovation phase,” he said.

Eoin Treacy's view China is big country, with big ambitions and its government has no qualms about using any and every method to achieve them. The companies that have done best from China's development are those on which it relies for goods and services. Those which have attempted to build a long-term competitive position within China, particularly where there is a domestic competitor have had a much more difficult time. This situation is unlikely to change any time soon.

The IMF report posted below highlights the rapid evolution of China's university sector. They may be stealing information today but every effort is being made to foster an innovative culture so that the country can compete technologically in future. This presents a number of challenges for other highly developed economies. Robust competition in every sector is only likely to become fiercer.

This week the party secretary of Chongqing, Bo Xilai, who is an avowed Communist traditionalist and had called for a “red revival”, failed to gain a seat on the 9-member Standing Committee of the Politburo and was fired from his position. This suggests that as the rivalry to take over the helm of China's government heats up, those drawing attention to themselves are being ostracized. The idiom, “the tallest nail gets hit first” comes to mind. The upper echelons of the Communist Party tend to be intensely private and it would be rash to read too much into this event.

What seems clear is that the Chinese elite are intent on forging a long-term position for China as a major economic power. So far there is little reason to doubt their resolve. Their methods, particularly when it comes to intellectual property, need to be met robustly by their competitors.