By Hannah Elyse Worn and Manoj Harjani*
Intellectual property (IP) has long been a sore point in relations between Washington and Beijing. US officials have repeatedly targeted China for widespread counterfeiting since its economic “opening up” in the late 1970s. But after enduring a series of punitive legal reforms to join the World Trade Organization in 2001, the government China is still under fire for its weak enforcement, forced technology transfers and state-sponsored intellectual property theft. Today, China’s growing ability to produce intellectual property locally is driving the evolving economic relationship between the United States and China.
In 2021, China was the world’s top patent filer for the third consecutive year. Chinese companies filed around 75% of global AI patents over the past decade and 40% of all 6G patents, while the United States only accounted for 35% of those. The country’s ability to produce intellectual property in a number of critical and emerging technologies has been touted as evidence that China is overtaking the United States in knowledge production.
While the significant growth in patent filings in China indicates a real improvement in its ability to innovate, focusing on the number of filings is misleading. The production of more intellectual property by China does not automatically translate into a strategic advantage in economic competition with the United States. Rather, it is high-quality intellectual property that has assumed a vital role in the context of globalization and the emergence of global value chains, providing exclusive rights to licensing processes, brands and technologies essential to the making.
Value chains are hierarchical. At the top, owners of high-quality intellectual property dictate the terms of economic activity that takes place lower in the value chain, where intellectual property is paid for and used in assembly, and derives a greater proportion of it. benefits. “Moving up” the value chain allows companies to capture a greater share of value added, giving countries a strategic advantage to dictate the terms of international trade.
Intellectual property has become an integral part of economic power. The United States’ near-monopoly on high-quality intellectual property has allowed its companies to capture a disproportionate share of value added globally. US efforts to produce, regulate and protect intellectual property can be framed as seeking to protect its power to shape the global economy.
Chinese leaders have doggedly pursued their own path of innovation to sustain economic growth and avoid the middle-income trap by moving up the value chain. But whatever Beijing’s intentions are, it threatens the American economic power given to it by greater ownership of intellectual property.
Although Chinese leaders are well aware of the importance of intellectual property quality over quantity, success in capturing added value has eluded China. China’s intellectual property revenue of $8.6 billion in 2020 does not come close to the whopping US $113.8 billion. This is likely due to the fact that China’s intellectual property leans more towards adaptive innovation – more than half of its national filings are utility patents. These have lower eligibility requirements, protection periods, and retention rates, indicating lower IP quality.
Moreover, in 2020, only 8% of Chinese patents were granted abroad, compared to 29% in the United States. Foreign patents are essential to protect a country’s intellectual property in global value chains. Only 10% of the world’s leading “triadic” patents – a set of patents filed with EU, Japanese and US patent offices to protect the same invention – were filed by China in 2019, while that the United States accounted for 22 percent. hundred. Even globally recognized Chinese companies like Huawei, which has successfully developed large IP portfolios in emerging sectors such as 5G, are exceptions in a corporate environment devoid of high-quality IP filings.
China’s innovation trajectory differs from previous rising powers, which have historically leveraged a more balanced alliance between the public and private sectors to develop intellectual property. Although the private sector is the largest contributor to research and development (R&D) spending in China, this statistic is complicated by the fact that state-owned enterprises dominate China’s business landscape, accounting for nearly half of total R&D spending. in 2020.
China’s R&D spending has grown at a significantly faster rate than that of the United States since 2000. Yet the decline in total factor productivity reflects the high level of state investment in inefficient firms. This has racked up debt and delayed return on investment, with China’s top-down approach to identifying key technologies running considerable risk of making the wrong bets.
The government’s rhetoric touting market reforms and innovation has been contradicted by the rollback on the earlier loosening of market controls towards greater state direction under Chinese President Xi Jinping. The regulatory crackdown on Chinese internet giants has caused losses of US$1.5 trillion in the technology sector and has had a chilling effect on these companies’ ability to attract talent.
Meanwhile, top companies in state-defined “core” technologies — including semiconductors, telecommunications and quantum computers — have remained intact. Favored companies such as Huawei and ZTE are seen as integral to national security and self-sufficiency, though many of them are inefficient and indebted.
At first glance, Beijing’s state-run attempts to expand intellectual property ownership suggest that China is gaining the upper hand in economic competition with Washington. But the poor quality of China’s intellectual property assets and the underlying slowdown in its productivity reveal the weakness of this approach.
Until China resolves the limits of its top-down innovation policies, nascent US industrial policy may well see the United States preserving its dominance of high-quality intellectual property in the future.
*About the Author:
- Hannah Elyse Sworn is a Senior Analyst at S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore.
- Manoj Harjani is a researcher in the Future Issues & Technology research center of the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore.
Source: This article was published by East Asia Forum