Pass it on – global technology transfer

The global landscape of investment, innovation and technology transfer is undergoing profound changes, underlined by two main trends: growing domestic innovation capacity among emerging economies; and increasing investment flows between them. These trends create new avenues for global technology transfer and cooperation. In turn, these avenues relate to jointly generated knowledge and its application in bilateral relationships, as well as increased cooperation for the deployment of innovations and know-how in third-party countries.

The bilateral relationship between China and Brazil is a particularly relevant one in this context: between 2005 and 2012, the Brazilian energy sector absorbed $18.2 billion in investments from China. Until recently, Brazil represented the largest destination for Chinese energy investments (it is now second only to Canada, due to the China National Offshore Oil Corporation's purchase of the Canadian oil and gas company, Nexen, for $15.1 billion in 2012).

In parallel to this surge in Chinese investments, Sino-Brazilian trade and political relations have intensified rapidly over the past decade. In 2004, China and Brazil set up the China-Brazil High-Level Coordination and Cooperation Committee (CBHCCC), adding a subcommittee on energy and mining in 2006. China became Brazil's largest trading partner in 2009.

Quite the complement

The case of China and Brazil highlights areas of challenge, as well as areas of synergy and mutual benefit that provide a backdrop for technology transfer and cooperation.

The most obvious way in which the two countries complement each other is that Brazil has the fossil fuel resources China lacks, while China has the financial means to contribute to their development. In addition, over the past decades, Brazilian national oil company (NOC) Petrobras has developed leading technology capabilities in the area of deep-water exploration and production, a field in which Chinese NOCs lack expertise.

In terms of wind energy, with some of the highest-capacity factors in the world, Brazil has significant market potential but lacks its own wind technology and experience in deployment. China is emerging as an independent supplier of wind turbines with its own technology capabilities, which makes it an attractive supplier of components and a potential investor in Brazilian wind farms.

In the wind sector, technology transfer between the two countries takes place predominantly via turbine imports from China, which first began in 2012.

Mutual interests seem to be quite clear: Brazil would like to partner with China to bring down the costs of wind components in order to advance its burgeoning wind sector, while China could build a comparative advantage in serving this growing market through joint research.

However, early cooperation has come across some obstacles, such as in a recent Brazilian project developer's involvement in legal disputes over intellectual property rights, for instance.

Announcements of cooperation agreements between Eletrobras and China Three Gorges (CTG) are also promising, as they bring together one of the most ambitious players in the South American wind market with the operator of 1GW of wind energy capacity in China.

This partnership may also create significant opportunities on both sides, if the competencies gained through joint offshore wind projects in China would lead to the development of projects in Brazil as well. CTG has thus far positioned itself as a wind project developer, but, as it continues to grow its operations and acquire minority stakes in Chinese technology enterprises, it may become a technology provider.

As a product of intergovernmental dialogue, China and Brazil have set up the China-Brazil Center for Climate Change and Innovative Technology for Energy, which brings together experts from leading research and engineering institutions at Tsinghua University and the Federal University of Rio de Janeiro.

Within the framework of this centre, the two countries' intention is to build technology cooperation and develop partnerships in four initial areas: biofuels, wind energy, deep-water oil, and carbon capture and storage technologies.

A first outcome worth highlighting is an agreement on increased academic exchange in the area of petroleum engineering, opening an alternative channel of technology transfer to the operational learning potential constituted by Chinese investments in Brazil.

Tied to progress

Sino-Brazilian technology transfer and cooperation is substantial, and investments are increasing. Yet, the objectives of high-level agreements on increasing technology transfer have yet to be solidified, due to the absence of immediate commercial interests in some areas.

This lack of progress is partly due to the fact that both governments have a limited degree of influence in the international activities of their NOCs, even though they are state-owned entities.

China and Brazil are strategically applying local content requirements and technology standards to create export opportunities for their national industries or to ensure that foreign direct investment aligns with broader economic development and technology policy goals.

Local content requirements create obstacles to bilateral technology flows - they may impede access to finance by development banks, for example. However, both sides have agreed to reduce such obstacles.

Another obstacle that still needs to be overcome is the alleged intellectual property right infringement by Chinese wind companies, which may slow down their expansion not only on the Brazilian market but also globally.

In the longer term, given the capabilities of the corporate actors, this relationship could grow into a significant bilateral technology partnership, especially in the wind and transmission sectors, where commercial interests are already driving cooperation.

China and Brazil are uniquely placed to develop and adopt modalities and practices for technology transfer with impact on broader technology transfer agreements at the international level. This could be useful, for example, in the context of broader climate agreements: as China and Brazil are eligible for financing from Annex I parties, they could reap the benefits of technology transfer, with access to international funds sourced from developed countries.

The intensification of such ties could result in a more rapid deployment of clean energy technologies in emerging economies, offering new avenues for mitigating climate change. However, if these countries work together exclusively, it could also contribute to increasing heterogeneity in global technology standards.