Source: Wall Street Journal by Loretta ChaoBEIJING -- Chinese industry insiders and companies defended Beijing's request that state agencies buy products containing domestic intellectual property -- but even these intended beneficiaries expressed confusion about how new government procurement regulations would affect them.
China's updated procurement rules, issued on an official Web site in October and reported by The Wall Street Journal on Thursday, establish an accreditation system that gives Chinese intellectual property preferential treatment in sales of tech products to government buyers.
More than 30 industry groups, representing most of the world's major tech companies, wrote a letter Thursday to the Chinese government, calling the system onerous and discriminatory.
The Department of Commerce and other U.S. agencies have raised the issue with China. The office of the U.S. Trade Representative said Friday that officials at China's Ministry of Commerce and other agencies had been told that the policy could effectively bar foreign companies from a large sector in China, runs counter to international trade principles and would hinder Chinese innovation.
Chinese executives and academics on Friday defended the government's effort to foster "indigenous innovation," saying state backing is needed to erase advantages enjoyed by bigger, more established foreign rivals. As it is, they say, Chinese procurement officials often favor foreign brands because they don't trust the quality of local products.
However, Chinese companies say they haven't received elaboration or clarification from the government on the new regulation. The rule appears too vague and hard to enforce to provide major assistance, according to Fang Yuzhen, marketing executive for Dawning Information Industry Co., a Beijing-based maker of high-performance computers and servers. Foreign competitors have about 70% of China's server market, compared with about 6% for Dawning, Mr. Fang says.
The Department of Commerce and other U.S. agencies have raised the issue with China. The office of the U.S. Trade Representative said Friday that officials at China's Ministry of Commerce and other agencies had been told that the policy could effectively bar foreign companies from a large sector in China, runs counter to international trade principles and would hinder Chinese innovation.
Chinese executives and academics on Friday defended the government's effort to foster "indigenous innovation," saying state backing is needed to erase advantages enjoyed by bigger, more established foreign rivals. As it is, they say, Chinese procurement officials often favor foreign brands because they don't trust the quality of local products.
However, Chinese companies say they haven't received elaboration or clarification from the government on the new regulation. The rule appears too vague and hard to enforce to provide major assistance, according to Fang Yuzhen, marketing executive for Dawning Information Industry Co., a Beijing-based maker of high-performance computers and servers. Foreign competitors have about 70% of China's server market, compared with about 6% for Dawning, Mr. Fang says.
"If this new regulation was strictly implemented in a perfect world, then it would definitely benefit us. But in reality, there are still many issues with the process of implementing" it, Mr. Fang said. The definition of indigenous innovation is unclear, he added.
The Chinese ministries that issued the new procurement rules didn't comment Thursday or Friday. Several of China's biggest technology companies, including Lenovo Group Ltd. and Huawei Technologies Co., declined to comment about how the regulation would affect them or didn't respond to requests.
Difficulties have long plagued the Chinese government's indigenous-innovation push. The campaign was born out of concerns that the country was beholden to foreign purveyors of expensive technology and needed its own intellectual property to compete as a major global economy.
Those efforts began at least a decade ago. They have been a priority for the administration of current Chinese President Hu Jintao since it took power in 2003.
One of the most notorious outgrowths of the innovation push was a 2003 effort to require PC companies and other gadget-makers to use a wireless Internet technology known as WAPI, in essence a Chinese version of the international Wi-Fi standard. That rule, which required foreign companies to obtain the WAPI technology from designated Chinese partners, prompted a backlash from foreign firms and governments.
The Chinese ministries that issued the new procurement rules didn't comment Thursday or Friday. Several of China's biggest technology companies, including Lenovo Group Ltd. and Huawei Technologies Co., declined to comment about how the regulation would affect them or didn't respond to requests.
Difficulties have long plagued the Chinese government's indigenous-innovation push. The campaign was born out of concerns that the country was beholden to foreign purveyors of expensive technology and needed its own intellectual property to compete as a major global economy.
Those efforts began at least a decade ago. They have been a priority for the administration of current Chinese President Hu Jintao since it took power in 2003.
One of the most notorious outgrowths of the innovation push was a 2003 effort to require PC companies and other gadget-makers to use a wireless Internet technology known as WAPI, in essence a Chinese version of the international Wi-Fi standard. That rule, which required foreign companies to obtain the WAPI technology from designated Chinese partners, prompted a backlash from foreign firms and governments.
Beijing retreated. But China more recently has enforced the WAPI requirement for handsets. Apple Inc. subsequently removed the wireless Internet function from the iPhones it sells in China.
The new accreditation system makes products that have Chinese intellectual property and proprietary brands eligible for inclusion in a catalog of preferred providers for government purchases. It covers six categories -- computers and application devices, communication products, office equipment, software, new energy products and highly energy-efficient products -- encompassing products such as copiers, batteries and antivirus software.
It remains unclear how many government agencies the rule would cover. It is believed to apply to federal agencies, but tech-industry analysts and procurement-law experts say it could effectively cover a broader range of purchases, because provincial governments and China's schools tend to follow the federal lead.
Some Chinese tech executives say their government isn't doing enough to protect them. "I hope China will do more ... to make the competition more fair," says Fan Hongguang, product manager for Red Flag Software Co., a Beijing company that produces a Linux-based operating system that competes with Microsoft Corp.'s Windows software.
The new accreditation system makes products that have Chinese intellectual property and proprietary brands eligible for inclusion in a catalog of preferred providers for government purchases. It covers six categories -- computers and application devices, communication products, office equipment, software, new energy products and highly energy-efficient products -- encompassing products such as copiers, batteries and antivirus software.
It remains unclear how many government agencies the rule would cover. It is believed to apply to federal agencies, but tech-industry analysts and procurement-law experts say it could effectively cover a broader range of purchases, because provincial governments and China's schools tend to follow the federal lead.
Some Chinese tech executives say their government isn't doing enough to protect them. "I hope China will do more ... to make the competition more fair," says Fan Hongguang, product manager for Red Flag Software Co., a Beijing company that produces a Linux-based operating system that competes with Microsoft Corp.'s Windows software.
Linux technology was developed by programmers around the world, raising questions about whether Red Flag's product qualifies as "indigenous innovation." But Mr. Fan says Red Flag has already applied for accreditation for its products under the new rules, and that he's not worried. "I trust that [Linux's international origins] will not interfere" with the applications, he said.
In the U.S., the Senate Finance Committee is discussing the issue with the office of the Trade Representative. But options may be limited, as government procurement so far isn't included in China's World Trade Organization commitments. "The WTO does forbid discriminating against foreign goods," said Elliot Feldman, head of the international trade practice at Baker Hostetler in Washington. "Except when the government is the buyer."
In the U.S., the Senate Finance Committee is discussing the issue with the office of the Trade Representative. But options may be limited, as government procurement so far isn't included in China's World Trade Organization commitments. "The WTO does forbid discriminating against foreign goods," said Elliot Feldman, head of the international trade practice at Baker Hostetler in Washington. "Except when the government is the buyer."
Source article: http://online.wsj.com/article/SB126058251224988399.html
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