China Set to Lead the World in Intellectual Property

 | Mar 16, 2017 | 11:00 AM EDT
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Who says nothing original comes out of China?

Within two years, my adopted home nation is set to surpass the United States in terms of the number of patents its citizens seek, according to newly released data. Already, two Chinese companies lead the world in seeking to protect their intellectual property.

Telecommunications- and networking-equipment maker ZTE (ZTCOY) , based in Shenzhen just across the mainland border from me here in Hong Kong, last year zoomed past its crosstown rival, the telecommunications- and networking-equipment maker Huawei Technologies, as the biggest filer of international patents in the world.

Yes, as a nation the United States took top spot for the 39th straight year running, making up 24.3% of the 233,000 patent applications filed in 2016 under the Patent Cooperation Treaty in 2016. 

Japan was next in line, accounting for 19.4% of the filings, and China came in third with 18.5% of the total. For corporate filers, Qualcomm (QCOM) ranked next after the Shenzhen telecom suppliers, with Mitsubishi Electric (MIELY) and LG Electronics (LPL) after that. As a result, Asia accounts for just under half, 47%, of all patent filings around the world.

Digital communications and computer technology are the leading fields for patent protection, with total patent requests for all industries up 7.3% over the previous year. All the figures are coming courtesy the World Intellectual Property Organization. The group just released 2016 stats on patents, trademarks and industrial designs.

On a nation-by-nation basis, it's China -- so often a source of counterfeiting and fakes -- that is driving the growth. The Middle Kingdom's filings rose 44% in 2016 and it has posted double-digit growth in patents every year since 2002. It's a dramatic shift for a nation that wasn't invited to trade pacts such as the Trans-Pacific Partnership, as much because it couldn't abide by its intellectual-property protections as any political considerations.

"China-based filers are behind much of the growth in international patent and trademark filings, making great strides in internationalizing their businesses as the country continues its journey from 'Made in China' to 'Created in China'," the director general of the World Intellectual Property Organization, Francis Gurry, said in announcing the results.

No doubt about it, China has a long history of imitation that verges on forgery. Its artists were encouraged to copy the works of the masters for years before attempting anything so daring as a creation of their own. Confucian society prizes traditional values and deference to elders. And under the Communist Party, it's best to toe the party line rather than get too many upstart ideas about various freedoms.

But China is changing at a pace that is unheralded in modern society. After Deng Xiaoping creaked the door to its walled-off economy open in 1979, promising "Socialism with Chinese characteristics," the country hasn't missed a beat. It has leaped from an agricultural economy of peasants right through an industrial revolution that lasted decades, not centuries, and on into a post-industrial world, at least on the east coast.

Capitalism with Chinese characteristics is more like it. China is communist in party only, and its leaders would frankly prefer if everyone stuck to the business of making money rather than thinking too closely about who they would like to see in charge. 

Entrepreneurs like 52-year-old Alibaba (BABA) founder Jack Ma, now China's second-richest person and a former English teacher made good, are the poster boys for this generation. Dalian Wanda founder Wang Jianlin is the only mainlander to outdo Ma, his $33 billion bank balance just exceeding Ma's $28 billion war chest.

Although Wang, now 62, got his start in boring old real estate, the traditional source of most of the wealth in Asia, he's also self-made. That's in fact true of the bulk of China's wealthy, who also have startlingly incoherent resumes involving numerous shifts of entire industries, the older ones typically with a stint in the military near the start.

There are plenty of old industries among the ranks of China's richest people. Looking at the Top 10, you find FedEx-style courier delivery tycoon Wang Wei, who started S.F. Express, which my wife loves to use for her custom-printing business, Blank Sheet (she's not a tycoon!). There's mining magnate Wang Wenyin, and Yao Zhenhua, who runs a good-old-fashioned Asian conglomerate build around an insurance company. But despite being in traditional industries, those three men are all in their 40s. 

Lower down the list, you've got He Xiangjian (age 74), who runs the home-appliance maker Midea, and the real-estate developer Hui Ka-yan (58). But that's it. The other half of the Top 10 are in e-commerce, Internet services, online games, search engines.

This is Asia's century, the theory goes, and China is clearly leading that push. For the good of the world, it's starting to realize that's a position worth protecting, rather than one to clone.

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