July 23, 2021

In Brief: China’s Intellectual-Property Theft

Congress must protect new intellectual property while promoting its development.

China poses the greatest geopolitical threat to the U.S. and the entire free world. One key element of that threat, says American Enterprise Institute fellow Derek Scissors, is the rampant theft of intellectual property.

The most important dimension of U.S.–China relations is technology, which is vital to economic, military, and even ideological competition.

In the economic competition, the main American challenge is not, as is sometimes implied, inadequate innovation. The U.S. is the world’s wealthiest country by tens of trillions of dollars. The number of U.S. patents granted to Ameri­cans set a record in 2019 and nearly matched it in 2020. That more than tripled the number of patent granted to second-place Japanese filers in our market.

The main challenge is not even Chi­nese innovation. Beijing’s preference for large firms and state funding at the expense of genuine competition ensures it will struggle in key areas, from aircraft development to shale. The main challenge is China’s acquisition of intellectual property (IP) and use of regulatory and financial subsidies to develop products from that IP to drive the U.S. out of global markets.

There are legislative solutions being debated, and the White House can play a role too. But the bottom line is that it’s up to Americans to safeguard American technology and intellectual property against inevitable attempted theft by Chinese communists.

That the People’s Republic of China (PRC) will continue seeking to acquire American research is not seriously debatable. The U.S. Department of Justice reports that 80 percent of its economic-espionage cases involve the PRC. There are multiple documented cases of Chinese trade-secret theft for almost every year this century, from Datang’s receipt of information stolen from now-defunct Lucent in 2001 to China State Nuclear Technology’s receipt of information stolen from Westinghouse in 2010 to X-Motors’ receipt of information stolen from Apple in 2019.

In the area of capturing personal data, Chinese hackers attacked the Office of Personnel Management starting in late 2013 and Equifax in 2017, among other incidents. Theft of military secrets is nominally a separate topic but is related to commercial theft and appears to be extensive. Technology with dual military and commercial uses must be transferred on demand from Chinese firms to the People’s Liberation Army under the PRC’s much-discussed “military–civil fusion,” a policy and a term created by the Chinese government. It also must be transferred on demand to any other entities the Chinese government considers suitable. When confronted by the government, there is no recourse for a Chinese firm holding American IP.

Despite this pointed and multifaceted threat, almost no Chinese beneficiary of illegal IP acquisition has faced even the mildest of consequences (that are publicly known).

“The PRC’s record is clear: New technology is not primarily a means to improve people’s lives; it’s primarily a means to enhance party supremacy,” Scissors concludes. Therefore, “The U.S. must be far better at countering the PRC at both the acquisition and the sales stages, or American research success will again lead to Chinese economic and strategic success.”

Read the whole thing here.

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