China’s commitment to Intellectual Property Rights more Rhetoric than Reality

While Chinese officials have regularly indicated their commitment to intellectual property (IP) protections and their desire for reform, Beijing’s record towards foreign firms is far less promising upon evaluation. Ostensibly, government officials have consistently indicated their commitment to Intellectual Property Rights, most recently at the 2014 International Intellectual Property Forum in Chengdu. However, the rhetoric from party leaders does not match China’s actions – Beijing has aggressively utilized its vague anti-monopoly law to regulate foreign corporations.

Since opening up to foreign investment, China required a foreign firm to enter into a joint venture with a local firm in order to do business in the country to protect its developing industries. Beijing is discovering that Chinese firms have not developed their own brands or IP and are instead relying on the resources and reputation of their foreign partners for profit. However, it should not be surprising that policies that suppress intellectual property rights have resulted in a lack of innovative practices.According to the International Property Rights Index (IPRI) there is a clear link between respect for property rights and key economic indicators such as GDP per capita.

In past months, Chinese officials have used the antitrust law to justify raids on the offices of Microsoft and levied fines for ‘unfair prices’ at Chrysler and Audi. While China claims it is trying to prevent monopolistic practices, these moves resemble a transition to more blatant and aggressive protectionist policies designed to provide a leg-up to local firms.

There are concerns amongst business groups such as the U.S. Chamber of Commerce, which claims that China is violating World Trade Agreements.  Lester Ross, vice chairman of the US Chamber of Commerce in China has noted that Beijing appeared to be selectively targeting industries, such as pharmaceuticals and automakers that it wanted local companies to expand into. In reality, most foreign corporations do not have a monopoly even without competitors due to the existence of widespread piracy. 

Firms have accepted the unfavorable business conditionsbecause of their desire to operate in the world’s largest market. For now, the benefits outweigh the costs and concerns of unfair business practices.

Even so, American, Canadianand German companies have recently raised concerns about property protection, unfair anti-trust probes and an unwelcome business environment, with the sentiment amongst business leaders being that Chinese reforms are producing few tangible results and are mostly empty rhetoric.

There are also concerns that China’s recent creation of Ruichuan IPR Funds, a government sponsored company, will be used to acquire patents in order to engage in costly litigation cases against American corporations that will hamper innovation.

These concerns have led Treasury Secretary Jacob J. Lew to express concern to his Chinese Counterpart over China’s treatment of business. However, Beijing remains defiant that it is doing nothing wrong. Premier Li Keqiang stated that foreign firms targeted were only a small portion of firms investigated and that China is committed to ‘Equal treatment for Chinese and foreign firms.’

Last month, India announced it would implement intellectual property reform in early 2015. Like China, India is a much-coveted market that has faced criticism for its protectionist policies that disregard  intellectual property rights. Realizing the opportunity to foster economic growth and spur investment, India has begun to implement a strong IP regime.

While it remains to be seen whether India’s reforms will be successful, the new government has made good strides with the announcement of the creation of a joint IP working group with the U.S. In contrast, China has lagged behind on this key issue.

If Beijing is serious about its global reputation and international competitiveness, it must work to immediately implement IP reform and put a stop to misguided and costly protectionist policies that are restricting innovation.