China’s Xi Jinping Signals Higher Focus On IP, Market Opening To Ease US-Sino Tensions, But Global Leadership Friction In Innovation To Persist

SHANGHAI, China — The President of China, Xi Jinping, in a keynote address on 5 November to political and business leaders attending the opening of the first China International Import Expo (CIIE) in Shanghai sent a strong diplomatic signal that Beijing will push ahead with further opening up of the economy to more international competition.

In a move to try and ease US-Sino tensions Xi also indicated China will take proactive steps to boost protection of intellectual property rights (IPRs), including harsher penalties against violators – a major grievance for the United States and the pivotal issue in the escalating trade war between the world’s two largest economies.

The initial reactions to Xi’s long-awaited speech have been mixed with business leaders welcoming the indications of further liberalization in the wings, but waiting to see if the message translates into concrete initiatives. Meanwhile, top western trade diplomats and international officials, speaking on background, considered Xi’s remarks as preparing the ground for talks down the road with his US counterpart President Donald Trump in a bid to try and broker a deal to diffuse the trade crisis.

The two leaders are slated to meet on the sidelines of the G20 leaders’ summit to be held at the end of this month in Buenos Aires (30 November – 1 December).

The evaluation by some senior diplomats close to Washington is that Xi initially misread Trump on trade.

There is an equal concern, however, that Trump may misread his Chinese counterpart.

Indeed, some China analysts are of the view that whether the US and China can narrow their differences will, as one put it: “Very much depend on how Trump handles China. If he is careful, he can talk hard, of course, but they’re not going to be humiliated by anybody. They had enough of that in the 1800s and 1900s. They will not be prepared to lose face over something like this. But if Trump can make sure he respects them, at the end of the day, they can portrait it as a kind of win-win situation, a sort of mutual agreement, then I think certain things can be done.”

“But if Trump tries to ram it down their throats, and humiliate them, then they will not play that game at all. They will stand very straight and say, no.”

It’s more saber-rattling and fencing at the moment, the analyst, who declined to be named, said, but his outlook on the Sino-U.S. tensions was that there is “room for some accommodation on trade but not in all areas.”

Concerning IPRs, China’s Xi told delegates: “We protect the lawful rights and interests of foreign companies and are resolute in meting out, in a law-binding manner, punishment for violations of the lawful rights and interests of foreign investors, particularly IPR infringements. ”

“We will enhance the credibility and efficiency of IP examination, and put in place a punitive compensation system and to significantly raise the cost for offenders,” he declared.

A spokesperson for US Trade Representative Robert Lighthizer and a spokesperson for European Union Trade Commissioner Cecilia Malström respectively declined to comment on Xi’s speech.

But business executives were more forthcoming.

“What matters to us is that concrete actions are forthcoming and that reforms are clearly timetabled. If China really will continue to open up, we would have expected additional and specific commitments to have been announced by President Xi today,” Carlo D’ Andrea, vice president of the European Chamber of Commerce in China, said in a statement on Xi’s speech.

The chamber considered as “potentially significant” references made by Xi to expand market access by removing caps on foreign investment in education and medical services, and his support for an acceleration in the negotiations on an EU-China Comprehensive Agreement on Investment.

Intellectual property, said a former WTO ambassador, “is perhaps one of the areas where they [China] could now react positively to complaints from the US and the EU.”

“President Xi Jinping announced in Shanghai at the CIIE conference a number of new measures and these are very much to be welcomed, including, of course, the importance of protection of intellectual property,” Francis Gurry, director general of the World Intellectual Property Organization, told Intellectual Property Watch.

“China’s development in intellectual property is absolutely outstanding. China is now the greatest single source of intellectual property applications in the world. So it’s a major producer of intellectual property. That means new technology, global brands, designs, and creative work. This is an extraordinarily important development and it’s a very positive contribution on the part of China,” Gurry added.

In a similar vein, Thomas Cueni, director general of the International Federation of Pharmaceutical Companies and Associations (IFPMA), told Intellectual Property Watch: “IFPMA welcomes the strengthening of China’s commitment to creating an effective ecosystem for biopharmaceutical innovation.”

“IP is a cornerstone for continuous private investment in high risk-high cost biopharmaceutical research and development,” Cueni noted. “Implementing systems that ensure effective patent examination and patent enforcement, as well as regulatory data protection, are key to advancing innovation. Commitments recently made to improve market access and investment issues are equally welcome.”

The Trump administration has been adamant that China’s acts, policies, and practices related to technology transfer, intellectual property and innovation are unreasonable and discriminatory and burden or restrict US commerce.

In March 2018, a Section 301 investigation by USTR – that was the trigger for the US$250 billion in punitive tariffs slapped on China so far – concluded China uses joint-venture requirements to require or pressure technology transfer from US companies.

The probe also found China limits US companies of the ability to set market-based terms in licensing, and that China unfairly facilitates the systematic investment in, and acquisition of, US companies and assets to generate large-scale technology transfer, as well as conducts and supports cyber intrusions into US computer networks to gain unauthorised access to commercially valuable information.

But diplomats close to both Beijing and Washington say that trade and investment issues flagged by Xi are only part of the equation and that bigger geopolitical issues are also at play and could easily spill over and scuttle initiatives in the trade domain if mismanaged.

China is viewed as a strategic competitor by the Trump administration and an ascending global power that poses a serious challenge to US leadership, anchored on seven decades of military supremacy and based on undisputed technological leadership.

The geopolitical issue “does complicate matters” on trade, a former ambassador for a major Asian economy told Intellectual Property Watch.

Peter Navarro, director of the White House Office of Trade and Manufacturing Policy, in an address on Economic Security and National Security at CSIS in Washington DC on 13 November, said the US Department of Defense (DOD) “clearly views China as an identified threat to America’s defense industrial base.” He also said a report by DOD on strategies of economic aggression pursued by China included, “to acquire the technologies and intellectual property of the world by any means necessary for the purpose.of capturing the emerging industries of the future-artificial intelligence, robotics, everything in between.”

In a recent article in the American Interest, Admiral Dennis Blair, a former US Director of National Intelligence and Commander-in-Chief, US Pacific Command, and Robert Atkinson, president of the Information Technology and Innovation Foundation, outlined that the Trump administration is rightly pressuring China to roll back its unfair practices. But they argue “success is far from assured, especially as the Administration has not enlisted its allies to widen the pressure. Instead of putting of putting all its eggs in the tariff-heavy trade enforcement basket, it’s time for America to rise to the challenge by developing its own comprehensive plan to maintain competitive advantage in the advanced technology industries that are most critical to US economic and national security.”

As former French Prime Minister Dominique de Villepin told delegates to an international forum in Guangzhou in early November, “global peace is put in danger by the unprecedented risk of confrontation between China and the USA.”

“Today, the rising competition between China and the USA is opening the age of a shift of power from the West to the East,” he said.

Looking ahead, Xi also voiced at the CIIE forum that with “Strategic Confidence” the Chinese economy will surely make “a quicker transition to high-quality development.” He underscored the Chinese people “will surely overcome all challenges coming our way,” and also argued the world needs “to seize the opportunities presented by the new round of technological and industrial revolution, and strengthen cooperation in frontier sectors such as digital economy, artificial intelligence and nanotechnologies, new industries, and new forms and models of business.”

Moreover, back in October 2017 in a report to the 19th National Congress of the Communist Party of China Xi stressed: “We will strengthen basic research in applied sciences, launch major national science and technology projects, and prioritize innovation in key generic technologies, cutting-edge frontier technologies, modern engineering technologies, and disruptive technologies.”

These efforts, he added, “will provide powerful support for building China’s strength in science and technology, product quality, aerospace, cyberspace, and transportation; and for building a digital China and a smart society.”

Xi’s vision elaborates on his “Made in China 2025” blueprint adopted in 2015 by the State Council and the cornerstone of the country’s development model in transforming the Chinese economy.

Xi’s blueprint for the future (viewed as a systemic threat by the US), is also backed by top Chinese economists and strategic thinkers.

China must promote the development of new technologies and new digital formats, including artificial intelligence, e-commerce trade in services, mobile payments, and other new technologies, said Zheng Bijian, chairman of the China Institute for Innovation and Development Strategy.

However, Zheng also critically noted that the Chinese market, which has the world’s largest middle-income group, and represents more than 800 million internet users and a driving force behind smart market segments, is still evolving but is “still weak” in developing indigenous innovation.

Similarly, Chen Quansheng, counsellor to the State Council, China’s cabinet, told Intellectual Property Watch, “the government has to invest in basic research, it is the government’s duty because we know the results of basic fundamental research will be will be applied in the future, ” and added enterprises have to invest in order to apply the results of fundamental research.

Chen also forcefully argued that intellectual property protection is very important and essential concerning innovation and new technology and value-added developments. “It’s something essential. Intangible assets are more important, that’s why we have to protect them very seriously,” he said. “We have to implement a more severe, more serious control, and reinforce IP protection.”

On Sino-US trade tensions, Chen, speaking in a personal capacity, said that “talking only on economic issues, trade issues, China can do some concessions, compromises. We can also discuss the market economy, about free capitalism and state capitalism, but we cannot discuss political and ideological issues because China cannot do any concessions.”

Trade negotiators say some of the grievances such as IP infringement and licensing problems, plus unfair subsidies can be addressed in forums such as the World Trade Organization. However, differences over technology transfer can only be addressed under a bilateral US-China investment accord.

Some western diplomats said, however, it was rather simplistic as some US officials claim that the success of China was largely based on IP theft. As one put it, “China did not lift 800 million people out of poverty in the last 40 years based on IP theft alone.”

 

Image Credits: John Zarocostas