Chinaʼs Indigenous Innovation Policies and the World Trade Organization

Daniel C.K. Chow | January 1, 2013

China’s Indigenous Innovation Policies are a web of policies, regulations, and strategies that are designed to develop an indigenous capacity to create innovation and advanced technology as part of China’s larger strategy to ascend to the top ranks of the world’s industrialized nations. As part of these policies, China has implemented rules related to government procurement, i.e. the purchase by Chinese government entities of products from private vendors. China’s policies provide strong incentives for the purchase of products containing technology or intellectual property owned by Chinese business enterprises. U.S. companies claim that these policies are discriminatory and could preclude them from selling their products to the Chinese government, which has an annual government procurement budget estimated by some to be as high as $1 trillion. U.S. companies also claim that these policies are designed to force them to transfer their technology to China as a condition of selling products to the Chinese government. Critics of these policies in the U.S. Congress and in U.S. industry groups argue that they are unfair, illegal, and in violation of China’s obligations under the World Trade Organization. This article assesses these arguments and concludes that China is within its legal rights in promulgating its government procurement policies favoring products containing indigenous technology.