Intellectual Property Rights and Patenting in China's High‐technology Industries: Does Ownership Matter?

Abstract

This paper aims to systematically investigate the impacts of strengthening intellectual property rights on patenting in China's high‐technology industries and to explore the potential differences in response to patent reform by ownership. Empirical results show that the estimated patent elasticity of R&D is lower than that for OECD countries, indicating relatively low R&D productivity for China's high‐technology industries. The direct innovation effect of technology imports is negative, while the absorptive ability embodied in R&D helps in gaining external sources of knowledge, thus contributing to innovations. Specifically, strengthening intellectual property rights can induce more innovations in terms of patents in China's high‐technology industries and is particularly relevant to foreign‐owned high‐technology enterprises.

Medical Device Market in China

“…Foreign companies are attracted to the Chinese market due to the low cost of labor . High‐technology firms will develop their production lines in China where expenses can be minimized before exporting their products to the international community where they can take advantage of competitive pricing . This is one of the main reasons for low patenting productivity in China because companies will conduct R&D in more developed nations with more patent protection and use their Chinese counterparts for the manufacturing portion of their business .…”

“…High‐technology firms will develop their production lines in China where expenses can be minimized before exporting their products to the international community where they can take advantage of competitive pricing . This is one of the main reasons for low patenting productivity in China because companies will conduct R&D in more developed nations with more patent protection and use their Chinese counterparts for the manufacturing portion of their business . The Chinese government has been implementing reforms in this area to make research and development within China a more attractive enterprise .…”

“…The focus of foreign companies in China has been the high‐technology, high‐cost market , with these firms accounting for 37% of high‐tech companies as of 2005 (Fig. ).…”

“… Percentage market share of foreign companies in the C hinese high‐tech sector and specifically the high‐end medical device sector . …”

“…Other than catering to the wealthy elite, foreign firms are most heavily invested in high‐tech because it is more difficult for local firms to reproduce these devices. In developed countries, the prohibition of so‐called “copying” of an intellectual property is rigidly enforced, whereas in China and in other developing nations the patent laws are weakly enforced so that foreign firms must resort to other measures for protection, including design secrets and focusing on more complex products that require a significantly greater knowledge base than is typically available to domestic companies . Protection has improved since China joined the WTO; however, there is still a view common among developing countries that increasing protection of intellectual property (IP) rights would stifle industries that are based upon imitations and fakes, and thereby stifle economic growth .…”