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How China’s Government Structure Prevents Intellectual Property Protection

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How China’s Government Structure Prevents Intellectual Property Protection

China’s struggle with IP protection is based on structural issues related to its “fragmented authoritarianism.”

How China’s Government Structure Prevents Intellectual Property Protection
Credit: Unsplash

Intellectual property (IP) will occupy a central place for the Biden administration’s China policy. During his vice presidency, Joe Biden was critical of China’s intellectual property theft. In a Foreign Affairs article published in spring 2020, Biden urged the United States to continue its hardline policy toward China’s IP violations. He wrote that “If China has its way, it will keep robbing the United States and American companies of their technology and intellectual property.”

China’s IP protection is one of the most important issues in the ongoing U.S.-China trade negotiations; it occupies chapter one of the Phase One trade deal. In that deal, China pledged to increase IP protection enforcement, eliminate forced technology transfer, and refrain from directly supporting outbound investments aimed at acquiring foreign technologies. However, will China be able to fulfill these promises?

The short answer is “likely no.” Despite having the image of a centralized party-state, China is one of the most fragmented countries in the world; scholars often describe China’s system as “fragmented authoritarianism.” The conflict between priorities at both local and national levels, the infighting among different agencies, and the constant tug-of-war between central and local governments hamper IP protection execution. China’s IP protection regime faces challenges at three levels: the national level, the local leadership level, and the local patent office level.

Enforcing IP laws and regulations must start at the national level. What is the central government’s attitude toward IP protection? A study on environmental policies, an issue with similar trade-offs and policy preferences, shows that even though the central government understands the importance of improving environmental outcomes, it still sidelines environmental targets to maximize economic growth. There is a similar trend in enforcing IP protection. On the one hand, the national leadership understands that “the patent system added the fuel of interest to the fire of genius.” China’s transition from a manufacturing power to an innovative power needs a strictly enforced IP law. On the other hand, a strictly enforced IP law will hamper the growth of Chinese companies. Powerful pro-growth ministries, such as the National Development and Reform Commission, could also undercut policies that stall economic development.

A common argument against IP protection in China states that China is still a developing country; its technology level is low compared to the West. Thus, China needs to copy foreign technologies for its development. A strictly enforced IP law would only protect foreigners; it will hurt China by making the country overly dependent on foreign technologies. The Chinese government worries about the reliance on foreign technologies and equipment in key industries, such as silicon chips and machine tools. The report of the 19th Party Congress’ Fifth Plenum highlighted China’s key goal before 2035 as achieving “significant breakthroughs in key technologies.” The Chinese government views copying as an important mean to achieve breakthroughs, indigenize foreign technologies, and end the Western monopoly on key industries. A cadre working on patent protection in Shanghai Pudong District, China’s experimental ground for IP law, once said that “China is still at the preliminary stage of development; it must develop its economy. Therefore, China needs foreign technologies to develop its own. It is impossible for China to adopt and enforce IP laws like the U.S.”

Among local leaders, enforcing IP regulations and laws is usually one of their least important priorities. Local cadres in China receive numerous responsibilities and targets under the cadre responsibility system. These targets are policy goals local leaders need to reach. Higher officials determine how well lower cadres have met their targets. Among these targets, some targets are “hard targets,” which means they are binding and involve measurable outcomes. Others are “soft targets” because they are not binding and are not measurable. Local leaders always prefer accomplishing hard targets over soft targets because the former weigh more in assessing their performances. As a result, IP law enforcement, a soft target, always takes a backseat in comparison to hard targets like economic growth. As an official at the Shanghai Development and Reform Commission said, “Enforcing IP laws is important, but what about economic growth? If we enforce IP laws too strictly, then Chinese companies will suffer. What happens if the local economy stops growing? Therefore, we have to balance our different priorities.”

The local patent offices face two difficulties. First, the local patent offices lack professionals who can enforce IP laws. IP laws and regulations are complicated; in the United States, becoming a professional in this field requires years of rigorous academic training and experience. China does not have enough such highly trained professionals. It is nearly impossible to staff well-trained IP protection experts in all the patent offices from the national level to 41,634 township-level governments. Most workers in local patent offices are generalists. They not only lack proper knowledge on IP protection but also have multiple tasks at hands. Therefore, enforcing IP laws and regulations is their secondary, or even tertiary, task.

The second difficulty is that local patent offices do not have independent jurisdiction. Local leaders control local patent offices so that they can sacrifice IP protection in favor of other priorities. In China, the vertical systems of ministries and agencies intersect with the multitude of horizontal territorial administrations, such as provinces, municipalities, counties, and townships. This arrangement results in conflicts of jurisdiction between the vertical and the horizontal systems. The Chinese government developed “leadership relationships” and “professional relationships” to sort out this chaos. Under the leadership relationship, the superior can send binding orders to lower cadres; under the professional relationship, the superior can only request cooperation from lower officials. China’s IP protection system operates under horizontal leadership. A local patent office takes binding orders from the local leader, rather than its superior in the China National Intellectual Property Administration (CNIPA). Thus, local patent offices must exercise the will of local leaders.

Based on these factors, the United States should anticipate China’s failure to realize IP protection. Washington should adopt three policies in response.

First, the United States should highlight its shared interests with China in negotiations. The Chinese government understands the importance of IP protection for China’s economic future. The report of the 19th Congress’s Fourth Plenum in 2019 declared the intention to “strengthen IP protection on the basis of fairness” and “establish an IP encroachment punishment system.” Thus, the United States should make its demands on IP protection more acceptable to China by pitching it as an essential step to deepen China’s economic reform.

Second, the United States must understand that China needs time to nationalize its IP protection enforcement. The U.S. should negotiate a “Five-Year Plan” to improve China’s IP protection regime. The plan should use end-of-year targets to guide China toward administering an effective IP protection regime independently. For example, it should include making the CNIPA a vertical system with independent funding and personnel, because the current horizontal structure cannot overcome local protectionism.

Third, a national IP protection regime is meaningless unless China has sufficient professionals to administer it. The United States should increase professional-to-professional communications to help China in training IP specialists. It should invite Chinese official delegations to attend IP-related training programs in the United States and send American professionals to China for research and teaching.

By following these approaches, the United States can help China to establish an independent and effective IP protection regime.

Zhuoran Li is a M.A. candidate in International Relations at the School of Advanced International Studies (SAIS), Johns Hopkins University.