Beijing is under growing pressure to boost protection and enforcement of intellectual property rights (IPR), despite recent 'signs of progress' acknowledged by the United States.
For the eighth consecutive year, China topped the annual 'priority watch list' of countries with the worst IPR record identified by the Office of the US Trade Representative.
The agency, which develops and recommends trade policy to the White House, yesterday said in its 'Special 301 Report' that many US companies see serious obstacles in China's protection of all forms of IPR - including patents, trademarks, copyright and trade secrets.
Published annually, the report reviews the adequacy of IPR enforcement and protection by the 77 trading partners of the US.
Other countries on this year's priority watch list included Algeria, Argentina, Canada, Chile, India, Indonesia, Israel, Pakistan, Russia, Thailand, Ukraine and Venezuela.
The countries named on the list are not subject to any sanctions, only bad publicity. This approach is supposed to encourage US trading partners to improve their IPR laws and regimes.
'It is essential for trading partners to not only adopt effective legislation to safeguard IPR, but to also develop complementary and meaningful enforcement mechanisms,' said Mark Elliot, the executive vice-president of the US Chamber of Commerce's global intellectual property centre in Washington.
The chamber is the world's largest business federation, representing the interests of more than five million American companies, as well as state and local chambers and industry associations.
'This year's 'Special 301 Report' is more significant than ever in light of recent US government data showing that IP-intensive industries support as many as 40 million American jobs and up to 60 per cent of US exports,' said US Trade Representative Ron Kirk. 'When trading partners don't protect IPR, they threaten those critical jobs and exports.'
The local Administrations for Industry and Commerce in Guangdong and Fujian provinces drew specific criticism in the report, which said their officials had 'turned a blind eye' to counterfeiting operations brought to their attention by US companies.
It said certain mainland government agencies had been 'inappropriately using market access and investment approvals to compel foreign firms to license or sell their IPR to domestic Chinese entities'.
'Government intervention in the commercial decisions that enterprises make regarding the ownership, development, registration or licensing of IPR is not consistent with international practice, and may raise concerns relative to China's implementation of its WTO [World Trade Organisation] obligations,' the report said.
But the US Trade Representative's office also recognised some improvements in China's IPR situation last year. Premier Wen Jiabao said in November that Beijing's special IPR enforcement campaign, which started in 2010, would be made permanent by creating a national group to lead these activities.
Baidu, the mainland's leading internet search services provider, signed a landmark agreement in July for the distribution of digital music with One-Stop China, a joint venture of the world's three largest record companies - Universal Music, Warner Music and Sony Music. Following that deal, Baidu was removed from the US Trade Representative's 'notorious market list' of 33 websites and physical sites linked to piracy and counterfeiting activities.