Quick China Facts: China is running a trust deficit abroad.
Views of China are largely negative in 24 countries where Pew Research Center conducted a survey in the first half of 2023. A median of 67% people have a negative view of China, compared to just 28% who harbor a favorable view of China. Negative views of China extend to the Chinese isolation in international politics. Even though the Chinese state has contributed to brokering a peace deal between Saudi Arabia and Iran. Issuing a 12 point plan for ending the Ukraine war. A median of 71% people do not see China as a participant in International fora. People also tend to view China as not abiding by the interests of those countries it directly interacts with. For a country that sees itself as the next power these are worrying signs.
China in Headlines
Friday the 29th September, 2023 marks the start of the mid-Autumn Festival. Generally, this is a very lean and slow China week but economic, and diplomatic tensions mean it will be a week to watch out for. China also lost a rank in recently released GII to be placed 12th this has happened for the first time since the GII rankings have been released. Not very festive for the policy wonks in Beijing.Also, the economic indicators from this festival are important and till now the discretionary consumption has been on the low side.
President Xi delivered a speech at the National Day banquet, breaking tradition. Till now it was the premier who was tasked with it. Xi reiterated the 5% economic target. The wording made it clear it is not open to negotiation.
The Party Central Committee headed by President Xi has released a five-year plan for anti-graft campaign. This is far reaching as it looks to extend the scope of anti-corruption to areas such as social security, food and drug safety, and law enforcement. This makes it one of the largest organs of the internal security apparatus.
Lan Foan (蓝佛安) the Party Secretary of Shanxi Province has been moved to Ministry of Finance in a move which is seen as replacing Liu Kun. He has not taken charge but will soon. This is important as Lan has more experience in navigating provincial finance and will be useful in managing the local debt minefield. It is interesting as Shanxi has just wrapped up a massive financial corruption case of the “Deyu Group”, it had financial institutions and regulators involved. The incoming regime change in finance ministry will mean another round of corruption crackdown.
As part of the corruption crackdown China kicks up a storm by prosecuting for corruption a former vice-governor of the Central Bank. The prosecution notice has been filed.
China is stepping up efforts to crack down on telecom fraud and transnational crimes, it is exploring to do this in association with Southeast Asian countries.
The Asian Games in Hangzhou have seen the Chinese charm offensive to the participating 40 nations. The charm offensive is not really working on all of the countries. Especially as one of the invitees in a surprising move was Bashar-al-Assad.
Beyond The Great Wall
Exploring News About China in Depth
The Chinese super fund known as the China Integrated Circuit Industry Investment Fund, referred to as the Big Fund. The fund was established in 2014 and was instrumental in President Xi’s vision for self sufficiency in tech race, though the central government recently okayed the third round of funding to the tune of $ 41 Billion, however the Ministry of Information & Technology has not been able to raise this money. This is a sign of the deeper economic malaise that China finds itself in.
The industrial profits of China continue the slump, but the contraction has slightly improved to 11.7% year on year contraction from the 15.5% reported in the first seven months. The data is being seen as demand being stabilized and signs of recovery in some businesses.
Chinese currency is being used by the Russians to evade sanctions. The report from EBRD highlights that Russia has become the third largest clearing center for offshore Yuan transactions. These transactions are prominent for sanctioned goods and dual-use equipment, they can be used for civilian use, and for making weapons. The report ends making a cautious point about this trend might lead to a greater fragmentation of global payment systems.
China’s propaganda might have led to a novel innovation in farmed seafood coming to light, in a place without sea. Following the Beijing led and spread rumors about the Fukushima water release and subsequent impact on the Japanese seafood import, businesses started looking for alternatives and found one in Xinjiang.
Chen Jiazhen in 2012 developed microbial agents to act as fish fertilisers in Guangxi Zhuang Autonomous Region, resulting in an innovation patent. The system relies on microorganisms and circulation systems to transform Salt Lake water into a seawater system for sea fish breeding, the road was not always easy and after multiple failures it was only in March 2022 they succeeded in creating a system that can support the growth of baby fish. The company plans now to scale up production drastically, the amount of saline-alkali land in China means it could be a game changer for the Chinese dependence on food import in the middle-long term.
Large Language Models are set to take Chinese small hospitals, and small cities by storm. Hospitals have been using LLM’s to assist in treatment and diagnosis, but this is going to increase as the Chinese internet giant Tencent which has released many medical AI application products and is looking to expand. This comes as Weimai Technology debuted CareGPT, for health management last month and markets report in China state that other large firms are exploring options.
Nikkei Asia has reported that the Japanese firm Mitsubishi motors has decided to cease automobile production in China. Though Mitsubishi only had one plant in Hunan, this will signal to other Japanese firms to re-orient their Chinese strategy as the Chinese EV market is largely homegrown or going that way.
The Chinese buyers are not voting with their wallets in favor of the property market. There is intense focus on getting the property market back on track, but the interest is not picking up even in trendiest districts of Beijing. This marks a cautionary roadblock in getting the property market back in order. The fact that the police have placed under control the former boss of Evergrande will likely signal caution in builders, and other property related businesses.
Reportedly Fang Xinghai is set to leave the China Securities Regulatory Commision (CSRC). On Wednesday Chen Huaping was named a vice chairman of the China Securities Regulatory Commission. Chen, 55, served as the chairman of the board of Shenzhen Stock Exchange. The vacancy at CSRC was created by the retirement of Zhao Zhenping who was responisble for investigations, futures, and technology sector.
The NPC Observer analyses the change in legislative plan that was released recently.
On September 7, China’s national legislature, the 14th NPC Standing Committee (NPCSC), released its five-year legislative plan (Plan or New Plan), setting the contours of its legislation through 2028. As a refresher, the Plan includes 79 top-priority projects in Category I, 51 lower-priority projects in Category II, and about a dozen topics for potential legislation in Category III.
The following 17 uncompleted Category II projects in the Old Plan have been upgraded to Category I projects in the New Plan. This is not surprising as 13 of them (at the top of the list) have had a draft open for public comment, and a fourteenth (revision to the Enterprise Bankruptcy Law) had been tentatively scheduled for deliberation before it was taken off the agenda at the last minute (for reasons unknown).
Academic Degrees Law [学位法];
National Parks Law [国家公园法];
Road Traffic Safety Law (Rev.) [道路交通安全法];
Energy Law [能源法];
Metrology Law (Rev.) [计量法];
Arbitration Law (Rev.) [仲裁法];
Villagers’ Committees Organic Law (Rev.) [村民委员会组织法];
Urban Residents’ Committees Organic Law (Rev.) [城市居民委员会组织法];
Commercial Banks Law (Rev.) [商业银行法];
Law on the People’s Bank of China (Rev.) [中国人民银行法];
Maritime Law (Rev.) [海商法];
Teachers Law (Rev.) [教师法];
Mineral Resources Law (Rev.) [矿产资源法];
Enterprise Bankruptcy Law (Rev.) [企业破产法];
Law on the Oversight by the Standing Committees of People’s Congresses at All Levels (Mod.) [各级人民代表大会常务委员会监督法];
Lawyers Law (Rev.) [律师法];
Product Quality Law (Mod.) [产品质量法].
The Politburo met and discussed WTO reforms and at the same time discussed the issues of protection of Chinese economic interest. The meeting discussed upgrading goods trade, innovate in services trade, and to develop digital trade. President Xi spoke about the importance of participating in the reform of WTO. The rights of the global south and China must be defended at the WTO. The statement is interesting for its defense of globalisation, and free trade. The meeting was duly attended by Shen Yiqin, Wu Zhenglong, and Wang Xiaohong.
De/Cypher Opinion Piece:
China Has More Patents Than Ever, Is It Really Innovating?
Patents are often seen as a measurement of innovation as they secure exclusive rights to an invention. Overseas patents and the location of inventors in foreign countries can be useful in determining where the technology is being developed or exploited. Patent families are another means of assessing patent quality across borders and exploring what these patents reveal about innovation. A patent family is a group of documents that are filed for the same invention at different patent offices. For instance, in the Triadic patent family, patents are filed simultaneously with the three large economies in the world: the Japan Patent Office, the US Patent and Trademark Office, and the European Patent Office. This joint filing provides broader intellectual property protection and greater opportunities for inventors to generate revenue globally. However, the downside is that obtaining triadic patents is much more difficult and expensive compared to domestic applications. Not all patents have commercial utility, and companies and research institutions may file patents with no intention to exploit them. Therefore, it is crucial to understand the importance of the relevant technology in assessing any sector-specific challenges.
Chinese patent data presents unique challenges for those who want to extract meaningful insights from it. While the data has the potential to offer valuable data-driven insights into China’s approach to innovation, its technological competitiveness in various sectors, the role of state planning in intellectual property, the impact of subsidies on patenting, regional strengths in China’s innovation system, and its position in standards-setting activities, it is frequently misinterpreted and thus demands multidisciplinary expertise. While the growth in domestic patent applications in China is impressive, comparing patent applications and grants between countries does not take into account differences in government policies and the domestic regulatory environment. In China, the National Patent Development Strategy for 2011 to 2020 explicitly equated patent generation with innovation and called for government incentives to increase the number of domestically filed patents. The strategy was developed to enhance China’s core competitiveness, focus on utilizing the patent system and resources, improving the capacity to master and utilize the patent system and patent resources, improve the IP review mechanism, increase patent examination capacity along with improving patent laws in the country and patent related policies. As a result, many CNIPA patents were awarded for small design tweaks and incremental changes rather than entirely new inventions.
China became the first country in the world to file over 3 million patents in a year. In 2022, Chinese inventors filed a total of 4.21 million invention patents, with 3.28 million being held by mainland China. As per the National Intellectual Property Administration (NIPA), the number of high-value patents increased by 24.2% YoY to 1.32 million. This reflects the improvement in the quality of China’s intellectual property invention. To qualify as a high-value patent, it should relate to strategic emerging industries, be valid for over 10 years, or have won a state award. The Chinese government has set a target of 12 high-value invention patents per 10,000 people by 2025 as part of its 14th five-year plan. China considers intellectual property as a strategic resource for national development and a core element of global competitiveness.
China has made remarkable progress in innovation, moving from the 35th position in 2013 to 12th in the Global Innovation Index, 2023 world rankings. It has been one of the top climbers of the decade. Despite dropping one rank from last year, China remains the only middle-income economy in the top 30 innovative countries worldwide. Also, the country retained 3rd place in the South East Asia Oceania region and the top spot in the upper middle-income group.
While China processes the greatest number of domestic patent applications annually, it lags behind the United States and Japan with respect to triadic patents. According to the OECD, in 2020, China had only 5,897 triadic patents compared to 13,040 for the United States and 17,469 for Japan. This disparity is due to Chinese residents filing mostly domestically. In 2021, Chinese patent seekers filed 92.7 per cent of their patent applications domestically through the CNIPA, and only 7.3 per cent filed abroad. This suggests that many of these patents do not meet the more stringent requirements of the international patent system.
China has made significant progress in filings through the Patent Cooperation Treaty (PCT), increasing from 782 in 2000 to 70,015 in 2022 according to CNIPA. China has been the global leader in PCT application volume since 2019 when it surpassed the United States. However, it is important to note that PCT applications only provide a license to file a patent application in another country and do not necessarily mean that an overseas patent has been acquired.
China has been known to produce a high volume of patents without necessarily improving their quality. However, there have been recent developments showing that China is making progress in producing innovative and cutting-edge products. This rise in Chinese patents is being supported by various policies that aim to encourage domestic innovation, including Made in China 2025, which is focused on upgrading domestic industries for high-tech competition. While some government policies have prioritised quantity over quality, China is implementing measures to promote innovation that could lead to higher-quality patent output.
To achieve this, China is overhauling its IP system, with a focus on protecting and incentivising high-value patents, cultivating patent-intensive industries, and streamlining the IP management system. Additionally, financial incentives for patent licensing are being reduced, and several changes have been implemented to improve examination guidelines. As a result, the quality of patent applications is expected to improve, as evidenced by the reversal of the trend where foreign applicants accounted for the majority of invention patents being filed in China throughout the 2000s.
However, relying on patent application data to discuss China’s innovative power is likely to lead to unreliable results. Measuring patent maintenance would be a better way of assessing patent quality compared to countries without patent application subsidies. Also, not all patents have commercial utility and Chinese patents often need to be benchmarked against China’s commercial activities to determine the commercial value of innovation. Government patent incentives may result in filings of patents with no real intended commercial use. Therefore, it is important to understand the importance of the relevant technology in assessing any sector-specific challenges and linking cooperative patent classifications with tariff schedules can help to determine the commercial value of an innovation.
