Exploring the Process of Change

The process of how the post-TRIPS IP system has changed over the past decade will now be considered—have these changes been top-down or bottom-up? What have been the key drivers behind the continual incremental improvements observed in the IP system in China? Overall, the importance of central government commitment is widely seen as the most critical driving force behind the changes made in the Chinese IP system:

It’s mainly driving internally; it’s mainly driving from the Chinese government itself. We have to give credit, especially in Beijing, our central government if you talk to high-level, ministry-level; they really have a very good understanding of long-term vision why IP is important.⁵⁹

The emphasis by respondents in this research project on the key role of the central government as a driver for change in the intellectual property system is also reflected in the academic literature. For example, Crookes (2010) contrasts IP regime evolution in China and India and concludes that while market- driven development is key in India, state-sponsored initiatives are still the most important driver of change in the Chinese IP system.

Indeed, the significance of stronger commitment from the central government was also recognised by respondents in the 2005 study, who selected this factor as the second most significant improvement that they would like to see in the IP system in China.⁶⁰ The role of the government (and the potential for increased focus on tackling IP issues) was explicitly discussed by several respondents in 2005, particularly in the context of improving enforcement efforts nationwide: “I believe that if, if the central government is taking an interest, then something will happen in the whole country.”⁶¹ Thus, the shift in official governmental policy towards greater emphasis on strengthening intellectual property rights was not only identified as crucial by respondents in 2005 but was also recognised as the most significant driver behind improvements witnessed over the past decade by respondents in 2015.

Furthermore, the strong level of central government commitment is closely linked to economic policy goals of diversifying the economy away from low- end manufacturing for export towards more high-tech innovation:

And actually in my personal opinion, the Chinese government wants to encourage inventions, especially in the recent two years. The Chinese economy experienced dramatic change in these years, it’s quite difficult for real estates and the finance, all met big problems. So the government want to encourage innovations to change the structure of the economy.⁶²

Therefore, the renewed emphasis on intellectual property rights by central government policy-making reflects the official goal of increasing innovation in the economy. For example, the National IPR Strategy released in 2008 not only contained detailed and extensive proposals of potential improvements and amendments for the Chinese IP system, but also “represented an intention from the top political entity to narrow the gap between law and norms” (Bruun and Zhang 2016, p. 61). More recently, China’s 13th five-year plan was approved in late October 2015 and the communique issued at the time suggested a shift in emphasis from focusing on solely economic development to more balanced and sustainable development in the future. Analysts at Barclays assessed the frequency of some key terms in the past four five-year plans and noted that mentions of “innovation” had intensified from 26 mentions in the 10th five-year plan, to 31 in the 11th five-year plan, 49 in the 12th five-year plan and 71 in the most recent 13 th five-year plan (Moshinsky 2015), underlining the increased focus of the central government on increasing innovation in the economy.

In addition, there is a clear policy link at the central government level between an increased focus on strengthening intellectual property rights and enhancing economic development: “now we want to climb to the upper level of the manufacture chain, we want to encourage the local brands to establish their own brand.”⁶³ However, this increased focus on IP is not just linked to the economic goal of moving from “Made in China” to “Created in China” (Keane 2006), but also reflects the growing role of the consumer in the Chinese economy. In other words, as China’s emerging middle class continues to grow, such discerning individual consumers will demand higher quality non- counterfeited products (Li 2010); as this respondent observed: “the general public being richer and more able to afford the real products.”⁶⁴ It is apparent from any casual visit to the main cities of China that “several years ago a lot of people thought they could buy pirated copies of CDs on the street, and now it is very difficult to see this”⁶⁵ and indeed my own observations from visiting China over the past few years suggest that such blatant selling of fake goods is nowhere near as commonplace as it once was.

In addition to the critical role of individual consumers, the role of domestic Chinese rights-holders was widely seen to be of increasing importance as a pressure for improvement within the IP system as a whole because the government is seen as more likely to listen and respond to Chinese enterprises than foreign rights-holders. Indeed, some respondents felt that if they represented a MNC in China or international organisation, then their point of view would be dismissed or ignored without due consideration:

When the foreign companies, when we are talking with the government, the government always says ah, you are representing the foreign voice ((laughs)).⁶⁶

Whereas it was recognised as key particularly for foreign rights-holders to align their own interests with domestic Chinese rights-holders in order to assert more influence over governmental policy in the IP arena:

They do listen to the local companies’ requests and demands. So we want to leverage that.⁶⁷

A further influence on the process of change in the IP system in China is the time needed for legal transplants to be embedded into the local legal culture. This was certainly recognised by several respondents, not only at a macro level:

Improvement can be made every day, step by step. No reform can be done overnight. So I think we need to be patient. Every legal reform needs to be reliant on your economic reality. China is a developing country, the step cannot be as big as the UK or US.⁶⁸

In other words, there remained some sympathy with the notion that had been more frequently expressed in 2005 that developing an effective IP system from scratch is a long process and cannot be achieved in the short term. However, there was also some cynicism about this notion that an effective IP system in China is just a matter of being patient for several decades while China “catches up” with one respondent labelling it “not a good excuse.”⁶⁹

Closely linked to the notion that further improvements in the Chinese IP environment are just a natural progression as a matter of time is the proposition that a generational shift needs to take place before greater respect for IP can be embedded both into the Chinese business world and also into Chinese society. As one respondent noted:

One of the challenges is the current generation of executives in many of the companies, especially in the manufacturing sectors, are people that... you know guys in their fifties and sixties and even maybe late forties that grew up at a time when IP really didn’t matter. So they’re used to this vision where you get things by stealing, you get things by copying, you don’t have to worry about IP, no need to spend money on a patent search. So the old guard are still kind of resisting what the young guard recognises as essential, and what the government also recognises as essential. So there’s some slow learning there that might take another decade.⁷⁰

Therefore, it might well be necessary to wait until the next generation of business leaders take charge to see a real shift in the attitudes of many Chinese enterprises. Equally, it could be informative to look at the next generation of business leaders emerging in China; many millennials are focused on creating their own start-ups focused on short-term returns and primarily within the Chinese market; so despite having a much better understanding of the nature and value of IP, they may not require a detailed IP strategy in order to achieve their business goals. As reported by 15SERVICES01: “for the Chinese market, because of the sheer size you know, everyone is talking about capturing market share; you can still do that even without any innovation or very minimal innovation.” Consequently, although many Chinese companies are beginning to become more aware of the potential value of their IP, there are still domestic enterprises for whom IP is still not a priority in their business strategy.

Moving now from considering internal pressure, to analysing pressure from outside of China, there appears to have been a shift in perception of the potential of external pressure to further shape the inner workings of the IP system in

China. In 2005, many respondents felt that greater international cooperation and collaboration would be a significant step to improve the IP system in China at that time. Greater international cooperation was suggested by respondents in 2005 as the third most significant improvement that they wished to see in the IP system in China and was stressed as potentially benefitting the IP system in various ways, through moulding the attitude of the government, through improving the expertise of the personnel and through providing positive incentives for consistently enforcing IP laws and regulations: “In addition, the government may promote cooperation both nationally and internationally, to keep increasing the quality of personnel from related professions, and thus to ensure that the relevant laws and regulations are implemented smoothly.”⁷¹

However, the potential for greater international cooperation was also explicitly contrasted with the perceived confrontational attitude taken by some key trading partners such as the US: “Instead of criticizing only, maybe more efforts should be devoted to the countries working together constructively to tackle the problem which will ultimately benefit everyone.”⁷² Therefore, in 2005, respondents indicated that greater cooperation from international partners or organisations had the potential to stimulate further improvements in the Chinese IP system rather than just provoke resentment. Consequently, there has been a rise in such cooperation programmes, often with a particular focus on knowledge exchange and capacity-building amongst relevant personnel.⁷³ In addition, such technical assistance programmes are also viewed politically as effective soft power mechanisms (Crookes 2014). Conversely, such programmes have also been criticised as only effective at influencing national-level policy and having no effect on local or regional enforcement which is where problems may remain (Wyzycka and Hasmath 2016).

On the other hand, respondents in 2015 seemed to draw a distinction between the external pressure to improve IP which had previously been exerted on the Chinese government by foreign governments (particularly the US) and the contemporary IP system which is much more affected by domestic stakeholders and interests: “I think in the past we can say we protect China for the IP because pressure from foreign brands, foreign government, foreign brand owners but now they need us to protect because of the request of Chinese companies you know.”⁷⁴ This disconnect between the external pressure from foreign governments to raise the level of intellectual property protection as opposed to the internal pressure to focus on local economic development is also identified by a respondent from the pharmaceutical industry who noted: “I’d say ten years ago when we talked about IP protection, normally the international community will say ah, this, but for the local government and domestic companies, they say ah, something different, we are in the two direc- tions.”⁷⁵ This emphasis on the increasingly powerful role of domestic Chinese companies as key stakeholders in the Chinese IP system is echoed by a number of respondents and summed up by respondent 15LAW01 who divided the changes in the IP system in China into three distinct phases. The first two phases (in response to pressure from the US government in the early to mid-1990s and in response to WTO accession at the start of the twenty-first century) were “all because of the outside pressure.” In contrast, the latest legislative changes and changes to the enforcement process have not been impelled by demands from external governments or organisations: “And the third one, which is quite interesting, is purely from inside, there’s no outside pressure.”⁷⁶

Thus, the process of China’s IP system adapting to local conditions over the past decade and more has resulted from a combination of increased commitment from central government to move towards an innovation-based economy; a surge in domestic rights-holders who are also increasingly pressuring for more effective protection of their valuable intellectual property; the natural internalisation of the transplanted norms in the post-TRIPS legislation over time; and the shift in external pressure from coercion towards cooperation.