Rethink China, Technology, Innovation, Investment

The Washington Post today runs a good big-picture, grand-scheme, peering-into-the-future op-ed on U.S.-China relations by James McGregor, former chairman of the American Chamber of Commerce in the People’s Republic of China, “Time to rethink U.S.-China trade relations.” Writing in anticipation of next week’s U.S.-China Strategic Economic Dialogue, McGregor focuses on technology and China’s recent protectionist procurement policy, “indigenous innovation.”

Most worrisome is the Chinese government mandate to replace core foreign technology in critical infrastructure — such as chips, software and communications hardware — with Chinese technology within a decade. The tools to accomplish this include a foreign-focused anti-monopoly law, mandatory technology transfers, compulsory technology licensing, rigged Chinese standards and testing rules, local content requirements, mandates to reveal encryption codes, excessive disclosure for scientific permits and technology patents, discriminatory government procurement policies, and the continued failure to adequately protect intellectual property rights. The poster child is the evolving “indigenous innovation” policy, which appears aimed at using China’s market power to coerce foreign companies to transfer and license their latest technology for “co-innovation” and “re-innovation” by Chinese companies.

McGregor’s cautions are warranted. The National Association of Manufacturers has been active on the “indigenous innovation” issue. In a May 10 joint submission to the Chinese government, the NAM and other trade association expressed strong (albeit diplomatically worded) objections to Beijing’s policy and procurement agenda. Excerpt:

We also urge China to proceed with an ongoing dialogue with stakeholders on best policies and practices that promote innovation and do not discriminate against foreign firms’ investments in and exports to the Chinese market. In that regard, as an essential first step, the Chinese government should undertake an immediate review of all innovation policies to ensure they do not discriminate between foreign and domestic suppliers and achieve the goal of the opening China’s market wider to foreign investment and exports promised by President Hu and Premier Wen.

Administration officials, meanwhile, are previewing their themes on their way toward the Strategic Economic Dialogue.

AFP, US commerce secretary urges China to import more

Bloomberg, “Geithner Urges China to Ensure ‘Level Playing Field’ With U.S.

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