China's tech policies may lead to trade disputes, report warns

Country's policies designed to transfer foreign technology to Chinese companies worrisome, says U.S. Chamber of Commerce

WASHINGTON -- China's goal to become a technology giant is being helped by government policies that may force businesses to transfer their technical know-how for access to China's market, a new report finds.

These foreign technology products may be "re-innovated" by Chinese companies who will then take these products to market and emerge as new competitors.

This is just one of the concerns described in a new report from the U.S. Chamber of Commerce, released Tuesday, which looks at China's policies and warns that trade disputes may come of it.

China's government has set ambitious goals to create entire homegrown industries, especially in the tech area, with the help of a policy called "indigenous innovation," which U.S. officials have said will force companies to transfer the fruits of their technical expertise in exchange for access to China's market.

"[China's] indigenous innovation political and economic campaign amounts to an all-hands-on-deck call to action for the Chinese nation to roll up its sleeves and complete the mission of catching up and even surpassing the West in science and technology," wrote James McGregor, a senior counselor for the consultancy Apco Worldwide and author of "One Billion Customers: Lessons from the Front Lines of Doing Business in China" (Free Press 2005), in the report commissioned by the chief U.S. industry body.

"Indigenous innovation is a massive and complicated plan to turn the Chinese economy into a technology powerhouse by 2020 and a global leader by 2050," the Chamber's report says.

This report is just the latest warning over China's policies, but the Chamber is also discussing possible consequences. In releasing this report, the official pointed out its assessment that worry is increasing that the nations are "headed toward triggering contentious trade disputes and inflamed political rhetoric on both sides."

It's not just the Chamber that is raising concern. In January, the Business Software Alliance, Consumer Electronics Association, National Association of Manufacturers, TechAmerica, and more than dozen other groups, wrote a letter to U.S. officials warning about the policies.

They warned China's policies are "part of a long-term plan that threaten to exclude a wide array of U.S. firms from a market that is vital to their future growth and ability to create jobs here at home."

The U.S. International Trade Commission recently launched two investigations into China's polices at the request of the U.S. Senate Committee on Finance. Reports aren't due until next year.

The trade commission's action came after Senate Finance Committee Chairman Max Baucus (D- Mont.) and ranking member Sen. Chuck Grassley (R-Iowa).Grassley said China "is using its 'indigenous innovation' program to discriminate against U.S. products in the Chinese market."

The Chamber's report maps out the dilemma. Chinese officials believe that believe that foreign companies "have been duplicitous and stingy," when it comes to technology transfers, and that foreign companies "held back their best to contain China's rise," according to the report. "Multinationals, on the other hand, consider open markets to be the normal state of business."

However, the indigenous innovation policy "goes far beyond the China market as multinationals expect to see their own technology coming back at them globally in the hands of Chinese competitors," the report argues.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at  @DCgov or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com.

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