A few weeks ago, CLB’s own Steve Dickinson gave a webinar presentation on the legal aspects of China gaming and software development.  Steve’s talk was half of a China IPR SME Helpdesk presentation, entitled, Cultural and Creative Industries: Computer Gaming and Software Development in China.

The Helpdesk described the webinar as follows:

Very few economic sectors have revealed as much economic potential in China as the cultural and creative industries (CCIs). Currently the gaming industry in China is worth 6 billion dollars and it’s still growing what creates great business opportunities. With the increasing ownership of smartphones and developing industry chain, mobile games have become the fastest growing and most competitive segment of the entire Chinese games market. Yet, the complicated landscape of app stores and persistent piracy culture exacerbates challenges for overseas developers. In this session you will learn about how EU SMEs can make the most of China’s huge mobile gaming market, and the steps you must take to protect your Intellectual Property. China lawyer Steve Dickinson and the EU SME Centre expert Mikko Puhakka presented the following topics:

  • China’s mobile gaming market — overview and latest development
  • Market access for foreign providers
  • Adjusting to the Chinese market: popular formats and localization
  • Monetisation and distribution platforms in China
  • Copyright registration for software, games and using the unique Chinese software copyright registration regime
  • Importance of registering trade marks.
  • Potential of registering the patent to protect software’s IP.
  • Pursuing IP infringement

And now it is available for your listening pleasure; if you just click here you can download the presentation pdf and the webinar recording.

Let us know what you think….

I was interviewed last night by a reporter writing a story on foreign companies doing business in China.  At one point, she asked me what I saw as the best business opportunities for foreign business in China.  And I referred her to this post, China’s Five Best Business Opportunities, in which I list out education, healthcare, food, clean-tech/green-tech, and software. In that post, I noted that I have been pushing these same five industries for years.

Now I am just not so sure.

Let’s look at each of them.

  1. Education.  Everyone knows China is big on education and everyone knows China is particularly big about its best and its brightest (well, its richest anyway) getting a foreign or a foreign-like education.  So even though some aspects of China’s education business are shut off to foreigners, this does remain a prime area for foreign business. More anecdotally, our education clients, spanning a massive range of businesses, are almost universally thriving by doing business in China or with China.
  2. Healthcare.  Everyone knows China is aging, getting wealthier, and seeking to improve its healthcare. All of this is almost a perfect storm for those in the healthcare field.  But healthcare is a big field and much of it is a minefield of regulation, corruption and/or other assorted difficulties. Though no doubt this is overall a great field, it certainly has its issues.
  3. Food.  Everyone knows China wants better and safer food and I am an unabashed optimist about the role of foreign food in China. Without exception, every one of our clients that has fought through the requirements to be able to get their food product (of all kinds) into China, be that on their own or through a distributer, is thriving in China.
  4. Clean-tech/green-tech.  Everyone knows China has nearly limitless pollution problems and everyone knows that the Chinese government is concerned about that.  But this is a tough field for foreigners because it is one in which government connections are too often critical.  We have clients that have succeeded spectacularly and we also have clients with top tier products and management who just cannot (and will not) buy a break in China.
  5. Software.  Everyone knows China (like everyone else) wants better software.  The biggest hurdle I see for software companies in China is pricing.  A number of our software clients have told me that Chinese consumers and businesses are “not accustomed” to paying high prices for software and their Chinese competitors are accustomed to selling software at rock bottom prices. On the other hand, our clients that sell highly specialized industrial/commercial software seem to be doing just fine.

I can tell you one business of which I would be wary of starting in China: Corporate sleuths on edge after China detains foreign consultants.

But what about China for foreign business overall?

To that I turn to a “ChinaFile Conversation” from just yesterday, entitled, Is Business in China Getting Riskier, Or Are Multinationals Taking More Risks? The conversation is between the following China luminaries:

Krober starts the discussion by essentially saying things are still quite good for foreign companies doing business in China or seeking to do business in China and the numbers bear this out:

But the headlines are deceiving. Data and company surveys both show that China continues to be a magnet for foreign firms. Greenfield foreign direct investment, according to the Ministry of Commerce, has held steady at US$105-115 billion a year since 2010, well above the pre-crisis level. Inflows in June exceeded $14 billion, the highest monthly total since 1997. Broader data from the central bank, which include reinvested earnings, show that foreign companies committed a quarter of a trillion dollars to China in 2012.

Member surveys by foreign chambers of commerce consistently reveal that despite their discontent, foreign companies in China are still quite profitable and generally want to increase their investments. A walk down any Chinese high street will quickly confirm these numbers: foreign brands occupy a far larger and more visible slice of the market in China than in most other Asian countries, including Japan, Korea and India. And big cities are filled with tens of thousands of young foreign entrepreneurs who find it easier to start a new business in China than in their home countries.

*    *    *    *

On the whole, though, the evidence shows that foreign companies win quite a bit more than they lose.

Schlesinger says that despite recent headlines, China is still the place to be for foreign businesses and dalliances with countries like Myanmar will only reinforce that:

The current onslaught of bad news about China—much of it real, some of it the pendulum-swing of pundits piling on—certainly makes China business seem like risky business. A slowing economy, growing social pressures, looming crackdowns or public relations campaigns against foreign companies—none of these are good signs for companies hoping to swiftly reap the fruits of their labors.

Some executives are scurrying to look for the next best opportunity in Myanmar or the Philippines or Indonesia. But for those who stay, and for their boards, this may be a necessary reset in expectations that actually leads to healthier and more sustainable investments.

 Schlesinger goes on to say that the downturn in media perceptions of China creates opportunities for smart companies that go to China and do things right:
Now that China bears are having their day, smart companies will go back and ensure the basics are right. That’s hard, slow, unglamorous work. But it sure beats having your executives jailed, your reputation sullied or your cut-corners exposed.
Ma sees China getting tougher mostly because it is getting more “normal”
But the terrain for MNCs in China has surely gotten more complex—and at times contentious—but those are relative terms. And most of the changes in the operating environment owe to what Arthur described as China becoming a more “normal” country in which to do business. Normal, of course, being filtered through the detritus of “Chinese characteristics”—uneven regulatory enforcement, opaque decision-making, relationships, and so on. It is worth reiterating the point that China has transformed rapidly from a capital-starved country to a capital-abundant one, and it has learned the rules of the game at the WTO and can play by them effectively. In combination, these developments make for an attitudinal shift in how China may be approaching foreign MNCs—if they no longer really need the capital, then what do they need now?
Dickinson notes how the old days of foreign companies getting away with ignoring Chinese law is over and that succeeding in China today requires abiding by Chinese law:

It is true that over the past 15 years, China has adopted a formal legal system that at least on its surface resembles that of a developed country and is, in that sense, “normal.” The paradox is, this normality has led to greater risk for foreign companies rather than reduced risk. The environment in China in general has not become more risky. However, the risk of violating Chinese law has increased substantially.

In the old days, foreign companies just ignored Chinese law and relied on connections and the rest to operate for maximum profit. These profits were high enough that the time and effort of working in the chaos of China was justified. Over the past 10 years, the system in China has changed dramatically. This is the Wild West to Chinese law and regulation no longer works for foreigners.

This puts foreign companies operating in China in a difficult situation. The fact is that Chinese companies routinely ignore Chinese law. So, foreign companies operating in China are faced with a major decision that carries big risk. They can follow the law and struggle or fail in the Chinese market or they can act like their Chinese competitors and violate the law in order to compete on a level field.

The risk is: as China becomes increasingly stressed by the declining growth of the economy, the government has shown that it will seek foreign scapegoats. Drugs are too expensive: it is the fault of the foreign drug companies. Food is not safe: if is the fault of the foreign fast food companies. Mobile phones are defective: it is the fault of the foreign phone manufacturers. The China Dream has not been realized: the foreigners are holding us back. As a result, taking action against foreign violators of Chinese law is an obvious way for the Chinese government to deflect attention away from the deeper problems in the Chinese economy and society.

Dickinson goes on to say that foreign companies doing business in China or seeking to do so must ask themselves whether they can both follow the laws and be profitable, or not.

China opportunities for foreign business, what do you think? Better now than ever? Worse?  The same?  Mixed, depending on the industry?  And what are the best opportunities anyway?

GLG Research is going to be moderating what I am certain will be a fascinating discussion tomorrow on China VIEs and the SEC’s pending investigation into New Oriental Education (EDU). The event is entitled, VIEs – SEC Investigation into New Oriental Education and it will be taking place live on the net and by teleconference on July 25 at 2:00 PM EDT.

The two speakers at this event will be China Law Blog’s own Steve Dickinson and Paul Gillis, Professor of Practice at Guanghua School of Management at Peking University.  The webcast/teleconference is expected to focus on the following:

  • The structure and legality of VIEs
  • The enforceability of New Oriental Education’s (EDU) VIE contracts under Chinese law
  • The Significance of the SEC’s investigation into EDU and its impact on other US-listed VIE companies.

For more information on this event, go here.  If you miss it live, there will be an audio replay within around 24 hours and there will also be a transcript available for purchase.

For those of you who really want to prepare for this event beforehand, I recommend you read the following China Law Blog posts:

And the following China Hearsay posts:

And the following China Accounting posts:

And the following China Finance posts:

If you read all of the above, you will probably know more about VIEs than anyone else alive. If you are going to read just one post, make it “Explaining VIE structures.” Oh, and just to give you more to read, I also recommend you read the Silicon Hutong post, “VIEs, The Long Resolution.” In that post, David Wolf talks of how the Chinese government likes to “boil its frogs slowly, not all at once,” and he then talks of how VIEs are on the wrong side of where China wants to be going.

On November 4, CLB’s own Steve Dickinson participated in an Internet discussion regarding Variable Interest Entities (VIEs) in China. The discussion was entitled, “Foreign Ownership in China: Still VIEable?” and the other participants were China Hearsay’s Stan Abrams (an attorney), China Accounting Blog’s Paul Gillis (an accountant), and China Finance Blog’s Fredrik Öqvist (a financial analyst).  A full transcript of the proceedings can be found here. If you have any interest in VIEs or investing in the companies that have VIEs, I strongly urge you to read the transcript. I also urge you to check out this post on VIEs, which has a long list of good readings on VIEs.

What I found most interesting about the discussion is that everyone seemed to agree that Chinese courts will not enforce the contracts on which VIE structures are based. In light of this, what exactly do U.S. listed companies with VIE structures really have in China?

CLB’s own Steve Dickinson will be one half of a two person discussion this Sunday, October 16, at 3:00 p.m., on China and the WTO. The event is part of the Hopkins China Forum, which describes itself as “a quarterly speakers series that brings together counterparts from the United States and China in China’s capital city to discuss current events.”

More specifically, the topic is “China and the WTO: A 10 Year Review With a Look to the Future.” it will be a “conversation” between our own Steve Dickinson and Professor Tu Xinquan, the Deputy Director of the China Institute for WTO Studies (中国WTO研究院).  Wei Lai, editor of the Global Times will be the moderator.

It will take place at the Western Returned Scholars Association (WRSA) Building, 111 Nanheyan St., 欧美同学会会址,南河沿大街111号, Beijing. There is a RMB 30 entrance fee, but that includes a drink and a reception to follow.

Both speakers will have 10 minutes to make opening remarks, followed by a 20-minute moderated dialogue.  After that, the speakers will take questions from the audience. Without revealing what Steve is going to say, I can assure you that it will cause some sparks to fly.

I (Dan) am going to be attending and I can hardly wait.  Who’s in?

China Law Blog’s own Steve Dickinson is going to be setting forth the “golden rules” for managing your Intellectual Property (IP) in China. Steve will be giving this talk on how to protect your IP in China on June 22,  2011, at 4:00 pm at REDSTAR Times Media, Room 41, Building 3, Creative Industry Park, 100 Nanjing Lu, Qingdao. Because Steve’s presentation is part of the China IPR SME Helpdesk attendance is restricted to “only European SMEs and SME intermediaries.”  The event is free and it is described as follows:

Every company operating in China is aware that intellectual property issues are part of the business environment but protecting your rights can seem expensive and complicated. What is the best way to tackle this issue? What are the golden rules? This interactive workshop will provide you with a thorough understanding of the options available for any budget and a checklist of actions you can take to make the most of your intellectual property rights. You will learn from real life case studies and the experience of a local IP expert, Steve Dickinson.

For more information, go here.

Not sure if it is cynicism or realism, but I am getting increasingly willing to blame “the victim” of China business problems. I am convinced that nine times out of ten when bad things happen to good people who do business internationally (that includes in or with China) it is the “good person’s” fault. Like all lawyers who work with China, I have a ready set of horror stories, which I rotate depending on the occasion, but usually include one or more of the following (modified slightly to protect the guilty):

1. The guy who “invested” $500,000 into a China business because the owner of the Chinese business was allegedly the son of a five star general. Co-blogger Steve Dickinson suggested to this investor that instead of investing this money into the Chinese company, that he use the money to fly him and Steve to Vegas (this was before Macao got so big) and put the money on red because, as Steve put it, the chances of his not losing his money were much greater this way and it would be a lot more enjoyable. This guy went ahead and invested the $500,000 and lost every bit of it. He then wanted us to sue the “son of the general” on a contingency fee basis, but we would not have taken on that case for a 150% contingency.

2. The guy who bought a million dollar condo in Shanghai in the name of his girlfriend because he believed foreigners were not allowed to own real property in China. His girlfriend then left him and claimed he had given her the condo as a gift. The guy wanted us to sue the girlfriend but we demurred, saying that we just did not like a case where our client would need to stand in front of a Chinese judge and explain the deal by starting out saying that he had put the condo in his girlfriend’s name so as to avoid the Chinese law that says…. And here’s the kicker. When he bought this condo for his girlfriend, he could have purchased it in his name, no problem! His girlfriend had lied to him about Chinese real property ownership laws.

3. The countless people who call my firm after having sent tens of thousands of dollars (sometimes hundreds of thousands of dollars) to someone in China for a product that never arrives. Eventually the person and “company” to whom they sent the money disappears. We have never taken one of these cases because we deem them pretty much hopeless.

4. The US company that used the local Chinese lawyer of its joint venture partner (what was this company thinking?) who drafted up agreements that involved the American company giving its critical technology to the joint venture permenantly without getting any real influence or control in it (this is an amalgamation of probably half a dozen poorly formed joint ventures in which we have been called in). For more on this type of joint venture deal, check out, When in China Trust Everyone.

I could easily go on and on.

So what can a foreign investor do?

A lot.

Here goes.

In Seven Rules Of China Due Diligence, I set out the following seven rules to analzye a Chinese company with which you are doing business, taking the first six from an article by Muddy Waters entitled, “The Six Rules of China Due Diligence“:

Approach the company as a potential customer does. “You want to see what the China side customers see. Fraudulent companies have far less confidence that they can fool a Chinese company in their industry than they do about fooling a starched shirt analyst. Moreover, they’re usually less willing to take legal risks in their home market (China) than they are in the United States.” In other words, look to see how the Chinese company with whom you are interested is treated by other Chinese companies.

Take all company-provided introductions with a grain of salt. “When companies set up meetings or conversations between you and their suppliers or customers, take them with a grain of salt….In a country where a lot of managers earn less than $500 per month, it’s not hard for an unscrupulous company to buy someone’s loyalty for the duration of a meeting or phone call. You should instead rely on your own networks to help you understand the company and industry. If you don’t have those networks, you unfortunately shouldn’t be making investment decisions in China by yourself.” I completely agree.

Try to construct your own fraud scenario. “At some point in evaluating every investment, you should stop and ask yourself how you could have staged everything you’ve been shown or done with the company. It’s good for American investors to practice this mentality because it makes us less credulous. More importantly, this kind of thinking makes clear how surprisingly simple measures (e.g., switching factory signs before you arrive, painting old machinery) can be so effective in fooling the credulous investor.” I absolutely love this advice and I urge everyone to follow it.

Forget about the paper. Focus on the operations. “In today’s world where you can buy a competent color printer for less than $200, it’s hard to understand why investors place so much faith in bank statements, invoices, and contracts. China’s deal making world abounds with stories of forged bank statements and other documents leading to disastrous deals. Unfortunately, most auditors apply the US audit playbook in China – reviewing and taking documents at face value….Instead, you have to look at the operation itself. How much does the output seem to be, how much material is moving into and out of the factory, does the office seem to be a hive of activity, how many employees can you count, what is the square footage of the facilities? These are all basic questions one should concern themselves with during site visits. And it pays to visit two to three (or more) times – a good fraudster can put on a show, but they’re unlikely to be able to do it the same way each time. Watch for the subtle differences. Ultimately if you cannot find a good way to measure the company’s sales or productivity (as in the case of a service company), you should think carefully about proceeding with the investment.” I completely agree with the advice to put the Chinese company’s operations under a microscope, but I completely disagree with the advice to ignore the paper, as I discuss more fully below. I advocate putting the paper under a microscope as well.

Always speak with competitors. “Competitors with real businesses can usually tell you one of two things about a fraudulent competitor – either that it’s obscure (sometimes the “competitor” is hearing about the company for the first time); or, that they know it’s a fraud. Many competitors will be reluctant to speak openly at first about a fraudulent competitor if they know you’re a potential investor in the fraudulent company. However, if you’re a potential customer who is shopping around for a vendor, it can be a different story.” This is excellent advice, but one should also take the views of competitors with at least a bit of salt.

Do not delegate. “A lot of experienced China investors have stories about subordinates who colluded with a target company to attempt (and sometimes succeed) to defraud the investor. Be attuned to the dichotomy between the investment funds at stake and the income/wealth of the people on whom you rely for judgment.” Very true. At least half the time when my firm has been brought into a fraud situation, we have to ask ourselves whether the “trusted subordinate” was incredibly stupid or in on the fraud.

The seventh rule (my added rule) is to put the documents you receive under a microscope because the fraudulent company will nearly always make some mistake in its documents. In my career, I have caught the following, all of which threw up massive red flags:

Company claimed to have a multi-million dollar account at a non-existent bank;

Company documents showed a subsidiary in the Marshall Islands, yet always spelled the country as Marshal Island. It had no such subsidiary;

Company claimed to have a branch office in a particular city, yet its documents on that branch office (including supposed government documents) put that city in the wrong province;

Company claimed to be bringing in twice as much product as physically possible on a particular ship;

Company claimed to have been shipping out product on a particular ship that did not exist during the first few years when the product was allegedly being shipped;

Company claimed to have won an IP lawsuit in a country’s Supreme Court (they produced the Supreme Court’s decision and everything), but there had never been such a case.

Bill Bishop at DigiCha just did a post entitled, “Do You Know Where Your China Stock CFO Lives?” setting out China company (mostly publicly traded) warning signs. The post talks about how two Chinese companies Longtop Financial and Sino-Forest, that publicly trade in the United States and have recently been under scrutiny for alleged improprieties both have Canada-based CFOs even though the bulk of their operations are in China. Bishop posits that these companies may have hired foreign-based CFOs as “China fraud beards.”

Bishop then goes on to quote from an iChinaStock post, entitled, 5 Warning Signs That A Chinese Stock May Be a Fraud, listing out the following warning signs:

  1. Company went public through an OTCBB Transfer or other ways of back-door listing;
  2. Company name starts with “China” [unless they are state-owned they can not register a company in China starting the word “China”];
  3. The products are sold in China, but there is minimal Chinese-language information about those products;
  4. The business defies common sense;
  5. The underwriter, audit firm and accounting firm are second tier and/or have a track record of missing frauds (like Deloitte China).

Bishop adds a sixth item to the list, that “the CFO does not live in the same city as corporate HQ and is not a regular presence there.”

I like Bishop’s admonition not to invest in a business that defies common sense. Yes, that is pretty basic, but in many ways it is the key. It is not too disimilar from the advice I gave in the When in China Trust Everyone post mentioned above:

First off, THINK. That’s right, think. Secondly, do not do anything you would not do in any other country. Just because your Chinese partner and/or your Chinese partner’s lawyer tell you this is how things are in China does not mean you have to believe them and it certainly does not mean you have to abandon your common sense.

One more thing to do before you invest or, in some cases, even do business with a Chinese company: get their official corporate records from the official Chinese government sources. We have of late been doing this rather frequently for our clients and though it is not at all inexpensive or easy, it can be incredibly enlightening and it goes far beyond the information provided by the basic company search firms.

The China company search firms typically provide only a fairly basic list of information, such as the names, and addresses of those involved with the company and its registered capital. in addition to not being terribly complete, the information from these search firms is of dubious provenance. How did they get the information? Can we be sure they looked at the entire file? We know the files are only supposed to be open to lawyers. How did they obtain access? When did they review review the documents? Last year’s documents may be of no help at all.

We strongly suggest that you seek out the full SAIC (State Administration for Industry and Commerce) file on the Chinese company about whom you are seeking information.

In our experience, the SAIC only opens its file to licensed Chinese attorneys. Everyone else is turned down. The Chinese licensed attorney must go in person to the SAIC office, review the file, and make copies in the office. So far, no Chinese licensed attorney with whom we have worked has ever been denied access. It is our understanding that the Chinese companies investigated through the SAIC will know they are being investigated. Like I said, we have so far always been able to get the file, but there could come a day when a local SAIC in an outlying province will block access to the file of a powerful company within its purview.

These SAIC forays usually give us a massive amounts of documents in Chinese, which we then either translate for our clients or, more typically, summarize.

The hot topic in this arena right now is this: the parent company does an IPO in Hong Kong or the U.S. The parent claims the IPO proceeds were injected into a WFOE in China. Was the money injected into the WFOE or not. If so, when? If not, what is the most recent record on the registered capital status of the WFOE. For a WFOE that receives an injection of capital from an IPO, there is typically at least six months of advance work in increasing the registered capital amount. All of this is public and can normally be found in the SAIC file. In addition, the annual audit will show an injection of capital. But the audit is of the previous year. So for recent injections of capital, we have to rely on the approval for the increase in the registered capital.

For more on these issues, check out the following:

What do you think?

This post is very much based on Steve Dickinson’s article in this month’s China Economic Review, entitled, “New Image, New Error.”
With China being hailed as the world economy’s savior, its government has concludedthis is its century. The West is irrelevant and China will lead a vanguard of new players — and the game will be played by Beijing’s rules. Particularly in the area of trade and investment, China hopes to jettison the constraints of world trade law for a return to the policy of national interest and raw power. In this new world order, Beijing sees little need for foreign economic or technical assistance.
From the standpoint of foreign investors in China, this new self-image is already having a significant impact:
• Applications for wholly foreign owned enterprises (WFOEs) and joint ventures are more often being delayed or denied by demands for documents or capitalization not required by law. Officials openly state they are no longer interested in encouraging foreign investment.
• Registration of technology licenses is either prohibited or restricted in direct violation of law. The idea is that Chinese business should no longer be required to pay for access to foreign technology.
• Visas for foreign workers are increasingly being delayed, denied or restricted. The position is that Chinese workers are available to do any job.
• Investments in China used to be falsely profitable as foreigners qualified for tax breaks unavailable to domestic businesses while employment and wage rules were not enforced. This position has completely reversed. Chinese and foreign companies are expected to operate under exactly the same rules, making many foreign ventures unprofitable.
Assuming China truly has no need for foreign investment and technology, these changes are rational and there is no reason for China to back off from them so long as its economy remains strong.
It is less clear how this new image of China as world leader will play out in the country’s commercial dealings with the rest of the world. Though an old civilization, China is actually a
very recent entrant into the world system and it tends to view the legal and trade rules governing this system with extreme suspicion. As a result, many Chinese officials believe China should disregard these constraints and simply take what it wants.
There were a number of examples of this approach in 2009:
• China uses the world trade legal process to make claims against foreign practices, but when
the WTO rules against China, as in the recent copyright case brought by the US and others, Beijing feels free to simply ignore the decision.
• As the major purchaser of many raw materials, China believes it should
be able to dictate purchase terms, without negotiations. Iron ore is a good example of this. China formed a buyer cartel (in violation of its own and foreign anti-monopoly law), which demanded a single price from its suppliers, with no room for negotiation. This “hardball” approach is being considered for other industries where China is a major purchaser of raw materials.
• China has made a number of high profile investments in the third world, both for resource extraction and infrastructure development. It often employs a “take our terms or forget the deal” approach, insisting on total Chinese staffing, financing and control.
In the international arena, this strong-arm approach is certain to fail. Regardless of its recent
economic success, China simply does not have the power to force its will onto other countries. No country has that power – as errors made by the US in the 1970s and Japan in the 1980s attest.
Should we be surprised with how China is poised to repeat the same strategic missteps in this new century? Are you seeing this change in attitude? What impact is this having or going to have on your business?
UPDATE: Just noticed that my good friend Andrew Hupert, over at Chinese Negotiation, just did a somewhat similar post, entitled, “The New Chinese Negotiator: From Harmony to Our Money (Part 1).
Andrew sees the following five things shaping the US China relationship (both on the macro and the micro level):
1. Copenhagen proves China is done playing coy about its status in the world.
2. “China’s default negotiation position is zero-sum game/ competitive – and there doesn’t seem to be a crisis big enough to get the US and China pulling in the same direction.
3. The Chinese government is running more of the private sector show now than a few years ago. “Scratch a private Chinese business and you’ll find a policy-driven organ of the bureaucracy.”
4. “The new projection of Chinese power will be infrastructure projects and commercial deals. China’s foreign policy is driven by a need for raw materials, and it isn’t squeamish about who it has to get in bed with to obtain them.”
5) “Non-economic considerations drive Chinese organizations, as long-term policy concerns ace short-term profit/loss decision. For years Western dealmakers were driven to distraction by Chinese counter-parties that seemed blind to their own self-interest. It’s not that the Chinese side was dim or daft – rather they were driven by non-economic factors like policy, bureaucracy, relationship, technology and access to intellectual property.”
I urge you to read Andrew’s post.

Forbes Magazine (which, BTW, does a consistently excellent job in covering China) has a new and interesting article out, entitled, “U.S. Talks Up WTO Piracy Ruling, But It’s All Wind” and subtitled, “Washington claims that the trade body took its side in a suit against China, yet the decision will not halt intellectual property theft.”

Piracy is a crime in China too. Sort of. (by Stephen Dann, http://bit.ly/1KhKZwO)
Piracy is a crime in China too. Sort of. (by Stephen Dann, http://bit.ly/1KhKZwO)

The article talks about how the United States government has been playing up its victory on two of its three claims, but since it lost the one really important one, its victory claim is little more than spin control. To grossly oversimplify, the WTO ruled that China’s criminal IP laws are not inconsistent with China’s WTO obligations.

China Law Blog’s own Steve Dickinson is extensively quoted downplaying the U.S. “victory”:

The U.S. claim was trivial and hyper technical. They won on the hyper technical issue. The only serious issue was the criminal sanctions issue, and they lost on that one. So what this means is exactly nothing,” said Steve Dickinson, a Qingdao, China-based lawyer and partner at Harris Bricken.

Moreover, piracy involving China’s own copyrighted films, music and other works is just as rampant as that for foreign-licensed goods. “If China cannot solve the problem for their own domestic industries, how can they solve it for the foreigners?” Dickinson asked. Indeed, Chinese copyright owners are as unhappy as American ones: the Music Copyright Society of China and domestic record companies last year sued popular Web portal Baidu for offering unlicensed music content.

This goes back to something we have been saying on this blog since its inception: China is getting tougher on IP violations and it will continue to do so in tandem with growing IP requirements of its own companies. IP in China is going to be much more closely tied to its own self interest, as opposed to the dictates of outsiders. Chinese companies are increasing their demands for IP protection within China, and as that continues we can expect to see IP protections in China continue to improve. But very, very slowly.

The TNTlog, which describes itself as “Taking The Rational View of Nanotechnologies Since 2000,” picked up our post on China’s growing nanotechnology research and, in a post entitled, “The Nanotech Dragon,” pretty much pooh-poohed it — probably rightfully.

The post starts out by attributing much of the hoopla regarding Chinese nanotech in the Western media to those seeking increased nanotech funding in the US:

A guaranteed way to get attention or funding, especially from US politicians is to claim that China is ahead of, or closing the gap with the US, which is just what Robert Cresanti, undersecretary for technology at the US Department of Commerce has done with nanotech.

TNTlog concludes by saying the United States should not be terribly worried about China R&D, but much of Europe should be:

Should the US be worried? From what we see, probably not yet. However the world is changing and Chinese R&D will increase in global importance, so it is up to Europe, the US and Japan to make use of the vast resources becoming available in both China and India.

The results are perhaps more worrying for Europe, as China already spends a higher proportion of its GDP on R&D than Spain and Portugal (who prefer to spend theirs on building new buildings), Italy, and most of eastern Europe.

Earlier this year, we did a post on a newspaper interview with China Law Blog’s own Steve Dickinson, in which Steve had the following to say in response to Washington State’s governor, Christine Gregoire, talking about the need to fund education to keep up with China”:

Is China then the force to fear?

It can look that way. But looks deceive, says Steve Dickinson, who lives in northern China [actually now in Shanghai] as an international trade attorney for the Seattle firm of Harris Bricken.

‘China is much, much, much weaker than it looks,’ he said in a recent interview.

‘The West doesn’t understand China very well and, frankly, China doesn’t understand China very well,’ Dickinson said. ‘The economy has taken off in a way no one understands really what’s going on.

‘(But) it doesn’t have the financial capital; it doesn’t have the intellectual capital. And the role it’s falling into is as a low-level, low-cost manufacturing component in a worldwide system of manufacturing.’

Yet Dickinson, like Gregoire, believes sharpening Washington’s intellectual capital gives our state the best edge.

‘Our competitive advantage is our brains and our skills,’ he said. ‘We need to stay ahead on that. If we don’t fund brains and skills, we’ll get overtaken by someone. Maybe not China, but someone.’

The TNTlog post also had a fascinating graphic on the “World of R&D,” showing the number of engineers/scientists per million people and the percentage of Gross Domestic Product (GDP) as a percentage of GDP.  Finland does the best by far, with Sweden, Japan, Denmark, and the United States trailing.  China does far less well, placing fairly near the bottom.  This graphic is based on this Batelle Institute study.