China’s Improving IP Protections Too Late to Stop Tech Rivalry with U.S.

The U.S.-China trade war began, in part, because Chinese joint venture firms were allegedly demanding that their American partners turn over critical technology to them as part of the cooperation. American companies complained about losing ownership of their intellectual property to Chinese counterparts for years before the trade war, and during the trade war, China passed the Foreign Investment Law which prohibits forced technology transfer. China has also improved intellectual property rights protection in recent years, but the U.S.-China technology conflict has moved beyond the intellectual property issue to a broader confrontation surrounding different approaches to technology uses and values.

China’s IPR improvements

China has made progress in improving its intellectual property rights regime. The nation revised and drafted four intellectual property regulations in 2020. The Patent Law of the People’s Republic of China was implemented in June 2021, and seeks to increase penalties on patent infringement and improve administrative law enforcement. The Trademark Law Amendment went into effect in November 2019, and increases punishment for trademark infringers. The revision of the Copyright Law went into effect in June 2021, and updates fines for copyright infringement. In addition, IP litigation is growing as Chinese domestic innovation also rises.

China released the 14th Five-Year Plan Notice of the National Intellectual Property Protection and Utilization Plan in October 2021. This plan aims to increase the number of foreign and domestic patents approved in China as well as to strengthen the judicial and administrative protection of intellectual property rights. Seven areas are up for improvement, including intellectual property rights and protections, the intellectual property market, public services for intellectual property, social environment for intellectual property, participation in global intellectual property governance, and organizational guarantees. The plan was released alongside the 2021-2022 Outline for Building a Powerful Intellectual Property Country.

New rivalry

The U.S.-China relationship has become more fraught since the trade war began, and the issues more complex. The U.S. government has placed over 60 Chinese companies on a investment and export blacklists. Such companies have been accused of assisting the Chinese military and the Iran defense industry, participating in surveilling ethnic minorities, and posing national security risks. The blacklist seeks to prevent Chinese firms from controlling critical technologies, and the number of Chinese firms on the list has risen greatly since the U.S.-China trade war began.

In response, China has created its own “unreliable entity list” and updated its Catalogue of Technologies Prohibited and Restricted from Export. Companies that are put on the unreliable entity list are considered to have violated national security or engaged in unfair practices against Chinese firms.

The nature of the rivalry has changed from the Trump administration to the Biden administration. The Trump administration mainly alleged that China was acting unfairly toward the U.S. in trade and business competition practices. The Biden administration has widened the scope of the conflict to a battle over ideologies, referring to China as a “dictatorship.” Companies added to the entity list under Biden have been called out for targeting Uyghur Muslims in Xinjiang. The U.S. even boycotted the 2022 Winter Olympics in China for its alleged human rights violations. Biden has also sought to unite America’s allies against China, with only mild success in Europe.

Under Biden, the U.S. government positioned itself to confront China in multiple directions. Biden announced the United States Department of Defense China Task Force in February 2021, which contains classified initiatives. The U.S. State Department moved to create a “China house” in order to monitor China’s activities abroad. The U.S. CIA formed a new unit in October 2021 focusing solely on the China threat. The China Mission Center will “further strengthen our collective work on the most important geopolitical threat we face in the 21st century” according to CIA Director William Burns.

Unlike the U.S., China looked inward to buffer itself against new technology threats and geopolitical tensions. The nation became more protective of its own data security over this period. The Data Security Law, which came into force in September 2021, increases cross-border data requirements and data services requirements. A third version of the Personal Information Protection Law was passed in 2021, further regulating the collection, storage and use of personal data. China also cracked down on algorithms, monopolistic behavior by a tech company, and food delivery platforms.

Just a few months after China’s State Administration for Market Regulation slapped fines on Alibaba for failing to obtain regulatory clearance for past equity investments, Didi, China’s largest ride-sharing company, was ordered to stop signing up new users just days after listing on the New York Stock Exchange for its alleged violations of cyber security rules. Many U.S. investors feared that this, as well as new regulations, sought to restrict the role of Chinese technology firms overseas.

Most recently, the Cyberspace Administration of China exacerbated these fears by increasing oversight of plans by Chinese platform firms to list overseas. Firms with over one million users are required to apply for cybersecurity reviews before submitting listing applications to foreign stock market regulators. This will make the process of listing overseas more challenging for technology companies.

Biden administration on a roll

The Biden administration, which some experts believed would end the trade war with China, has not only maintained the trade war but upped the ante politically, widening the state apparatus of monitoring and potentially confronting China and deepening the ideological divide. The boycotting of the Olympics symbolizes the new American political dogma regarding China, which has moved beyond technology to a broader conflict over social values, particularly freedom.

The result of this greater entanglement has been to worsen technological ties, generating suspicion on either side about motives and intentions on this front. If the Biden administration was at all interested in reducing antagonism with China, this direction was taken carelessly, with little mind to the fact that moving the dispute away from the technical and toward the ideological has never been effective in addressing U.S.-China conflict. Hence we can only expect the technological divide to grow under Biden, and it is possible that China will sooner or later have a response that is stronger than the domestically-oriented crackdown it has so far implemented.