VZCZCXRO4463
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #0515/01 0580913
ZNR UUUUU ZZH
P 270913Z FEB 09
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 2559
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHIN/AIT TAIPEI 7167
RUEHKO/AMEMBASSY TOKYO 2389
RUEHUL/AMEMBASSY SEOUL 1069
RUEHMO/AMEMBASSY MOSCOW 9203
RUEHGV/USMISSION GENEVA 2387
RUEAHLC/DHS WASHDC
RUCPDOC/USDOC WASHDC
RUEAWJA/DEPT OF JUSTICE WASHDC
RHMCSUU/FBI WASHINGTON DC

UNCLAS SECTION 01 OF 04 BEIJING 000515 
 
SENSITIVE 
SIPDIS 
 
State for EAP/CM - SFlatt, PPark 
State for EEB/IPE - RWatts, JUrban, TMcGowan 
State for EEB/CIP - SFlynn, FSaeed 
USTR for China Office - TStratford, TWineland, AWinter 
USTR for Industries Office - JMcHale, AMain 
USTR for IPR Office - JRagland, SMcCoy 
Commerce for National Coordinator for IPR Enforcement 
Commerce for MAC NMelcher, JWu, ESzymanski 
Commerce for MAS RLayton, SMathews 
LOC/Copyright Office - STepp 
USPTO for International Affairs - LBoland, EWu, STong 
DOJ for CCIPS - MDubose and SChembtob 
FTC for Blumenthal 
FBI for LBryant 
DHS/ICE for IPR Center - DFaulconer, TRandazzo 
DHS/CBP for IPR Rights Branch - GMacray, PPizzeck 
ITC for LLevine, LSchlitt 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EINV ECPS PGOV ASEC WTRO CH
SUBJECT: CHINA APPROVES ELECTRONICS/ IT INDUSTRIES SUPPORT 
PLAN 
 
Ref A: Beijing 0151 
Ref B: Beijing 0326 
Ref C: Beijing 0425 
Ref D: Beijing 0443 
 
Summary 
------- 
 
¶1. (SBU) China's State Council on February 18 approved a 
RMB 600 billion (USD 88 billion) industrial support plan 
for its electronics and information technology (IT) 
industries, the sixth of ten industry-specific plans to 
bolster sectors affected by the economic downturn - and 
the first to include a specific dollar amount.  The State 
Council's released summary of the plan - the plan itself 
is not yet public - is brief and short on details.  The 
overarching objective is to boost domestic demand and spur 
indigenous innovation in China's electronics, 
telecommunications, and Internet industries over the next 
three years, primarily through investment, policy support, 
and the promotion of new technologies and high-tech 
services.  While industry experts fear the new measures 
could exacerbate recent protectionist trends as China 
focuses on propping up domestic industries, some believe 
that Chinese businesses will continue to pursue foreign 
investment and partnerships as they seek to import cutting 
edge technologies from overseas.  One sidebar of concern: 
those who have seen the unreleased text of the draft plan 
report that it includes a call to replace "foreign" 
software with Chinese-developed products.  End Summary. 
 
Support for Electronics, Telecoms, Internet 
------------------------------------------- 
 
¶2. (SBU) China's State Council on February 18 approved "in 
principle" a RMB 600 billion (USD 88 billion) support plan 
for its electronics and IT industries, which it called "a 
leading pillar industry for China's national economy." 
The Chinese government released a broad overview of the 
so-called "restructuring and rejuvenation plan," which is 
to be implemented over the next three years, but few 
details of the unreleased text of the draft proposal that 
is circulating within the Chinese government have emerged. 
The strategy aims to boost the country's electronics, 
telecommunications, and Internet industries by generating 
domestic demand, granting policy support to high-tech 
companies, promoting new technologies like 3G wireless, 
and expanding China's role in high-tech services 
outsourcing.  The plan is the sixth in a series of ten 
initiatives to support Chinese industries affected by the 
economic slowdown (see reftels), and, like the others, 
shares the objectives of promoting indigenous innovation. 
 
Focus on Competitiveness, Innovation, Outsourcing 
--------------------------------------------- ---- 
 
¶3. (SBU) The plan as announced by the State Council calls 
for three general areas of focus.  First, to "guarantee 
the stable growth" of electronics and IT industry, China 
should increase its competitiveness in these sectors, 
mainly by upgrading existing infrastructure, including a 
transition from analog to digital television.  Second, the 
plan calls for the promotion of indigenous or self-reliant 
 
BEIJING 00000515  002 OF 004 
 
 
innovation in areas of key technologies, including 
integrated circuits and software.  Third, China should 
focus on developing IT services, including services 
outsourcing (call centers and off-shore programming, for 
example), as a means to stimulate the communications 
equipment and information services sectors. 
 
¶4. (SBU) Beyond these three broad guidelines, the publicly 
announced plan outlines five specific ways to stimulate 
China's electronics and IT industries.  These include: 
expanding domestic consumption in this sector; investing 
in six key technology projects (see para 5); strengthening 
indigenous innovation by expanding national science 
projects and restructuring key enterprises; promoting the 
development of services outsourcing and the overseas 
expansion of Chinese businesses; and increasing policy 
support, including export rebates and insurance support, 
for high-tech enterprises, as well as increasing trial 
bond issuances for small- and medium-sized enterprises. 
Few details are offered on how these goals would be 
accomplished. 
 
Six Key Technologies to Receive Attention 
----------------------------------------- 
 
¶5. (SBU) Finally, the State Council's announcement singles 
out six technologies for investment.  These are integrated 
circuits (microchips); flat-panel displays; 3G wireless 
communication (including China's homegrown TD-SCDMA 
standard); digital television; personal computers and 
next-generation (fiber) Internet; and software and 
information services.  The amounts to be allocated to each 
technology are not specified. 
 
Building Capacity to Prepare for the Upturn 
------------------------------------------- 
 
¶6. (SBU) The U.S. Information Technology Office (USITO), 
which represents U.S. high-technology and telecom 
companies in China, commented that the Chinese government, 
with cash reserves to spend, views the current economic 
downturn as a good opportunity to invest in technology, 
recruit talented engineers, and expand the sector and 
build capacity so that China is well-positioned when the 
economy begins to recover.  USITO representatives cited as 
analogous recent reports that China's financial 
institutions are recruiting laid-off Wall Street bankers 
to benefit from their expertise. 
 
There's Money to Spend and Technology to Transfer 
--------------------------------------------- ---- 
 
¶7. (SBU) The unreleased text of MIIT's support package, 
according to USITO, which has seen the internal government 
draft, includes language that expresses concern at the 
shrinking role of foreign businesses.  The document 
credits foreign-invested enterprises (FIEs) as "the major 
force" of China's ICT industries, responsible for 57 
percent of investment and 80 percent of revenue, and warns 
of a 10 percent decrease in FIEs in 2008 in Beijing and 
Tianjin.  USITO representatives pointed out that this 
decline is particularly worrisome to China because it 
knows it lacks expertise and capacity in key cutting-edge 
 
BEIJING 00000515  003 OF 004 
 
 
technologies.  Pursuing such technology via foreign 
partnerships appears to be the reason, they said, that the 
plan encourages Chinese enterprises to go abroad to 
establish R&D centers and production bases. 
 
¶8. (SBU) USITO's observation that Chinese IT enterprises 
may continue to seek technology transfers through foreign 
partnerships and investment is consistent with recent 
comments by the European Union's Intellectual Property 
Rights Attach in Beijing, who said that China, with about 
1,200 domestic R&D centers, has become the largest non- 
European partner in the European Commission's FP7 
multilateral research program.  Under the program, he 
added, the EC is beginning to face difficulties over 
defining IPR ownership when a project includes Chinese co- 
inventors. 
 
No More Foreign Software, Please 
-------------------------------- 
 
¶9. (SBU) Beyond a reported acknowledgement of the 
important role of FIEs in China's ICT industries, however, 
it is unclear whether the unreleased text of the support 
plan includes any explicit measures to encourage foreign 
investment in China.  The contrary appears to be true: 
journalists who appear to have seen the internal document 
have reported it includes language that calls for Chinese 
government agencies to "gradually migrate towards using 
domestic software applications, replacing foreign-made 
software."  An alternative translation by USITO, which has 
also seen the text, is more severe: "to systematically 
replace foreign software products used in government 
agencies with homegrown software products." 
 
MIIT DG Hasn't Yet Reviewed the Plan 
------------------------------------ 
 
¶10. (SBU) On February 20, two days after the IT support 
package was approved and publicly announced, Chen Yin, 
Director General of MIIT's International Cooperation 
Department, explained to Emboffs that his ministry (though 
not his department), together with the National 
Development and Reform Commission (NDRC), was responsible 
for drafting the support plan.  However, Chen said that he 
had not yet had the opportunity to review the plan because 
he was busy reviewing the previous five.  Chen said that 
every one of the expected ten support plans would affect 
his ministry, which, since its reform in late 2008, is 
responsible for many of China's large industries in 
addition to information technology. 
 
An Unfunded Mandate 
------------------- 
 
¶11. (SBU) In a February 26 meeting with President Yang 
Zemin of the China Academy of Telecom Research (CATR), a 
division of MIIT, CATR officials acknowledged that the RMB 
600 billion support plan will not be entirely funded by 
the government.  As little as one-third or less of the 
money would come from the central government, they said, 
leaving provincial governments and industry to make up the 
difference.  They also explained that the plan is not 
entirely new, and includes a number of ongoing initiatives 
 
BEIJING 00000515  004 OF 004 
 
 
that have been rebranded as part of the support plan. 
These include the Ministry of Commerce's "home appliance" 
program, launched in late 2008 to spur domestic demand by 
providing people in rural areas with a discount on a 
basket of eight electronic products that includes 
computers, televisions, telephones, refrigerators, 
microwaves, and washing machines. 
 
Comment 
------- 
 
¶12. (SBU) The Chinese government has not yet released a 
draft of its IT support plan, leaving the details open to 
speculation.  Some reported measures appear to extend and 
strengthen existing policy, including support for 
homegrown standards, encouraging a transition from 
manufacturing to services, and the "go abroad" mandate for 
Chinese enterprises.  Others are a new twist on old 
policies, such as ending the use of foreign software by 
government agencies, which would reverse the U.S. 
commercial gains from a fairly successful Chinese effort 
to legalize the (mostly Microsoft) software used in 
government and state-owned enterprises.  China has 
repeatedly insisted that promoting indigenous innovation 
will not be at the expense of foreign companies, but such 
opposition to the presence of "foreign" software would 
seem inconsistent with this averred Chinese reassurance. 
It is unlikely that the plan will include measures to 
directly benefit foreign companies, but there are reports 
that attracting foreign partnerships and investment will 
remain a priority for Chinese high-tech companies.  We 
will report further when the final text of the 
comprehensive plan is released.  End Comment. 
 
PICCUTA