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.
This chapter is adapted from Hu, Zhang and Zhao (2017).
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Notes
- 1.
Even this acceleration of R&D intensity at the aggregate level may belie the even more rapid growth in R&D in certain sectors of the Chinese economy, such as telecommunication equipment.
- 2.
We use the number of patents granted to non-individual applicants in 2011 as the numerator and R&D expenditures incurred in 2008 as the denominator. The R&D expenditures are measured in 2011 prices that have been adjusted for purchasing power parity—we obtained the figures by multiplying GDP in 2011 PPP prices by the R&D to GDP ratio. We build in a three-year lag between patent grant and R&D spending. The GDP and R&D to GDP ratio data are obtained from World Development Indicators (http://data.worldbank.org/indicator/all).
- 3.
SIPO refers to all three as patents with the respective qualifiers of invention, utility model and design.
- 4.
We obtained these numbers from SIPO’s Patent Statistics Annual Report (www.sipo.gov.cn/tjxx/). The enterprise patents consistently accounted the bulk of all domestic service, or non-individual patents, e.g., they were consistently responsible for around 70% of all domestic, service applications for invention patents from 2007 to 2011.
- 5.
Invention patent applications include both successful and unsuccessful applications. The ratio of contemporaneous patent grants to applications does not correspond to the likelihood of a patent application being granted given the time it takes to process the application. Also since applications have been growing very rapidly in China, the contemporaneous ratio is particularly uninformative. Assuming an application-grant lag of three years, the grant to application ratio works out to be close to 60%.
- 6.
The top five regions for utility model applications in 2011 were Guangdong, Jiangsu, Zhejiang, Shanghai, Shandong, and Chongqing.
- 7.
For example, Xu (2011) characterized China’s fundamental economic institution as a regionally decentralized authoritarian regime that combines political centralization with economic decentralization. This system fosters inter-regional competition among the Chinese subnational governments and incentivizes policy making that promotes regional economic development and growth.
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Hu, A.G., Zhang, P., Zhao, L. (2018). Patents and Innovation in China. In: Clarke, T., Lee, K. (eds) Innovation in the Asia Pacific. Springer, Singapore. https://doi.org/10.1007/978-981-10-5895-0_8
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