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China’s ‘Indigenous Innovation’ Policy

How is the country's new innovation policy affecting companies?

9Jul

As China continues to develop, concerns have been raised about the nation’s reliance on foreign technology. In the eyes of the central government, the country’s economic growth would be better handled if its own technology was used to drive its production capacity. That way, Chinese companies, not foreign-owned ones, will dominate the marketplace, something which they feel will promote long-term economic sustainability.

That’s why the Chinese government has put in place a policy of ‘indigenous innovation’, a system which gives preferential treatment to ideas and products created by Chinese companies. Almost every conceivable industry comes under the indigenous innovation policy, putting foreign companies, regardless of their speciality, at a considerable disadvantage.

It seems as if there’s a different set of rules for foreign companies operating in China. For example, 80% of all IP thefts from US based companies came from China in 2013, causing $300 billion in losses as cheap counterfeits became successful in the Chinese market. This led the US Trade Representatives to question China’s patent protection policy, especially if they want to become a technological powerhouse over the course of the next decade.

There’s evidence to suggest that China is now just too difficult a landscape to navigate. Pfizer, the US drugmaker, had to call a halt to its vaccine sales operations in the country after an import license for one of its most successful products was not renewed. The medicine, which was being used to treat children who have pneumonia, meningitis and sepsis, will be sorely missed, highlighting the somewhat backward nature of China’s innovation policy.

Some argue that the policy would make more sense if Chinese innovations were in fact homegrown. Many point to China’s attempt to create its own operating system as proof of this, as it was largely based on American company Linux’s open source system. This highlights that China still needs outsider influences to create technology that has the capacity to improve its public’s lives.

On the face of it, China’s indigenous innovation policy protects its own interests and puts the future of its economy in its own hands. It seems as if China, however, is resigned to the fact that it will have to relinquish some of its technology marketshare to companies from different countries. It was announced at the end of last year that China had dropped tariffs within 200 categories, a move which is likely to bring in $1 trillion in trade. This is the first time China has done this in 17 years.

Whether China can truly keep to the guidelines stated within its indigenous innovation policy remains to be seen. Its impact, however, could be substantial and damage the chances of us moving towards a truly globalized economy. 

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