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China Attempts to Shake Off 'Copycat' Stigma

Michael Kearns|Deputy Head of News, CNBC Asia Pacific
Monday, 1 Nov 2010 | 8:41 PM ET

Paris, Milan, New York, London...Beijing? Chinese designers would certainly like to see their runways join the ranks of the world's best, and they're using China Fashion Week, their annual showcase, to make a statement - from the bold to the bizarre.

Models walk the runway during SCFASHION Qi Gang 2011 S/S Collection at China Fashion Week on October 30, 2010 in Beijing, China
Getty Images
Models walk the runway during SCFASHION Qi Gang 2011 S/S Collection at China Fashion Week on October 30, 2010 in Beijing, China

To make the leap into fashion's big leagues, China's designers will have to shake off the notion in fashion circles that Chinese designers are better at copying than creating. Last year's fashion week caught the attention of international fashionistas for all the wrong reasons - namely, an embarrassing case of copycats on the runway.

This problem, you might call it an innovation gap, isn't unique to the fashion industry in China. The government has identified for some time the need for China to become a place where technologies and products are conceived and created, rather than merely replicated. Of course, it should come as no surprise that the government has a plan for it.

In a government document published in 2006 with the (less-than-inspiring) title of "The National Medium-and Long-Term Plan for the Development of Science and Technology (2006-2020)" (often abbreviated as MLP), the government starkly recognizes China's challenges, declaring, "despite the size of our economy, our country is not an economic power, primarily because of our weak innovative capacity." The plan, more commonly referred to as 'Indigenous Innovation', calls for a "great renaissance of the Chinese nation" and for the Chinese people to "seize the opportunities and meet the challenges brought by the new science and technology revolution."

"Indigenous innovation is a massive and complicated plan to turn the Chinese economy into a technology powerhouse by 2020 and a global leader by 2050,' writes James McGregor, senior counselor to APCO Worldwide in a sweeping new report.

However, McGregor highlights a critical flaw. "The MLP explicitly states that a key tool for China to create its own intellectual property and proprietary product lines will be through tweaking foreign technology," he writes. He points to one passage that "defines indigenous innovation as 'enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies.'"

McGregor's analysis comes with an ominous warning. "As a result, the plan is considered by many international technology companies to be a blueprint for technology theft on a scale the world has never seen before."

In fact, there has been a series of incidents recently involving the theft of trade secrets with Chinese connections. The U.S. Justice Department launched an intellectual property task force earlier this year to focus solely on these cases. In August, a Chinese man with permanent residence status in the U.S. was arrested and charged with stealing trade secrets worth $300 million related to insecticides from a unit of Dow Chemical to allegedly benefit the Chinese government. In June, a couple in Michigan was accused of stealing secrets about General Motors' motor control system for hybrid vehicles to sell them to a Chinese automaker.

The Chinese government maintains it is doing its part to protect intellectual property rights (IPR) — a claim that is greeted with skepticism in Washington.

"There's a widening chasm between what we hear from the Chinese government about IPR protection and what we know to be true," Rep. Sander Levin, a Democrat from Detroit, told a recent Congressional hearing.

Yet, some point to evidence that China's plan is driving innovation and increasing its participation in international intellectual property rights conventions. A report published in September by the World Intellectual Property Organization (WIPO) showed how China's patent and trademark applications soared during the global financial crisis, while many more developed economies saw drops in their applications. The reports authors see this as an indication of a significant global shift in innovative powers.

"The post-crisis innovation landscape will invariably look different from that of a decade ago," said Francis Gurry, WIPO's Director-General, in an introduction to the report. "China is moving up the value chain and rapidly increasing exports based on domestic innovation, so inevitably it is filing an ever-growing number of patent applications."

In his report, McGregor says don't be too impressed by the numbers.

"China’s patent regime has been tailored to help accomplish two major indigenous innovation goals. One is to incentivize Chinese companies to file patents that contain little substance so that they can learn the patent process for later filing of real invention patents," he writes. "The other is for Chinese companies to be able to use domestic patents to retaliate against foreign companies which file intellectual property infringement lawsuits offshore that stymie the international expansion plans of Chinese companies."

And so there's an apparent disconnect between China's recognition that it needs to innovate, and its ability to consistently deliver on that goal. The Chinese supercomputer, billed as the world's fastest, unveiled in the past week illustrates this. The headlines blared that the news signaled that China's technological prowess was on the rise. However, lost in the hype was the fact that the computer was built on technology from US chip-makers Intel and Nvidia.

(Reuters contributed to this article)

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