U.S. groups say "alarmed" by China's business tactics

WASHINGTON (Reuters) - Business groups told Secretary of State Hillary Clinton and other top U.S. officials on Tuesday they were "increasingly alarmed" by China's moves to keep out foreign high-tech companies and urged a firm response by the United States, an influential newsletter reported.

"For several years, the Chinese government has been implementing indigenous innovation policies aimed at carving out markets for national champions and increasing the locally owned and developed intellectual property of innovative products," the business groups said, according to Washington-based newsletter, The Nelson Report.

"We are increasingly alarmed by the means China is using to achieve these goals," the groups said.

They urged the Obama administration to make the issue a top priority and work with the U.S. business community and like-minded foreign governments to develop a "strong, fully coordinated response to the Chinese government."

The letter is the latest salvo in what is shaping up as an quarrelsome year in U.S.-China trade relations.

Two weeks ago, the world's biggest search engine provider, Google Inc., threatened to shut its Chinese Google.cn portal and to pull out from China, citing problems of censorship and a hacking attack from within the country.

The Obama administration has backed Google's criticism, and Clinton urged China last week to drop Internet censorship and investigate the hacking, which some experts say could have been organized by Beijing.

The 19 U.S. business groups did not mention the Google case in their letter to Clinton, Treasury Secretary Timothy Geithner, Attorney General Eric Holder, Commerce Secretary Gary Locke and Trade Representative Ron Kirk.

But they complained China has pursue aggressive "indigenous innovation" programs aimed at promoting high-tech national champions and excluding "a wide array of U.S. firms from a market that is vital to their future growth and ability to create jobs here at home."

Their most immediate concern were new rules issued by China in November to establish a national catalog of products eligible for significant preferences when Chinese government agencies are making purchases.

The regulation requires any product listed in the catalog to contain intellectual property developed and owned in China, making it "nearly impossible" for American companies to qualify unless they are prepared to establish Chinese brands and transfer their research and development of new products to China," the groups said.

"This directive targets some of our most innovative and competitive manufacturing and service industries, including computers, software, telecommunications and green technology. Once this system is in place, it is expected to be expanded to other industries," the groups said.

(Reporting by Doug Palmer; editing by Anthony Boadle)