Patents and innovation in China

Abstract

In the following chapter Hu, Zhang and Zhao examine the relationship of patents to technology innovation. The development of patents is conventionally regarded widely as a significant part of the innovation process in many modes of innovation. Patents are often used as an indicator of technology innovation, and China's patenting surge raises the question whether China has become as innovative as her patent numbers suggest? If patents measure innovation output, a measure of inputs to the innovation process is R&D expenditures. China's R&D spending has more than kept pace with the rapid growth of GDP in China. R&D as a share of GDP increased from 1.4 in 2007 to 1.8% in 2011, which was not far from the OECD average. However, patent numbers have been growing even faster than the increase in R&D expenditure. The number of invention patents granted to resident, non-individual applicants per 10 million dollars of R&D expenditure (in 2011 purchasing power parity prices) was 3 for China and 2 for the U.S. in 2007. In four years, the ratio for China rose to 6.3, and that for the U.S. increased more modestly to 2.4. While not impossible, it would seem unlikely that this large and widening disparity in patents to R&D ratio can be explained by the difference in the productivity of R&D of the two countries. The objective of this chapter is to explore both innovation and non-innovation-related explanations of China's patenting surge and to discuss their policy implications. "The conventional role of patents lies in preventing copying and pre-empting unauthorized entry, the need for which rises when new technologies are created, thus implying a tight connection between technology innovation and patenting." Recent experience in developed countries, particularly the U.S., indicates that applying for patents has also been driven by firms' concerns that an unfavorable court ruling over the ownership of intellectual property could inflict significant financial damages on them. This has led firms to build up a war chest of patents that might increase their bargaining power in anticipation of such intellectual property disputes. The propensity to apply for patents can increase, when the underlying rate of technology innovation has not significantly, but when developments in legal institutions and public policy change the firms' perception of the need for such strategic maneuvers.