International Law

China's Indigenous/Domestic Innovation Policy. Everyone Just Move Along.

By Dan

By Steve Dickinson

There has been much discussion lately about China's domestic innovation/indigenous innovation policy. Foreign Affairs Magazine recently did an article on this entitled, "China's Innovation Wall, setting forth the standard Western view, which is that this policy will be terrible for America. 

The standard view is wrong.

1. China's currently conceived policy will certainly fail. If it were actually implemented, the requirement that all government purchases use Chinese technology would cripple the Chinese government. This is because Chinese domestic companies simply do not yet have sufficient technology. Moreover, if China were to eschew adopting the current international technological base, it could not "innovate" any new products. The program is therefore self-defeating.

2. The article repeats the common and outmoded complaint that China is trying to leapfrog the West by simply stealing Western technology. Of course, China will try to do this. That is what the U.S. did in the 19th century and it is what every technologically backward country does and will almost certainly continue to do. However, China is an export driven economy. To the extent China "steals" technology, the world system will shut China down.

3. The other standard complaint repeated in the article is that China is using its new innovation policy to force foreign companies to give their technology away at an unfair price. The appropriate response to this by foreign companies is to refuse to comply. 

China's domestic innovation policy is part of a larger program initiated in 2006 designed to make China into a world power innovator in technology. The real issue in China is that this policy has been a dismal failure. There are few signs of any improvement in technological innovation in China. Chinese companies, government and educational institutions seldom innovate; they appropriate and adapt.

China remains nearly totally dependent on foreign technology. This bothers the leaders in Beijing, of course, and one response is for them to initiate ill designed policies like the domestic innovation initiative. This policy should be seen for what it is: a desperate attempt by China to force innovation through a top down directive.  

The fact is that China remains a very good market for foreign technology and this is not likely to change at any time in the near future. Over the last year, my law firm has doubled its legal work related to licensing Western technology to China and in none of those deals would it be fair to say that the Western company "gave away" its technology.

The bottom line is that for most company's China's domestic innovation policy can be safely ignored.

For more on China's domestic innovation policy, check out the following:

"China's Latest Power Plays -- More Unfair Trade, Now Grave Threats to Our Security," where Leo Hindery gets all up in arms about it on the Huffington Post.

"Indigenous Innovation: Determining "Our" Position," where Scott Kennedy notes China's "consistent pattern of ... issuing unacceptable technology policies and then modifying them in the face of massive public criticism by foreign industry and government and quiet complaints from Chinese businesses with extensive foreign partnerships and pro-liberal Chinese experts."

"Report: China forcing foreign automakers to give up EV secrets?" where the Autoblog reports that the Chinese government may be forcing foreign automakers to reveal their electric vehicle technology secrets.

"China's Indigenous Innovation Policy and its effect on foreign intellectual property rights holders," where China Law Insight analyzes the impact this policy might have on foreign company IP.

What do you think?

Full post as published by China Law Blog on October 12, 2010 (boomark / email).