DOCSLIB.ORG

Confronting Chinese Innovation Mercantilism

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Confronting Chinese Innovation Mercantilism Enough is Enough: Confronting Chinese Innovation Mercantilism BY ROBERT D. ATKINSON FEBRUARY 2012 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | FEBRUARY 2012 TABLE OF CONTENTS Executive Summary ....................................................................................... 5 The Nature of Chinese Mercantilism................................................................. 7 The Shift to “China Inc.” Through Indigenous Innovation.................................. 8 Chinese Justifications for Innovation Mercantilism ............................................. 9 Why America Should Care About Chinese Mercantilism ................................... 10 What Should America, Europe and Other Market-Oriented Nations Do? ........... 11 Introduction ................................................................................................. 16 The Tra nsition From “China As FDI Attractor” to “China Inc.” .......................... 20 Chinese Mercantilist Practices ...................................................................... 27 Driving Exports and Reducing Imports ........................................................... 28 Currency Manipulation ........................................................................ 29 Tariffs................................................................................................. 29 Exemption from VAT and Other Taxes.................................................. 30 Helping Chinese-Owned Firms ...................................................................... 30 Government (and SOE) Procurement .................................................... 30 Forced Technology Transfer.................................................................. 33 Forced Joint Venture Requirements ....................................................... 35 Controls on Foreign Purchases .............................................................. 36 Weak and Discriminatory Patent System ................................................ 37 IP Theft .............................................................................................. 38 Cyber Espionage .................................................................................. 40 Government Sanctioned Monopolies ..................................................... 40 Direct Discrimination Against Foreign Firms .......................................... 41 Domestic Technology Standards............................................................ 42 Onerous Regulatory Certification Requirements...................................... 45 Limits on Foreign Sales......................................................................... 45 Limiting Exports of Critical Materials .................................................... 46 Benefits to State-Owned Enterprises ...................................................... 46 Preferential Loans from Banks .............................................................. 47 Export Subsidies .................................................................................. 48 Generous Export Financing................................................................... 49 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | FEBRUARY 2012 PAGE 2 Tax Incentives ..................................................................................... 49 Land Grants and Rent Subsidies ............................................................ 50 Making Sense of Chinese Mercantilism........................................................... 50 Chinese Justifications for Innovation Mercantilism .......................................... 52 China May Engage in Some Mercantilist Practices But so Does the United States 53 China is Doing Nothing Different Than America Did When it was at China’s Stage of Development ................................................................................. 54 China Needs the Jobs .................................................................................... 55 China Needs to Run Trade Surpluses to Maintain Adequate Foreign Currency Reserves..................................................................................................... 57 China Would Not Run a Trade Deficit With the United States if it Ended its Export Controls on High-Tech Products ................................................................. 57 Indigenous Innovation is Key to Raising Standards of Living ............................. 57 Indigenous Innovation is Needed to Reduce Dependency on Exports ................. 58 Indigenous Innovation is Needed to Deal With High Labor Costs...................... 58 Indigenous Innovation is Needed to Deal With a Declining Working-Age Population ................................................................................................. 59 Indigenous Innovation is Needed to Address Environmental Challenges, Including Global Warming.......................................................................... 59 Indigenous Innovation is Needed to Deal With Social Imbalances ...................... 59 Indigenous Innovation is Needed Because China Receives Such Low Returns on its Foreign Investments ........................................................................... 60 Don’t Blame China: It is Poor and Dependent ................................................. 60 Intellectual Property is a Form of Western Imperialism ..................................... 61 Give China Time: It is Still Learning to be a Market-Oriented Economy ............ 61 China Can Help the U.S. Economy by Investing its Massive Current Account Surpluses in the United States ...................................................................... 61 The United States’ Weak Economy is its Own Fault, Not China’s...................... 62 China Isn’t Mercantilist ................................................................................. 62 If the United States Pressures China, It Will Become Protectionist ..................... 63 The United States Has No Right to Interfere in Internal Chinese Matters ........... 63 THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | FEBRUARY 2012 PAGE 3 Is Indigenous Innovation the Right Strategy for China? .................................... 63 Should America Care About Chinese Mercantilism? ......................................... 70 What Should America, Europe and other Market-Oriented Nations Do?.............. 74 Take Stronger Action Under Existing Authorities ............................................. 75 Address Current Weakness in U.S. Enforcement Capabilities ............................. 78 Empower U.S. Firms to Defend Their Collective Interests Against Chinese Mercantilism.............................................................................................. 78 Shift From a “Whack-a-Mole” to Results-Oriented Trade Approach ................... 79 Build a Global Free-Trade Coalition to Press China to Reduce Its Innovation Mercantilism.............................................................................................. 80 Arguments Made Against Taking Action .......................................................... 82 Claim: America Benefits From Trade With China, Even if China is Mercantilist.. 82 Claim: It’s Our Fault ..................................................................................... 83 Claim: Getting Tougher With China will Risk Starting a Trade War .................. 84 What’s Plan B? ............................................................................................. 85 Conclusion ................................................................................................... 86 Appendix A: Technologies Targeted By China’s MLP ........................................ 88 Endno tes...................................................................................................... 98 Acknowledgements ..................................................................................... 112 Cover Image: futureatlas.com THE INFORMATION TECHNOLOGY & INNOVATION FOUNDATION | FEBRUARY 2012 PAGE 4 EXECUTIVE SUMMARY In the last decade, China accumulated $3.2 trillion worth of foreign exchange reserves and now enjoys the world’s largest current account balance. In 2011, it ran a $276.5 billion trade surplus with the United States. This “accomplishment” stems largely from the fact that China is practicing economic mercantilism on an unprecedented scale. China seeks not merely competitive advantage, but absolute advantage. In other words, China’s strategy is to win in virtually all industries, especially advanced technology products and services. One may argue that all countries do this and assert it is the essence of competition. But China’s policies represent a departure from traditional competition and international trade norms. Autarky, not trade, defines China’s goal. As such China’s economic strategy consists of two main objectives: 1) develop and support all China’s strategy for industries that can expand exports, especially higher value-added ones, and globalization is to win in reduce imports; 2) and do this in a way that ensures that Chinese-owned virtually all industries. firms win. It is time for policymakers in the United States and other Autarky, not trade, countries to begin responding to today’s reality for Chinese mercantilism defines China’s goal. represents a fundamental threat to not only the U.S. economy, but to the entire system of market and rules-based globalization. Because China is so large and because it’s distortive mercantilist policies
Load more

Recommended publications
  • Shanzhai: Mountain of Ideas
    “Western businesses need to LIFESTYLE understand the shanzhai culture to compete and benefit from its creativity and momentum.” Brown says the largest groups of Tsan Ling Ling Tsat). Well, at least the users of the site are in the United States, shaver-phone concept did. Germany and the United Kingdom. Shanzai.com has also been extensively quoted by leading international business, Piracy or parodying popular culture technology and news publications. innovation Given all this, it is not surprising Brown is optimistic about the future So, are shanzhai products just blatant development of shanzhai products. “copycats” or do they represent another shanzhai products and provides an kind of innovation and creativity? Asked online platform for people around the “It will move into more and more about the difference between shanzhai world to exchange information. industries and will start to have and counterfeit products, Brown says a larger influence outside China. there is a fine line between them. The site started in 2009 and Western businesses need to understand is led by editor-in-chief Timothy the shanzhai culture to compete “When players copy trademarks, James Brown, known as “Tai-Pan”. and benefit from its creativity and logos and designs, they are basically The Canadian IT executive has been momentum,” he says. counterfeiting goods. When they copy working in Asia for the past 13 years and often modify ideas or products, they and is currently living in Taipei, though As the Tai-Pan of Shanzai.com, Brown show how mainstream products can be he often travels to Hong Kong and gets to test drive a lot of interesting improvised or represented in different the mainland.
    [Show full text]
  • Shanzhai! Mediatek and the “White Box” Handset Market
    9-610-081 REV : DECEMBER 22 , 2010 WILLY SHIH CHEN-FU CHIEN JYUN-C HENG WANG Shanzhai! MediaTek and the “White Box” Handset Market The term ”Shanzhai Ji” discounts the huge economic value these handsets have created. The makers of these phones have created a classic “disruptive innovation” by addressing new markets with cost-effective solutions. If you look closely, you will find that many of these handset makers are quite innovative. — Minng-Kai Tsai, Chairman and CEO of MediaTek Ming-Kai Tsai looked back on 2009 with a great deal of satisfaction. His Hsinchu, Taiwan–based fabless semiconductor companny had grown to become one of the top-three global suppliers of wireless chipsets, the essential electronic “brains” for mobile telephone handsets. In the second quarter of the year, the company had shipped 80 million chipsets, and the outlook for the third quarter was for 100 million, likely topping 350 million for the full year. In a global wireless handset market estimated to total 1.2 billion to 1.4 billion units,1 this was quite an accomplishment. Over the last 30 years, mobile telephony progressed through several generations of technology. The first generation (1G) used analog signaling, and the second generation (2G) marked the switch to digital transmission. While much of the world’s attention in the first decade of the 21st century was focused on the deployment of the third generation (3G), MediaTek was confronting challenges selling its chipsets to tier-one companies like Nokia, Motorola, or Samsunng, where it faced entrenched competitors like Infineon, Freescale, STMicroelectronics, NXP Semiconductors, and Texas Instruments.
    [Show full text]
  • China's Shanzhai Entrepreneurs Hooligans Or
    China’s Shanzhai Entrepreneurs Hooligans or Heroes? 《中國⼭寨企業家：流氓抑或是英雄》 Callum Smith ⾼林著 Submitted for Bachelor of Asia Pacific Studies (Honours) The Australian National University October 2015 2 Declaration of originality This thesis is my own work. All sources used have been acknowledGed. Callum Smith 30 October 2015 3 ACKNOWLEDGEMENTS I am indebted to the many people whose acquaintance I have had the fortune of makinG. In particular, I would like to express my thanks to my hiGh-school Chinese teacher Shabai Li 李莎白 for her years of guidance and cherished friendship. I am also grateful for the support of my friends in Beijing, particularly Li HuifanG 李慧芳. I am thankful for the companionship of my family and friends in Canberra, and in particular Sandy 翟思纯, who have all been there for me. I would like to thank Neil Thomas for his comments and suggestions on previous drafts. I am also Grateful to Geremie Barmé. Callum Smith 30 October 2015 4 CONTENTS ACKNOWLEDGEMENTS ................................................................................................................................ 3 ABSTRACT ........................................................................................................................................................ 5 INTRODUCTION .............................................................................................................................................. 6 THE EMERGENCE OF A SOCIOCULTURAL PHENOMENON ...................................................................................................
    [Show full text]
  • “Shanzhai“ As an Innovation in a Competitive Market Environment
    VIÐ 508G BS- Ritgerð Í Markaðsfræði og alþjóðaviðskiptum “Shanzhai“ as an innovation in a competitive market environment Nafn höfundar: Ying Li (021180-2469) Viðskiptafræðideild Háskóla Íslands Leiðbeinandi: Friðrik Eysteinsson Útskriftarmánuður: Júni 2010 1 Abstract The purpose of this paper is to put forward the hypothesis that the transformation of innovation from the imitation and integration of industry chain, in order to achieve the low-cost competitive strategy, which has been initiated by Chinese Shanzhai manufacturers. In addition, this thesis analyzes the innovation in the Shanzhai Culture. The question – “What is the innovation of Shanzhai?” is followed by the Shanzhai industry and Shanzhai culture sections. The findings offer an insight into the competitive strengths of Shanzhai manufacturers in market and some valuable observations of Shanzhai phenomenon. Keywords: Shanzhai manufacturer, Shanzhai culture, imitation, Innovation. 2 Table of Contents 1. INTRODUCTION .................................................................................................... 5 1.1 The early history of Shanzhai products ............................................................ 5 1.2 Success of Shanzhai mobile phone ................................................................... 6 1.3 Other Shanzhai products .................................................................................. 7 1.4 Shanzhai culture ............................................................................................... 9 2. LITERATURE REVIEW
    [Show full text]
  • Forensic Analysis of Pirated Chinese Shanzhai Mobile Phones
    Chapter 9 FORENSIC ANALYSIS OF PIRATED CHINESE SHANZHAI MOBILE PHONES Junbin Fang, Zoe Jiang, Kam-Pui Chow, Siu-Ming Yiu, Lucas Hui, Gang Zhou, Mengfei He and Yanbin Tang Abstract Mobile phone use – and mobile phone piracy – have increased dramat- ically during the last decade. Because of the profits that can be made, more than four hundred pirated brands of mobile phones are available in China. These pirated phones, referred to as “Shanzhai phones,” are often used by criminals because they are inexpensive and easy to obtain. However, the variety of pirated phones and the absence of documenta- tion hinder the forensic analysis of these phones. This paper provides key details about the storage of the phonebook and call records in popu- lar MediaTek Shanzhai mobile phones. This information can help inves- tigators retrieve deleted call records and assist them in reconstructing the sequence of user activities. Keywords: Chinese Shanzhai phones, forensic analysis, phonebook, deleted data 1. Introduction The use of mobile phones around the world has increased dramati- cally. According to the ITU, the number of global mobile subscribers reached 5.3 billion in 2011. During the first quarter of 2011 alone, ven- dors shipped 371.8 million units, an increase of 19.8 percent over the previous year [11]. Because of their portability and constant use, mobile phones hold in- formation about user activities, contacts and whereabouts. This can be a treasure trove of evidence in criminal investigations. Traditionally, data that can be recovered from a mobile phone includes the phonebook, call logs, short message service (SMS) messages [8], and possibly even deleted items.
    [Show full text]
  • Can Louis Vuitton Dance with Hiphone? Rethinking the Idea of Social Justice in Intellectual Property Law
    SUN_FORMATTED[1].DOCX (DO NOT DELETE) 4/30/2012 5:35 PM CAN LOUIS VUITTON DANCE WITH HIPHONE? RETHINKING THE IDEA OF SOCIAL JUSTICE IN INTELLECTUAL PROPERTY LAW HAOCHEN SUN This Article reconsiders the relationship between social justice and intellectual property through the lens of two conflicting cultural phenomena in China. The first cultural phenomenon, called shanzhai, legitimizes the production of inexpensive and trendy products like the HiPhone. The second phenomenon is the rise of China as the largest luxury market in the world, unleashing an unprecedented increase in the consumer demand for luxury brands such as Louis Vuitton. The shanzhai phenomenon clashes with the IP protection that forms the foundation of the successful luxury market in China. By exploring the conflict between these two cultural phenomena, this Article puts forward a new theory of social justice and intellectual property. This theory calls for intellectual property law to be redesigned to support the redistribution of three kinds of resources: benefits from technological development, cultural power, and sources of innovation. The focus on these three redistributive mandates functions to reorient the recent heated debate on social justice and intellectual property toward an inquiry about the redistribution of resources in intellectual property law. The Article further considers the substantive and symbolic values of the theory in promoting social justice through intellectual property law. With respect to its substantive value, it shows that this theory has the potential to overcome the limitations of John Rawls‟s Difference Principle in dealing with redistributive justice issues within the ambit of intellectual property law. Moreover, this theory is valuable because it sets workable goals for mobilizing social movements to achieve cumulative eradication of injustice through intellectual property law INTRODUCTION .......................................................................................................................
    [Show full text]
  • China's Rulers: the Fifth Generation
    CHINA’S RULERS: THE FIFTH GENERATION TAKES POWER (2012–13) Michael Dillon This project is funded by A project implemented by The European Union Steinbeis GmbH & Co. KG für Technologietransfer © Europe China Research and Advice Network, 2012 This publication may be reproduced for personal and educational use only. Commercial copying, hiring or lending of this publication is strictly prohibited. Europe China Research and Advice Network 10 St James’s Square London SW1Y 4LE +44 (0) 20 7314 3659 [email protected] www.euecran.eu Contents Foreword ........................................................................................................ 4 ExecutIve Summary ........................................................................................ 6 Key PRC PolItIcal BodIes .................................................................................. 7 Timetable for Leadership Changes .................................................................. 8 Introduction ................................................................................................... 9 1 Change and ContInuity ............................................................................... 11 2 Senior PolItIcal Appointments .................................................................... 14 3 PolItIcal GeneratIons In China .................................................................... 16 4 CCP FactIons and the SuccessIon Process ................................................... 17 5 Key Issues .................................................................................................
    [Show full text]
  • China's Innovation Engine Picks up Speed
    JUNE 2013 China’s innovation engine picks up speed Gordon Orr and Erik Roth Meaningful advances are emerging in fields ranging from genomics to mobile apps— and what’s happening beneath the surface may be even more significant. Back in 2011, when we began work on a McKinsey Quarterly article called “A CEO’s guide to innovation in China,”1 much of the debate was about whether the country was more likely to become innovative or to remain a fast follower of foreign leaders. Even then, that seemed like yesterday’s question. Companies in China were innovating; we were seeing that every day in areas such as renewable energy, consumer electronics, instant messaging, and mobile gaming, both at domestic players and at multinationals with signi- ficant research and product-development presences. Nothing that has happened since has changed our view. Indeed, our sense today is that the pace of innovation is quickening and that a new spirit of innovation is spreading across sectors into universities and even into key departments of the Chinese government. In a recent series of interviews with executives at Chinese companies, we detected evidence of real innovation leadership and the potential for more to come. John Oyler, CEO of the three-year-old Chinese biotech company BeiGene, for instance, underscored the attitude— “anything is possible, we can make it happen, there is no challenge we cannot conquer, we will surprise the world”—that he’s now seeing among Chinese scientists at his company. In fact, a wide range of companies have begun mounting challenges in sectors traditionally the preserve of US, European, Japanese, 1 Gordon Orr and Erik Roth, “A CEO’s guide to innovation in China,” McKinsey Quarterly, 2012 Number 1, mckinsey.com.
    [Show full text]
  • Technological Innovation in China's High-Tech Industry
    Technological Innovation in China’s High-Tech Industry Investigating Factors that Influence Technological Innovation Abstract China’s high-tech industry has witnessed dramatic growth in the past three decades. However, how to transform from "Made in China" to "Designed in China" remains problematic. China’s high-tech industry has much weaker performance in terms of technological innovation relative to its export volume and industry size. China’s domestic owned high-tech companies generally have inadequate emphasis on technological innovation. This research suggests several hypothetical factors that can influence the performance of technological innovation, and then applies statistical analysis to investigate these factors based on a data sample collected by the third High Performance Manufacturing project conducted in 10 countries since 2005. The analysis provides evidence that six variables influence the long-term or short term performance of technological innovation. At last, with more emphasis on the long term performance which contributes to the sustainable development of technologies, this research presents an application in Chinese “Shanzhai” industry, a special part of electronic industry in China. The analysis suggests that the emphasis on the factors described in the model helped some of these “Shanzhai” companies make progress with their technological innovation. Introduction: High-Tech Industry in China China’s high-tech industry has witnessed dramatic growth. China’s exports of high-tech products grew 33 percent annually from 1995 to 2008, with the value of export products increasing from 10 billion to 416 billion US dollars. High-tech exports, which now make up about 29 percent of total exports, have grown much faster than overall exports.
    [Show full text]
  • Our Guide to the Pearl River Delta
    0 Cover.FIN.qxp_WIC template 15/3/16 6:53 pm Page 1 Week in China Spring 2016 www.weekinchina.com Our guide to the Pearl River Delta With a population the size of the UK, southern China’s PRD region is a $1 trillion Brought to you by economic powerhouse – and its importance is only growing THE NEW SILK ROAD, WHERE WILL IT TAKE YOU? With the One Belt, One Road initiative bringing together Africa, China, Central Asia, Europe and Russia, signifi cant opportunities will arise for ambitious businesses. At HSBC we have always been committed to connecting customers to opportunities, by providing expert local knowledge through our global network. Explore how far the new roads to China could take you. Visit our RMB Resource Centre at www.rmb.hsbc.com Issued by HSBC Holdings plc. Cyan G0101897_J0115847 - Magenta Yellow ISOCoated39L300 Great Britain 297.00 x 210.00 mm Black as booked Harveen Ghattaure 307.00 x 220.00 mm Hogarth Worldwide [email protected] 23/03/2016 11:52 0 Contents.FIN.qxp_WIC template 15/3/16 11:42 pm Page 1 Week in China Focus: Pearl River Delta Spring 2016 Our guide to the Pearl River Delta Table of Contents Section 1 PRD: your need-to-know guide 2 Section 2 Why the Pearl River Delta matters 7 Section 3 The workshop of the world 14 Section 4 How the PRD has developed 20 Section 5 Time to transform 29 Section 6 Profits in the Pearl River 35 Section 7 Facing the future 39 Section 8 PRD pioneers 48 1 Section 1.FIN.qxp_WIC template 21/3/16 7:12 pm Page 2 PEARL RIVER DELTA (by population) Guangzhou 13.1 million D Zhaoqing
    [Show full text]
  • The Making of Innovation in Shenzhen
    International review for spatial planning and sustainable development, Vol.4 No.4 (2016), 27-41 ISSN: 2187-3666 (online) DOI: 4http://dx.doi.org/10.14246/irspsd.4.4_27 Copyright@SPSD Press from 2010, SPSD Press, Kanazawa The Open Innovation Paradigm: from Outsourcing to Open-sourcing in Shenzhen, China Valérie Fernandez1, Gilles Puel2*, Clément Renaud1 1 Telecom ParisTech, UMR I3 2 University de Toulouse, LEREPS * Corresponding Author, Email: [email protected] Received: March 02, 2016; Accepted: May 30, 2016 Key words: Open innovation, New urban places, Makers, shanzhai, Shenzhen Abstract: Having once been the headquarters of ‘Made in China,’ Shenzhen’s industry is currently undergoing profound change. The appearance of new urban places for technological innovation is reviving the ageing industrial processes of this manufacturing city. It is supposed to transform Shenzhen into the Silicon Valley of hardware. Two groups, one local, the shanzhai community made up of entrepreneurs and companies historically based on a strategy of imitating high- end products, and the other, a more international maker community, are thought to be the main drivers of this change using values of ‘open innovation’. The building of this ecosystem relies largely on practices associated with being open-source. Like in California, open innovation contributed to the creation of resources for the development of a vast high-tech industry. This ethnographic field study shows how, while both communities, the international makers and the shanzhai, draw on open innovation, they do not have the same values. For the shanzhai, open innovation means total deregulation and a kind of coopetition that poorly masks fierce competition.
    [Show full text]
  • Maker Diversity in the 'Hardware Silicon Valley'
    32 MAKER DIVERSITY IN THE ‘HARDWARE SILICON VALLEY’ Towards the end of my time in China, I visited the city of Shenzhen. The fastest-growing municipality in China, Shenzhen was declared a special economic zone (SEZ) in 1980 and has since expanded from a small aggregation of fshing villages to China’s centre of technology manufacture. Hardware for companies such as Apple, Samsung, Microsoft, Huawei and Intel is all manufactured here, often in large, high-security facilities unwilling to grant access to anyone who looks like a journalist. The factories - almost entirely staffed by women, whose ‘delicate’ hands are prized for small jobs - have been embroiled in a number of scandals, including a spate of suicides at the Foxconn factory in 2010. Unable to gain access to these factories, I travelled to Shenzhen to examine the tech scene that has grown up around them, earning the town the nickname of ‘Hardware Silicon Valley’. shanzhai (山寨) Shanzhai is a term coined to describe the fake tech manufacturers that sprang up in the late 90’s. Literally translated as ‘mountain horde’, shanzhai technology is characterised by kitschy, innovative fakes that leapfrog existing designs: “mashup hardware”. Shenzhen is the centre for shanzhai tech: workers leave factory jobs making computer hardware, adapting and make the same tech themselves, without the bureaucracy and at a fraction of the cost. The work of the Hacked Matter group is to highlight the truly innovative and remarkable nature of Shanzhai tech, and to promote the model of Shanzhai design and development as an alternative to the patriarchal, top-down Western model.
    [Show full text]