Is China Improving Enforcing Intellectual Property Rights?

Has China stepped up its enforcement of intellectual property rights? A recent Economic Synopses essay suggests that China may have stepped up such enforcement over the past several years.

Economist Ana Maria Santacreu and Research Associate Makenzie Peake tackled this question by examining royalty payments to the U.S. “People and firms pay royalties to use intellectual property, which can be covered under licensing agreements, trademarks, patents, and copyrights,” they wrote. “Royalties are recorded as a trade in services in the international balance of payments.”

Santacreu and Peake noted that China paid $27.2 billion in royalty payments to the world in 2017; that is up significantly from $1.4 billion in 1999. China in 2016 ranked fourth in royalty payments to the world, behind the U.S., the Netherlands and Ireland.The authors pointed out that royalty payments from Ireland and the Netherlands are special cases due to their low corporate taxes, which incentivize multinational companies to open affiliates and shift profits there.

Royalty Payments to the U.S.

The authors noted that payments from China to the U.S. also experienced a significant increase over the same period: from about $0.8 billion in 1999 to $8.3 billion in 2017. “Even more interesting,” they noted, is that China’s royalty payments to the U.S. grew faster than China’s GDP.

Santacreu and Peake concluded that the data may suggest improvement in China’s enforcement of intellectual property rights, though the data don’t suggest what China should be paying. “The issue of China’s potential misappropriation of U.S. intellectual property calls for further research,” they wrote.

Notes and References

¹ The authors pointed out that royalty payments from Ireland and the Netherlands are special cases due to their low corporate taxes, which incentivize multinational companies to open affiliates and shift profits there.

Additional Resources

• Economic Synopses: A Closer Look at China’s Supposed Misappropriation of U.S. Intellectual Property
• On the Economy: China’s Growing Status in Innovation
• On the Economy: Globalization of Innovation and the Increase of Knowledge Sharing