Strong nationalistic tendencies

According to the report “Analysis of Competitive Behavior in China” from the Anti-Monopoly Department of the State Administration of Industry and Commerce, ”multinational and domestic companies are exploiting the lack of an anti-monopoly law and abusing market-leading positions to curb competition”. Analysts believe this report is the prelude to an Anti-Monopoly Law that is currently in a legislative process; but the situation emerges to be more complicated since some multinational players are regarded as monopolists.

Compared with domestic companies that use strategies to gain market share via strong, established channel networks, multinational companies use more subtle approaches to curb competition, such as acquisition of local competitors as investment in the local market and patent registration of a wide range of products to act as barriers to local competitors. Acquisitions and patent registration are commonly accepted strat egies that do not necessarily constitute a monopoly. Such acquisitions certainly bring increased market share, and most acquired local companies have networked in market and distribution channels. This helps explain the link between business acquisition by multinational companies and their possible monopoly status. But according to the Chinese Global Acquisition Research Institute, 80% of global companies believe these acquisitions are part of their global strategy. This means acquisitions here are used as tools to fight global peers in the China market rather than to curb domestic competitors. The concept of monopoly as defined by Chinese sources is such that dominant market share does not necessarily mean monopoly, but using the competitive advantage to limit competition in order to maximize profit does.

We have to understand that Chinese companies are definitely not known for cutting-edge technologies, innovation or engineering creativity. Instead they follow and copy trendsetters. China’s intellectual property laws are still subject to debate, while its reluctance to invest in research and development means that it is trailing behind developed nations. As a part of the business process and in order to protect benefits, companies register patents both in and outside China. However, multinational companies that are usually much more technologically advanced, are easy targets when they register patents. Their registration appears to “mark territory” and arouses concerns about being monopolistic and creating barriers to local competitors. Official Chinese statistics show that foreign investment in 2004 has exceeded the $53.5bn invested last year. Obviously, the companies want to protect these investments.

For example, the Shenzhen People’s Court ruled that Beijing Huaqi Information violated Netac Technology’s patent on USB flash drives and awarded Netac compensation of 500,000RMB. The company names may not be familiar and the sum isn’t too large in our eyes (about euro 50,000), but this is one of the first cases of patent infringement in the industry brought to court and won by one Chinese company against another. Patent or IPR infringement cases are generally brought by foreign companies against Chinese companies. Until now, those infringements between Chinese companies are often settled out of court, and so the legal system has little experience in dealing with this. The lawsuit demonstrates that not only are Chinese companies taking IPR seriously and want to protect their inventions, but also that they trust the legal framework to help them uphold their rights.

While the government gives tax breaks and incentives to companies investing in R&D, lack of IPR enforcement means this money is wasted because the products can’t be protected. The government says it is committed to resolving the IPR problem. It presented a plan for tackling copyright infringement and piracy-related issues, based on “lowering the threshold for criminal penalty” and implementing a “judicial interpretation which explicitly stipulates measures for criminal punishment for all kinds of IPR infringements”. Unfortunately, this sense of commitment hasn’t trickled down to lower departments or local provincial governments. For instance, although under international and domestic pressure to respect intellectual property rights, China’s State Intellectual Property Office overturned Pfizer’s patent rights for Viagra on the grounds that the company had not supplied some of the information required to uphold the patent. As a business observer said, “It’s surprising to see a lower level agency make such a ruling which sends off conflicting signals about the commitment to improve IPR environment”.

A short story might illustrate how IP protection proceeds on the more practical side. “I haven’t seen him for several months,” said a systems integrator at Beijing’s ‘Silicon Valley’ in Haidian. He commented about the guy who frequents his company selling pirated DVDs during lunchtimes. He is an example of a loyal counterfeit DVD buyer, who is now finding it even harder to locate those vendors who once littered the back streets, office buildings and residential areas. Although you may think this is nothing strange, their absence has been greatly noticed – and sorely missed – by locals.

This symbolizes that the China government is finally taking the intellectual-property right issue more seriously. It recently pushed IPR legislation through political channels and established IP centers for the semiconductor industry in Shanghai. The once bustling Silk Alley, a tourist Mecca for faked goods, was closed down by the administration. This progress is encouraging. For companies wanting to contribute to the progress of China’s IPR market, playing an active role is important. According to the China Auto Identification Association, a standard code with its own intellectual property rights will be launched within the next years, and will be promoted as industry standard. In emerging businesses and in a rapidly developing economy which lacks experience in creating standards, opinion and ideas from foreign or local forerunners are listened to and well-respected.

But matters are not that simple. Although China welcomes ideas from outside, the administration also defends national positions. This was evidenced during a meeting with Don Evans, the U.S. Commerce Secretary. When Evans criticized China’s intellectual property rights, Bo Xilai from the Ministry of Commerce strongly contradicted him. The message was clear: although China meant business, it was also protective about domestic IPR efforts. Any blunt or harsh comments are fiercely rebuked and put China on the defensive. As for those global multinationals that want the Chinese government to pursue IPR legislation, they may want to show their support by voicing concerns in a cautious way, to not evoke too strong nationalistic tendencies. (gbw)

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