By Dan Prud’homme
Is China’s intellectual-property regime really all that bad? It has become generally accepted that the ongoing US-China trade war is at least partially in response to China’s practice of forcing technology transfers and its extremely poor protection of IP. Three myths about China’s IP regime hold back executives considering investments in the country, and the ability to see through these can offer much-needed nuance when strategizing for the Chinese market.
The first myth is that state-sponsored “forced” technology transfer in China is ubiquitous. In fact, while interviewing and surveying multinational executives in China, I found that the most egregious Chinese policies coercing technology transfer have not usually been faced by foreign firms in recent years. Further, the rest of China’s controversial technology transfer policies, while problematic in terms of transaction costs, typically do not result in unmanageable losses of the value captured by foreign firms.
The second myth is that China’s IP regime is categorically weaker and, therefore, less business-friendly than those of rich nations, such as the United States. In fact, though there are a number of shortcomings in the IP institutions in China, those institutions are, generally speaking, capable of reasonably protecting IP rights.
The third myth is that because China is not a Western-style liberal democracy, its governing institutions will never seriously respect intellectual property. Politics certainly matter to economic governance in any country. But there are several reasons why a liberal democracy is probably not necessary to adequately protect IP. What’s more, having a liberal democratic political system does not actually ensure state compliance with the rule of international economic law, despite its clearer ability to safeguard sociocultural rights. In fact, some liberal democracies frequently violate international legal norms by discriminating against foreign businesses.
China’s IP regime may be much less risky than Western executives have often assumed. At the same time, no mistake should be made: IP infringement remains a significant problem in China and the country’s IP protection regime still has shortcomings.
Dan Prud’homme is a professor at the EMLV Business School in Paris.