New IP protection in China? No time soon

Now that China has passed its first private property law in the Communist era, one might hope that true intellectual property (IP) protection for companies in the electronics supply chain might become a fact of business life.

The landmark legislation, approved late last week, was designed specifically with several constituencies in mind – the growing middle class real estate owners, private auto owners and entrepreneurs whose livelihoods depend on IP protection. But don’t hold your breath waiting for anything like real legal IP protection in China.

There are several reasons IP is likely to remain at risk. First, enacting a law will not change a decades-old mindset regarding individual versus collective rights. Second, the infrastructure for investigating and enforcing IP laws is in its infancy. Third, local judges have a great deal of authority in these cases and it is not clear how they will react.

In short, China is still the Wild West when it comes to IP protection. For more on this topic, see the article I wrote for Electronic Business magazine a year ago. Also see last year’s TFI Q2 Quarterly Forum Report, “Manufacturing Migration.” Things have not changed significantly in a year, and won’t anytime soon just because of this new law.

Consider one data point: Just last month, Susan Schwab, the U.S. trade representative, estimated that 80 percent of the pirated and counterfeited products that are seized at U.S. borders by the customs service come from China.

If an electronics OEM were to decide between China and India strictly on the basis of IP protection, India would be the better bet. India has a long-established English legal system, and is attempting to strengthen enforcement and speed litigation.

Until enough Chinese entrepreneurs have their own IP to protect, don’t expect an all-out effort by Chinese authorities to enforce the laws. IP protection will be for the foreseeable future one of the risks that any electronics company must weigh when deciding if and what to outsource to China.

Tell us what your experience has been in China.

Posted by Bill Roberts, March 23rd, 2007