What to do about China? It is the world’s second-largest economy and our second-largest trading partner, after neighboring Canada. Yet it remains the wild, wild East of the global economy, a place arguably more dangerous than anywhere else in the world for innovative U.S. companies to do business.
If likely president-to-be Xi Jinping is interested in improving bilateral relations, as he suggested during a recent visit to America, then addressing that problem would be an excellent place to start.
As things stand today, a troubling gap in the rule of law between China and the West costs America as much as $100 billion annually in sales and exports, at the expense of more than 2 million jobs. Those estimates come from the International Trade Commission, which investigated how American products that are supposed to be protected by copyrights, patents and trademarks — everything from software to pharmaceuticals to brand-name clothing — are instead being misappropriated on a jaw-dropping scale in the Chinese marketplace.
The Obama administration has won a series of commitments from Chinese officials to crack down on this rampant intellectual property theft. But a recent case of software copyright infringement gives a small glimpse of what will be involved in bringing real law and order to China’s anything-goes commercial sphere.
A Shenzhen-based online gaming company called ZQ Game was found to be working with unlicensed copies of software programs made by U.S.-based Adobe Systems and Autodesk. But rather than cooperate with a court-authorized investigation and copyright infringement suit filed on Adobe and Autodesk’s behalf by the Business Software Alliance, the chairman of ZQ Game flew into a rage. He called a meeting on the pretense of negotiating a settlement and then demanded that the infringement suit be dropped. He lashed out at the BSA’s lawyer for having the temerity to pursue legal action against his company and then beat her over the head with a chair, inflicting injuries that kept her in the hospital for more than a week.
Local law enforcement at first appeared to shrug this off. It was only after a series of appeals to higher authorities in the city of Shenzhen, the local courts and the U.S. Consulate that the intimidation stopped and ZQ Game’s chairman agreed to compensate the lawyer for her injuries. The original case of copyright infringement is ongoing. Its outcome remains to be seen.
This is an extreme example, to be sure. But ineffectual enforcement of intellectual property laws in China appears to encourage a general disregard for them.
That helps explain why market research firm IDC estimates that nearly eight of 10 software programs installed on PCs in China are pirated.
China’s governing State Council seems determined to advance intellectual property protections at its own halting pace. But it recently signaled it would make a series of policy changes that could be noteworthy. The State Council intimated it would revise copyright laws and related criminal and civil procedures, and said it would start holding government officials responsible for more effectively enforcing intellectual property violations.
Perhaps most significantly, the State Council also said it would create a new national office under Vice Premier Wang Qishan to coordinate enforcement efforts. This is encouraging. But bridging the legal gulf that now separates China from most of the world’s advanced economies will require Mr. Wang, encouraged by Mr. Xi, to strengthen every link in the chain of intellectual property enforcement. Authorities need to send a stronger signal of deterrence so that end users like ZQ Game start showing a higher regard for the law.
Originally posted in the San Jose Mercury News on March 20, 2012.