American chamber says China’s focus on local industry is hurting U.S. businesses

China’s efforts to promote local industries are undercutting American competition here, U.S. business officials said Tuesday as they questioned the nation’s commitment to fully opening its economy.

In its annual report on the U.S. business climate, the American Chamber of Commerce in China said a collection of rules, standards and other requirements under China’s “indigenous innovation” policy were starting to hamper the ability of outside technology firms to operate.

As the nation has intensified government protection of and support for designated industries, the policies have raised doubts “about the depth of commitment of China’s leadership to reform, of completing the transition” to more open markets, said chamber President Christian Murck.

U.S. business and political leaders have repeatedly criticized China’s new push to advance its local technology companies, citing the importance of giving American firms freer access to China’s vast market. China has become a top destination for U.S. exports, and success there is a central aim of major corporations.

There is a growing acknowledgment, however, that the economic access that has boosted China’s growth over the past 20 years — and opened the country to companies such as Wal-Mart and General Motors — has entered a new and, for the United States, more complicated phase.

U.S. officials worry that China, a decade after joining the World Trade Organization, may be intent on barring foreign ownership from key parts of its economy, including the financial sector, service industries and other areas where U.S. companies think they hold an advantage.

At the same time, strict regulations and state support are helping local Chinese businesses in technology, energy, aviation and other fields where the government hopes to establish Chinese leadership. The U.S. Chamber of Commerce argued in a recent report that those policies are “a blueprint for technology theft” and force foreign firms to either hand over their ideas and know-how or miss out on the growth of what is now the world’s second-largest economy.

The topic is likely to form a backdrop for the latest in a series of high-level talks between U.S. and Chinese officials to be held in Washington next month.

In December, U.S. trade negotiators won what they thought were significant concessions from China, including a promise that local governments would not be required to buy locally developed technology products and that government agencies would stop using pirated software.

But chamber officials in China said the follow-through has been mixed. Despite some high-profile arrests for copyright and other intellectual property violations, there is no evidence that the Chinese government has purchased foreign products or fully licensed software.

In addition, the country appears to be aggressively moving ahead with rules that the chamber said are cutting out foreign suppliers. Last fall, Chinese public security officials began what the chamber characterized as an “intense campaign” to force a variety of public agencies, businesses and other institutions to install locally developed software to protect computer systems.

China cast the move as a national security issue, but the chamber said the requirements went well beyond the norms set by other countries. When the government does allow foreign security software, the chamber said, the regulations require those companies to let Chinese officials review the underlying code.

The rules “maintain an overly broad definition of national security, which is contrary to standard international practice,” the chamber said.

The chamber report said U.S. companies as a whole were doing well in China — reporting higher profits and growth and showing “pre-crisis” levels of confidence in the Chinese and global economies.

But there is a developing sense that China, having opened itself to freer trade in goods and having gained admission to global markets, may have exhausted the “easy steps” of economic reform, Murck said. What remains — allowing more foreign ownership, loosening control of the financial system, giving outside companies more room to compete — “those are the more difficult steps.”

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