Intellectual Property Theft in China: Benefit or Bane?
China is accused of stealing trillions of dollars worth of intellectual property from multinational corporations. The communist regime pursues the multinationals operating in different parts of the country. Today, Washington is targeting Beijing for continuing this ruse. Besides the United States, the European Union (EU) harshly labels China as the main offender for intellectual property infringements.
Many economists believe that China’s double-digit growth in the past was underpinned by revenues from this massive intellectual property theft. It seems difficult to track down offenders where the judiciary is part of the rigid party structure.
To comprehensively assess these assertions and counterclaims by the United States and China, we need to see what the two giants are doing to simply stop this global threat. Those who claim that China is stealing intellectual property rights from Western companies say that every year hackers take away billions of dollars worth of goods and trade secrets from these companies. And this is widely confirmed by cybersecurity experts around the world.
The damage they face is estimated to be incalculable. Consequently, Western governments have devised strategies to prioritize the safeguarding of their commercial interests inside and outside their sovereign territories. Countries like America, Australia, Canada and the EU are raising the issue of China’s massive intellectual property plunder in international forums.
The long-term impact of hacking companies is very serious. Interestingly, many companies operating in China keep these matters secret for years. Because many of them are afraid of huge business losses and moreover they are legally bound to continue the contracts for a certain period of time.
Moreover, these companies also cannot simply withdraw from China as they are bound by global commitments. Moving bases, especially manufacturing hubs, overnight or over the course of months are not easy tasks. Additionally, companies are looking for cheap labor and processing to keep their turnover high. Consequently, many of these trading companies continue to operate in China despite the loss of billions of dollars in intellectual property theft for years. And at the same time, Chinese companies and local conglomerates are making big profits by operating on the backs of these foreign companies. In a way, both parties mutually benefit from operating in China.
But many say doing business in China is hassle-free and highly profitable. But why? They say that while deciding to do business in China, one can rightly consider some of these important attributes: vibrant economy, full development potential, massive market and stable market, global business network, nation most populous, superior infrastructure, sound regulatory framework and incredibly cheap labor market. Above all, a stable political system under the supreme aegis of the Communist Party of China (CCP) since October 1949 to date provides a friendly environment for rapid business growth in this country, unlike any other Asian nation.
Political volatility is not a concern for global market participants here in the greater People’s Republic of China (PRC). Thus, it is obviously very easy to establish business ventures and links in China. International trade experts and legal eagles believe that the most popular type of business in China is Wholly Foreign Owned Enterprises (WFOEs).
Indeed, this type of business can fully meet the requirements of the founder and the market. Specifically, China offers a multitude of free trade zones that offer varied opportunities in which foreign direct investment can last longer. It has been observed that registering a company in China’s free zones and subsequent operations come with very lucrative tax exemptions. Again, a highly skilled and skilled workforce helps businesses grow tremendously.
They all come with efficiency, language skills and varied experience in the field. Thus, global companies find them convenient while taking their business to the next level. More importantly, local Chinese business partners are highly reliable and willing to collaborate with external companies in all fields. China has 1.4 billion people. Thus, companies have enough leeway to grow faster in China than anywhere else.
But then why are foreign business entities, especially Western ones, raising the issue of intellectual property theft resulting in 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 the “US Innovation and Competition Act (USICA)” under the current Biden administration. The big underlying goal of the proposed law is to allow America to better compete with emerging China on the technology front. During the consideration of this bill in the Senate, the upper house of the United States, many real concerns were raised, such as the bill must include special provisions on “research security” to stop the China’s clandestine plans to acquire the technological knowledge of the American giants.
And so far, Washington has not done enough to protect communist China’s national intellectual property treasures. There were once long and persistent uproars in many neighborhoods across the country to highlight China’s silent and clever plans to steal the intellectual property rights and trade secrets of major US corporations, top labs, universities, independent research organizations and finally apex government agencies.
The U.S. Trade Representative estimated that four years ago Chinese theft of U.S. intellectual property was costing U.S. companies between $225 billion and $600 billion each year. Imagine the loss suffered by American companies now. Therefore, the Biden government really realized that it was time not only to protect these national assets, but also to send a stark warning to the Xi Jinping regime in Beijing.
Another aspect is what China does with stolen IP addresses. We learn that China is converting them into its military capabilities. Once acquired from foreign entities, they are sent to dozens of leading Chinese universities to be officially converted into local patents. Once done, the government distributes them to various companies for commercial exploitation.
Now the question arises: who are the guardians of intellectual property 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 secure guarantees of intellectual property rights throughout the world. It is national governments and their respective intellectual property governing bodies accompanied by a host of bilateral and multilateral trade agreements that can only prevent the misuse of these rights.
China’s commercial interests are intertwined with its geopolitical designs. Its sole aim is to supplant America and sooner or later become the world’s leading power. Its quiet rise, as pronounced by President Hu Jintao, has become the most aggressive and restless rise under Xi’s rule. The current management has surpassed all previous expansion records.
Xi is trying to build his ideas of national rejuvenation around the country’s economic prowess. He is well aware that Western business conglomerates need men, raw materials and rapid expansion. And China may very well provide fertile ground for whatever these companies aspire to.
Thus, Xi is making full use of whatever China’s vast land, manpower and infrastructure could offer these power-hungry, power-hungry Western business tycoons. In the process, despite losing their valuable IP addresses, Western multinationals are continuing to operate in the communist country so far. Frankly, America alone is responsible for China’s wealth, power and aggressiveness.
Intellectual property theft is just the tip of the iceberg. China has much more to surprise the United States and the rest of the liberal world. His long road to breaking the shackles of the global liberal order has already begun. In this, IP theft is only one aspect of the race for the top spot.
(Dr. Makhan Saikia has taught political science and international relations for over a decade at nationally and internationally renowned institutions after specializing in globalization and governance at the Tata Institute of Social Sciences in Mumbai. He is editor of the Journal of Global Studies, an international research journal)