Government Procurement and Indigenous Innovation

Topics: Independent agencies of the United States government, Federal government of the United States, Government Pages: 45 (12081 words) Published: October 12, 2013
Carnegie

PAPERS

Innovation and
the Visible Hand
China, Indigenous
Innovation, and the
Role of Government
Procurement

Nathaniel Ahrens

Government
procurement should
play an important
role in stimulating
innovation, but
maintaining open
markets and
international linkages
is critical.

Asia Program
Number 114   n   July 2010

© 2010 Carnegie Endowment for International Peace. All rights reserved. The Carnegie Endowment does not take institutional positions on public policy issues; the views represented here are the author’s own and do not necessarily reflect the views of the Endowment, its staff, or its trustees. No part of this publication may be reproduced or transmitted in any form or by any means without permission in writing from the Carnegie Endowment. Please direct inquiries to:

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This publication can be downloaded at no cost at www.CarnegieEndowment.org/ pubs.

About the Author
Nathaniel Ahrens is a visiting scholar in the Carnegie Energy and Climate Program, where his research focuses on climate, energy, and sustainable development issues in China. He is the president of Golden Road Ventures Ltd., a business development and strategic advisory firm that provides expertise and support for critical projects in China, including sustainable development, government procurement, agriculture, and media. Previously, Ahrens was senior product manager and director of international sales for Intrinsic Technology, a Shanghai-based telecommunications software provider. He also founded Shanghai Pack Ltd., a luxury-brand packaging company based in Shanghai and Paris. Ahrens is a member of the National Committee on U.S.–China Relations, the Asia Society, and serves as an honorary ambassador for the State of Maine.

Contents

Summary

1

China’s Government Procurement
and Indigenous Innovation

3

Chinese National Indigenous Innovation Products

4

Why Innovate?

6

What Makes a Place Innovative?

7

Innovation and Open Markets

7

The Role of Government

10

The Role of Government Procurement
and the Case of the SBIR

10

The Effectiveness of China’s NIIP Program

12

Suggestions for China’s Government
Procurement With Regard to Innovation

14

The Legal Framework

16

Conclusion and Recommendations

21

Notes

23

Bibliography

27

Summary
Indigenous innovation1 has become the greatest immediate source of economic friction between the United States and China. This trend is not unique to these two countries; policy makers globally are actively trying to stimulate domestic innovation. The burgeoning markets for biotech and environmentrelated products and services and, potentially even more important, countries’ efforts to emerge from the global economic slowdown all reinforce this trend. Mindful of this global scene, China has made indigenous innovation one of the core elements of its attempt to make a structural shift up the industrial value chain.

Recently, however, indigenous innovation has been tarred with a protectionist brush. In both China and the United States, there have been increasing calls for buy-local stipulations and the erection of tariffs and non-tariff barriers to trade. In China, these measures primarily take the shape of government “local content” mandates and through the preferential treatment given to products officially classified as “national indigenous innovation products” (NIIP) in the government procurement process. In the United States, they have taken the form of buy-local provisions and efforts to shut out foreign companies. The conflict has been escalating dangerously. In the run-up to the recent Strategic and Economic Dialogue, the U.S. business community ranked indigenous innovation in China as its...

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December 11, 2009.
China Association of Environmental Protection Industry, “Notice Regarding the
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Grabher, Gernot, ed. The Embedded Firm: On the Socioeconomics of Industrial Networks
(London: Routledge, 1993).
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sustainable development,” China Daily USA, April 20, 2010, p
Innovation in Local Economies: Germany in Comparative Context (Oxford: Oxford
University Press, 2009), pp
Peng, Yining. “Imitation Innovation Irritation,” China Daily, February 23, 2010, p. 7.
People’s Republic of China. “PRC Government Procurement Law,” June 29, 2002.
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and Technology Development (2006–2020),” February 9, 2006
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Indigenous Innovation Product Accreditation Work for 2009,” November 15, 2009.
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5, 2008. Available at http://www.gov.cn/ztzl/kjfzgh/content_883647.htm.
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