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A THOMSON REUTERS report by Dr. Eve Y. Zhou and Bob Stembridges entitled “Patented in China: The Present and Future State of Innovation in China” points out China's re-directed look at innovation. The report says that China's science and technology policy now encourages “indigenous innovation” to improve homegrown creativities and to substantially reduce reliance on foreign technologies that largely dominate the high-tech and core technological fields today. This philosophy is echoed by Chinese premier Wen Jiabao statement that “Core technology cannot be bought only by strong capacity of science and technological innovation, and by obtaining our own IP rights, can we promote [China's] competitiveness and - win respect in the international society.”
This innovation-oriented direction is moving China away from its traditional agriculture and manufacturing country. China is emerging from a poor developing country to become the second-largest economy in the world after the U.S. And, the Chinese government is encouraging the country to embrace innovation. It has increased the overall research and development budget for the country, introduced tax breaks and monetary incentives to increase indigenous innovation and continued investing in the nation's academic institutions, which have become a driving force behind Chinese patenting.
In addition, China is tightening requirements for multinational companies conducting R&D in China. A new amendment will require foreign companies making discoveries in China to file for patents first in China, or risk losing legal protection for their intellectual property there. If international companies fail to file patent applications in China first for discoveries made from their local research centers, they may not be able to substantiate any subsequent patents in China and protect sales in the local market from competitors. The proposed amendments could become law in the not too distant future, which would further boost invention registrations in China. For foreign companies doing business in China, the proposed amendments in patent law, which require local discoveries to be registered in China first, could have a major effect on their IP strategies.
Evidence that innovation re-direction is taking effect can be seen the increase in patent activity. China has become the third-largest patent office in the world by annual invention patent applications, after the U.S. and Japan. From 2003 to 2007, China's GDP grew at an average annual rate of 9.75% while Chinese invention patent applications grew at an average of 34.36% per year.
The patent offices of the U.S., Japan, Europe, Republic of Korea and China account for 75% of all patents filed and 74% of patents granted worldwide. An analysis of patent volumes over the last five years from these five major offices shows that inventions from China have been growing at a faster rate than any other region. Derwent World Patents Index® (DWPI) provides this data. It is the world's most comprehensive database of enhanced patent documents. DWPI contains over 15 million records covering more than 35 million patent documents, with coverage from over 41 major patent issuing authorities worldwide.
The Thomson Reuters report said that “it is difficult to resist a bit of crystal-ball gazing and to speculate about the patent landscape in the not-too-distant future. Although strictly a mathematical exercise, it is interesting to observe the predictions on this basis. Using the average annual growth rate from 2002 to 2007 and a straight-line projection approach, we can see that the U.S. is set to surpass Japan in 2009. China is set to surpass Japan in 2011, and then the U.S. in 2012.”
The report discloses that the Chinese government plans to dramatically increase R&D expenditure to reach the goal of 2.5 percent of GDP by 2020, compared to 0.6% in 1996 and 1.4% in 2006. In the same time, the government's economic plan targets a GDP growth rate exceeding 7.5 percent annually until 2010 and then 7 percent until 2020, increasing the available R&D expenditure in coming years.
Also, the Chinese government is allowing greater and easier tax deductions for R&D expenses, increased government-backed lending, and discounted interest rates to R&D investment. These vehicles will further push China's already stunning patent statistics to new heights in the coming years.
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