Sany stranded overseas

Sany workers debug a giant machine in a Hunan-based plant in central China [Photo/bjreview.com.cn]

Just as Sany Heavy Industry, the largest machinery manufacturer in China, is strained by its lawsuit against US President Barack Obama and the Committee on Foreign Investment in the United States (CFIUS). things seem to be getting worse.

During the Fifth Round of the China- US Strategic and Economic Dialogue, held from July 10-11 in Washington, the United States International Trade Commission (ITC) announced a Section 337 investigation into Sany and its American branch for patent infringement.

The investigation was based on a complaint filed by Manitowoc Cranes that certain crawler cranes and components manufactured by Sany and its US branch had infringed on two US patents.

Aside from that, Sany was also accused of misappropriating trade secrets. John Lanning, who once served as an engineer in Manitowoc Cranes and switched to Sany's American branch, was suspected of leaking trade secrets to his new employer.

Xiong Qi, Sany media spokesperson, said that Sany America's SCC8500 crawler crane was completely designed by its own research and development staff, and the accusation by Manitowoc Cranes was totally groundless. Zhu Wenkui, Vice President of Sany, believed that it was Sany's ambitious overseas expansion that ignited the United States to take protectionist measures.

In recent years, Sany has quickened its plans to go global. According to its financial statements, the machinery giant harvested a revenue of roughly 10 billion yuan ($1.63 billion) from its overseas business in 2012 and the figure is expected to exceed 15 billion yuan ($2.45 billion) in 2013. In the same time, Sany has ranked top three in terms of crawler crane sales in the US market, accounting for a share of 11.2 percent.

Its strong performance is a challenge to overseas rivals like Manitowoc Cranes, the former frontrunner in the trade. From 2005 to 2012, Manitowoc Cranes saw its market share shrink from 36.2 percent to 15.7 percent.

"The Section 337 investigation has been repeatedly employed as a shield of protectionism by the United States," said Zhang Guoqing, an expert from the institute of American Studies, Chinese Academy of Social Sciences.

It was derived from Section 337 of the Tariff Act of 1930, which was designed to shield the domestic economy from international competition during the Great Depression in 1929.

"A trade war is a lose-lose game. But when trade friction is inevitable, China will stand firm and fight it," said Zhou Dalin, Deputy Director General of the Bureau of Fair Trade for Imports and Exports under the Ministry of Commerce.

Investment frustrated

Sany's confrontation with the US Government can be traced back to March 2012, when Ralls Corp., a US-incorporated company controlled by executives from Sany Group, purchased four wind power plants in Oregon and hoped to explore the American market by fitting wind turbines produced by Sany. Originally, Sany planned to invest 3 billion yuan ($490.2 million) to build a 300,000-kilowatt wind power project. However, in July 2012, CFIUS called a halt to the construction of the four wind farms, explaining that they were near a naval test facility in Oregon. To fight CFIUS's decision, Ralls filed a lawsuit, and added Obama to the list of defendants after an executive order he issued nullified Ralls' wind farm deal over concerns of national security.

Ralls argued that the US president had exceeded his statutory authority by ordering Ralls to divest its investment in Oregon. Xia Tingkang, one of the six lawyers pleading for Sany, argued that it was unfair to impose restrictions on the use and sale of Sany-manufactured wind turbines in the US market, although he confirmed the president's right to restrict or call off the investment project. Wu Jialiang, Vice General Manager of Sany, calculated that the failed wind farm project cost Sany Group $20 million.

It was the first time a US court heard a case against the US president and CFIUS, which, in some way, is a positive development. "First, the case reminded the US Government that the asset rights and interests of Chinese companies cannot be trampled at will," said Mei Xinyu, a research fellow at the Chinese Academy of International Trade and Economic Cooperation. "Second, it would have an effect on talks of China's investment protection treaties, and strengthen Chinese companies' awareness to safeguard their overseas assets."

Similar cases

This is not the first time Chinese companies have been accused of "threatening US national security." In November 2011, Chinese telecom companies Huawei and ZTE were investigated by the US Government on national security grounds. A report released by the US House of Representatives' Committee on Intelligence in October 2012 suggested that Huawei and ZTE be prevented from entering the market of information and communications technology. In the report, the committee said that Huawei and ZTE had posed a threat to US national security based on concerns over cyber-attacks allegedly traced to China, and criticized both for failing to provide details regarding their business activities in Iran.

"The committee is operating under a broad assumption that any Chinese company must have 'ties' sufficient to enable Chinese Government to direct or control business operations, even including authority to require access to Chinese companies' telecom infrastructure equipment for purposes of espionage and sabotage of critical US telecom infrastructure," ZTE later said in a statement.

On January 31, 2013, Section 337 investigations were formally launched against the two Chinese telecommunication equipment giants by the ITC to find out whether they were involved in patent infringements. "In fact, the investigations have violated the rules of the World Trade Organization," Daniel Ikenson, Director of Cato's Herbert A. Stiefel Center for Trade Policy Studies, told Xinhua News Agency. "It's a protectionist measure taken by the US Government. If the alleged patent infringements really exist, patent holders can file a lawsuit by themselves."

Fair trade

"Globally speaking, trade protectionism and barriers have persisted for years. In the long run, it would greatly block the free flow of trade worldwide. The frustration in the US market will further intensify our resolution to push forward the internationalization of Sany Heavy industry," said Zhu.

Since China and the United States established diplomatic relations 34 years ago, China has grown into the fastest expanding export market for the United States, while the United States has morphed into China's second largest trade partner. By now, a total of more 60,000 American enterprises have made investments in China. American companies, ranging from McDonald's to Microsoft and Apple can be seen everywhere in China.

"Deepening economic ties have boosted the growth of both countries, creating more jobs and bringing tangible benefits to the people of both nations," Wang Yang, Vice Premier of State Council, said in an article published in the Wall Street Journal before the Fifth Round of the US-China Strategic and Economic Dialogue.

During the dialogue, China again urged the United States to provide fair treatment to all Chinese enterprises and remove trade barriers. When reviewing all Section 337 investigations begun by the United States, a strange phenomenon emergesâ€"almost all the cases ruled by the Uniform Trade Secret Act involved Chinese companies.

In September, Sany's lawsuit against Obama and CFIUS will come to an end. "All companies should be treated equally," said Xiang Wenbo, President of Sany. "The case will set a positive example for Chinese companies to safeguard their interests in overseas market."