US business groups say China’s innovation policies may freeze them out

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US companies slam China’s innovation policies

WASHINGTON — U.S. business groups on Tuesday criticized China’s government for recent proposals that could discriminate against U.S. software, computer and clean energy companies.

One proposal, first issued late last year, would encourage Chinese government agencies to purchase high-tech goods from companies that develop the technology in China. While not yet in place, the proposal is part of a raft of policies, known as “indigenous innovation,” that are intended to encourage more technological development within the country’s borders.

Jeremie Waterman, a senior director at the U.S. Chamber of Commerce, said the goal of the policies is to “provide distinct advantages to domestic (Chinese) companies and products or to force technology transfer if foreign players choose to participate.” Waterman testified before the U.S. International Trade Commission. The panel is studying the economic impact of China’s intellectual property and indigenous innovation practices.

China’s domestic procurement market is worth about $90 billion.

In April, facing pressure from U.S. companies and other critics, China modified its policy to enable foreign companies to compete for the government’s business. But many business groups are concerned that even if they are considered, their products won’t ultimately be selected because the central government’s preference for Chinese-based technology is widely known.

Treasury Secretary Timothy Geithner raised objections to China’s approach during high-level talks in Beijing last month. At a Senate Finance Committee hearing last week, he said China agreed to discuss U.S. objections “over the coming weeks and months.”

Software executives from 12 companies, including Microsoft’s CEO Steve Ballmer, raised the issue last week in meetings with members of Congress and Obama administration officials.

Still, Lee Branstetter, an economics professor at Carnegie Mellon University, said China’s indigenous innovation policies may not turn out to be as harmful as U.S. companies allege. Some may even benefit foreign companies.

To begin with, the government procurement policies aren’t yet formally in place. After being modified in April, they “may prove to be less discriminatory than once feared,” Branstetter said before the ITC.

And some of China’s indigenous innovation efforts — such as increasing support for Chinese universities, encouraging venture capital, and underwriting joint research projects with Chinese universities and foreign companies — could even benefit U.S. firms.

“It would be hard to argue that China’s indigenous innovation policies, broadly defined, have caused substantial harm to U.S. economic interests, broadly defined,” he said. “However, the potential for harm is certainly there.”