International ties

West should embrace competition

By Li Ruogu (
Updated: 2011-01-11 16:45
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3. The truth behind the debate on investment climate and indigenous innovation

China's argument with the US and EU on investment climate and indigenous innovation clearly reflects the following aspects: 1. Developed countries' dependence on and contest for the Chinese market amid global demand changes in the post-financial crisis era; 2. Monopoly and anti-monopoly battle in the field of science and technology as China is at a crucial juncture to move upstream in the industrial and value-added chains from a mere major manufacturer and exporter; 3. Defense of development rights and competition for a leading role in development between the developing and the developed world.

The global market in the post-financial crisis era

Currently, demand from non-government sectors in the US and Japan is sluggish.

With their inventory adjustment coming to an end and the impact of extraordinary fiscal stimulus fading, their economy will undoubtedly be weak in the first half of this year. In the meantime, the EU is forced to adopt fiscal adjustments earlier than planned, and its unemployment rate exceeds that of the US and Japan. All of these factors have placed exports as their only hope for economic recovery. Asia, especially China, is where new global demand comes from.

According to the International Monetary Fund (IMF)'s latest prediction, from 2010 to 2015, 78% of global economic growth will come from developing countries, China alone accounting for 37%. By comparison, the US is predicted to contribute only 9.7%, which is much lower than before the financial crisis. This trend has determined that developed countries would rely heavily on and go all out to fight for the markets of developing countries, especially China.

Sino-US economic disputes reflect people's mindset as well as reality.

Tremendous changes have taken place in the two countries' import volume in recent years. From 2000 to 2009, US’ share of global import volume dropped by 6%, while China's increased by 5%. The import volume gap between the two countries is narrowing and China's impact on the world economy is rising as US' drops. Meanwhile, US exports to China are taking up a growing percentage of its total volume. In 2009, US exports to China increased despite its decreasing exports to other parts of the world. Therefore, China is playing an increasingly important role in stimulating US exports and creating its export-related employment opportunities.

Indigenous innovation and intellectual property rights

Indigenous innovation is the natural choice of a country when it develops its economy on its comparative advantages.

After years of export-oriented processing and becoming one of the world's largest manufacturers, China now is faced with the mission to upgrade its industries. However, Western companies are more than reluctant to sell their core and cutting-edge technologies to China. In other words, nothing like an open market exists in the field of IPR.

Facing this reality, on the one hand, China needs to strengthen market competition to urge developed countries to introduce their most advanced technology and products to the Chinese market; on the other hand, China undoubtedly has to choose the path of indigenous innovation.

In an IPR market where fair competition is not fully guaranteed, the adoption of necessary market intervention measures to protect competition rights of the latecomers is a must. The US, Japan and the EU have all gone through this stage in their development. Since technological monopoly is destined to be temporary, the right thing for market leaders is to keep on innovating under pressure of competition.