Tag: indigenous innovation

China R&D, Taking Off, Entering the Stratosphere, Sort of Like Sputnik

John Berthelsen of the Asia Sentinel writes a thorough, and thoroughly alarming, piece about China’s investments in research and development compared to the U.S. R&D, and Chinese educational achievements versus American.

From “China’s Heavyweight R&D Spending“:

Hong Kong. Although previously China has publicly indicated its ambition to invest heavily in research and development, the amount to actually be devoted to the sector is staggering, and is expected to be distributed mostly by fiscal or government subsidy – actual cash payments.

Sean Darby, Asia strategist for Nomura international (HK) Ltd., estimated the amount of spending over the next five years in a report this week at 5 trillion yuan (US$758.4 billion), an even bigger amount than the mammoth – and successful – 4 trillion yuan stimulus package announced by the central government in 2008 as an attempt to minimize the impact of the global financial crisis.

Berthelsen’s analysis draws on a report on R&D by Research-Works, the leading independent equities research firm based in China, which has a summary and data points available here. He also cites Frank Vargo, the National Association of Manufacturers’ vice president for international economic affairs, who at a Shopfloor post detailed China’s violations of intellectual property rights and its government procurement mandates, “indigenous innovation.” (China’s ‘Innovation’ Policies Come at Expense of U.S. Manufacturers.)

Of China’s transgressions there’s no doubt. Still, as Research-Work’s managing director, Hugh Peyman writes:

China is no longer stuck in the Research and Copying, phase, as every other emerging leader went through, including the United States. Now China has real R&D and the products and processes that flow from it, something that has not yet registered with the popular mind, despite the mounting evidence.

This is the point at which we mention — for the first time this year at Shopfloor — that the R&D tax credit expires on Dec. 31, 2011.

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China’s ‘Innovation’ Policies Come at Expense of U.S. Manufacturers

As the two largest economies in the world, the relationship between the United States and China is of great importance to global growth and prosperity. This week’s visit of Chinese President Hu affords the opportunity for direct high-level attention to the imbalances in that relationship and lays the basis for a new direction. 

It is critical that the relationship be characterized by both mutual respect and benefit through adherence to international trade rules.  It is also vital that the relationship be a balanced one in terms of trade and commercial opportunity.  When the final trade data for 2010 come in, the U.S. deficit in manufactured goods with China is likely to have set a new record of about $290 billion, exceeding the 2008 record of $277 billion.

The National Association of Manufacturers (NAM) has long pressed for efforts that would result in a more open and balanced economic relationship.  A key aspect is a bilateral and multilateral effort to address China’s greatly undervalued currency.  We strongly support the Administration’s engagement with Chinese leadership on this issue.  But we also call for much greater attention to China’s distortion of commercial opportunities for U.S. firms – particularly China’s set of policies designed to encourage “indigenous innovation.” 

China’s leadership has set itself a broad strategic objective of making the Chinese domestic economy more innovation-oriented and decreasing China’s reliance on foreign technology.  The leadership considers these policy imperatives as critical to China’s long-term economic development, national security and global competitiveness.  

There is nothing wrong with seeking to spur innovation and technology.  Just about every major country, including the United States, pursues that objective.  But the United States and other countries follow the global rules they have adopted and seek to promote development within those rules.  China’s policies, however, bend and break the rules.  Its policies come at the specific expense of foreign companies and competitors, essentially forcing the transfer of foreign technology to China.  (continue reading…)

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China Makes Commitments on Trade, Intellectual Property

The announcement at the completion of the 21st annual meeting of the U.S.-China Joint Commission on Commerce and Trade (JCCT) on Wednesday highlighted progress on a number of major priorities for manufacturers. (U.S. Trade Representative news release, fact sheet)

A new system of ongoing working group engagement appears to have paid off in commitments on the part of China in areas that the National Association of Manufacturers has long emphasized. In one of the most important issues for U.S. companies, intellectual property (IP) protection, there is potentially significant progress for producers in the wind turbine, pharmaceutical, and software industries. China’s commitment not to discriminate against American IP in deciding what products or companies get preferences for government contracts could have significant impact for NAM members selling in the Chinese market.

In addition, the agreement to revise the major equipment catalogue (which governs what products qualify for special treatment in government purchases) and not to use it to discriminate against imports or provide export subsidies, is similarly a positive signal that China will play by the rules of the international trading system that has benefitted it so significantly.

China also made commitments that could further open their markets to U.S. industrial and telecommunications equipment, and agreed to accelerate the process of joining the WTO Government Procurement Agreement. This agreement has been a priority for the NAM as a way to open the door to billions of dollars in purchases by Chinese government entities.

All of this is good news. But long term, it all hinges on China’s implementation of these commitments.

(continue reading…)

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ITC Details Widespread Theft of Intellectual Property in China

Just in time for the opening of the annual U.S.-China Joint Commission on Commerce and Trade (JCCT) today in Washington, the U.S. International Trade Commission (USITC), an independent U.S. government agency, has released an important study on the theft of U.S. intellectual property in China, “China: Intellectual Property Infringement, Indigenous Innovation Policies.” (News release.)

To no one’s surprise, the Commission found that massive Intellectual Property Rights (IPR) infringement harms market opportunities in China and significantly diminishes the income for U.S. companies whose products are counterfeited and pirated in China (as well as other markets, including the United States).

Further, China is engaged in a concerted effort to promote so-called “indigenous innovation” policies designed with the sole intent of keeping U.S. and other foreign firms out of the huge Chinese government procurement market by requiring the development and purchase of Chinese products and technologies, sometimes through the forced transfer of technology as a prerequisite for foreign participation.

The National Association of Manufacturers expects that the U.S. government will use this study when U.S. trade negotiators meet with their Chinese government counterparts. This threat to American innovation must stop.
(continue reading…)

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At the ITC, Objections to China’s IPR, Procurement Policies

Reuters, “US business beseiges panel with China complaints“:

WASHINGTON (Reuters) – U.S. business groups Tuesday besieged the U.S. International Trade
Commission with complaints about billions of dollars of lost sales due to Chinese counterfeit goods and government policies that threaten to shut American companies out of the market.

“Unfortunately, the stark reality is that China remains ‘ground zero’ for international product counterfeiting and piracy,” Shaun Donelly, senior director for international business policy at the National Association of Manufacturers, told the commission.

The hearing reflects the growing concern in Congress about Chinese trade practices.

The prepared statement from the NAM’s Donnelly is available here.

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China, ‘Indigenous Innovation’ and Trade Protectionism

The International Trade Commission has begun two days of hearings today, announced in a news release, “EFFECT OF INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS IN CHINA ON U.S. ECONOMY AND JOBS TO BE INVESTIGATED BY U.S. INTERNATIONAL TRADE COMMISSION.”

The AP previews the hearings in an article, “China bid to spur innovation raises trade tensions.” Writing about China’s new procurement proposals called “indigenous innovation,” AP reports:

U.S. companies argue that the rules are intended to force them to partner with Chinese companies and turn over technology and intellectual property to them. Doing so would qualify them to sell to Chinese government agencies.

But Pat Mears, director of international commercial affairs at the National Association of Manufacturers, said that given China’s poor record in protecting patents, copyrights and other intellectual property, most U.S. companies prefer to keep their most vital technologies — “the crown jewels” — outside China.

“This is another effort at forced technology transfer,” she said.

The NAM’s Shaun Donnelly is testifying today before the ITC.

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More on ‘Indigenous Innovation’ as an Excuse for Protectionism

From Kiplinger, a good review of the “indigenous innovation” issue, “China Restricting Entry by U.S. Firms“:

Doing business in China will keep getting harder for foreign companies. Beijing is leveraging its huge government purchasing power to encourage homegrown firms to develop import substitutes, with the aim of creating national champions to compete against multinationals both in China and worldwide.

“Japanese, European and American companies … used to think that China welcomes foreign technology, welcomes our presence to help develop,” says Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers. “Increasingly, they don’t feel that way anymore. They feel they are being discriminated against, being shut out of certain market segments.”

Treasury Secretary Geithner highlighted the issue in remarks Tuesday at the Port of Tacoma:

[As] part of a program they call “indigenous innovation,” China recently proposed a program where the government would compile a list of what qualifies as innovative products, and provide advantages to the companies that make them. Those benefits would include preferential treatment in government purchases. Products exported to China from the United States might not be eligible for those benefits. And even products produced by American firms that operate within China may not make the cut.

American companies are very concerned that this approach has the potential to discriminate against foreign-made products and could disadvantage American exporters and investors as they compete with Chinese firms. We share those concerns. The Chinese government has taken some steps to address these concerns, but we have some more work to do in this area.

Our challenge is to help make sure that China does more to protect intellectual property rights and reduces subsidies and other preferences to domestic companies. We want China to give American firms the same opportunities to compete in China that Chinese firms face in the United States. This is a simple principle of fairness.

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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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Translation Tools are Improving. 其实!

From WNYC’s “On the Media program,” April 30, “Bridging the Online Language Barrier“:

Each year the internet grows more multilingual. The good news: this has allowed hundreds of millions of people to get online and use their native language. The bad news: it threatens to divide the web into separate Internets along language lines. OTM producer Mark Phillips reports on the translation tools trying to bridge the language divide.

The report highlights Google’s efforts to improve its online translation engines, using both machine translation and an ever-growing database of human translations.

Very interesting. So we ran a test. Here’s a paragraph from the trade association letter sent to the Chinese government commenting on the “indigenous innovation” rule.

While we support and encourage innovation in China, and look forward to working with the Chinese Government to promote an environment that enhances opportunities for innovation in China, we believe that the Draft Notice and the many related policies would actually decrease, not increase, innovation in China. These related policies, broadly linked to indigenous innovation, limit the types of products that are developed and used in China and exclude some of the most innovative suppliers, the associated R&D, and resulting innovation benefits to the Chinese market.

Here’s the same paragraph translated by a human into Chinese:

尽管我们支持并鼓励在中国的创新,并且希望与中国政府一起改善创新环境,使其为在中国的创新提供更多的机会,但我们认为,《通知 征求意见稿》及若干相关政策实际上非但不能提升,反而会削弱在中国的创新。这些与自主创新广泛关联的政策将限制在中国研发和利用的产品品种,一些最具创新的供应商、相关研发活动及其创造的有利于中国市场的创新利益也将被拒之门外。

And here’s the Chinese paragraph translated via Google back into English:

While we support and encourage innovation in China, and hope together with the Chinese government to improve the environment for innovation in China to provide more opportunities for innovation, but we believe that “draft notice” and a number of related policy reality, not only can not upgrade, but will weaken the innovation in China. The wide range of associated with innovation policy will be limited to China R & D and use of product variety, some of the most innovative suppliers, related research and development activities and create conducive to the interests of the Chinese market, innovation will be turned away.

That’s pretty good! The sense is clearly communicated and an editor could quickly clean it up.

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China’s ‘Indigenous Innovation’ Could Harm U.S. Exporters

The National Association of Manufacturers is one of 22 business groups to join in comments objecting to a proposed rule from the China’s Ministry of Science and Technology meant to enact the government’s  “indigenous innovation” initiative that would give advantages to Chinese company’s over foreign competitors.

From the comment letter:

While we support and encourage innovation in China, and look forward to working with the Chinese Government to promote an environment that enhances opportunities for innovation in China, we believe that the Draft Notice and the many related policies would actually decrease, not increase, innovation in China. These related policies, broadly linked to indigenous innovation, limit the types of products that are developed and used in China and exclude some of the most innovative suppliers, the associated R&D, and resulting innovation benefits to the Chinese market.

National Journal’s Tech Daily Dose reported on the comments in “Firms Urge China To Repeal Indigenous Innovation Policy.”

[The groups] also voiced concern with other Chinese policies that they say encourage or mandate procurement from Chinese suppliers; extend monetary or other benefits only to Chinese suppliers; and “provide preferences to products including ‘Chinese’ IP, or compel the transfer of or otherwise fail to adequately protect IP in non-Chinese products.”

The groups also questioned whether such policies are in compliance with China’s international trade obligations and pledges not to discriminate against foreign firms in its procurement policies.

Reuters, “U.S. to press China on innovation policy at meeting

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