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Part One: Literature Search
From “Made in China” to “Invent in China”: A Challenge to the U.S.?
Atkinson, R. (2012). Enough is enough: confronting Chinese innovation mercantilism. Washington, DC: The Information Technology and Innovation Foundation.
The article takes a stand against the use of indigenous innovation policies in China, which only serve to harm international trade. Atkinson (2012) argues that China’s distortive economic and innovation policies have imposed significant damage to the U.S. and other economies. China’s policies are a significant deviation from norms governing conventional competition and international trade. As such, China’s strategy aims at winning in all industries, particularly advanced technology products. In addition, China used restrictive policies to develop and support its high-valued export industries and constrains imposed. It is apparent that China is being protective of its core industries, which are central towards attaining competitive advantage in the global economy. This strategy is implemented in such a way that Chinese firms are favored (Atkinson, 2012). Atkinson further asserts that Chinese innovation policies pose a significant threat to the United States economy and the entire market system and rules-based globalization. China’s move from a global manufacturer towards a leader in innovation and it has been marked by theft of intellectual property and compulsory technology transfers, which reduce revenues for innovators and impose significant constraints, when investing in research and development. In addition, China manipulates technological standards and restricts imports, which, in turn, shrinks global markets. The outcome of China’s indigenous innovation policies includes the loss of American high-tech and industrial output, jobs and GDP growth. China should be integrated into the rule-based system, where market forces regulate trade and investment. This is in contrary with China indigenous and protective innovation policies. Overall, China IPR strategies seem to favor domestic policies instead of global innovations. The significant challenges that the United States faces under China’s indigenous innovation policies include China’s lack of adherence to intellectual property rights and massive subsidies directed towards specific technologies. Therefore, the shift towards innovations imposes significant threats to the United States and global economy because the policies are deviant from norms of international trade and investment.
Dieter, E. (2011). China's innovation policy is a wake up call for America. Asia Pacific Issues (100), 1-7.
It is evident that China’s efforts to move towards innovation have been extremely impressive. This is evident by an increase in patent applications by Chinese firms coupled with an increase in the number of science and engineering graduates. Dieter (2011) asserts that China has emerged as a leader in high-tech industry exports, especially technology savvy industries. However, there are significant differences between the innovation policies used by China and the United States.The U.S. government holds the belief that markets should play a key role in driving innovation, whereas Chinese government stresses that public policy plays a significant role in fostering innovation. However, China’s move towards innovation is not a threat to the United States leadership in science and technology. Dieter (2011) perceives China’s advancement in innovation as a wake-up call for the United States, rather than a threat. The fact is that China’s innovation policy is a challenge to U.S. global leadership on the knowledge economy. This is because China’s innovation strategy is discriminatory in the sense that it is a trade-distorting ploy used against the export of manufactured goods and services from the U.S. and that it forces U.S. firms to offshore well-paid jobs in engineering. Therefore, the private sector and the U.S. government should work collaboratively to formulate a national strategy with the primary objective of upgrading its innovation system that can cope with the challenge, posed by China’s innovation strategy from a position of strength. Therefore, China’s innovation strategy will offer new markets for U.S. firms if they lead on the innovation curve. The inference is that China’s move towards innovation and its achievements are a wake-up call for U.S. to rethink its innovation policy by integrating the efforts of private sector and the government.
Levy, P. (2011). China's indigenous innovation policy and the U.S. interests. Washington, DC: American Enterprise Institute.
Levy (2011) argues that China’s innovation policy is a significant concern for the United States. This is because the policies will be costly to American enterprises through restricting business and preventing opportunities to access Chinese market because the policies seem to favor domestic enterprises at the expense of foreign firms. Levy further argues that China’s indigenous innovation policies are less likely to enable China achieve its goal of becoming a global leader in innovation, a spot that the U.S. has enjoyed for a long time. As a result, Levy (2011) points out that contesting this innovation policy should be a primary focus of U.S.-China commercial diplomacy. The most disturbing characteristic of China’s innovative policies is that they aim at extracting foreign technology, which is the cost of accessing Chinese market. As a result, foreign enterprises lose considerable intellectual property advantages. The two broad concerns for the U.S., regarding China’s innovation policies, are that the policies are malleable, and that government procurement preferences tend to favor Chinese innovation at the cost of foreign innovation. The vibrant and innovative technology industry in the U.S. has benefited significantly from the government in terms of basic research, independent research universities, community scholars derived from around the globe, strong intellectual property rights protections and a competitive market that facilitates the emergence and thriving of entrepreneurs. On the other hand, China’s innovation policy is restrictive and lacks intellectual freedom. The challenge to the U.S., posed by China’s innovation strategy, is because it lacks intellectual freedom and entrepreneurial competition. The Chinese innovation policies do not serve as a threat to the U.S. technological leadership; rather, they impose significant costs and challenges for U.S. businesses.
United States International Trade Commission. (2011). China: effects of intellectual property infringement and indigenous innovation policies on the U.S. economy. Washington, DC: USITC.
The rapid economic transformation by China in the last three decades has presented both challenges and opportunities for many American businesses. Irrespective of the reported success in Chinese market, many American firms have highlighted two primary concerns: infringement of their intellectual property rights and China’s indigenous innovation policies, which played a significant role in undermining their competitive positions. American firms in China that rely on innovation have also raised concerns with preferential support to Chinese companies and technical standards. In addition, the innovation policies, adopted by China, have reduced market opportunities and profitability for American firms, operating in China, because they are compelled to compete with low-cost imitations. Statistics U.S. border seizure report that China is the core source of IPR infringing imports gaining entry to the U.S. In addition, China’s indigenous innovation strategies have eroded the competitive positions of American and other foreign companies in China and have formed new barriers to FDI and exports. It is apparent that intellectual property and innovation are central in fostering productivity, employment and growth of the U.S. economy, and constitute a significant portion of U.S. exports; however, this is not the case in U.S. exports to China because of weak intellectual property rights reinforcement and difficulties in accessing the Chinese market. Therefore, it is evident that China’s transformation from “made in China” towards “invent in China” have led to negative economic implications for the United States. In addition, these policies threaten U.S. leadership in innovation by undermining the competitive position of U.S. innovative firms.
Xielin, L., & Peng, C. (2011). Is China's indigenous innovation strategy compatible with globalization. Policy Studies, 1-31.
National innovation currencies are a topic interest for the international community, especially after the onset of the recent financial crisis. China emerged as one of the nations, depending significantly on national resources to foster innovation, a policy that contradicts with the dominant perspective that government resources have minimal effects on the innovation systems of a country. China has managed to advance its control of core resources needed to drive innovation through the formulation of government-led research syndicates and core government-procurement policy tools. Irrespective of the recorded success of China’s move from being a manufacturer to an inventor, it is evident that China’s efforts, concerning indigenous innovation, have limited capabilities of establishing an innovation network having global impact (Xielin & Peng, 2011). The second challenge that China faces, regarding its innovation policy, is a potential conflict with Western countries, especially the United States. For instance, the current Chinese innovation policy contradicts with WTO agreements, especially concerning China’s public procurement policies that require firms to have a Chinese brand, make use of Chinese intellectual property, and have more than 51% Chinese ownership. China’s innovation policy is only constructive and efficient for the case of its economy that is attempting to match international standards. However, this is a significant challenge for the U.S. because China’s innovation strategy does not allow market competition to stimulate innovation. This implies that there is the need for China to implement more open innovation policies for it to be globally competitive and vibrant. Therefore, China’s move from “made in China” to “invent in China” hurts U.S. businesses because of the restrictive innovation policies.
Part 2: Research Proposal
1. Project Statement
This project explores the economic implications on the United States economy imposed by China’s indigenous innovation strategy, adopted after the move from the “made in China” phenomenon to “invent in China”. The project aims at uncovering whether China’s innovation policies hurt the United States economy.
2. Research Question and Rationale
2(a) Review of Literature
Both China and the United States share a basic objective of seeking to promote innovation with the primary goal of enhancing global competitiveness, especially after the recent financial crisis. Both China and the U.S. perceive innovation as a key catalyst for achieving sustainable recovery and a long-lasting solution beyond the short-term economic stimulus. Dieter (2011) asserts that there are significant differences regarding the manner, in which the U.S. and China adopt their innovation policies. The United States government is of the view that the private sector and market forces should play a central role in fostering innovation. On the other hand, China’s approach to innovation depends on the government to play a central role in defining strategic objectives and core parameters.
In the U.S., there is a wide anticipation that additional reforms of China’s innovation policies will gradually converge to the United States model of market-led innovation. However, the fundamental concern for China is to advance its productivity and income levels to match the Japan, the U.S., and the European Union. China’s government holds the view that strengthening its domestic innovation capabilities will play a significant role in transforming its economy beyond the conventional export-oriented model typified by manufacturing (Atkinson, 2012). On the other hand, the United States government holds the view that China’s innovation strategy is somewhat discriminatory because it favors domestic firms at the cost of their foreign counterparts and because it imposes a significant threat to intellectual property rights. In addition, China’s innovation policies are characterized by unfair government procurement practices and policies, undermining of market competition and lack of freedom of U.S firms concerning when and how to transfer technology (Linton, 2011). A recent report by the United States International Trade Commission reported that China’s innovation policy imposes significant restrictions on the ability of U.S. firms to gain access to the Chinese market and compete fairly. The report further stated that these policies have the potential of undermining the innovative capacity of the United States economy in core sectors; as a result, China’s policies hurt the competitiveness and livelihood of American firms and the respective workforce employed by these firms.
Data on Research and Developments in IT industry reveal that Chinese enterprises are continuing to trail the global industry leaders in the United States. It is evident that there are no Chinese firms in the top 20 worldwide research and development spenders, with Microsoft leading with $ 9.010 billion, Nokia with $ 8.24 billion, Samsung with $ 6.002 billion, IBM with $ 5.208 billion, and Cisco with $ 5.208 billion. Huawei and ZTE, leading Chinese firms, are way behind in terms of research and development investments. According to Dieter (2011), the United States is still a global leader in terms of its innovative capacity. Dieter perceives Chinese threats as exaggerated and asserts that the U.S. should focus on building its existing strengths in order to advance its innovation strategies. Dieter (2011) uses this framework to assert that the United States requires an innovation approach to address the challenges imposed by China’s innovation policies.
According to the USITC (2011), the rapid economic transformation in China during the last three decades has presented both threats and opportunities for American firms. Despite the reported success of the Chinese economy, most U.S. firms, operating in China, have raised two primary concerns associated with China’s innovation policy; they include the infringement of their intellectual property protections and innovation policies that are significantly undermining their competitive positions. U.S. firms in China also cite preferential support for Chinese enterprises and technical standards. The United States International Trade Commission (2011) affirms that most American firms in China are facing significant difficulties associated with reduced market opportunities and profitability because they are compelled to compete against Chinese firms embarking on low-cost imitations. China is a primary source of intellectual property infringements on United States imports from China. Further, Linton (2011) asserts that China’s indigenous innovation policies have played an integral role in the erosion of the competitive positions of U.S. innovative firms, and have created significant barriers towards FDI and exports. It is evident that the United States economy significantly depends on intellectual property and innovation, which comprises of a significant fraction of U.S. exports. Despite this surplus, U.S. exports to China are low because of weak intellectual property rights protections and difficulties in gaining access to Chinese market because domestic firms are given higher preferences than foreign firms operating in China. Therefore, it is obvious that China’s makeover from an export-oriented model (manufacturing leader) towards innovation leadership has led to negative economic implications for the United States. In addition, these policies threaten U.S. leadership in innovation by undermining the competitive position of U.S. innovative firms.
2(b) Background against Which the Research Question is Raised
The nature of U.S.-China trade diplomacy has been characterized by frictions, with the United States citing the distortive nature of China’s economic policies. On the other hand, China has adopted a defensive position and has justified its adopted economic policies. The divergent views on China’s economic policies pose the need to evaluate the impacts of Chinese economic policies on the U.S. economy and its global competitiveness among core sectors of the economy, especially with regard to innovation, which is a core driver of both U.S. and Chinese economies. Basing on this framework, the following is the research question:
Do China’s indigenous innovative policies hurt the United States economy?
2(c) Significance of this Research
This study will provide a comprehensive understanding of the issues, affecting China-U.S. trade diplomacy, especially regarding the economic implications of China’s innovation strategy. The findings of this research will offer a framework, through which U.S. policy makers can formulate strategies to address the impacts of Chinese policies on U.S. economy. Further, the findings of this research will be helpful in ensuring that the United States maximizes from its economic relationship with China.
3. Study Method
Study methods depend on the structure of research question; this study will require the analysis of both qualitative and quantitative data from American firms operating in China. Therefore, this study will deploy quantitative and qualitative research methods, using both primary and secondary data relating to economic implications of China’s indigenous innovation policies on American firms operating in Chinese markets. Secondary data will include the assessment of annual economic data relating to China-U.S. economic relations, with a primary focus on how China’s innovation policies affect the operations and competitiveness of American firms in China. The deductive approach will be used because the study will commence by theoretical frameworks, after which it will make use of empirical evidence to assess the implications of China’s innovation policies on U.S. firms.
Primary data collection will basically involve the use of electronic questionnaires mailed to the various U.S. firms in China. Questionnaires will be used to collect data concerning objectives and policy tools, such as protection rights of intellectual and industrial property, reported losses and lost market opportunities because of indigenous innovation, extent of preferential support for Chinese enterprises. Respondents will be asked to document the effects of such policies on their profitability and competitiveness at a global level.
Data analysis will primarily use descriptive and inferential statistical methods. Descriptive statistics will be used to illustrate the fundamental characteristics of data and summary of analysis on the data. The presentation of information will use graphical methods such as graphs, tables and charts. In addition, inferential statistical approach will be used to derive at the conclusion of the research study after data analysis and evaluation.
4. Anticipated Findings and the Significance of the Project
It is anticipated that high levels of violation of IPR will lead to significant losses and reduce the competitiveness of U.S. firms in China. The implication from this is that improved IPR enforcements will result in significant economic gains for the United States. These findings will suggest a framework, through which U.S. policy makers can devise strategies to tackle the impacts of Chinese policies on U.S. economy. Further, the findings of this research will be supportive in ensuring that the United States maximizes from its economic relationship with China.