Does the Peri minicar (left), built by China's Great
Wall Motor, look remarkably similar to the Fiat Panda (right)?


A Turin court was in no doubt last month when it barred the Peri from being sold in the E.U., after an appeal by Fiat. Yet unsurprisingly, Great Wall Motor was able to shrug off the Italian court's decision, because a few days later a Chinese court dismissed the claim filed by Fiat in China alleging the GWPeri model was an infringement of its patent.

The Peri/Panda case is by no means the first claim of imitation against Chinese auto makers. In 2006 The Times described at length how the likes of General Motors, Rolls-Royce, BMW, DaimlerChrysler, Honda, Audi, Nissan, Toyota and Mercedes-Benz have all had to fend off a so-called attack of the clones from Chinese manufacturers like Chery, Shuanghuan, Hongqi, Geely and JiangLing. Some analysts have even concluded that Western manufacturers have to accept copying as part of the price of doing business in China, like Honda concluded when it lost half of its motorcycle manufacturing market share in China to cheaper Chinese immitations. Staying in China, Honda decided, required entering into partnership with some of the very companies copying its bikes. 

Yet with the steady growth of the Chinese car market, China is no longer producing just lower-value clones. Chinese brands have grown to the point that 57% of all vehicles sold in China in 2006 were from local manufacturers, and in March 2006 Chery Automobile became the first Chinese auto maker to top the domestic car sales list. To actually break in to markets overseas, however, and to overcome their disadvantages in product and business model innovation and manufacturing quality, Chinese car makers have to make a quantum leap across the automotive value chain, enhance quality standards while developing unique models. While positioning itself for exports, Chery has been co-operating with global design and engineering experts and is now boosting exports to markets such as Egypt, Italy and Russia.

For many years regarded as low-end, unreliable brands, Chinese auto manufacturing is experiencing a gradual coming of age with the global emergence of Chery, and with the growth of the market in China and government encouragement of R&D, China will gradually lose its knack for manufacturing cheap clones.

Additional sources:
China. An Automotive Industry on the Verge (Accenture)
Shaping the Future of China's Auto Industry (McKinsey)
Foreign Technology in China's Automobile Industry (China Environment Series)

Images:
http://blogs.automobilemag.com (Panda)
http://www.cnnauto.com (Peri)

This year's World Intellectual Property Day on April 26 focused on celebrating innovation and promoting respect for intellectual property (IP). In his message to mark the eighth World IP Day, World Intellectual Property Organization (WIPO, of which China is also a member state) director general Dr. Kamil Idris hailed the growing popularity of World IP Day, and explained what IP has to do with the really big issues like global warming or the things that add spice to life:

Without Intellectual Property Rights (IPRs), many new technologies developed to tackle global problems would never see the light of day and the great sporting events, which entertain and unite us, would not be broadcast into homes across the globe.

With the added significance of the greatest sporting event taking place in China this year, China's role in protecting the things that add spice to life remains a hot issue. To illustrate its achievements as well as its determination with IPR, China welcomed IP Day this year by means of a Book Burning, where as many as 47 million pieces of pirated and illegal publications were destroyed across China.

Despite the evident importance attached to protecting IP in China (IPR guidelines were last month approved by the State Council in lieu of a national strategy) and the series of campaigns launched in recent years against crimes related to the infringement of copyrights, trademarks and patent rights (more than 4,300 people were tried and convicted on IPR infringements in 2007), the 'Special 301 Report' on the global state of IP (annually produced by the Office of the U.S. Trade Representative) described China as troublesome for failing to protect U.S. patents and copyrights. From an article at Industry Week, the Special 301 Report emphasized China's overbearing role in a sophisticated global counterfeiting network (citing estimates from U.S. copyright industries that up to 95% of their members' products sold in China are pirated), and attributed this to inadequate IP rights enforcement and high criminal thresholds in China. (See also Business Week on the fifth annual Global PC Software Piracy Study and its findings on the pronounced rates of software piracy in second and third-tier Chinese cities).

European Commission president Jose Barroso in March claimed that China is the source of 80% of all fake goods in the world, and while acclaiming the concrete steps taken by the Chinese government to rein in rampant counterfeiting in China, State Intellectual Property Office spokesman Yin Xintian acknowledged last month the uphill struggle against piracy in China, where an IPR protection system has only existed for a relatively short time of about 20 years. Yet as China Esquire urges, China's apparent predominance in global IP violations should be seen in the context of its large population, and in fact the Chinese government should be commended for its determination to enforce IP regulations:

Yes, there is always much more to do. But we are talking about stemming a flood...It will take a LONG time before IP is as highly regarded as it is in America... But for now, can we just applaud the government's efforts?

And for now, moreover, the U.S.-China Business Council recommends (link from Thomasnet.com) any successful China IP protection strategy to have both defensive and offensive elements, with companies required to combine all the necessary preventive measures (i.e. rigorous auditing, educating of employees and speedy registering of works) with devoting time and resources to detecting violations and taking legal action, because

A company's legal rights mean little in China unless the company chooses to protect them.

Three cases in the news this week highlight the precarious nature of Intellectual Property (IP) regulation in China.

The Financial Times (see also TIME) reported Tuesday of the ongoing saga involving Chinese glue-making company Magpow and its chairman Yuan Hongwei, who stands accused in the U.S. of trying to register more than 221 trademarks in China, most of them well-known brands such as UTT, Castell, Araldite and Super Glue. U.S.-based industrial adhesive manufacturer Abro has been engaged in a global campaign against Magpow's blatant display of corporate identity theft since 2001, yet the day before he was due to appear in a London court facing extradition to the U.S. earlier this month, Yuan Hongwei published an open letter on the internet thanking the people and government of China, who had just assisted him in returning home to the 'embrace of the motherland' after he was apparently 'tricked' into flying to the U.K.

In somewhat contrasting news, The New York Times reported Friday of Zhongyi Electronic Ltd., a small Chinese high-tech firm, who are suing Microsoft who they say have been using its Chinese language input technology and fonts in Windows operating systems without commercial agreement for over a decade. Microsoft has refuted the claims, saying it fully performed its obligations and that earlier license agreements had given it the right to use the technology. The China Business Law Blog (blocked on the mainland) recently also did a posting on the developing story of how Microsoft this month was dealt another blow when the China Trademark and Patent Office (CTPO) rejected its opposition of the registration of the trademark "Windows" by a Ningbo eye glass company.

While this illustrates the difficulties foreign enterprises could often face in protecting their intellectual property in China, a September 2007 World Intellectual Property Organization (WIPO) study on the economic impact of IP systems in China (available here) cast some light on the interplay of factors complicating IP in China. From 1992 to 2003, the report states, Chinese imports of high-tech products far exceeded exports, and local companies' high-tech imports were less than a quarter of those of foreign funded enterprises. Hence local companies, in lack of essential patents, find it harder to break out of low value-added processing trades.

Typically, the authors (both from the Law School of Peking University) concluded, Chinese companies use IP and "seek protection for defensive purposes," yet even successful companies "have not yet grown strong enough to bear the cost and risk inherent in R&D in China." Although "expanded sale" can induce R&D investment,

With limited net income and limited experience in managing R&D activity, concern is raised as to whether domestic companies could successfully make and commercialize innovation before being thrown out of the market or simply being absorbed by foreign companies.

This analysis would suggest that while both sides can appreciate the value of IP, Chinese companies can easily view the status quo of IP as a barrier and unfair disadvantage in the face of rising costs, which is just one more issue complicating IP protection in China.

China’s State Intellectual Property Office (SIPO) launched its first ever “Patent Week” on friday, reports Xinhua. As part of the drive, trade fairs, exhibitions and lectures will take place in Beijing and 20 other provinces and municipalities including Tianjin, Shanghai and Jilin. In 2006 SIPO accepted 573,000 patent applications, a 20.3 per cent year-on-year increase, of which 210,000 were patent applications for new inventions.

Counterfeiting and IP have become hot issues in U.S.-China relations recently, especially with the perception that the Chinese government is not active enough in stemming the tide of counterfeit products emanating from China. Yet as The Economist recounts, there are visible signs of progress, and there are signs of retreat and cynicism. In essence the situation varies from industry to industry.

According to Chinese government statistics the number of criminal cases relating to intellectual property rights fell by 35 per cent in 2006, and the regulations regarding investigations and prosecutions are cumbersome and painfully bureaucratic. Yet as Chinese products become more sophisticated the costs of having no property rights become increasingly apparent. The availability of innumerable cheap foreign products is undoubtedly holding back the development of domestic industry, and Chinese firms increasingly have brands and technology they want to protect. Patents filed by Chinese companies overseas rose by 58 per cent in 2006, making China rank third only behind the U.S and Japan in terms of patent applications. Yet government officials eager to have China create advanced products have come to realise that no-one will create anything without stronger levels of protection.