China has built its economy on cheap labor and at huge environmental and social costs. Now that it is the second largest economy, China must take forceful measures to promote innovation to change its economic growth model. And protection of intellectual property rights (IPR) is the starting point of such measures.
These are the words of Timothy P. Stratford, lawyer and partner of international law firm Covington & Burling LLP.
By enacting and implementing laws on IPR protection, China will be strengthening its legal system, Stratford says. “A strong and reliable legal system is an important foundation for building trust and for spurring foreign investment.”
One of the top concerns of foreign companies doing business in China is: Will their technologies be protected if they established research and development centers in and brought their best technologies to China? Stratford thinks that the “bitter” experience of some foreign companies in IPR protection has had an impact on China’s ability to develop the sort of innovative society it wants.
“China’s innovation has suffered” for lack of a strong legal system, he says. “From a legal point of view, it would help to build the confidence of … developed countries toward China.” It would create a more positive political mood and facilitate more positive economic development. China’s reputation in IPR can have a wide-ranging impact.
Chinese companies, too, are victims of IPR violations both at home and broad. Stratford says: “If you look at China’s innovative side where IPR protection is the most difficult, you will find Chinese companies in these areas are ‘underperformed’ and underdeveloped compared with their potential.”
Take the movie industry as an example, he says. The people who copy foreign films on DVDs also copy Chinese movies. How can this be good for the development of the Chinese movie industry? It needs fair competition to attract investment and develop into a thriving sector?
Stratford says China should realize that the time has come to guarantee uniform IPR protection. Such protection benefits not only Chinese consumers, but also Chinese industries in the long run. These are essential for the promotion of the innovation industry and to attract more advanced companies.
China cannot afford to ignore the constructive role of foreign companies in the era of globalization and has to widen its perception of the ownership of companies. In the United States, for instance, everybody who has a say in a company can get their share regardless of their background and nationalities.
Suppose a company owned largely by American shareholders sets up a plant and creates jobs in China, and one owned by a Chinese establishes plants and creates jobs overseas. Which do you think would do more to promote China’s economic development? A company helps a country because it works with local education and other institutions to develop the overall innovative capacity of the community. “For example, if a company in Silicon Valley cooperates with Stanford University, hires people from among local residents and promotes housing and pays taxes” in the region, it will help the US no matter whether its owner is a Chinese or American.
The ownership of a company is not the most important thing. The most important thing is whether the company is creating an environment for innovation, building facilities in China and wants to cooperate with universities and institutions in the region to spread knowledge and technology. Such cooperation makes local universities stronger and gives students great opportunities for research and professors access to funds, and thus builds an environment of innovation.
“Creating such an environment is more important than the nationality of the company’s owner. The best thing China can do to develop its innovative capacity and economy is to create such an environment … without focusing excessively on who owns the shares of the companies”, Stratford says.
“If you look at the Chinese economy, you will see that the areas where Chinese companies are most competitive are the ones which the Chinese government has opened up the most. Industries have not grown stronger in areas which China protects its industries the most because of the monopoly position they enjoy.”
“Protection of IPR is an element such as rule of law and a good banking system that really attracts innovative people.” The most important thing that China should do for its economic development is to create the right environment for innovation and growth and enact laws for IPR protection without worrying too much about the nationality of people running successful companies, because IPR protection benefits society as a whole.
The author is an editor of M4.cn. He can be reached at firstname.lastname@example.org.