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 priorities.
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.
HNTE Enterprises
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 [2008] 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?
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