Thomas Palley in Asia Times today makes many sound points about China FDI, but then he comes up with this:
When foreign investments are for exports, China has viewed the profits as being earned abroad. Difficulties only arise when the goal is production for the domestic market. This explains why profitability on such investments has historically been so low, and why so many joint-venture investments with Chinese partners have failed. It also helps explain China's persistent refusal to enforce foreign-owned patents and copyrights that apply to medicines, movies and music.
Sorry, but this just doesn't work for me, and I won't even bother dealing with that comment about JVs, which is also quite misleading. Palley is suggesting that IP enforcement problems stem chiefly from local protectionism. How would this explain the huge levels of infringement of Chinese domestic IP by Chinese infringers?
I also take issue with "persistent refusal to enforce," which sounds a lot like formal policy to me. Say what you will about the shortcomings of the system here, but I have never heard anyone make a blanket statement that the government simply refuses to uphold IP law in China. Kind of an outrageous statement, in fact. I also think that the use of "persistent" further obscures the reality that a huge amount of progress has been made over the last ten years. If anything, it is progress that has been persistent.
Last, using "medicine, movies and music" as examples are very poor choices. Sure, these are products with high levels of piracy in China. However, the film and music industries are not that high on the list of industries with significant foreign investment, at least compared to manufacturing and high tech — his commentary is supposed to be about FDI. Pharmaceuticals are a decent example of an industry with a lot of FDI that has suffered greatly from IP theft, but again, infringement of domestic IP blows the whole protectionist argument out of the water as far as I'm concerned.
Granted, local protectionism takes place here. This is well known and is an accurate statement. It occurs at a much lower rate than a lot of foreigners think, however, because most folks, and I suspect Palley as well, do not understand that there are probably 500 reasons why a foreign investor might lose an IP case here. Only one of those 500 reasons is local protectionism.
Not to sound arrogant and condescending, but I suppose that the re-education campaign will just have to continue. OK, that was arrogant and condescending — deal with it.