DEMAND DRIVEN INNOVATION: LEARNING FROM CHINA

In India, we think preferential treatment to local innovation is stupid economics and sinful global behavior. How did the Chinese manage to support local innovations with a public procurement policy consistent with international treaties? Some excerpts from the PhD Thesis of Radomir Tylecote.

• The Chinese government has created demand-side innovation policies to help give indigenous innovators a favourable environment, including procurement preference for domestic innovative products, and technical standard-setting.
• In 1992, Beijing published the Government Procurement Law, mandating (with exceptions) that government procurement purchases should be limited to domestic products , with support for enterprises used to support those which purchase domestic high technologies.
• In public procurement, the World Trade Organisation’s Government Procurement Agreement (GPA) does not apply to all government procurement, and GPA coverage to each member state is based on negotiation (WTO members are not yet required to join the GPA, and China is currently negotiating GPA accession, meaning it can include preferences for domestic goods and companies in state procurement practices.
• Procurement policy was reinforced from January 2005, as the Ministry of Industry and Information Technology (MIIT) issued the Opinion on Accelerating the Large Company Strategy in the Electronics and Information Industry, stating that support should be provided “to the leading large companies”.
• In 2009 the Circular on Carrying out the Work on Accreditation of National Indigenous Innovation Products, (a.k.a. Circular 618, by MOST, the NDRC, and the MOF) created a national-level “catalogue” of preferred procurement products in the six high-tech areas of computing and application equipment, communications, modern office equipment, software, new energy, and high-efficiency and energy-saving products.
•   An upgraded catalogue following the Circular listed 240 forms of industrial equipment in 18 areas that Chinese firms are encouraged to manufacture, to upgrade China’s manufacturing base, including solar PV. Participating firms were offered subsidies and tax incentives, alongside priority in procurement. 
• This was followed in November 2009 by the Indigenous Innovation Product Accreditation Policy, whereby state-procured products had to contain Chinese IP. Beijing’s municipal procurement catalogue contained 42 products and just one from a foreign-invested manufacturer; Shanghai’s had 258, with two from foreign-invested firms; Nanjing’s list had none. 
• These initiatives have been pursued in different ways by different levels of state. Procurement has built a platform to take Chinese firms from early innovation to market entry, and demonstrates a more direct approach among local government, and province-level cities in particular (the four major municipalities of Beijing, Shanghai, Tianjin and Chongqing) in supporting their high tech firms.

·       The indigenous IP issue fizzled out in 2011, but it had become entrenched in many people’s minds.