China: the world’s innovation and IP powerhouse

Want to learn more about innovation and intellectual property in China?

IP-firm Rouse CEO and China expert Luke Minford shared his insights from more than 30 years of experience in the country at Papula-Nevinpat’s IP summit held on 5 October 2022 at Helsinki Music Centre.

“There are two common competing narratives about innovation in China,” says Minford.

“The first is the Western media narrative, which tells us that China missed the industrial revolution and went backwards under Mao; that since then it has only managed to play catch up thanks to a cheap labour force and a willingness to copy. This narrative wants us to think that China cannot innovate, at least on a fundamental level,” he says.

“The second narrative is that China must innovate in order to overcome the economic, social and environmental challenges it’s now facing; that if China does not, it will perish in the face of global competition. This narrative also sees advantages in China’s vast digitally-savvy consumer base, its centralised ability to plan and implement at scale, and its unswerving focus on domestic priorities.”

“I am constantly trying to educate people to form their own views amid these two competing narratives, neither of which is entirely right or wrong,” he says.

Innovation in big numbers

Minford’s family moved from the UK to China in 1979 when he was just nine years old. After school he studied law in New Zealand, returning to China in the mid-1990s to take a role at IP-attorney firm Rouse, where he’s been CEO since 2013. Rouse has offices across Asia that help international clients with their local IP affairs. The company employs 300 people in China alone.

He presents some compelling facts that challenge people’s perceptions on Chinese innovation:

• Three of the world’s top 10 most-innovative cities are in China (KPMG, 2020)
• China is now the world’s second-largest R&D player, with total R&D expenditure reaching 80% of that of the United States in 2019, up from 26% in 2005 (OECD Main Science and Technology Indicators, March 2021)
• China’s share of global funding for the development of AI technologies is 48% (CBI Insights 2018)
• China’s share of the global electric-vehicle market will be 39% by 2030 – the highest in the world (Electric Vehicle Outlook 2018, Bloomberg)
• China holds 56% of all blockchain patents (Thomson Reuters, 2017)
• China filed 46% of the world’s patent applications in 2020, compared to the US at 18% (World Intellectual Property Indicators 2021)
• More than USD 86.5 billion was invested into the China solar industry last year, accounting for over half of the total amount invested globally into solar power (CNBC)
• Since 2010, China has invested more than USD 900 billion in clean tech (Rouse)

“China plans in five-year cycles that set the country’s roadmap for policy, law, investment and more,” says Minford. “Earlier five-year plans were focused on opening China to the world by encouraging investment in manufacturing and trade. But from 2006 onwards plans have shifted focus towards innovation and growing particular strategic industries. The most recent five-year plan went further than any before in promoting China’s domestic innovation agenda.”

“One of China’s great strengths is its ability to cope with change. The World Bank ranks countries on a ‘Lived Change Index’ that assesses the ability of people to adapt and respond positively to change. On this index China is three times as capable of experiencing change as second-placed Poland. This comes through in consumers’ ability to take up technology faster than anywhere else,” he says.

Minford cites multiple examples of Chinese companies that are making an international impact, including social-media app Tik Tok, smartphone brand Xaomi, and electric-vehicle maker Niu.

He explains how people from outside of China are not always aware of the huge diversity within the country; not only in culture, dialects and food, but also in terms of the innovation ecosystems across different regions.

The Pearl River Delta – home to cities such as Shenzhen and Guangzhou – is a powerhouse in high-tech manufacturing, while the Yangtze Delta – with cities such as Shanghai and Hangzhou – is a leader in sectors like eCommerce and digital services. Further north, Beijing dominates in more government-focused industries such as banking and telecommunications.

Active and efficient IP courts

What does all this mean for a foreign company operating in China? Can intellectual property be adequately protected?

“There is a perception that IP cannot be protected in China. I would say there are aspects to this narrative that are true, but that there are also certain parts of China where it’s not true at all. Chinese entities have become extremely litigious and actively use their court system to challenge and protect IP claims,” says Minford.

China now has 400 specialist IP courts that handle some 300,000 cases a year – more than the rest of the world combined. Almost all of these cases are domestic companies suing other domestic companies for IP infringement. When foreign companies do go to court in China the prospects are good; the win rate for non-Chinese plaintiffs is 82%.

“It is very rare for foreign plaintiffs to lose in China, although it does happen.  I could count on one hand the cases we’ve lost in the last two decades, but can say that we’ve won more than a thousand cases,” says Minford.

“The judges are more sophisticated than you would think, and will often consider similar cases from outside of the country when coming to a decision. It only takes about six to eight months for a foreign plaintiff to get to trial, which is quite fast. The courts are also adopting technology to speed up and improve different aspects of civil procedure, particularly in evidence preservation.”

“It’s important that Western companies update their view on IP in China every six months or so. China can no longer be characterised as a backward IP venue where western innovators are copied and the courts do little to protect them. The country requires a far more nuanced understanding; one that recognises the many ways in which China and its consumers now lead the world in certain areas of innovation,” he says.