China: pirate ship or IP incubator?

Check the latest piracy stats and China seems a black hole for intellectual property: a simmering swamp where dodgy vessels — captained by salty swains with bad teeth — fly the Jolly Roger.

Not so, claims iconoclastic analyst Dion Wiggins of Gartner Research, who’s authored a report titled China, Intellectual Property Protection and the Big Picture. “Enterprises must prepare for China’s impact on global markets as it moves from IP abuser to IP generator,” said Wiggins. “Unraveling the complexities of a more-dynamic, complex and aggressive China will be key to many enterprises’ success or failure.”

Perhaps. But some of China’s trade partners — most notably the U.S. — prefer that Chinese authorities speak loudly and carry a big stick. U.S. Trade Representative Robert Zoellick, in a joint press conference with China Vice Premier Wu Yi earlier this year, declared: “Between our two countries, trade needs to be a two-way street.”

Wu responded that the Chinese government will enact stiffer penalties for intellectual property piracy by the end of 2004. Her country also plans to step up customs enforcement on pirated products, and will extend an existing ban on the use of pirated software in the central government to include local governments.

Enforcement of anti-piracy laws is important to help the Chinese technology industry grow, said Wu. “The Chinese government attaches great importance to the protection of IPR (intellectual property rights),” she said through an interpreter. “We never shy away from (admitting) that we do have some problems with IPR protection.”

Trade gap

On a June visit to Beijing, U.S. Secretary of Commerce Donald Evans said that China is committed to reducing the trade gap that exists with the U.S. and wants to see more U.S.-made telecommunications products made available in China, according to the U.S. Department of Commerce.

In those meetings, Chinese officials expressed a desire for more U.S.-made products and services in several industries, including telecommunications, available in the Chinese market. In addition to discussing the trade gap between China and the US, Evans also raised the issue of protecting intellectual property rights in China, the DOC said in a statement.

“American exporters have serious concerns about market access in China. China must continue to remove its barriers to free trade so that there will be more ‘Made in America’ labels in the marketplace,” Evans said.

Illegal and/or immoral

One resource for reformed buccaneers is the Illegal and Immoral Information Reporting Center ( — a Chinese-language site under the auspices of the Internet Society of China’s News and Information Working Committee that allows Chinese Internet users to report Web sites that violate Chinese laws and regulations.

The site is set up so that users can classify tips of illegal content under several categories, including religious Web sites, sites that harm national security, sites promoting violence, pornographic Web sites and sites containing intellectual property violations.

Users who submit tips to the centre are required to provide their names, e-mail and city of residence. However, the identity of the tipster will not be made public, according to the centre’s Web site.

China’s changes

“China’s economic progress has been impressive,” said Wiggins in his report. “In a generation, it has been transformed from one of the world’s most-isolated and poorest countries into an open-market economy with increasing economic and individual freedoms and a plan that has delivered sustainable growth.”

But the Gartner analyst has sharp words for foreign-media outlets, saying that their portrayals of China “are frequently biased or inaccurate.” While Wiggins acknowledged that “China has a vast number of problems,” he also argues that “in many areas, it is addressing these systematically and progressively.” And one of the areas he singles out is IP. “It its common knowledge that China has had significant difficulty in protecting intellectual property,” said the report, “but what is not widely known is the progress that has been made in this area and the reasons for the progress.”

Wiggins details IP’s effects on various global economies over the centuries. “Charles Dickens toured America and was so irritated that ‘A Christmas Carol’ sold for six cents a copy in the United States — far less than in England — then in 1842 he toured the United States in an effort to persuade Americans that copyright protection would benefit American publishers and authors in the long term,” said Wiggins. “However, it was only in 1981, when American literary works needed copyright protection overseas — and self-interest became key — that Congress passed a copyright act extending protection to foreign works.”

Wiggins points out that China was removed from the US Trade Representative Priority Watch List in 1997 and has remained off that list ever since, while other major U.S. trading partners like Taiwan, India and the E.U. remain. The analyst also mentions that in order to join the WTO, China had to make significant changes to its IPP policies and “[China] is progressively working on enforcing the new regulations, which at present are not enforced consistently or effectively.”

The analyst declares that the ascension of China’s professional class (China graduated two million technicians and engineers in 2003, double the 2001 figure, according to Wiggins) is helping inspire Japanese companies to place high-end investments in China, especially in the private manufacturing and services sectors. Examples cited include recent signings by Hitachi and NEC to outsource software development to the coastal city of Dalian.

“Gartner expects many more public displays of IPP improvements during the next two years in a bid to show the world that China is serious about removing IPP as an obstacle to trade and investment,” said Wiggins in the report. “China’s entry to the WTO in December 2001 brought more transparency, as well as progress in the regulatory environment progressed.” He also notes that foreign firms are increasingly being placed on an equal footing with local companies in many markets, saying that China has repealed more than 2,300 non-WTO-compliant laws and regulations since joining the world trade body.

Consumer turns producer

According to Wiggins, Western multinationals have found themselves in Chinese courts for violating IPP in China. “In 2001, legal action was taken against Yahoo China for republishing a number of articles by Shen Yang, on their IT-Look Web site without his consent,” said the report. “After more than a year of legal wrangling, Yahoo finally admitted wrongdoing and the case was settled out of court.”

“The Chinese government and Chinese companies are beginning to appreciate the value of IPP as they progress from using foreign IP to generating their own IP,” said Wiggins. “Most technology standards are dictated by powerhouse vendors from developed nations, or by standards bodies that are influenced by these vendors, most of which are based in the United States.”

But, as Wiggins points out, China’s huge production capacity and domestic market give it a distinct edge over other developing countries. “China is one of the few developing countries with enough economic and political clout to develop or use the threat of an alternate, homegrown standard or technology to gain advantage,” cautioned the Gartner analyst.

“As was demonstrated in the earlier example of the US publishing industry in the late 1800s, once a country generates enough IP, protecting IP becomes a matter of self-interest and can only be protected by protecting the IPR of other nations at the same time,” concluded the report. “As China makes the transition from an IP consumer to an IP producer, it will be a matter of self-interest to protect IP at a level acceptable to the international community. In turn, Chinese companies emerging on global markets will become role models for many Chinese firms that still violate IPR.”

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