We should make the most of the supportive policies covering government procurement to stimulate innovation among domestic businesses, says an article in People's Daily. The following is an excerpt:

A new policy recently promulgated by the Ministry of Finance offers support for innovation by domestic enterprises. This is good news for the more forward-looking businesses in the country.

The new policy stipulates that the government will make preferential purchases of products that are newly or independently developed by domestic enterprises, that tally with the growing demands of the economy and that capture a technological trend.

In recent years, some local governments have concentrated on controlling the cost of purchases through public bidding, while neglecting to support domestic brands and independently innovative products. Domestic products are often turned down by the government because they might cost a little more.

One company spent a decade developing an LED street light that not only does not pollute, but also consumes just a tenth of the power used by traditional lights. And its life span is 10 times longer.

Such energy-saving, environmentally sound products were dropped from government procurement lists because of the high price, a natural result of the costs of research and development.

The government procurement law has been in force for five years and has been quite effective in helping save money. However, it has not played its role in guiding industrial development and supporting independent innovation. To put it in an international perspective, government purchases serve a very significant policy function.

Independent innovation reflects the core competitive edge of a country. But this is not the sort of thing that can be left to the invisible hand of the market. Independent innovation usually involves large sums of initial investment, high research and development costs and the challenge of introducing new products to the market. In other words, their position in the market is disadvantageous.

The government should use policy to stimulate and guide the growth of these products. Various measures should be in place to support them. For example, the government can buy independently innovative products at a price higher than common products so that the producers of such products can ease their capital strains and reduce sales risks. Meanwhile, the gains from the higher price can be reinvested to support innovation.

(China Daily February 26, 2008)