Indigenous Innovation Can Benefit the Whole World

On May 17, U.S. Secretary of Commerce Gary Locke spoke at the American Chamber of Commerce in Hong Kong and expressed his concerns with the business environment in China, especially with China's "Indigenous Innovation Policy." Secretary Locke felt that this policy "could provide domestic [Chinese] firms a leg up in bidding on government procurement projects."

He further stated that "many U.S. businesses were surprised by this policy, which was made without any input from affected businesses and was not subject to any public comment."

Understandably, as the Secretary of Commerce, he was trying to promote U.S. interests. But he may have overlooked the facts from a historical perspective, and he might have even ignored U.S. government procurement policies while trying to push China to roll back its policy.

First, the Chinese Ministry of Science and Technology and the Ministry of Finance did issue a call for comments on Indigenous Innovation Product Accreditation on April 9, 2010 and the consultation period ended on May 10, 2010. Comments could be submitted by post, fax or email. In the notice, it covered the scope, the conditions, as well as application and accreditation. The application process for the accreditation started on May10th and will continue to September 10th.

Second, as far back as 1933, the Buy American Act was passed by the U.S. Congress and signed by President Roosevelt, and required the United States government to prefer U.S. made products in its purchases. And as recent as last year, the American Recovery and Reinvestment Act of 2009, commonly referred to as the Stimulus, also has a Buy American provision in it. Unlike the China's Indigenous Innovation Product Accreditation program, when it comes to the U.S. government procurement policy, it never consults any foreign company.

Third, maybe the reason many U.S. companies were against this new policy is because they have enjoyed preferential treatment in China for too long. Since the early 80's China has provided preferential treatment to foreign-invested enterprises (FIEs). Companies with at least 25% of foreign investment enjoy special tax holidays and incentives. Foreign financial institutions, like commercial banks and insurance companies, also enjoy these privileges. As a result of the FIE preferential treatments, many foreign companies including many U.S. companies often enjoyed a superior incentive treatment over local Chinese competitors in the last 25 years. While the FIE policy did attract many foreign investments in China, the government of China also faced pressures and complaints from its domestic companies. The Chinese domestic companies often view the FIE preferential treatments as unfair and discriminatory against China's own local businesses. So this Indigenous Innovation Product Accreditation is really meant to level the playing field and to encourage innovation and creativity. Without a robust innovation policy in place, many China companies will be limited to imitation and replication, and that is not good for China or for the United States.

Centuries ago, indigenous innovations from China benefited from and impacted the whole world, starting with the four great inventions - compass, gunpowder, paper making, and woodblock printing. The invention of the compass lead to a whole new way of determining position, destination, and direction at sea, with the greatest contribution enabling the trading and shipping by sea instead of by land. The invention of paper making enabled recording, transporting, and storing of information in an efficient way. The inventions of woodblock printing enabled the duplication of information, and thus shared knowledge, learning, and organizational memorial. As for the invention of the gunpowder, it will be hard to imagine celebrating July 4th without the fireworks. The benefits of China indigenous innovations didoes not end with just the four great inventions. Just look at the silks in the fashion industry, the tea we drink, the noodles we eat, and the list goes on.

China's Indigenous Innovation Product Accreditation will stimulate new innovation and invention, and it will also protect intellectual property rights and trademark. It is switching from an acquisition and development (A&D) mode to a research and development (R&D) mode. China's Indigenous Innovation Product Accreditation deserves to be encouraged and not stifled. The United States should show its trust and faith in China as its trading partner.

"While the United States and China will not always agree on everything, our economies and our environments are inextricably linked, and we have to strive to solve our problems through cooperation." as Secretary Locke said in his remarks "Working together, China and the United States can lead a second industrial revolution, where cleaner and more efficient technologies power the world's factories, cars and homes in the 21st century."

The U.S. companies have many ways to exercise its innovations. Now is the time to let China's companies have a chance to be creative and inventive; the result just might benefit the world in a whole new way.

Fred S. Teng is a senior executive of a monthly publication focuses on China, and he is an active member of a number of U.S. China policy institutions