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Embrace market competition

By Li Ruogu (China Daily)
Updated: 2011-01-12 08:02

China's investment climate hasn't deteriorated, intervention measures to promote indigenous innovation are justified

Has China's investment climate deteriorated, as recent Western comments would suggest? The simple answer is no. Ample facts and statistics prove that China has set up no barriers to foreign companies.

In 2009, 55 percent of the government's procurement contracts of mechanical and electronic products were given to foreign companies. In the definition of indigenous innovation products, all products manufactured by foreign companies in China are labeled as "Made in China".

In the same year, despite the fact that global foreign direct investment (FDI) plunged by 40 percent, the FDI to China dropped by only 2.6 percent, thanks to China's lowered foreign investment threshold and more open policies.

However, there has been continual criticism from the West, despite surveys by various foreign chambers of commerce in China showing that China's investment climate became more attractive rather than deteriorated after the financial crisis.

Sixty-two percent of US companies surveyed on China's business climate and confidence by the American Chamber of Commerce in China (Amcham-China) and the European Chamber of Commerce in China (EUCCC), admitted China's new policy on indigenous innovation had no negative impacts on their presence in China, and 10 percent thought they had benefited from the policy.

Given the fact that foreign companies were big winners from Chinese government procurement in 2009, there is no need to worry about China's indigenous innovation policy, which gives government procurement preference to companies that develop and register intellectual property in China. 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 gained huge profits. Even today, some of these companies remain market leaders. Foreign companies have played an important role in promoting China's technological imports and have gained considerable profits from the Chinese market.

What is more important is that the 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 reason why these foreign companies have become so hypersensitive.

China's argument with the United States and the European Union on its investment climate and indigenous innovation clearly reflect the following aspects:

Developed countries' dependence on and competition for the Chinese market amid the global demand changes in the post-financial crisis era;

the monopoly and anti-monopoly battle in the field of science and technology, as China is at a crucial juncture as it moves up the industrial and value-added chains from being a manufacturer and exporter;

defense of development rights and competition for the leading role in development between the developing and the developed world.

After years of export-oriented processing and becoming one of the world's largest manufacturers, China is now faced with the mission of upgrading its industries. However Western companies are extremely reluctant to sell their core and cutting-edge technologies to China. In other words, an open market doesn't exist in the field of intellectual property rights (IPR).

In the face of this reality, on the one hand, China needs to strengthen market competition so as 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 the IPR market, where fair competition is not fully guaranteed, the adoption of necessary market intervention measures to protect the competition rights of weak 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 to do is to keep on innovating under the pressure of competition.

The root cause behind the debate over China's investment climate and indigenous innovation policies is not whether China has adopted sufficient IPR protection methods or whether its government and State-owned enterprises procurement is fair. Instead, the root cause is that in the post-financial crisis era which country and what concept should take the leading role in global economic growth are key concerns.

In the post-financial crisis era, China's economic growth will rely more on technological innovation. Trade and investment among developing countries will play a bigger role in the world economy. With the increasing innovation capacity of emerging markets, such as China, developing countries will be more empowered. It is understandable that developed countries, facing grim economic prospects and massive structural unemployment, will try to stimulate growth by increasing exports.

However, it is not a workable plan for developed countries to secure their monopoly by changing the market conditions of developing countries while still relying on them for profits. And it is even more impracticable for them to maintain their dominance in economic growth by challenging and oppressing indigenous innovation in developing nations.

As a developing country trying to catch up, China's efforts on indigenous innovation are justified. Facing the future, instead of making the issue political, the two sides should cooperate in an open and honest manner to encourage competition and collaboration on technological innovation, which will be mutually beneficial.

First, indigenous innovation is closely related to China's development rights and interests, and is key to the transformation of its economic growth mode and scientific development. It is justified for China to defend it rights and adopt further measures to support innovation.

Second, China will strengthen its legislation and implementation of IPR protection laws. China's progress in IPR protection will facilitate companies from Europe and the US seeking profit opportunities in its investment market. Meanwhile, developed countries should understand that excessive IPR protection might protect monopoly and oppress competition to hinder scientific and technological development.

Third, major developed countries should have an objective view on China's technological improvements. The dominance that developed countries have in high-and-new technologies is still firmly rooted. However, the rise of China has become an inevitable trend and cannot be stopped by opposition from old market leaders.

Having always advocated competition, European countries and the US should adjust their attitudes toward China, the new competitor, instead of trying to completely blocking competition.

The author is chairman and president of Export-Import Bank of China. A full version of this article can be found on China Daily's website.