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Intellectual property in China

Why American companies refuse to make China their main innovation hub

Lack of IP protection is the biggest barrier to US firms making China the centre of their research and development operations, says AmCham survey

PUBLISHED : Thursday, 19 April, 2018, 6:52pm
UPDATED : Thursday, 19 April, 2018, 10:58pm

Fewer than 4 per cent of American businesses said China was their most important research and development (R&D) centre owing to the lack of intellectual property rights (IPR) protection, limited market access and unfair business environment, according to a survey by the American Chamber of Commerce (AmCham) in Shanghai.

The findings come despite intensifying efforts by the Chinese authorities to encourage R&D and foster an innovation-friendly environment. They echo Washington’s criticism of China’s IPR and technology transfer policies amid festering trade tensions.

Based on a survey of 52 members and in-depth interviews with company officials, the Shanghai-based business lobby group found that only two respondents viewed their R&D facilities in China as the most important part of their global research and development operations.

“Respondents indicated that China remains of relatively low importance compared to other regions,” the AmCham said in the report released on Thursday. “The majority said China was only one of many important global R&D centres or of minimal importance.”

Three quarters of American companies operating in China established their own local R&D facilities as they aimed to “meet the demands of the local market,” the survey showed.

Beijing encourages the establishment by companies of R&D facilities to support its aim of becoming a global powerhouse in technological innovation by 2050.

The world’s second-largest economy has seen R&D spending soar from just US$9.5 billion in 1991 to US$409 billion in 2015. Mainland China is second only to the United States in terms of R&D spending.

“Foreign companies pursuing R&D in China face many barriers, several of which prevent them from bringing their core R&D to China,” the report said. “Lack of IPR protection was the largest impediment.”

An unlevel playing field is another major drag on American businesses’ R&D investment in China, AmCham said.

China, US should put aside trade dispute and work together so both can be great, business leader says

On March 22, the US Trade Representative’s Office issued a sharply worded investigative report contending that China used various review and licensing processes to force technology transfers from US companies. 

“It makes neither financial or strategic sense to bring advanced technologies to an environment that restricts market access, unfairly champions domestic competitors, and threatens the safety of a company’s intellectual property,” AmCham said.

On Monday, the US government imposed a ban on sales by American suppliers to Chinese telecommunications equipment maker ZTE, after it allegedly made false statements during an investigation into illegal sales of its products to Iran.

It was the latest sign that China and the United States may be edging closer to an all-out trade war.

Nonetheless, Stephen Shafer, president of 3M Greater China, said American technology companies still have a keen interest in tapping the mammoth market of China.

“This market is the one that has been developing so quickly and when you have markets like that, you need to be here and you need to participate in it,” he said at an AmCham seminar on Tuesday.