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China Springs The Trap

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This post originally appeared at Campaign for America's Future (CAF) at their Blog for OurFuture as part of the Making It In America project. I am a Fellow with CAF.

China has a national economic/industrial policy and we don't. They create the conditions for key industries to thrive and we don't. They make sure all of the infrastructure, finance, supply chain, educational, legal, technical and policy elements are in place for an industry to take hold and take off and we don't.

If they don't have an industry or a technology they want, they build it or get it. And they make sure that they get it. They invite a company in to their potentially huge market, they require that company share a technology with one of theirs, they make sure that their companies learn how to build what they need to build with the processes they need to do it, they make sure their designers know how to design what they need to design, they make sure that the parts are made there, the materials are made there, the people are trained there. The policy is called "indigenous innovation."

And when everything is in place, they spring the trap: they don't need the outside partners anymore. Thanks for the help, now go away. (But don't try to do anything about it, that would be "protectionism.")

This is not "China bashing" by any means. It is not "bashing" to say they're being smart, and we're being stupid. It is not "bashing" to understand that they're moving into the future, we're mired in conservative ideology that is holding us back. They're making sure they take care of their people, we aren't. Their industries are moving ahead, ours are falling behind. They're winning, we're losing.

In March, Business Week looked at China, in China: Closing for Business? (turn your sound off before clicking)

Nearly a decade after China's entry into the World Trade Organization, many foreign companies say the warm reception they once received has turned frosty. ... A new government procurement program known as "indigenous innovation" features rules favoring local firms: It could block sales worth billions of dollars a year. ... Beijing has written strict standards for everything from cell phones to cars, often couching them in a way that gives an advantage to domestic producers.

Summary, China used the promise of access to its huge market to grab control of much of the world's manufacturing. "You want to sell to us, you have to build your factories here." Now that they have it they are no longer as interested in sharing. And while they subsidize manufacturing in various ways - including currency manipulation - to lure companies to move factories and jobs to China, they are not letting those companies sell inside China.

In today's Washington Post, Solar plan in China's Inner Mongolia highlights pitfalls for U.S. firms, an American solar power company

What happened to the Mongolian solar farm project reads like a cautionary tale on the pitfalls facing U.S. firms trying to enter the Chinese market, particularly in a sector such as alternative energy, which has many indigenous competitors.

It also underscores what U.S. business executives here say is a lack of reciprocity in access to China's markets.

If we want to bring back jobs, grow the economy, balance the budget, pay off the debt and move into the future we have to break from the conservative ideology that has been holding us back. We have to make our government serve We, the People again. We have to start competing with China and other countries. To do that we have to invest in our future and that means a lot of spending. We have to rebuild our country's infrastructure. We have to rebuild our education system. We have to restore control over our financial companies and make them serve our economy again by investing in American manufacturing and innovation. And we need to develop a national economic/industrial strategy.

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