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Updated Thursday, February 18, 2010 9:42 am TWN, By Joe McDonald, AP

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Beijing's 'Buy China' policy alarms trade partners

BEIJING -- Beijing says it wants to spur Chinese inventions with a “Buy China” policy that gives preference to domestic technology companies. But the tactic has provoked an outcry from Washington and business groups that say it will choke off access to the massive market for goods from software to clean power equipment.

Foreign companies have been alarmed by the government's announcement it will favor technology developed in China when buying computers and other goods on which it spends billions each year.

The plan, part of a decade-old effort to promote “indigenous innovation,” would channel money to Chinese companies and add to pressure on foreign technology creators to shift research work to China and know-how to local partners.

The move reflects Beijing's growing assertiveness as it tries to make Chinese industry more autonomous after depending on foreign money, markets and technology for three decades to drive its economic boom.

Trade groups say it violates the spirit of China's World Trade Organization free-trade commitments and its pledges to avoid protectionism that might harm the global recovery.

Washington and the European Union have complained, but Beijing retorts that it has yet to sign a treaty that would apply WTO rules to government purchasing.

The impact on companies is unclear because no details of how it will work have been released. But the government is China's biggest software buyer and a key customer for other technology. Losing that market might hurt companies including Microsoft Corp., Intel Corp. and Motorola Inc. Suppliers worry the rules could be extended to purchasing by major state-owned companies in power, telecoms and other fields.

Some companies would consider pulling out of China if they conclude the loss in sales will be too great, U.S. and European trade groups say.

“It's going to have a direct impact on their expansion plans,” said Richard Vuyrsteke, president of the American Chamber of Commerce in Hong Kong. “When you have strictures that restrict growth, you can ride it out for a while but then you have to consider, is it worth it? Is it absolutely necessary to stay in this market?”

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