Coatings World - April 2012

The idea of subsidizing patents is not all that bad, however it does distort the truth about what’s going on in this area. You get high figures for filings, but that does not tell you anything about the quality of the patents filed. Although volume is a recognized metric that can be used to measure innovation progress, quality is quite another matter. The percentage of approved patents is still not as high in China as, say, in the U.S., Japan or some places in Europe. There is also the issue of patent classification. Before we hand over the Innovator of the Year Award to China it’s important to remember that China has three types of patent applications: invention patents; utility model patents; and design patents.

Invention patent applications are equivalent to U.S. non-provisional patent applications, while utility model patent applications (aka “petty patent” applications) do not undergo substantive examination. According to SIPO’s statistics, utility model patents and design patents together outnumber invention patents by a 5-to-1 ratio. So much for using the number of patents to signal innovation excellence. As an example, on the China-vs.-foreign front, invention patents accounted for over 85 percent in each year’s foreign applications since 2005, while China applications for invention patents accounted for 26 percent during the same period.

A review of the data indicates that intellectual property (IP) filings worldwide rebounded in 2010/2011 after experiencing a considerable drop in 2009. The recovery in IP filings was stronger than overall economic recovery. Patent and trademark filings worldwide grew by 7.2 percent and 11. 8 percent, respectively, in 2010 compared to a 5.1 percent increase in global gross domestic product (GDP).

China and the US—the two offices that accounted for the majority of worldwide growth—saw higher IP filing growth than GDP growth in 2010/2011. In the case of China, IP growth rates were more than double its GDP.

While China patent details are sketchy, it would appear that the number of foreign applications in China for invention patents in 2011 rose about 20 percent

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China

from 2010, although the number of approved foreign applications dropped. However, domestic applications experienced a large leap—Chinese applications were the majority of all invention patents granted in 2010 and 2011.

There is little doubt that today China is pursuing a national plan to become an economy based on innovation rather than imitation. To that end, China has in recent years, become the most prolific patent filer in the world. The Chinese plan calls for its corporations and individual investors to file two million patents by 2015. If achieved, this number of patent filings would dwarf the current filing rate in the United States.

To support this robust patent target China has increased R&D expenditure from 1.1 percent of GDP in 2002 to 1.4 percent of GDP in 2011. China’s goal is to invest 2.5 percent of GDP by 2020. The U.S. R&D expenditure for 2011 was 2.7 percent of GDP. China’s current share of the global R&D expenditure was 12. 3 percent in 2010, which was tied with Japan for second to the U.S. whose share was 34. 4 percent. In 2011 we saw the US share decline to 34 percent, while China increased its share to 12. 9 percent (see Table 1).

You might ask, “What is driving China to become the great innovator”? Perhaps that answer can best be described as success. China’s journey from a seriously poor, lack of self-sufficiency economy to the “supplier of the world,” took a bit more than two decades to achieve.

Today, less than a decade after achieving this feat we see China struggling with the fallout from having achieved this high degree of success. With the emergence of a genuine middle class China is experiencing the end of cheap Chinese labor. Blue-collar labor costs in areas such as Guangdong and other coastal hubs have been rising at double-digit rates for a decade with no letup in sight. Even workers in remote areas of China are demanding and receiving huge pay increases.

Foreign companies are discovering that China is no longer a place where manufacturers can go to find ultra-cheap labor. Today, other countries, such as Vietnam, are proving to be much cheaper in regards to labor cost. In case you might be wondering, this labor cost trend does not mean that foreign companies will close their China-based factories and stampede to other, lower labor cost countries. Obviously some will but most won’t. As it turns out, China is still a terrific place to make things. Labor may be cheaper elsewhere, but it is only one element in a basket of cost items. Unlike its lower-paying rivals, China has developed reasonable infrastructure, highly sophisticated supply chains and the advantage of scale. Unlike experiences with other countries, when demand surges for a particular product, the larger, more sophisticated firms in China can add thousands of extra workers to a production line in a matter of hours, a feat that even the U.S. cannot accomplish.