Fake It till You Make It: The Good News about China's Knockoff Economy

Article excerpt

No one knows for sure why some societies are more innovative than others. The United States is a highly inventive society, the source of a host of technologies-the airplane, the atomic bomb, the Internet-that have transformed the world. Modern China, by contrast, is frequently criticized for its widespread copying of foreign inventions and creative works. Once the home of gunpowder, printing, and other transformational inventions, China is today better known for its knockoffs of almost every imaginable product: cars, clothes, computers, fast food, movies, pharmaceuticals, even entire European villages. The United States gave the world the iPhone; China gave it the HiPhone- a cheap facsimile of a groundbreaking American gadget.

Some see deep cultural roots to the pervasiveness of copying in China. But a more common view is that China fails to innovate because it lacks strong and stable protections for intellectual property. Many lawyers and economists believe that intellectual property rights are critical because they ensure that the economic rewards of innovation go to the innovator. Without such protections, the thinking goes, copycats will undercut and outrun originators. This, in turn, will dry up investment in innovation. The basic logic is straightforward: sustained innovation requires stringent intellectual property laws, and countries that tolerate too much copying will suffer. And since in a globalized economy, copying that occurs abroad can be just as harmful as copying at home, this logic also undergirds an array of international intellectual property treaties that nearly all major states have adopted, including the World Trade Organization's Agreement on Trade-Related Aspects of Intellectual Property Rights, established in 1994, and the many even stricter bilateral accords that states have entered into since then.

As a member of the wto, China is supposed to follow these rules. But its compliance is far from perfect, to Washington's perpetual annoyance. Briefing reporters at the White House in February, U.S. Undersecretary of State Robert Hormats called the extensive theftof intellectual property by Chinese firms and individuals "a serious and highly troubling issue." Although estimates of the cost of Chinese piracy to the U.S. economy vary widely and are sensitive to assumptions, the U.S. International Trade Commission has estimated that in 2011 alone, the figure was nearly $50 billion.

For U.S. policymakers and American executives, the scale and scope of copying in China are bad enough; worse yet is the fact that it is encouraged by an official Chinese policy of "indigenous innovation." According to a planning document issued by the Chinese government in 2006, indigenous innovation includes "enhancing original innovation through co-innovation and re-innovation based on the assimilation of imported technologies." Washington justifiably views this as an official green light for piracy. The U.S. government considers it vital to rein in Chinese copying, and it has exhorted China to change its ways-and sued it before the wto.

But American anxiety and anger over Chinese piracy are misplaced. Copying is not the plague that American business leaders and politicians often make it out to be. In fact, far from always being an enemy of innovation, copying is often a critical part of creativity. Although copying has a destructive side, it also has a productive side. Nearly all creations rest on prior work, and the ability to freely copy and refine existing designs fuels fields as varied as fashion, finance, and software. Copying can also foster stronger competition, grow markets, and build brands.

For Chinese firms and individuals, copying has irresistible benefits that go beyond simply undercutting Western competitors. Many Chinese have gained valuable design and manufacturing skills by copying goods originally produced elsewhere. The results of this imitation are affordable products and services that have allowed millions of Chinese to enjoy the trappings of a consumer society. …