Ties That Bind - Bay Area Council Economic Institute

Investment: Building Global Businesses in a New China
Effectiveness of China’s IPR Protection
(2004 –2005)
Totally
ineffective
Ineffective
Effective
210 companies 331 companies
21%
70%
9%
2004
15%
65%
20%
2005
Sources:
2004–2005
AmCham-China and
AmCham Shanghai
Business Climate
Survey
Counterfeit goods account for as much as 8% of China’s GDP, and cost U.S. business an estimated
$20–24 billion annually. A range of factors—widespread technology transfer through joint
ventures and contract manufacturing; a legal framework that has historically rewarded first users
over developers; a government under economic and political pressure to modernize its economy
and state-owned enterprises through technology transfer; pressures on new private enterprises to
quickly become globally competitive; and cross-border flows of engineering talent and equipment—quickly
commoditize products and neutralize first movers in the world’s largest and fastest-growing
emerging market.
In response, firms have struggled to keep innovative, proprietary activities outside of China’s
borders and beyond the reach of Chinese partners. Manufacturers develop products for the
China market with a minimum of features, or recycle older product lines. Changing business
models favor strategies for licensing agreements and network-based services that retain control
of IP and/or price in potential abuses. These IP concerns constrain the extent and quality of
foreign investment in China.
A growing number of Chinese firms whose competitive futures rely heavily on technology, process
or other innovations have begun to register patents and trademarks, and have brought IP
cases as plaintiffs in Chinese courts. As Chinese companies and industries advance, the concept
of IP protection is as much about education at the central and local government levels and in
private enterprise, as it is about law enforcement.
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