Tuesday, October 12, 2010

China’s Evolving Technology Policies

Whatever the future holds in store, China is destined to play a major role, perhaps even a dominant one. If one looks at a map of China, one sees issues on every border, and the potential for conflict. China can either be a good neighbor or an aggressive neighbor. All we know for sure is that China will act in its own best interests. As in most cases, there are short-term benefits to be had and long-term goals for which to plan. The path to the long-term goals is not always reached by satisfying short term needs. China seems determined to send out mixed signals as to its intentions—whether from confusion, or by clever dissembling designed to disorient the rest of the world, is not clear.

Adam Segal has an interesting article on the homepage of “Foreign affairs,” Beijing’s Push for Homegrown Technology. Segal summarizes some of the recent official pronouncements in the area of Chinese technology development. As expected they include a mixture of aggressive and good-neighbor attitudes that leaves one wondering what will actually happen.

Segal points out that while China may be the world’s premier manufacturer, many of the high end goods they produce contain technology that must be licensed from other countries. These licensing fees take a big chunk out of any profit. In addition, commodities and labor are becoming more costly and shrinking their margins even more. The Chinese response is to both encourage and demand internal innovation to limit this dependence on the technologies of others. Segal uses the phrase “indigenous innovation” to describe this thrust.
“The Chinese phrase for indigenous innovation, zizhu chuangxin, was introduced in a 2006 state-issued report, ‘Guidelines on National Medium- and Long-Term Program for Science and Technology Development.’ The paper contained a curious mix of top-down, state-directed policies alongside bottom-up efforts meant to foster technological innovation. The top-down measures echo China’s old state planning system. They include 20 state-driven megaprojects, including initiatives to develop nanotechnology, biotechnology and new drugs, high-end generic microchips, and aircraft. The bottom-up efforts seem to follow a Silicon Valley model and are centered on university-industry collaboration, small start-ups, and venture capital.”

“If these guidelines leave the government’s approach to technological innovation somewhat ambiguous, they are clear on ultimate objectives: China will become ‘an innovative nation in the next 15 years and a world power in science and technology fields by the middle of the twenty-first century.’ By 2020, the report states, China should reduce its ‘degree of dependence on technology from other countries to 30 percent or less’ (down from 50 percent today, as measured by the spending on technology imports as a share of the sum of domestic R&D funding plus technology imports). Noting that reliance on other countries—especially the United States and Japan—is a threat to Chinese national and economic security, the paper calls for China not to purchase any ‘core technologies in key fields that affect the lifeblood of the national economy and national security,’ such as next-generation Internet technologies; high-end, numerically controlled machine tools; and high-resolution earth observation systems.”
Wanting to encourage home-grown development is normal. Stating in an official planning document that one should not purchase “core technologies in key fields” is definitely on the aggressive side. China then went further down this road.
“New Chinese policies prompted by the report have raised the hackles of foreign governments and technology enterprises. In 2009, for example, China’s government, a massive consumer of high-tech products, announced that in order to be a recognized vendor in the government’s procurement catalog, a company would have to demonstrate that its products included indigenous innovation and were free of foreign intellectual property. Yet since R&D is a global, collaborative process, no individual high-tech product is completely independent of technology from outside of China. In April 2010, Beijing ordered those high-tech companies seeking to be listed on its procurement catalog to turn over the encryption codes to their smart cards, Internet routers, and other technology products.”
The government statement, strongly encouraging local technology in an environment where protection of intellectual property is already uncertain, could lead Chinese companies to re-engineer another’s technology and label it as its own. Segal quotes business consultant James McGregor describing the Chinese guidelines as a
“...blueprint for technology theft on a scale the world has never seen before.”
Meanwhile China is sending out “good neighbor’ signals as well.
“In the face of this uproar, China has made some concessions. In May, Cao Jianlin, a vice minister at the Ministry of Science and Technology, noted that the 2009 procurement policy was an early draft and that future revisions would address concerns over IPR protection. Beijing has also announced that it intends to join the World Trade Organization’s Agreement on Government Procurement, a treaty that ensures nondiscriminatory access to government purchases for foreign companies, ‘as soon as possible’.”
This technology issue is one of perhaps hundreds over which there is contention between China and other countries. If you ever noticed that high level visits with the Chinese usually involve massive entourages, now perhaps you have a hint as to why.

Stay tuned. It will not be dull.

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