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Patenting Activities of Chinese Firms – Extent and the Role of Economic Policy
by Philipp Böing (ZEW Centre of European Economic Research) and Prof. Dr. Elisabeth Müller (Frankfurt School of Finance & Management)
Overview on patenting in China
In the year 2012 China’s State Intellectual Property Office received 652,777 invention patent applications – 140 times more than one decade earlier. In China, three different patent types exist. Besides innovation patents, which are used for the protection of technology, also utility and design patents can be filed. The inventive step and the economic value of these patent types are generally much lower. As only 13% are filed by foreign applicants, the majority of 87% applications originated from domestic actors. Around 60% of the effective domestic patent applications are filed by firms, while the remaining share is contributed by universities, research institutes, and private inventors. These figures show that domestic firms have become the most important source of inventive activity in China’s economy.
Considering China’s geographic structure, the coastal region is leading the domestic patenting trend. The single most powerful province is Jiangsu, followed by Guangdong and Beijing. These top three provinces alone contribute more than 40% of the domestic invention patent applications. The high level of regional concentration also emphasizes the unbalanced development of China’s economy. China is today one of the top contributors to the international patent applications of the PCT system. Whereas in the year 2000 China was number 16 in the ranking of the countries with the most PCT applications, China climbed to rank 4 in the year 2012. Chinese firms, universities and public research institutes are all among the top 10 worldwide applicants in the respective category. In the ranking of firms ZTE Corporation is the worldwide number 1 and Huawei Technologies is at place 4.
Patenting activity of listed firms
Patenting is already very common among listed firms. 60% of firms listed on the stock exchanges of mainland China in Shanghai and Shenzhen had filed for at least one patent application by the year 2010. For patenting firms the average size of the patent portfolio is 29 applications with a much lower median value of just 4. As in other countries, the size of the patent portfolio has a very skew distribution. Even in the 90th percentile the portfolio contains just 33 applications. This shows impressively that the technological capabilities are concentrated in a few very well performing firms. The large influence of the state in the Chinese economy is reflected in the ownership types of the listed firms: whereas 47% of firms are in private ownership, 18% are owned by the central state and 35% by local states. However, the ownership type does not influence the propensity to patent. This propensity is identical for all three ownership categories.
The role of economic policy
The Chinese government is clearly encouraging the current patenting trend. In the function of an economic planner it first issues guidelines which provide orientation regarding how many patent applications should be filed up to a certain year and then makes sure that these benchmarks are met or outperformed. Currently around ten future-oriented national patenting targets can be found in China’s patenting policies. For example, “China’s National Patent Development Strategy (2011-2020)” sets a quantitative target of 2 million annual patent filings by the year 2015. Further, the State Council’s “Notice on IPR in Strategic Emerging Industries” advocates that by 2015, the number of international patent applications in strategic emerging industries should be tripled compared to the year 2010. To encourage patenting on the regional level, provincial governments grant patent subsidies in almost all provinces. According to China’s national patent law a reduction or delay of patenting fees is possible and should ensure that patents are filed regardless of the financial situation of the applicant. For the evaluation of state owned firms and its management the government imposed indicators which are directly related to the number of patent applications of the respective firm. Obviously, these measures do not only increase the number of domestic and international patent applications but also decrease the average quality of patent applications originating from China. This development has been widely criticized by foreign policy makers and researchers alike. Nonetheless, these trends clearly point out that the total volume of Chinese patent applications should not be mistaken as a direct interpretation of innovative performance or economic value.
Outlook
Given the current slowdown in the economic development, it is unlikely that Chinese firms can sustain the impressive growth rates of patent applications. The open question remains as to how valuable the current patent applications will turn out to be in the future. It will be interesting to see how many applications will actually be granted by the Chinese patent office and by international patent offices. Furthermore, it is currently unclear whether firms will hold on to their rights after they have to pay renewal fees. Only if firms spend their own money to keep and defend their patent rights one can assume that the protected technology has an economic value.
Sources
The Rise of China
Impressive Growth
After the death of Mao, China's economic policy was affected by Deng Xiaoping. Under his leadership from 1978 on, aspects of a capitalist economic system were introduced. With the combination of central planning and market oriented reforms as well as the permit for direct foreign investments in special coastal areas, China's economy started to grow impressively in the following years. In the late 1990s, most of the state-owned enterprises were privatized in order to create more effective and competitive companies. This set the course for the China of today.
Through those reforms, China became the fastest growing major economy in the world and had real annual growth rates of seven to fourteen percent in the period between 1992 and 2012. In 2010, China became the world's second biggest economy after the US and is expected to become the world's largest economy by 2020.
China the trading Nation
Beside the growing demand in China's domestic market, the immense growth of China's export volume has been a key driver for the impressive growth of the Chinese economy, especially since 2001, when China entered the WTO. Thus China became the world's biggest exporter in 2010 and exported goods with a total value of 1.6 quintillion USD, which is 25 times higher than in 2000. As a consequence, the demand for resources increased dramatically, which made China the world's second biggest importer in 2009.
A change in the Industry
In addition to its impressive growth, China's leaders are planning to turn the country from the world's former working bench into a technological leading country. According to China's leaders, sustainable wealth in the future can only be reached through intensive R&D and the resulting innovations. Therefore, the government decided to promote high-tech sectors and invest in future technologies by subsidies and toll boundaries for foreign countries in the twelth fifth year plan from 2011. At the same time Chinese companies invest more and more in foreign countries to expand their roles on the world market and gain technological know-how in corporation with western companies.
Chinese Champions: A Decade of Growth and Innovation
by Philipp Böing (ZEW Centre of European Economic Research) and Prof. Dr. Elisabeth Müller (Frankfurt School of Finance & Management)
Overview on patenting in China
In the year 2012 China’s State Intellectual Property Office received 652,777 invention patent applications – 140 times more than one decade earlier. In China, three different patent types exist. Besides innovation patents, which are used for the protection of technology, also utility and design patents can be filed. The inventive step and the economic value of these patent types are generally much lower. As only 13% are filed by foreign applicants, the majority of 87% applications originated from domestic actors. Around 60% of the effective domestic patent applications are filed by firms, while the remaining share is contributed by universities, research institutes, and private inventors. These figures show that domestic firms have become the most important source of inventive activity in China’s economy.
Considering China’s geographic structure, the coastal region is leading the domestic patenting trend. The single most powerful province is Jiangsu, followed by Guangdong and Beijing. These top three provinces alone contribute more than 40% of the domestic invention patent applications. The high level of regional concentration also emphasizes the unbalanced development of China’s economy. China is today one of the top contributors to the international patent applications of the PCT system. Whereas in the year 2000 China was number 16 in the ranking of the countries with the most PCT applications, China climbed to rank 4 in the year 2012. Chinese firms, universities and public research institutes are all among the top 10 worldwide applicants in the respective category. In the ranking of firms ZTE Corporation is the worldwide number 1 and Huawei Technologies is at place 4.
Patenting activity of listed firms
Patenting is already very common among listed firms. 60% of firms listed on the stock exchanges of mainland China in Shanghai and Shenzhen had filed for at least one patent application by the year 2010. For patenting firms the average size of the patent portfolio is 29 applications with a much lower median value of just 4. As in other countries, the size of the patent portfolio has a very skew distribution. Even in the 90th percentile the portfolio contains just 33 applications. This shows impressively that the technological capabilities are concentrated in a few very well performing firms. The large influence of the state in the Chinese economy is reflected in the ownership types of the listed firms: whereas 47% of firms are in private ownership, 18% are owned by the central state and 35% by local states. However, the ownership type does not influence the propensity to patent. This propensity is identical for all three ownership categories.
The role of economic policy
The Chinese government is clearly encouraging the current patenting trend. In the function of an economic planner it first issues guidelines which provide orientation regarding how many patent applications should be filed up to a certain year and then makes sure that these benchmarks are met or outperformed. Currently around ten future-oriented national patenting targets can be found in China’s patenting policies. For example, “China’s National Patent Development Strategy (2011-2020)” sets a quantitative target of 2 million annual patent filings by the year 2015. Further, the State Council’s “Notice on IPR in Strategic Emerging Industries” advocates that by 2015, the number of international patent applications in strategic emerging industries should be tripled compared to the year 2010. To encourage patenting on the regional level, provincial governments grant patent subsidies in almost all provinces. According to China’s national patent law a reduction or delay of patenting fees is possible and should ensure that patents are filed regardless of the financial situation of the applicant. For the evaluation of state owned firms and its management the government imposed indicators which are directly related to the number of patent applications of the respective firm. Obviously, these measures do not only increase the number of domestic and international patent applications but also decrease the average quality of patent applications originating from China. This development has been widely criticized by foreign policy makers and researchers alike. Nonetheless, these trends clearly point out that the total volume of Chinese patent applications should not be mistaken as a direct interpretation of innovative performance or economic value.
Outlook
Given the current slowdown in the economic development, it is unlikely that Chinese firms can sustain the impressive growth rates of patent applications. The open question remains as to how valuable the current patent applications will turn out to be in the future. It will be interesting to see how many applications will actually be granted by the Chinese patent office and by international patent offices. Furthermore, it is currently unclear whether firms will hold on to their rights after they have to pay renewal fees. Only if firms spend their own money to keep and defend their patent rights one can assume that the protected technology has an economic value.
Sources
- Philipp Böing, Elisabeth Müller, Philipp Sandner (2013), "In-house R&D and External Knowledge Acquisition – What Makes Chinese Firms Productive?".
- European Chamber, 2012, "Dulling the Cutting-Edge: How Patent-Related Policies and Practices Hamper Innovation in China".
- SIPO (2013),国家知识产权局专利业务工作及综合管理统计月报 --国家知识产权局.
- WIPO (2013), Statistical Country Profiles.
The Rise of China
Impressive Growth
After the death of Mao, China's economic policy was affected by Deng Xiaoping. Under his leadership from 1978 on, aspects of a capitalist economic system were introduced. With the combination of central planning and market oriented reforms as well as the permit for direct foreign investments in special coastal areas, China's economy started to grow impressively in the following years. In the late 1990s, most of the state-owned enterprises were privatized in order to create more effective and competitive companies. This set the course for the China of today.
Through those reforms, China became the fastest growing major economy in the world and had real annual growth rates of seven to fourteen percent in the period between 1992 and 2012. In 2010, China became the world's second biggest economy after the US and is expected to become the world's largest economy by 2020.
China the trading Nation
Beside the growing demand in China's domestic market, the immense growth of China's export volume has been a key driver for the impressive growth of the Chinese economy, especially since 2001, when China entered the WTO. Thus China became the world's biggest exporter in 2010 and exported goods with a total value of 1.6 quintillion USD, which is 25 times higher than in 2000. As a consequence, the demand for resources increased dramatically, which made China the world's second biggest importer in 2009.
A change in the Industry
In addition to its impressive growth, China's leaders are planning to turn the country from the world's former working bench into a technological leading country. According to China's leaders, sustainable wealth in the future can only be reached through intensive R&D and the resulting innovations. Therefore, the government decided to promote high-tech sectors and invest in future technologies by subsidies and toll boundaries for foreign countries in the twelth fifth year plan from 2011. At the same time Chinese companies invest more and more in foreign countries to expand their roles on the world market and gain technological know-how in corporation with western companies.
Chinese Champions: A Decade of Growth and Innovation
