China and IPR, part III-Caring about Causes

In my last blog, I detailed China’s continuing shortcomings with protecting intellectual property (IP) rights (IPR) and the emergence of new challenges. The question arises as to why these problems persist even though it has been more than 20 years since China joined the World Trade Organization (WTO), is a member of numerous IP-focused organizations such as the World Intellectual Property Organization, and faces constant pressure to improve its protection of foreign IP. This blog critically evaluates some of the most common explanations for this state of affairs. Such knowledge is critical for developing realistic business and policy recommendations.

A popular explanation of China’s problematic IPR regime is the country’s “diffuse” governance structure. In brief, there are too many administrative and legal entities, horizontally (i.e., agencies in Beijing) and vertically (subnational units such as provinces), dealing with IPR affairs. This surfeit of bodies, in turn, produces or creates incentives or the space for buck-passing/neglect, corruption, inconsistencies, inadequate regulatory capacity, and local parochialism.[1] Local parochialism is a big issue because the leaders of subnational units are tasked with numerous goals of which promoting economic growth is one of the most important. Given this, they may have incentives to leave local IP violators alone or, worse, support IP violating activities if such behaviors support growth. Moreover, local elites must be attentive to preserving their political standing with other elites and, even, the populace, which may further reduce their attention to protecting foreign IP.[2] For those thinking centralization logically follows as the panacea, it cannot be assumed centralized actors will prioritize protecting foreign IP over other goals or are uncorruptible.[3] Some believe inadequate education, training, and funding partly are behind the problems of inconsistency and inadequate capacity.[4] These are real issues, but it cannot be assumed education, training, and funding will drive Chinese actors to protect foreign IP.

Another common argument is that China does not have enough of its own IP or IP creators. Thus, it currently makes sense for China to exploit foreign IP to improve the speed and decrease the cost of moving up the value-added chain, especially since poor IP protection generates limited downsides for China’s IP at home or abroad or China. Once China has sufficient IP or there are enough IP creators, however, there will be a transformation of China’s IP regime.[5] There are many problems with this argument. First, it is not clear that Chinese IP holders/creators or consumers suffering from IP theft will have the political wherewithal to drive an improved IPR regime absent top policymakers making a calculation that such a regime serves their goals.[6] Second, policymakers may fear the emergence of the independent judiciary required by a true high-quality IPR regime.[7] Third, it is not axiomatic that Chinese IP creators will favor the consistent, fair, or transparent system that foreign IP holders and governments desire if a “flawed” system serves their purposes.[8]

A third possibility is that external pressure has been inadequate.[9] Foreign governments still give protection to Chinese IP within their jurisdictional boundaries regardless of China’s IPR practices. In addition, they have been reluctant to bring WTO cases due to the slowness of the process, (perhaps undue) faith in their technical assistance and training programs, and, in some cases, fears of retaliation. Furthermore, foreign companies are not leaving China in any significant number regardless of their IP woes. Indeed, they continue to inject IP into China in the form of research & development centers, equipment, and staff. There are instances, though, where external pressure has worked—China’s acceptance of the WTO TRIPS agreement and changes following the US-China Phase One Trade deal illustrate this—so external pressure in interaction with other political and economic variables rather than in isolation is what is decisive.

A fourth explanation is that China’s IPR deficiencies are attributable to “culture/ideologies” like Confucianism, Communism, or Collectivism. These cultures/ideologies do not, it is argued, countenance private property, demonize copying, and/or embrace merit-based compensation systems such as IP regimes.[10] Thus, it should not be expected that there will be strong demand for protecting foreign IP or support for it. It is far from certain, though, that “Confucian” countries lack the ability to enforce IPR or that Maoist property notions hold continuing sway.

A fifth is a lack of political interest, an issue raised in different guises above. For many, Beijing could easily force central government and subnational units to up their IPR game. Yet it does not because it lacks the “will” to compel change. For others, however, even if Beijing had the will, it does not have the power, a debatable assumption.[11] In any event, China’s will may be lacking even more these days due to increased Chinese nationalism and attention to the national security concerns. Both imbue Chinese policymakers with potent incentives to move up the value-added chain in bigger and faster ways as well as strong reasons not to accommodate foreign pressure.

This blog considered various factors that may drive China’s flawed IPR regime. It needs to be recognized that more than one may have relevance and also that some may exert influence concurrently. It also needs to be acknowledged that different factors may have greater relevant in different issue areas, at different times, and/or in different locales.[12] It is not possible to delve into all these possibilities herein. In my next blog, I will propose some steps governments and businesses can take to protect their IPR.