The West assumed ?techno-nationalism? to be history in China after preferences for home-grown indigenous innovation products in government procurement ended in December last year. But the latest emphasis on strategic emerging industries (SEIs) has made it wary.
Spurred by the desire to reduce reliance on imported technology and the large outflows on royalty, China had decided to encourage indigenous innovation from the middle of last decade. Products using technology owned and developed by indigenous firms were preferred in the biggest market for high-tech products in China: government procurement. The discrimination drove a wedge between local and foreign firms. Moreover, large state resources were deployed in promoting R&D and innovation in local firms along with efforts to establish ?Chinese? technical standards unconnected to global marks.
The preferences were withdrawn after vociferous protests by international businesses, particularly American firms. State efforts to build indigenous technological capacities are now directed towards a group of select SEIs. A development plan for SEIs announced by the State Council pledges to increase their share in GDP to 8% by 2015 and 15% by 2020. Currently, SEIs account for less than 4% of GDP.
There are seven SEIs in all: new energy auto, energy-saving and environmental protection, information technology, biology, high-end equipment manufacturing, new energy and new material. The 12th Five Year Plan for development of these industries involves their growth through 20 key projects. The state shall support these industries by providing fiscal and financial incentives, abet technical innovation and create enabling market environments.
Clearly, these industries would henceforth be the ?thrust? sectors for China. As the State Council has pointed out, the development of SEIs is important given the downturn in the Chinese economy. They are expected to generate growth and also impart the pattern of industrial development a higher value-added dimension.
But would the Chinese state?s efforts to promote these industries usher in a new phase of state-driven techno-nationalism as the West apprehends?
China?s technology and innovation policies are interpreted by the West as covert efforts to subsidise its own producers for making them globally competitive. Western businesses feel China?s innovation policies are similar to its policies for maintaining export competitiveness, which involve subsidies on raw materials and inputs (both fixed and variable, like land and electricity) and preferential access to bank credit. These state-driven incentives along with a pegged currency are taken by the West as the main drivers of China?s export success. Western businesses believe that China?s emphasis on SEIs would be qualitatively similar. SEI policies would also have the Chinese state investing large resources in building capacities in these industries. The foremost expenditures will be on R&D and technological progress. These will be pushed through large subsidies, generous tax incentives and concessional access to credit. Furthermore, if these industries are to be the main contributors to economic growth in China in the medium term, then there is every possibility of their being preferred in state procurement. In other words, the Chinese state?s efforts to boost capacity and competitiveness in exports will now be replaced by similar efforts in developing SEIs.
How correct are these perceptions? Given China?s history of the state playing a heavily proactive role in economic growth, they could well be correct. But why would the state?s role in promoting technology and innovation irk other businesses?
A look at the seven SEIs reveals that China till now does not have proven capacities in these. Most of the global competencies in these industries are outside China and primarily in the West. For western industries in these areas, the Chinese domestic market is one of the biggest commercial prospects. These prospects would considerably dim if their access to the Chinese market are limited. This can happen if foreign firms are not treated on par with domestic SEIs in procurement. Access can get even more cramped if huge state investments on innovation and technology in SEIs make these home-grown industries more competitive in the domestic market than their western counterparts in the long term.
The West and most of the rest of the world are unprepared to accept that the state?as opposed to the private sector?can be the biggest mover in creating capacities and engineering growth in a globalised world. Western businesses would have been happy had they been allowed to develop domestic capacities in SEIs like they did earlier in several high-tech industries in China. Until now, there are no indications that history will repeat itself. And this is why they are unhappy.
China, of course, could scarcely be bothered. It plans to proceed on SEIs through a policy of encouraging innovation with ?Chinese? characteristics, as it has done in all other aspects of its economic development.
The author is a visiting senior research fellow at the Institute of South Asian Studies in the National University of Singapore. He can be reached at amitendu@gmail.com.
Views are personal