Framework Conditions for Innovation in China, Part 2.

Since China joined the World Trade Organization (WTO) in 2001 and the agreement was signed on trade-related aspects of intellectual property rights (IPR), the Chinese patent system has complied with international standards and conventions. This resulted in the number of applications to the Chinese state intellectual property office (SIPO) increasing considerably. In 1995, there were ~2000 domestic innovation patents granted  but from 1995 to 2005, there were 20,000 but infringement of IPRs, particularly of copyright and trademarks, remains a concern. The regulations are not absent or unsophisticated but the problem is  the lackof enforcement of both of judicial and administrative decisions owing to the lack of appropriate infrastructure and mechanisms, as well as manpower. So while leaders in the Chinese government are aware of the importance of building a sound legal framework for IPR, the enforcement, especially at the local level, is lacking and/or sporadic.

Lack of effective IPR protection causes foreign firms to hesitate to transfer technology to China because of the threat of IPR infringements. They worry that products, technologies and components (that represent investments of time, resources, and money) are potentially going to being copied very easily in China and they are much less likely to transfer those technologies there.

Furthermore, the concerns about IPR discourage even Chinese inventors from commercializing their results of R&D. IPR infringements affect the national reputation of Chinese firms especially when poor quality affects the health and safety of the consumers. There have been various controversies regarding Chinese products, toys or food products that have had a detrimental affect on people's health and so the standing of all Chinese companies.

Sound IPR policies can facilitate the transfer of research results from public research organizations to business enterprises or from foreign firms to domestic firms. If regulations are enforced, they would have a cascading positive effect.

Managing technological standards requires a mastery of multiple aspects. On the one hand, standards have often been used to boost emerging industries and to protect domestic industries from foreign competition. On the other hand, standards have played a significant role in enhancing competition by making possible economies of scale and by promoting interchangeability and compatibility. Some of the more prominent global standards are GSM standards used in telephones, 3G standards, USP standards and recognized standards of design (QWERTY).

Many local standards, if they are supported, have the effect of shielding home industries. China’s government can decide on a certain standard in a product and it may be different from standards used elsewhere in the world and those companies that use the Chinese standard obviously have an advantage to overseas companies. Standards can play an important role in the promotion of S&T development in industries domestically.

Standards have gradually become imbedded in Chinese policy that were initially seen as part of an industrial development strategy and integrated into major R&D programs. A policy was introduced in 2006 with the idea of promoting indigenous innovation by using technological standards. China is striving to promote its own standards not only to help and promote indigenous and domestic industries and domestic companies but also to gain a presence globally so that Chinese standards become the global standards for whatever product that they're dealing with. This requires improvements in the ability of Chinese people to participate in international standard-setting processes. Setting a standard is one thing for your domestic economy however trying to get the global economy to approve and implement that same standard requires participation in the international standard-setting process.

In China, it is widely seen as legitimate to make use of a standard that can help increase a Chinese firm's return on investment in technology, to foster innovation. Making use of standards is not something that seemed to be breaking the rules, it's considered to S&T prowess.

Public procurement is when the government buys (or acts as a leader in buying) new technologies created by local domestic firms. It helps promote innovation because the government is a very large market. It can also accelerate diffusion of innovative products and services. When both large and small firms see the government willing to use these technologies, they follow the lead. The size of the Chinese market points to a strong potential for promoting innovation via public demand. The volume of government procurement has been expanding rapidly recently in terms of the S&T strategic plan of 2006 to 2020. It assigns public demand an important role in economic development and the promotion of innovation.

Traditionally, the Chinese government has relied entirely on supply side policies to promote technological development but public procurement is a demand side. The government is proactively demanding products that are created by local companies and this encourages companies to engage in development. Implementation of procurement policy is difficult because it is a result of sophisticated articulation of demand for innovative products or services and a competitive process. The government has to be transparent and it has to have fair processes.
from Coursera course, Science and Technology and Society in China. Week 2. by Naubahar Sharif, The Hong Kong University of Science and Technology