intellectual property, innovation, China, special economic zones

Document Type



Using intellectual property assets as the proxy for innovation measures, this paper provides a comprehensive analysis of the legal and policy strategies that form the foundation for China's new role as the global manufacturer of innovation. Manufacturing innovation is evident through China's multi-prong approach regarding intellectual property production and maximization. Significantly, among many other policies that target innovation, China encourages the production of innovation by accepting patents and trademarks as collateral assets for financing. Entrepreneurs can quickly obtain loans against their portfolios of patents and trademarks. China also requires enterprises seeking to undergo an initial public offering (IPO) on the new tech board at the Shanghai Stock Exchange to own intellectual property assets as evidence of innovation.

Part I documents how the United States has assisted China's tech and intellectual property domination through President Nixon's historic visit to China, giving China Most Favorite Nation (MFN) status and ascending China to the World Trade Organization (WTO). Moreover, under Deng Xiaoping's leadership during the reform period, China rapidly developed its special economic zones (SEZs), laying the foundation for subsequent tech innovation and production.

Part II contains charts that demonstrate the astounding annual growth in the numbers of trademarks, invention patents, utility model patents, and industrial designs obtained by Chinese individuals and businesses. These numbers cement China as a powerhouse in producing intellectual property assets in place of physical goods.

Part III focuses on three key factors that contribute to the production of intellectual property assets. The first factor involves the legal development of intellectual property law and rapid legal reforms. China amends and modernizes different intellectual property laws every ten years, ensuring that the laws keep pace with the rapid production of intellectual property assets. The second factor involves judiciary reform and innovation for the enforcement of intellectual property rights that establish a new level of confidence in private ownership of valuable intellectual property assets. The third factor involves how the reorganization of the national intellectual property agency affirms intellectual property assets as products of innovation that prove important and worthy of protection and management.

Manufacturing innovation also epitomizes China's policies on subsidies, as explained in Part IV. China strategically maximizes its intellectual property production numbers by offering subsidies for innovator housing, filing fees, and selected industry sectors.

Most importantly, China provides ex post incentives. In Part V, this paper examines how China encourages the manufacturing of innovation by creating a special tech board on the Shanghai Stock Exchange and requiring companies filing for IPO to own patents. In addition, Chinese lenders accept patents and trademarks as collateral for loans to entrepreneurs. This encourages entrepreneurs to produce patents and trademarks because they become assets that can be used to obtain financing.

The paper arrives at Part VI by exploring the implications of what manufacturing innovation by China may mean to the United States. The United States must thoughtfully formulate a set of corrections regarding its success and failure at the production of innovation without demonizing China.



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