China a tech powerhouse; why India must catch up

The geopolitical and economic frictions that have accompanied China's rise -- including blocked Chinese investments in the United States, protectionist measures taken by both countries, disagreements on currency valuations and China's cutting back dealings in US currency -- have riveted the world's attention in recent months.

But decisive contests for world power are actually taking place in the realm of high technology, away from the media limelight.

China, which has long studied geopolitical transitions, keenly understands the forces at work. In its bid to become a high-tech power, it has adopted a highly coordinated strategy encompassing its defence-industrial complex, the civilian economy, its academic and scientific community and its patent regime.

The West has also been complaining for years that China has strip-mined foreign products for their technological content.

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Huawei had been charged by Motorola with stealing its technology after it faced down earlier complaints by Cisco.

Several German CEOs complained about IPR infringements during Chancellor Merkel's recent visit to China. The Chancellor herself attacked such practices at the Frankfurt Auto Show in 2007.

But allegations by Western entities that China has indulged in mass copying of technology had usually been accompanied by self-conscious admissions that every country has done this before.

China's unexpected emergence as a technological power in a number of manufacturing sectors has jolted the developed countries from further complacency.

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At Number 3 in global R&D expenditure of over $1 trillion in 2007, China's annual growth rate of 19 per cent in R&D expenditure over the past decade is also the world's highest.

Therefore, Notice 618 (Indigenous Innovation Product Accreditation system) passed in November last year -- according preference to indigenously innovated products in Chinese government procurement orders -- set a very large cat among the pigeons.

The ensuing outcry reflected the gathering alarm over China's growing capabilities. Apocalyptic warnings by Western business lobbies hinted at relocating businesses from China, as the CEOs of GE, BASF, and Microsoft weighed in on the adverse business environment.

A joint letter to the Chinese authorities, signed by (among others) Nasscom and European, American, Canadian, Korean and Japanese business associations / chambers of commerce, alleged that the new procurement system discriminated against foreign companies and requested that China withdraw the provisions.

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A US Chamber of Commerce report released on July 27 detailed how China had acquired technology by bending every rule of the game and dwelt on its alleged "blueprint for technology theft on a scale the world has never seen before".

More recently, the European Chamber of Commerce issued a position paper detailing the problems its businesses faced and demanding that China "reconsider the indigenous innovation concept in the government procurement market".

Given the furore, the Chinese government dialled back on the harsher provisions of the guidelines, opened up the process to consultation and announced its intention to reapply to the WTO procurement agreement, which would mandate transparency and equal treatment in the government procurement market.

China's leaders have also recently issued several statements easing the concerns of foreign investors regarding discrimination.

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Meanwhile, China's relentless advance into hitherto exclusive western R&D bastions is set to continue. While President Obama has repeatedly called for maintaining competitiveness in R&D with China, Germany and India, proposing tax credits for R&D, maintaining R&D funding is going to be a challenge given the Western governments' empty coffers.

What are the implications for India?

Firstly, India must try to catch up as fast as it can with China on the technology/R&D front. India cannot afford to sit endlessly on its much vaunted lead in information technology, which may soon be a thing of the past.

India has not yet created iconic products, and China is fast catching up, as is clear from a KPMG report published in July.

Can India afford to copy some of the more controversial Chinese methods? How many people in India are likely to be genuinely critical of the move to favour indigenously innovated products, given that Western countries often protect their own markets through unfair means?

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Citing security concerns, India has already insisted on depositing proprietary codes for telecommunications equipment. Tellingly, a Chinese company -- ZTE -- was the first to comply.

But there are other ways. South Korea achieved technological leadership without relying on foreign direct investment. And now China, which had followed an open door FDI policy, is emphasising indigenous technological capabilities.

So while no one will advocate stealing technology, as it does not lead to building long-term indigenous innovation capabilities, India must adopt a holistic technology upgradation policy, implement reforms and make effective and coordinated investments in technology, manufacturing and higher/vocational education.

A complementary route is defence offsets and R&D defence collaborations. For various reasons, China was able to establish synergy between the military and economic sectors, which its 16-character policy enjoins.

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In India also there is scope to eliminate the artificial distinctions between the military and civilian sectors, and leverage their respective advantages for the national good. Defence offset rules could be liberalised in order to generate spin-offs in both the military and the civilian sector, which complement each other.

Simultaneously, defence industry R&D collaborations with Russia have been revived. The two countries should strengthen their time-tested strategic partnership emphasising the technological dimension. India should also consider investing in recent Russian initiatives to upgrade its innovation, scientific and technological base which India is familiar with.

Simultaneously, India should expand the reforms in higher education and vocational education programmes, by emulating the features of the German system.

The devil will be in the implementation, where India has consistently lagged behind China. However, this is a race we cannot afford to lose and it is important that we gear up and meet the challenge from across the border in the 'knowledge' sphere.

The author is a member of the Indian Foreign Service. The views are personal.