China finds itself in a unique position in the world today.  On the one hand, it is the world's top high-tech manufacturer, making many of the wonderful electronic devices we enjoy on a daily basis.  On the other hand, it will soon be the world's top economic power and it is increasingly looking to make its own domestic products that are as good or better than those from the U.S., Japan, South Korea, Europe, etc.  The techniques it has used to try to achieve that goal, however, have drawn global scrutiny.

In its bid to do that, the nation proposed a controversial plan that many feared would force companies to give up their intellectual property if they wanted to compete for valuable Chinese government funding.  But after much concern, Chinese President Hu Jintao promised during a visit to Washington this week to "delink" its procurement budget from its "indigenous innovation" policies -- the item in question.

Top business leaders had gone to Washington a year ago to express concerns pertaining to language in the Chinese law that said that for "preferred" status, companies would have to provide products based on "intellectual property that is developed and owned in China and that any associated trademarks are originally registered in China."

The groups stated, "This represents an unprecedented use of domestic intellectual property as a market-access condition and makes it nearly impossible for the products of American companies to qualify unless they are prepared to establish Chinese brands and transfer their research and development of new products to China."

Similar initiatives were being conducted by China on the provincial and municipal levels.  According to John Frisbie, president of the U.S. China Business Council, which represents more than 200 American companies that do business with China, in a recent 2009 Shanghai catalog of innovative products of "the 530 on the list only two were made by foreign-invested companies operating there."

China's technique thus far hasn't been particularly effective in convincing foreign firms to come in and surrender their IP.  Thus President Obama urged China to pursue other avenues to strengthen their high-tech status, such as research and development tax credits.

In May U.S. officials met with Chinese officials in Beijing to discuss the policy.  Those talks led to more discussions in December at the U.S.-China Joint Commission on Commerce and Trade office, and then finally the visit to Washington this week.  At each meeting China slowly agreed to relax the policy a little more -- until the current state, which offers virtually no barrier to foreign firms.

Myron Brilliant, senior vice president at the U.S. Chamber of Commerce tells Reuters, "We hope China will make concrete changes to its indigenous innovation regime at the central and provincial levels to live up to this positive pledge."

Industry officials, however, remain suspicious of China quick reversal.  States Bill Reinsch, president of the National Foreign Trade Council business group, "The thing to watch for is not them overtly ignoring their promise, but trying to slip something else in through the back door."