A recent article cites that 72% of counterfeit goods confiscated by US Customs originated in China. That's not good news, especially if the legitimate manufacturers spend money in China.

In a previous post I suggested why China may not fully respect intellectual property rights. Adding to this discourse is a paper by London School of Economics fellow, Linda Yueh, in The Determinants of Innovation: Patent Laws, Foreign Direct Investment and Economic Growth in China (June 2006). Yueh's research looks at whether economic growth in China benefits from patent protection for foreign direct investments, and increased domestic R&D spending.

According to Yueh, before accession to the WTO, China tightly controlled foreign direct investment, requiring one of the following: that the foreign corporations have technology superior to that in China, explicit technology transfer agreements or that products arising from work in China be in demand on the global market. With current reduced oversight on foreign direct investment, China’s intellectual property laws increase in importance for sustaining foreign business interests in the country. Notwithstanding China's imperfect enforcement of intellectual property laws, Yueh finds that:

• growth in patents correlates positively with China’s economic development
• R&D spending and foreign direct investment positively impact the number of domestic patents filings
• a 1% increase in domestic R&D spending will increase the probability of patent filings by almost 5%, in areas of greater innovation activity, a 1% increase in R&D spending can increase the probability of a patent filing by as much as 10%
• foreign direct investment is “slightly less important” to innovation and patent filings than domestic R&D spending, but is associated with technology transfer and inflow of advanced technologies
• foreign direct investment correlates positively with domestic patent applications, due partially to the effect of spillovers on domestic enterprises
• as a country at a low level of economic development, China benefits more than other countries from foreign direct investment, which brings technology transfer and advanced technologies into the country