"Innovate or DIE"
US Treasury Secretary Tim Geithner in another business article said China is agressively taking away copyrights and technology from US companies. However, the data from the quoted article suggests that China is increasingly becoming an innovator.
What do you think is right? Sec. Geithner, or this article?
The link:China from Imitator to Innovator?
"New ideas create more and better new products and services; create more wealth."
The full article:
US Treasury Secretary Tim Geithner in another business article said China is agressively taking away copyrights and technology from US companies. However, the data from the quoted article suggests that China is increasingly becoming an innovator.
What do you think is right? Sec. Geithner, or this article?
The link:China from Imitator to Innovator?
"New ideas create more and better new products and services; create more wealth."
The full article:
The number of domestic patent filings in China increased at an annual rate of 35% from 1999 to 2006. But the reasons behind this ‘patent explosion’ are unclear. By compiling a new dataset of 20,000 Chinese manufacturing firms, this column shows that the explosion has been ignited by the ICT sector. China’s economic success over the past three decades has been widely regarded as the result of its ability to produce manufactured goods at low cost, building on the availability of cheap labour and scale economies, while relying on existing (albeit in part advanced) technologies of production. China’s ability to upgrade its technology-base and its moving up the value-chain has been widely regarded as hampered by weak (intellectual) property rights enforcement (Zhao 2006). More recently, however, there has been increasing evidence that China is catching up fast in terms of scientific and technological innovation. Strikingly, the number of domestic invention patent filings with the Chinese patent office has increased at an average annual rate of 35%, from around 15,600 to over 122,000 during the period 1999-2006 (WIPO Statistics Database, January 2011) – see Figure 1. This catching-up process is paired with strengthened statutory intellectual property rights protection (Park 2008) and a growing interest from policymakers in the role of intellectual property in fuelling domestic innovation by increasing foreign technology transfer and providing domestic firms with incentives to invest in R&D. Accordingly, the recently formulated National Patent Development Strategy (2011-2020) envisions an increase in the number of annual patent applications, including invention and utility patents as well as designs, from about 1.2 million in 2010 to 2 million in 2015. The plan also foresees a doubling of the number of patent applications filed by Chinese applicants overseas in the same timeframe. At the same time, there is evidence to suggest that most of the innovation in China is of merely incremental nature and hence the corresponding patents protect “small incremental inventive steps” rather than substantive new technologies (Puga and Trefler 2010). While such incremental innovation may still be valuable and in fact account in large part for China’s growth success (Breznitz and Murphree 2011), the concern is that the recent strong increase in domestic patent applications is produced overwhelmingly by low quality inventions that may not even be ’new-to-the-world’, driven by the incentives put in place by the Chinese government to encourage patenting directly rather than indirectly through the promotion of innovation (The Economist 2010, Lohr 2011). The ‘patent explosion’ explainedWhat is behind the recent Chinese patent explosion? Is China rapidly transitioning from imitating technology to producing genuine innovation? What impact does the patent explosion have on the Chinese economy and on the rest of the world?While answers to these questions are of immediate concern to policymakers in China and beyond, their empirical investigation has to date been severely hampered by data limitations. Indeed, there were no data available for Chinese firms that included companies’ actual patent filings. We overcome this constraint and construct a dataset that contains domestic (SIPO) as well as US (USPTO) patent filings by about 20,000 manufacturing firms registered in China. We employ the data to chart the Chinese patent explosion and then further investigate the factors behind the patent explosion during the period 1999-2006 (see Eberhardt et al 2011). Our answer to what is behind the Chinese patent explosion is unambiguous: a handful of companies in the ICT equipment sector account for the overwhelming share of patents, with this concentration considerably more pronounced for USPTO filings than for SIPO (Tables 1 and 2). Our analysis of the patenting decision and the patent productivity of Chinese firms reveals that firms patenting both in China and the US, which account for the overwhelming share of both SIPO and USPTO filings by companies registered in China, are very large, relatively young, more R&D-intensive than their peers, and strongly (but not exclusively) export-oriented – in short, true global players. For these companies, a substantial share of patents covers product innovation albeit of relatively low-tech character. Process innovations and combinations of product and process innovation covered by patents held by these companies appear to be technologically more innovative and potentially valuable. Hence, our results suggest that these few, patent-active companies are not merely ‘castles in the air’ inflated by Chinese public policy directed at increased patenting, but (at least to some extent) innovative companies highly integrated into the global economy. Does this imply there is evidence for wider technological take-off among Chinese companies? Our analysis suggests most likely not. Patenting is concentrated in a limited range of industries and even within these industries is undertaken by very few, albeit highly active, firms. ‘Red Queen Run’ or middle-income trap?Recently, the broader debate over China's innovative prowess and potential development path has intensified. Some observers regard Chinese firms’ ability to stay close to the world technology frontier and to improve upon and adapt existing innovation as key to the country’s continued growth (Breznitz and Murphree 2011). Yet, there is concern that without the domestic development of genuinely novel product innovation that pushes the global technology frontier, China might get caught in a ‘middle income trap’ (The Economist 2011). Our analysis suggests that the reality most likely lies between these two views. Contrary to a genuine ‘Red Queen Run’, a number of Chinese companies appear to be truly innovative, potentially even pushing the global technology frontier in certain niches. At the same time, there are very few such companies, and some of the most active among them are foreign-invested. Most companies are thus likely to concentrate on incremental process innovation rather than the generation of ‘new-to-the-world’ innovation.What next?What is the likely impact of the patent explosion? In our view, it points to China becoming an economy that competes not only on cheap labour and sheer scale, but also in terms of innovation. However, not unlike other successful Asian economies at the equivalent point in their development, the basis for China’s transformation from imitator to innovator is relatively thin, with just a few truly global players.Figure 1. The Chinese patent explosion at home and abroad: Patent filings by Chinese residents (in thousands of patents)  Data source: WIPO Statistics Database, January 2011. Table 1. Top 10 companies in China patenting with USPTO (1985-2006)
Notes: Share indicates the proportion of total USPTO patents filed by our sample of 20,000 manufacturing firms between 1985 and 2006. Chinese GB/T 3 digit industry codes are indicated in brackets. Table 2. Top 10 companies in China patenting with SIPO (1985-2006)
Notes: Share indicates the proportion of total SIPO patents filed by our sample of 20,000 manufacturing firms between 1985 and 2006. Chinese GB/T 3 digit industry codes are indicated in brackets. ReferencesBreznitz, Dan and Michael Murphree (2011), Run of the Red Queen, Yale University Press. Eberhardt, Markus, Christian Helmers and Zhihong Yu (2011), “Is the Dragon Learning to Fly? An Analysis of the Chinese Patent Explosion”, University of Oxford, CSAE Working Paper 2011/15. The Economist (2010) “Patents, yes; ideas, maybe” Economist.com, October. The Economist (2011) “Beware the middle-income trap” Economist.com, 23 June. Lohr, Steve. “When Innovation, Too, Is Made in China” (2011) New York Times, 1 January. Park, Walter (2008), “International patent protection: 1960-2005”, Research Policy, 37(4):761-766. Puga, Diego and Trefler, Daniel (2010), “Wake up and smell the ginseng: International trade and the rise of incremental innovation in low-wage countries”, Journal of Development Economics, 91(1):64-76. Zhao, Minyuan (2006), “Conducting R&D in Countries with Weak Intellectual Property Rights Protection”, Management Science, 52(8):1185-1199. This article may be reproduced with appropriate attribution. See Copyright (below). |  Markus Eberhardt Lecturer (assistant professor), School of Economics, University of Nottingham  Christian Helmers Assistant Professor, Management Department, Universidad Carlos III, Madrid  Zhihong Yu Research Fellow at the School of Economics, University of Nottingham |
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