PATENTS
Across The Border
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Chinese innovation is on the rise, but is it a case of quantity over quality?

China filed 1 million patent applications in 2015, the first country to do so, and is well on track to smash that record this year

PUBLISHED : Wednesday, 30 November, 2016, 4:33pm
UPDATED : Wednesday, 30 November, 2016, 10:38pm

China is producing a record number of patents in a deliberate push toward innovation, but experts warn it may be focusing on quantity over quality.

The country filed almost 940,000 patent applications in the first nine months of the year, putting it well on track to surpass last year’s record-breaking 1 million applications, according to data from the State Intellectual Property Office (SIPO).

In 2015, China’s total patent filings almost matched that of the US, South Korea and Japan combined, a recent report from the World Intellectual Property Organisation (WIPO) revealed.

“The figures for China are quite extraordinary,” WIPO director general Francis Gurry said at a press conference last week. “It is growing, continues to grow at an extraordinary rate.”

The number one difficulty is learning how to innovate effectively
Georges Haour, professor and author

But while innovation in China appears to be growing at a faster rate than countries such as the US, it still faces many challenges, according to Georges Haour, a professor and author of Created in China: How China is Becoming a Global Innovator.

Chinese companies, particularly state-owned enterprises (SOE), are not yet as agile and market-oriented as foreign firms, he said.

“The number one difficulty is learning how to innovate effectively,” Haour told the Post by phone from Switzerland. “The PRC has a pretty big middle class and is trying to change from a foreign investment driven economy to an internal market driven economy. This is a very difficult transition to make.”

A telling statistic which underlines these challenges is the comparatively low number of patent applications China files overseas, which are not subsidised by the state, according to Mark Cohen, an adjunct professor at the Fordham Law School.

Only 4 per cent of Chinese applications are filed outside of the country, whereas 45 per cent of global foreign filings are from companies in Japan and the US, according to the WIPO report.

The US remains the largest filer of patent applications externally.

“[China] has a very domestically oriented patent system, largely because it’s dependent on state subsidies,” Cohen said by phone from the US.

Raw patent numbers are similar to steel production during the Great Leap Forward, he said, with an overproduction that doesn’t necessarily reflect quality.

The government’s intense focus on quantity of innovations even extends to an incentive for prisoners to get out of jail early in return for filing patent applications.

How to get out of jail early in China: buy an inventor’s idea and patent it

An investigation carried out by the Beijing Youth Daily last year found several intellectual property agents openly advertising patents to inmates seeking to lessen their jail time, with prices of applications issued on behalf of prisoners ranging from 6,800 yuan to 60,000 yuan.

They were taking advantage of a law which offers sentence reduction for “important technical innovations”, as proven by a patented invention.

Additionally, the country’s intellectual property system and culture favours incremental over ground-breaking innovation, which gives way to copycat products and ideas, Cohen said.

“Things are changing,” he said. “But you still have legacy issues where there’s still a lot of copying, or there are legislative incentives to take bureaucratic short cuts.”

The system has fundamental weaknesses, he said, suggested by the concentration of patents in the hands of a few Chinese companies, such as smartphone maker Huawei and telecommunications company ZTE.

You still have legacy issues where there’s a lot of copying, or there are legislative incentives to take bureaucratic short cuts
Mark Cohen, Fordham Law School

But ultimately, it isn’t the total number of patents China has that is impressive, but its rapidly growing number of new services and products, many of which are not or cannot be patented, Haour said.

“Chinese companies are really more concerned about going fast, and coming up with the new thing,” he said. “There’s no fear of failure.”

The country is in a unique situation to grow in terms of its capital, regulations, and a leadership that supports indigenous innovation, according to Haour.

The Chinese government’s “Made in China 2025” initiative is part of its strategic plan to become a global manufacturing powerhouse, in part by prioritising its manufacturing innovation capacity.

China excels also in mobile internet services, with major companies such as ride-sharing service Didi Chuxing, smartphone maker Xiaomi, and global tech giant Tencent.

“The market is very large, very vibrant, very dynamic,” Haour said. “Entrepreneurs are very good at managing that growth, and are growing very, very fast.”

China could become a global innovation leader in the coming years, though this is “far from inevitable,” according to McKinsey Global Institute analysts.

While China was in the top 25 of the annual Global Innovation Index, the very top spots are still dominated by countries such as Switzerland, Sweden, the UK, and the US.

But the scale of China’s market and capital resources signals strong innovation growth for the future, according to Edward Tse, founder and chief executive officer of consulting firm Gao Feng Advisory Company.

“The allure of the China market’s massive scale continues to attract numerous players and ignites intense competition,” Tse wrote in a Forbes article. “China has entered [a] new era.”

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