China Is Stifling Its Own Economic Future

China must open its economy and citizens' freedom to take full advantage of its global possibility.


Gary Shapiro is president and CEO of the Consumer Electronics Association, the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times bestselling book, The Comeback: How Innovation Will Restore the American Dream . Connect with him on Twitter at @GaryShapiro.

As in nature, economics abhors a vacuum. And with the United States still struggling to regain its economic footing since the financial meltdown four years ago, other nations are vying to fill that vacuum. But who? It certainly won't be from the European Union, which is learning the hard way that overspending and restrictive labor policies are a sure recipe for stagnation. There's the burgeoning power of India. But I've also seen firsthand just how far the former British colony has to go to build an infrastructure that can support a top tier economy. And so we come to China, by some accounts the best positioned country to be the world's technology leader.

And China certainly knows it. As the head of the Consumer Electronics Association, I travel to China every year. Over the years, I've personally witnessed the strides that China has made toward building its economy, particularly its technology sector. But China's economy is still being stifled by authoritarian policies that have limited its potential for growth by limiting its citizens' freedom. At the end of the day, a single-party state must always think of its own survival before the prosperity of its people.

For instance, in 2006, China launched its "Indigenous Innovation" plan, which is intended to turn China into a technological powerhouse by 2020 and a global leader by 2050. To launch the campaign, China released a "National Medium and Long Term Plan for the Development of Science and Technology," or MLP, which outlined the blueprint for science and technology development. While seemingly full of ambitions and good intentions, the MLP is really a blueprint for technology theft and protectionism.

[See a collection of political cartoons on the economy.]

The core thinking of the MLP is that to compete, China must continue to stifle economic freedom. Some of the policies included high market barriers to foreign technology, patent rules that made it easier for Chinese domination, and delay of foreign imports. Chinese government procurement, estimated at $105 billion annually, would give preferential treatment to locally developed technology. The catch was that to qualify for this "indigenous innovation" title, firms would have to pass government inspection to ensure that the technology used was developed, produced by an enterprise, had a trademark, or was registered in China. This ruling had foreign sellers up in arms protesting the policy out of fear that they would be excluded from the market.

Another Chinese policy intended to boost domestic innovation is its relaxed view of respecting intellectual property rights. Because of this, China is a master of pirated products. That China isn't that interested in enforcing patents exposes the inherent weakness in its top-down approach to innovation. In America, an entrepreneur can start an online book-selling business in his garage and grow it into one of the largest companies in the world. The Chinese simply don't have that kind of freedom, which in turn hurts their ability to innovate. So they turn a blind eye when their entrepreneurs make money off someone else's innovation.

On the other hand, China's immigration strategy is far superior to America's. China is aggressively trying to attract its citizens who have studied abroad with a formal 10-year plan, stretching from 2010 to 2020, backed by the Chinese government. Headed by Dr. Wang Huiyao, vice-chairman of the China International Economic and Cooperation Society, and under the China Ministry of Commerce, this program contacts U.S.-trained Ph.D.s, including many who have become U.S. citizens, and seeks to entice them to return to China with promises of huge compensation and high positions, including top leadership positions in Chinese universities and companies.