China’s IP theft: Boon or bane?

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China’s IP theft: Boon or bane?

Sunday, 18 September 2022 | Makhan Saikia

China is accused of stealing Intellectual Property (IP) worth trillions of dollars from multinational corporations. The Communist regime is hounding global corporations operating in different parts of the country. Today Washington is targeting Beijing for continuing this trick. Besides the US, the European Union (EU) is harshly labelling China as top offender for IP breaches.

Many economists think that China’s double-digit growth in the past was backed by the proceeds coming from this huge IP theft. It seems it is difficult to track down the violators where the legal machinery is a part of the rigid party structure.

To holistically assess these claims and counterclaims from both the US and China, we need to see what both the giants are doing to simply stop this global menace. Those who argue that China steals IP rights of western companies say each year the hackers take away billions of dollars’ worth of property and trade secrets from these enterprises. And this is largely confirmed by the cyber-security experts across the globe.

It is estimated that the damage they face is incalculable. Therefore, the western governments have devised strategies to give priority to safeguarding their commercial interests both within and outside their sovereign territories. Countries such as America, Australia, Canada and the EU are raising the issues of China’s massive IP loot in international fora.

The long-term impact of hacking companies is very serious. Interestingly, many of the companies operating in China keep such matters under wraps for years. Because many of them fear huge business losses and, also, they are under legal bindings to continue the contracts for a particular time frame.

Furthermore, these businesses also cannot just pull out of China as they are tied up with global commitments. Moving out bases, particularly manufacturing hubs, overnight or in months are not easy tasks. Moreover, companies look for cheap labour and processing so that their turnover remains high. Hence, many of these trading companies continue to operate in China despite losing billions in IP theft for years. And at the same time, the Chinese companies and local conglomerates are making large profits by running on the piggybacks of such foreign companies. In a way, both the sides are mutually benefitting from operating in China.

But there are many who say that doing business in China is hassle free and highly profitable. But why? They say while deciding for business in China one can rightly consider some of these important attributes: A dynamic economy, full potential for development, a massive market and stable market, global business network, most populous nation, superior infrastructure, wise regulatory framework, and unbelievably cheap labour market. Above all, a stable political system under the supreme aegis of the Communist Party of China (CPC) since October 1949 till date offers an amicable environment for rapid business growth in this country unlike any other Asian nation.

Political volatility is not an issue of concern for global market players here in the great People’s Republic of China (PRC). Thus, it is obviously very easy to set up business enterprises and links in China. International trade experts and legal eagles opine that the most popular business type in China is Wholly Foreign Owned Enterprises (WFOE).

Indeed, this kind of an enterprise can fully meet the demands of the founder and the market. Precisely, China offers a host of free trade zones that offer varied opportunities wherein foreign direct investments can sustain for longer time. It has been observed that registering a company in China’s free trade zones and subsequent operations come with very lucrative tax exemptions. Again, a highly skilled and qualified workforce helps business to grow immensely.

They all come with efficiency, language skills and wide-ranging experiences in the field. So global businesses find them handy while taking their business to the next level. Most importantly, the local Chinese business partners are highly trustworthy and ready to collaborate with external businesses in any field. China has a population of 1.4 billion. So, companies have enough scope to grow faster in China than in any other place.

But then why foreign business entities particularly western ones are raising the issue of IP theft leading to the loss of billions over the years? There are credible reasons behind such claims. In the summer of 2021, the US Congress tried to introduce a bill called “US Innovation and Competition Act (USICA)” under the current Biden administration. The grand underlying aim of the proposed act is to empower America to compete much better with emerging China on the technological front. While considering this bill in the Senate, the US Upper House, many genuine concerns were raised like the bill must include special “research security” provisions to stop China’s clandestine designs of acquiring technological know from the US giants.

And so far, Washington has not done enough to protect the national IP treasures from the Communist China. There used to be long and persistent uproars in many quarters in the country to highlight China’s quiet and clever designs to steal IP rights and business secrets from the big US firms, top laboratories, universities, independent research organisations, and finally from apex government agencies.

It has been estimated by the US trade representative that four years back the Chinese theft of American IP cost the US firms between $225 and $600 billion each year. Imagine the loss incurred by the US companies now. Therefore, the Biden Government has truly realised that its time now not only to protect these national assets but also to send a stern warning to Xi Jinping regime in Beijing.

Another aspect is what China does with the stolen IPs. It is learnt that China converts them into its military capabilities. Once it is acquired from foreign entities, they are sent to dozens of top Chinese universities for formally converting into local patents. Once it is done, the Government distributes them into various companies for commercial exploitation.

Now the question arises: Who are the guardians of IP in the 21st century? It is a very complex question. Neither the World Intellectual Property Organization (WIPO) nor the World Trade Organization (WTO) could offer safe guarantees of the IP rights across the globe. It is the national governments and their respective IP governing bodies accompanied by a host of bilateral and multilateral trade agreements that can only prevent the misuse of these rights.

China’s business interests are intricately linked to its geopolitical designs. Its only aim is to supersede America and become number one global power sooner or later. Its quiet rise as pronounced by then President Hu Jintao has become the most aggressive and unquiet rise under the Xi regime. The current leadership has surpassed all previous records of expansion.

Xi is trying to build his national rejuvenation ideas around the economic prowess of the country. He is well aware that the western business conglomerates are in need of men, raw material and fast expansion. And China can very well offer a suitable ground for all that these businesses aspire for.

Thus Xi is fully utilising all that China’s vast land, manpower and infrastructure could offer to these power hungry and greedy western business tycoons. In the process, despite losing their treasured IPs, the western MNCs are continuing their business in the communist country so far. Frankly, it’s America that is solely responsible for making China rich, powerful and aggressive.

IP theft is just the tip of the iceberg. China has much more to surprise the US and the rest of the liberal world. Its long road to break the shackles of the global liberal order has already begun. In that, IP stealing is just one aspect in the race to the top slot.

 

(Dr Makhan Saikia has taught political science and international relations for over a decade in institutions of national and international repute after specialisation in globalisation and governance from Tata Institute of Social Sciences, Mumbai. He is the chief editor of the Journal of Global Studies, an international research journal)

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