In recent years, researchers from the China Private Science and Technology Promotion Committee highlighted at the 2013 China Corporate Legal Conference that some major Chinese companies file thousands or even tens of thousands of patents annually. However, when compared to patent powerhouses like the United States and Japan, Chinese enterprises still lag behind by about two decades in terms of generating profits from their intellectual property.
This gap reflects several underlying issues: weak protection of intellectual property rights, insufficient efforts to convert patents into real productivity, limited focus on technological innovation, and a lack of attention to patent quality and efficiency. Many Chinese companies concentrate their patents domestically without actively seeking international markets, which limits their global impact. In contrast, U.S. companies derive a significant portion of their revenue from intellectual property. The average U.S. intellectual property transaction reaches $370,000, and in the top ten IP litigation cases, the average compensation exceeds $990 million. Meanwhile, Chinese companies see minimal returns from their patents, with average damages often below RMB 500,000 and low patent transaction values, usually under RMB 50,000.
Patents play a crucial role in a country’s economy, especially for China’s current development stage. Traditionally, economic growth is driven by four key factors: human resources, natural resources, capital investment, and technology. Before reaching the middle-income level, many countries rely heavily on labor, resources, and capital. However, as economies mature, long-term growth must come from technological innovation. The neoclassical growth model shows that relying solely on capital accumulation leads to stagnation unless accompanied by technological progress. Developed economies like the U.S., Europe, and Japan have thrived due to continuous innovation, which has become a key factor in avoiding the middle-income trap.
In China, the traditional growth drivers are becoming less effective. The labor dividend is fading, natural resources are depleting, and excessive capital investment is leading to overcapacity and inefficiency. To move forward, China must shift toward innovation-driven growth. However, innovation is inherently risky and costly. It requires substantial investment and often involves high failure rates. For example, pharmaceutical companies spend hundreds of millions on research before a successful drug is developed. While some inventors achieve great success, many others face failure, creating a challenging environment for innovation.
Moreover, technological innovation is a public good—once created, it can be used by many without being depleted. This creates market failures because it's easy for others to copy innovations without compensating the original creators. Basic research, in particular, faces even greater challenges in generating market returns. As a result, government intervention is essential to protect intellectual property, ensure fair returns for innovators, and foster a supportive environment for creativity and invention.
China is currently at a critical juncture in its economic transformation. The inability of Chinese companies to effectively monetize their patents over the past two decades is a serious weakness. Without addressing this issue, the sustainability of China’s economic growth remains uncertain. In competitive markets, the invisible hand of the market plays a role, but for innovation and creation, the government must act as a tangible force, protecting patents and copyrights to support long-term economic success.
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