It is well-known that in China the problem of intellectual
property protection lies not with the laws which are relatively
comprehensive and basically comply with the obligations under the
Trade-Related Aspects of Intellectual Property Rights (TRIPs).
Rather, the difficulties lie in enforcing intellectual property
rights in a country where the legal system is still under
development, the concept of IP rights is relatively new, and IP
protection does not rank very high on the country's list of
Especially the latter is changing. Unrelenting international
pressure and the growing importance of IP protection to domestic
companies are spurring courts and government authorities at local
level to intensify their efforts to tackle infringements. A third
reason for the change of attitude, which is more recent but may
prove to be even more durable, is the gradual shift of the
industrial focus to higher value-added sectors. China wants to
re-position itself in the world economic order; rather than
focusing on low-end, labor intensive manufacturing, it is trying to
appeal to higher value-added manufacturing and service industries.
A precondition: a safe environment for developing and holding IP
rights must be created.
Two of this years legislative initiatives show how IP may play a
role in Chinas future development, with the focus on supporting and
attracting companies with core intellectual property rights.
Guidance of Foreign Investment
In the Instructive Guidance on the Nationwide Work for
Attraction of Foreign Investment, the Ministry of Commerce on
6 March 2008 set out the policies for the coming years to attract
foreign investment. The document clearly explains the desired
trends of foreign investment, which should be made in higher
value-added production and service industries, and will thereby
lead the country's economy to a higher level.
While the policy document is very general in nature, it includes
a number of important references. Investment in research and
development (R&D) of new technologies should enjoy tax and
industrial policy benefits to upgrade Chinas industrial structure.
Local governments are asked to consider matters such as
intellectual property when attracting or approving foreign
investment projects. Foreign-invested enterprises and multinational
corporations are encouraged to cooperate with local enterprises and
science institutes to promote original innovations and a higher
percentage of localization of intellectual property. And
strengthening the protection of intellectual property is named as
one of the four key aspects of the Thousand Hundred Ten Project, in
which internationalization of Chinas service industry has become
the chosen method to raise Chinas service sector.
Under the new Corporate Income Tax Law of the Peoples
Republic of China and its implementing rules, both effective
as of 1 January 2008, the existing tax benefits for
foreign-invested manufacturing enterprises were abolished. Instead,
only three kinds of companies will be qualified to enjoy tax
advantages in the future, including the High- and New Technology
Enterprise (HNTE). In itself this is another prime
example of the push to upgrade Chinas industrial structure.
The importance of intellectual property in this context was
re-affirmed in the Administrative Measures on HNTE
Recognition (Circular Guokefahuo  No. 172) of 14 April
2008, which detailed the conditions that a company must fulfill to
be recognized as an HNTE enterprise and enjoy tax benefits. One of
the pre-conditions is the ownership (or long-term leasing) of core
intellectual property rights.
China: An Upgrading of the Economy
China remains a developing country, and vast parts of the
country and its economy have a long way to go. As long as it
continues to have cheap labor in abundance, it will not lose its
attraction for low value-added manufacturing industries. On the
other hand, the eastern provinces, lead by the Yangzi River Delta
around Shanghai and the Pearl River Delta in the south, are
spurring ahead. Rising prices for land, labor, electricity and
other important resources make it too expensive for the low-valued
added industries of earlier times, and companies are now demanding
better (soft) infrastructure, legal enforcement, and intellectual
protection. The central government is pointing the way, and the
incentives are huge; will local courts and authorities follow to
make IP in China safer?
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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