Analysis: Hu addresses U.S. stress over China high-tech drive

By Doug Palmer

WASHINGTON | Thu Jan 20, 2011 6:42pm EST

WASHINGTON (Reuters) - China's plan to change itself from a major manufacturer to a leading global source of innovation poses an enormous challenge for U.S. companies whose competitive edge depends on coming up with the next big idea.

Those firms may be able to breathe a little easier after China pledged during President Hu Jintao's visit to Washington this week to "delink" its indigenous innovation policies from its $88 billion-plus government procurement market.

"This issue has been one of our top advocacy priorities for the past year," said John Frisbie, president of the U.S. China Business Council, which represents more than 200 American companies that do business with China.

China's commitment is "potentially very significant" depending on how it is implemented, Frisbie said.

China's indigenous innovation drive refers to policies intended to spur its domestic firms to develop technologies and products as good as or better than those offered by the United States, Europe and Japan.

U.S. industry has feared being locked out of the vast Chinese central, provincial and local government procurement markets unless companies agree to develop and maintain their intellectual property in China.

Last January, 19 U.S. business groups representing aerospace, telecommunication, software, clean energy and other high-tech sectors put those concerns into a letter to U.S. Secretary of State Hillary Clinton, Treasury Secretary Timothy Geithner, Attorney General Eric Holder, Commerce Secretary Gary Locke and U.S. Trade Representative Ron Kirk.

What prompted that action was a Chinese central government proposal to establish a national catalog listing which products would be eligible for preferential treatment in government procurement contracts.

The groups told the five U.S. Cabinet officials that they were alarmed by criteria that would require products included in the catalog to contain "intellectual property that is developed and owned in China and that any associated trademarks are originally registered in China."


"This represents an unprecedented use of domestic intellectual property as a market-access condition and makes it nearly impossible for the products of American companies to qualify unless they are prepared to establish Chinese brands and transfer their research and development of new products to China," the groups said.

The issue also surfaced at the provincial and municipal level in China.

Shanghai issued its own catalog of innovative products in late 2009, and of "the 530 on the list only two were made by foreign-invested companies operating there," Frisbie said.

"And the two happened to be from joint ventures that had majority-Chinese ownership too," Frisbie added.

More than a year later, Shanghai has not updated its catalog -- which U.S. industry thinks illustrates the folly of using product lists to promote innovation, Frisbie said.


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China’s Innovative Way of Skinning the United States!

Mark Twain’s, on point, used “more than one way to skin a cat”, in A Connecticut Yankee in King Arthur’s Court, follows: “she was wise, subtle, and knew more than one way to skin a cat”, that is, more than one way to get what she wanted. provides a conventional definition of beggar-thy’s-neighbor as: an international trade policy of competitive devaluations and increased protective barriers that one country institutes to gain at the expense of its trading partners. Under the guise of fostering ‘indigenous innovation’ in its economy, the Chinese government creatively applies its own, non-conventional, subtle version of beggar-thy-neighbor. Its version doesn’t entail the competitive devaluation of its own currency, which would enhance China’s exports and inhibits its trading partners’ exports. China’s ‘indigenous innovation’ version perpetrates an over-valuation of the currencies of one or more of its trading partners. This adversely affecting all that (those) trading partners’ trade, with all its (their) trading partners, not just trade with China. During the periods China pegged its currency to the U.S. Dollar, China’s version of beggar-thy-neighbor was 8 times as damaging to the U.S. economy as what the media refers to as “China keeping it currency undervalued”.

In November 2003, Warren Buffett in his Fortune, Squanderville versus Thriftville article recommended that America adopt a balanced trade model. The fact that advice advocating balance and sustainability, from a sage the caliber of Warren Buffett, could be virtually ignored for over seven years is unfathomable. Until action is taken on Buffett’s or a similar balanced trade model, by the powers that be, America will continue to squander time, treasure and talent in pursuit of an illusionary recovery.

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