COMBATING CHINESE THEFT OF INTELLECTUAL PROPERTY

China’s theft or forced transfer of intellectual property and technology is a growing concern among governments and businesses worldwide, but it has been a particular concern in the United States and Europe. It is estimated that China derives 8 percent of its gross domestic product from the illegal theft of intellectual property rights.

Forced Joint Ventures

China is one of the largest consumer markets in the world. It is obvious that foreign companies want to tap the huge potential that more than 1 billion consumers have to offer. However, the Chinese government is very restrictive. It does not allow foreign companies to easily enter into the market. Foreign companies are forced to enter into joint ventures with local corporations. As a result of these joint ventures, many foreign companies are forced to reveal their technology secrets to their Chinese counterparts. It is not uncommon for Chinese companies to break off these joint ventures unilaterally in a few years. Since they gain the technological know-how, they start competing with foreign companies and with the help of the government are able to stay ahead of the competition.

Disguised Capital Funds and Shell Companies.

Chinese involvement in acquisitions and investments, particularly in high-technology startups, have allegedly been hidden to obscure ties to foreign organizations.

Chinese Cyber Security Law

China has launched a very controversial cyber security law in 2016. As per the provisions of this law, Chinese government officials have the right to decide whether or not any technological company poses a threat to Chinese national security. Once they determine that a certain company is not complying with their norms, they can launch an investigation. Also, they have the right to seize any intellectual property of any company working within the boundaries of China. Many foreign companies are seeing this as an invasion of privacy. It is being seen as a surrogate way that the state has devised which will allow it to replicate or seize foreign intellectual properties. Many organizations have expressed concern over the extremely intrusive nature of the laws that have been passed. However, the Chinese government seems to insist saying that the purpose of the new law is only to prevent the misuse of data belonging to Chinese nationals. China has been citing the intrusive policies that companies like Google and Facebook use to gain access to sensitive information about their customers. According to the Chinese government, the average internet user is not vigilant about the value and usage of this data. It is for this reason that the government needs to guard this data.

Hacking and Data Thefts

China has engaged in commercial espionage, including state-directed hacking, to strengthen domestic industries. Chinese technology companies and state-owned enterprises have reportedly assisted in some of these activities. Data thefts by Chinese companies have intensified as well as increased in recent years. German experts have suggested that China has conducted industrial espionage against the car manufacturing, renewable energy, chemistry, communications, optics, X-ray technology, machinery, materials research, and armaments industries. Several cases of Chinese espionage have reached German courts, and many other cyber intrusions have been reported against German companies. Yet, most incidents do not reach the press because companies do not wish to disclose their vulnerabilities or risk business opportunities in China. In recent years, the German government has taken more aggressive defensive steps, including publicly stating that a Chinese hacking group was behind intrusions against high-technology German firms. In just one month, a single German telecommunications firm reported more than 30,000 Chinese cyber intrusions. Similar behavior also continues elsewhere in Europe and around the globe. 

Espionage

The Communist Party directs or encourages government agencies, State Owned Enterprises, private companies/individuals, and select universities to conduct espionage activities.

Counterfeit Products

Chinese companies are also famous for producing counterfeit products. Cheap copied of popular brands are manufactured and sold all over China. The law is not strong enough to allow foreign companies to sue Chinese companies and stop the sales. Hence, foreign companies loose out on the sales in China. They also have to spend a lot of money fighting intellectual property cases in China. Also, they have  to drop the price of their products in China so that they can compete with local manufacturers. However, these low priced products are smuggled to other countries. As a result, foreign companies end up cannibalizing their own sales.

The bottom line is that China’s economic policies are still very regressive. It is using its status as the second largest economy in the world to threaten and steal intellectual property from foreign companies.

What can be done

There is a need to craft a coordinated effort to combat economic espionage and technology theft. Japan, the United Kingdom, France, Australia, and Germany  have already been victims of China’s cyber economic espionage, IPR violations and technology theft. Coordinated international efforts should include establishing an international countries working group. A good place to start would be with Australia, Canada, New Zealand, the United Kingdom, the United States, Japan, France and Germany to do the following

1. Increased law enforcement information and intelligence sharing between partners. This would include joint databases and channels for sharing data on:

• Economic espionage
• Cyber espionage
• IPR theft
• Illegal Technology Transfer

2. Coordinated investigative, operational, customs enforcement, and diplomatic responses to foreign cyber economic espionage, IPR theft, and illegal technology transfer:

• Deny visas to scholars associated with economic and related crimes
• Restrict joint programs to non-critical research with universities and research institutes associated with cyber and economic espionage
• Restrict travel on carriers of those engaged in economic espionage, cyber espionage, and related crimes.
• Legitimate customs inspections for goods leaving China.    

Priority Sectors/Technologies

1.Energy/Alternative Energy

• Advanced pressurized water reactor and high temperature, gas-cooled nuclear power stations.
• Biofuels
• Energy-efficient industries
• Oil, gas and coalbed methane development including fracking
• Solar energy technology
• Wind turbines

2. Biotechnology

• Biotechnology
• Advanced medical devices
• Biomanufacturing and chemical manufacturing
• Biomaterials
• Biopharmaceuticals
• Genetically modified organisms
• Infectious disease treatment
• New vaccines and drugs

3. Defense Technology

• Aerospace and Aeronautic Systems
• Armaments
• Marine Systems
• Radar
• Optics
• Space infrastructure and exploration technology

4. Environmental Protection

• Batteries
• Energy-efficient appliances
• Green building materials
• Hybrid and electric cars
• Waste management
• Water/air pollution control

5.High-End Manufacturing

• 3D Printing
• Advanced robotics
• Aircraft engines
• Aviation maintenance and service sectors
• Civilian aircraft
• Electric Motors
• Foundational manufacturing equipment
• High-end computer numerically controlled machines
• High-performance composite materials
• High-performance sealing materials
• Integrated circuit manufacturing equipment and assembly technology
• Synthetic rubber

6.Information and Communications Technology

• Artificial intelligence
• Big data analysis
• Core electronic industries
• E-commerce services
• Foundational software products
• High-end computer chips
• Internet of things
• Network equipment
• Next generation broadband wireless communications networks
• Quantum computing and communications
• Rare earth materials