In order to boost local Chinese companies and thwart foreign-based firms, the Chinese government has shown strong favoritism toward Chinese-owned manufacturers in the telecommunications and software markets, according to a U.S. government agency report.
The United States International Trade Commission (USITC) report slams China for what it says are practices that hurt non-Chinese firms, while also saying U.S. firms have lost billions due to wrongful use of intellectual property, such as pirated software.
BACKGROUND: U.S. government report blasts China over trade policies
The report says losses to U.S.-based companies from IP infringement -- defined as "misappropriation of trade secrets" as well as illegal use of copyright and trade patents -- amounted to $26.7 billion in 2009 for the information technology industry. For high-tech and heavy manufacturing, that figure was $18.5 billion.
The USITC report, which also delves into other industries such as apparel, aerospace and industrial wind-farm equipment, draws its analysis from a survey of over 5,000 companies doing business with China. These firms are said to represent 16.3% of the U.S. economy.
Regarding software, the Chinese government's requirement for certification testing for certain products, including antispam and operating systems that are imported and marketed in China, is seen as putting the proprietary intellectual property (IP) of foreign firms at risk of having it stolen.
The USITC is also objecting to China's security rules known as the "Multi-Level Protection Scheme" that says IT products used in banking, energy, telecommunications, education and transportation must be considered sensitive and the security should be designed and built only by Chinese firms and workers and contain no foreign IP.
"Procurement preferences potentially restrict opportunities for U.S. firms at the central government level," the report says. "Restrictions on government procurement opportunities in software are already in place on the provincial level."
China began introducing these types of restrictions a number of years ago under the term "indigenous innovation" to boost Chinese firms specifically. The U.S. has raised objections several times, saying the policies in China constitute unfair trade practices. That's why the U.S. Senate asked the USITC to undertake an analysis of the situation working with U.S. industry. The first report was completed late last year, and this week's report delves into the losses due to IP theft.
The report notes that at a U.S.-China summit meeting in January, "China agreed to delink its innovation policies for government procurement preferences and made other changes to its indigenous innovation policies, but these changes postdate the Commission's survey and are not reflected in it."
