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China's long history of disrespecting and ignoring intellectual property rights is back in the headlines. Will it ever change?

Let's build the back story. China has long been accused of stealing tech secrets from Western partners via company espionage, forced joint ventures, and just generally not playing 'fair' on trade.

Sometimes this unfairness takes the form of subsidising Chinese companies once the knowledge has been acquired, ensuring that the original Western innovators are rendered uncompetitive.

Swinging the spotlight onto these practices was one of Trump's biggest presidential achievements, especially as it was followed up by action... Sanctioning certain Chinese companies (such as Huawei), while adding punitive tariffs to dissuade the theft 👇

President Donald J. Trump Is Protecting America From China’s Efforts To Steal Technology And Intellectual Property – The White House

It's telling that the Biden administration has maintained and even expanded this approach. Defending the US against China's unfair trade is one of the few policies that enjoys genuine bipartisan support.

This NY Times article (from 2018) lays out the core issues. Not much has changed...

American companies sometimes willingly strike deals with Chinese partners because they feel China is too profitable to miss out on. And in some cases, Chinese companies have shown they still have much to learn, even after cozying up to American partners.
In some industries, like car production, China has long required foreign companies to team up with local partners. Auto giants like General Motors and Ford, for example, make cars in Chinese factories that are jointly owned by Chinese partners.
Foreign companies have long complained that they are simply training future rivals. Japanese and European businesses say Chinese rail companies used technology from joint ventures to become giants in high-speed rail.

This from Jon Bateman at Carnegie sums up the Western dilemma in dealing with the problems 👇

...if Washington reaches instead for more powerful unilateral tools, like tariffs and government tech controls, then it could end up destabilizing the very global trade order that it professes to be enforcing and protecting.
Non-confrontational diplomacy probably cannot stop Beijing’s systemic trade abuses. But more powerful unilateral tools could destabilize the global trade order.

Now, the WSJ reports that China is weaponising the court system to the benefit of Chinese companies...

Officials in the U.S. and European Union accuse China of using its courts and patent panels to undermine foreign intellectual-property rights and help Chinese businesses. They say China is focusing such efforts on industries it deems important, including technology, pharmaceuticals and rare-earth minerals.
A U.S. manufacturer of X-ray equipment had a decade-old patent invalidated by a Chinese legal panel. A Spanish mobile-antenna designer lost a similar fight in a Shanghai court. Another Chinese court ruled that a Japanese conglomerate broke antitrust law by refusing to license its technology to a Chinese rival.

There are all kinds of reasons why Western companies have loved heading to China. Opening up larger markets, cheaper production and so on.

Will that equation change though?

Plenty has been said about the relative increase in Chinese wages, yet the wage-efficiency benefits of Apple moving some production to India isn't obvious yet 👇

At a casings factory in Hosur run by Indian conglomerate Tata, one of Apple’s suppliers, just about one out of every two components coming off the production line is in good enough shape to eventually be sent to Foxconn, Apple’s assembly partner for building iPhones, according to a person familiar with the matter. This 50 per cent “yield” fares badly compared with Apple’s goal for zero defects.

China has been cheap and efficient for a long time. Even if workers aren't as cheap as they were, moving production away is not the simple panacea many claim.

However, as we wave goodbye to China's existing growth model, (heavily reliant on infrastructure investment, export growth, and the property market), it's not clear what comes next.

Even as China professes a pivot towards domestic consumption rather than expanding global production, words and actions aren't matching up...

This is no cliff edge or sudden change. It's been a goal since at least 2007 according to China-watcher Michael Pettis 👇

The second option for Beijing is to maintain high growth by rebalancing the economy increasingly toward consumption. Beijing has been trying to do this since at least 2007, but an increase in consumer spending requires an increase in the share that households retain of GDP.
Ordinary people, in other words, would have to receive a larger share of what the economy produces in the form of higher wages, stronger pensions, more welfare benefits, and so on, and this would have to be paid for by Beijing and local governments by giving up some of their share of GDP.
Such an adjustment is extremely difficult to accomplish politically.

More welfare benefits? The opposite seems to be happening...

Tens of thousands of Chinese pensioners took to the streets on Wednesday to protest against health insurance reforms that were introduced as cash-strapped city governments sought to control spending in the aftermath of China’s costly zero-Covid policy.
The protests followed a similar demonstration last week in Wuhan, where retirees gathered to oppose the government’s move to divert money from a mandatory health savings plan for workers to a state-controlled outpatient insurance fund. The reform took effect on February 1 in Wuhan.

The battle is set to continue on many fronts, but with the Chinese economy adjusting to slower growth, higher unemployment, the rising burden of caring for an elder population and a poorly-defined, unproven growth model, it's hard to be too enthusiastic about their economic future.

Increasing hostility towards the rights of foreign companies in China, along with the continuing US trade tensions shift the decision dynamics for Western investment too.

China's not the no brainer market it once was...

Xinhua/Reuters report that The China Communist Party's new central committee will hold its second plenary session, or plenum, from Feb. 26 to Feb. 28.

The decision was made at a China politburo meeting held on Tuesday, which discussed reforms to party and state organisations.

The nature of these reforms should offer clues as to how serious the CCP is about taking those tough decisions to fundamentally change the shape of the economy.

Personally, I wouldn't bet on it.

"Such an adjustment is extremely difficult to accomplish politically"