China will drop some of the indigenous innovation rules for government purchases that have riled foreign companies, the Ministry of Finance announced, a step a U.S. business group called an important concession.

Beijing's policies making foreign companies' access to government equipment and technology orders hinge on their transferring patents and other intellectual property to China have been a sore point with Washington and other Western capitals.

They have been keen for greater access to a sector that some have estimated is worth $1 trillion a year.

The Obama administration has repeatedly taken up the complaint with China, and Beijing told Washington in May that it would not use government technology purchases to back Chinese firms at the expense of American companies.

A brief announcement on the Chinese Ministry of Finance's website (www.mof.gov.cn) on Tuesday appeared to follow through on that concession. It said that starting from Friday China would stop enforcing three regulations linking government procurement contracts to indigenous innovation rules.

The U.S.-China Business Council, a Washington D.C.-based organization that represents U.S. companies active in China, said the dropping of the rules was a partial victory.

Though the measures represent only a portion of the full list of regulations that tie indigenous innovation and government procurement, (their) elimination ... is an important step toward fulfilling pledges made by the Chinese government, the council's president, John Frisbie, said in an emailed statement.

Frisbie said China's ending of the rules applied to all levels of its government, which he called an important development given that companies encounter indigenous innovation policies and barriers to sales at multiple PRC government levels. The PRC is the People's Republic of China.

In May, the then U.S. Commerce Secretary Gary Locke -- who has been appointed Washington's next ambassador to Beijing -- said a key challenge for access to the Chinese market was indigenous innovation policies that shut foreign companies entirely out of industries or make unacceptable technology transfer provisions a condition of operating in China.

During a visit to Washington in January, Chinese President Hu Jintao said that his government would not discriminate against products made with foreign technology when awarding government procurement contracts.

Despite these promises, a growing number of foreign businesses have said the polices persist, according to results from an EU Chamber of Commerce survey released in May.

Foreign corporate executives have griped bitterly in private about China's public procurement deck being stacked against them, but often let chambers of commerce publicly voice their complaints for fear of drawing the government's ire.

Bids on China's government projects, from rail to roads and stadiums, are often tendered in murky regulatory spaces at sub-central government levels. It remains to be seen whether local officials will follow through on the central government's mandate.

In a nutshell, this is very good, Christian Murck, the president of the American Chamber of Commerce in China, said. But we will still have to see how it is implemented at the local level now that it has been approved by Beijing.

(Reporting by Chris Buckley and Michael Martina; Editing by Jonathan Hopfner)

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