International ties

West should embrace competition

By Li Ruogu (
Updated: 2011-01-11 16:45
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2.Why are the US and EU concerned over China's industrial policy of indigenous innovation?

Sixty-two percent of American companies surveyed admitted China's new policy on indigenous innovation had no negative impact on their presence in China, and 10% even thought they had benefited from the policy.

When asked if their future growth would be affected by China's indigenous innovation policy, positive responses exceeded 40%. This showed that American companies' concerns over the negative impact of China's indigenous innovation policy were not really based on solid facts. They were worried that they could lose their edge in central and local government and State-Owned Enterprises (SOE) procurement market under China's industrial policy of indigenous innovation.

However, given the fact that foreign companies were big winners of Chinese government procurements in 2009, there is no need to worry about China's indigenous innovation policy.

For years China has been disclosing and executing its policies on indigenous innovation. Why is it only now that it's become an important topic in economic relations between China and the developed world? The answer can be found in the surveys conducted by Amcham-China and EUCCC.

The reason is that Chinese companies are becoming increasingly competitive (a view held by 67% of American and 58% of European companies), threatening or starting to break down their monopoly. We should be soberly aware that those who are complaining and criticizing are the ones who once dominated China's fully open market of durable consumer goods, equipment and materials of production, from which they had gained huge profits. Even today, some of these companies remain market leaders.

Therefore, the competition pressure from Chinese companies is just one side of the story. What is more important is that this round of financial crisis has greatly reduced the domestic and global competitive edge of these foreign companies, making them more dependent on the Chinese market, including the government procurement market, which grew in spite of the crisis. This is the very reason that these foreign companies have become so hypersensitive.

High-tech and information technology (IT) companies are the ones that voiced the strongest opposition against China's indigenous innovation policy, especially those from the computer, telecommunication, software and green product sectors.

Besides China's procurement policy, the development of its own technological standards and accreditation systems are also on the top of their dislike list. They fully understand that any successful Chinese standard would inevitably become global due to China's huge market scale. American and European firms consider advanced science and technology their core competitiveness.

Therefore, it is not at all surprising that foreign companies and their government officials voice their opposition to competition from Chinese companies and China's indigenous innovation policy when they feel that their monopoly in this fastest growing market is under threat, and the Chinese government and companies are significantly empowered by increasing input in the R&D sector as a number of frontiers achievements are successfully commercialized (for instance, high speed railways).