China Technology Rules Hurt US Companies as Google Exit Looms

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China Technology Rules Hurt U.S. Companies as Google Exit Looms
March 21, 2010, 10:52 PM EDT
March 22 (Bloomberg) — Chinas new rules to encourage home-grown technology are causing U.S. companies to lose sales, according to an American Chamber of Commerce survey released today in Beijing.
Twenty-eight percent of 203 members responding to the survey said they are losing business because of the policy. Among technology companies, 37 percent of 49 respondents said their businesses were being hurt now, with 57 percent predicting they would be set back by the new regulations.
Foreign businesses with operations in China are concerned the rules are discriminatory and will lock them out of a government-procurement market valued at 599.1 billion yuan ($87.8 billion) in 2008. Also at stake is their ability to sell products to state-owned Chinese companies, which last year had combined revenue of 22.5 trillion yuan.
What has caused all this hullabaloo is that this indigenous innovation policy seems clearly aimed at forcing foreign technology here so that Chinese companies can tweak it and call it their own, said James McGregor, a senior counselor in Beijing at APCO Worldwide, a public affairs company. Many foreign companies are starting to believe that the future China business opportunity is shrinking.
The chamber that conducted the survey represents companies including Microsoft Corp. and JPMorgan Chase Co. and United Technologies Corp., communicating their concerns and advice to the Chinese government.
The report comes as Mountain View, California-based Google Inc., the owner of the worlds most popular Internet search engine, is set to announce as early as today that it is exiting the China market, according to the China Business News. Last week, 130 U.S. lawmakers sent a letter to Treasury Secretary Timothy Geithner urging him to take tougher measures, including higher import tariffs, to force China to revalue the yuan. U.S. companies say the currencys current exchange rate against the dollar makes imports from China too cheap and U.S. exports too expensive.
Chinas indigenous innovation policy stems from a government initiative inaugurated in 2006 under the five-year plan — the countrys guiding economic policy document — to encourage the growth of domestic technology, patents and trademarks.
A separate survey this year by the U.S.-China Business Council, a Washington-based trade group, found American companies reporting more difficulty selling products to local governments because of the new indigenous innovation requirements.
Three ministries posted a notice in November implementing the rules, which require sellers of everything from computer software to office equipment to accredit their products so they could be included among companies offering equipment with indigenous innovation to the Chinese government.
We are working with other ministries to sort this out and perfect this policy, Yao Jian, a spokesman for Chinas Commerce Ministry, told reporters March 16.
The chambers survey found that the impact of the new rules extended beyond technology companies. Thirty percent of companies saying they were being hurt by the rules were manufacturers and 27 percent were in the services industry. The report said 52 percent of companies saying they were losing out or would lose out were concerned about their sales to state- owned companies.
Procurement lists drawn up by some local governments have few foreign-sourced products, the U.S.-China Business Council said in a separate report earlier this year. In Shanghai, only two of 523 products in the citys catalogue were products from foreign-invested companies. In Beijing, of 42 accredited products, one came from a foreign company, the council found. Foreign companies are concerned because the indigenous innovation rules require Chinese ownership of intellectual property and trademarks.
–Michael Forsythe. Editors: Bill Austin, Paul Tighe
To contact Bloomberg staff on this story: Michael Forsythe in Beijing at +86-10-6649-7580 or mforsythe@bloomberg.net
To contact the editor responsible for this story: Bill Austin at billaustin@bloomberg.net
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