China’s Organized Intellectual Property Theft

Donald Trump has imposed $60 billion worth of tariffs on Chinese products. These tariffs were promptly retaliated by China. This sparked the fears of a global trade war. As a result, stock markets around the world started crashing. The reason given by Donald Trump for levying these prohibitive tariffs include China’s tendency to create unfair trade conditions for American companies. United States companies have repeatedly alleged that the Chinese governments, as well as Chinese companies, have been siphoning money by licit as well as illicit means. In this article, we will have a closer look at this so-called “organized theft of intellectual property”

How Much Intellectual Property is Being Stolen?

The Commission on Theft of American Intellectual Property has estimated that American trade secrets of about $500 billion are stolen each year. Since China is the number one offender when it comes to American intellectual property, it is estimated that Americans lose anywhere between $180 and $240 billion annually because of intellectual property theft.

Trump has been leveling these allegations for a long time. Finally, he has acted on his promise too. Donald Trump has argued that these trade thefts cost America a lot more than what is estimated. This is because the transfer of trade secrets also leads to the loss of employment in the United States while simultaneously generating employment in China. It is for this reason that Trump has warned that these tariffs are only the beginning. He plans to inflict an equal amount of economic damage on the Chinese companies so that the playing field is leveled.

How Do Chinese Companies Steal American Intellectual Property

There are several ways in which American intellectual property is allegedly stolen by Chinese companies. Some of the important ones are listed below:

  • Forced Joint Ventures: China is one of the largest consumer markets in the world. It is obvious that American companies want to tap the huge potential that more than 1 billion consumers have to offer. However, the Chinese government is very restrictive. It does not allow foreign companies to easily enter into the market. Foreign companies are forced to enter into joint ventures with local corporations. As a result of these joint ventures, many American companies are forced to reveal their technology secrets to their Chinese counterparts. It is not uncommon for Chinese companies to break off these joint ventures unilaterally in a few years. Since they gain the technological know-how, they start competing with American companies and with the help of the government are able to stay ahead of the competition.

  • Cyber Security Law: China has launched a very controversial cyber security law in 2016. As per the provisions of this law, Chinese government officials have the right to decide whether or not any technological company poses a threat to Chinese national security. Once they determine that a certain company is not complying with their norms, they can launch an investigation. Also, they have the right to seize any intellectual property of any company working within the boundaries of China. Many foreign companies are seeing this as an invasion of privacy. It is being seen as a surrogate way that the state has devised which will allow it to replicate or seize foreign intellectual properties. Many organizations including the United States Chamber of Commerce have expressed concern over the extremely intrusive nature of the laws that have been passed.

However, the Chinese government seems to insist saying that the purpose of the new law is only to prevent the misuse of data belonging to Chinese nationals. China has been citing the intrusive policies that companies like Google and Facebook use to gain access to sensitive information about their customers. According to the Chinese government, the average internet user is not vigilant about the value and usage of this data. It is for this reason that the government needs to guard this data.

  • Hacking and Data Thefts: Data thefts by Chinese companies have increased in the past few years. In a recent high profile case, data belonging to a Massachusetts based wind turbine manufacturer was stolen by a Beijing based company. The company stole several valuable intellectual properties including the source code which put the American manufacturer at a great disadvantage. Although American companies face attacks from hackers all across the world, the attacks from Beijing have intensified as well as increased in number over the years.

  • Counterfeit Products: Chinese companies are also famous for producing counterfeit products. Cheap copied of popular brands like Apple iPhone are manufactured and sold all over China. The law is not strong enough to allow companies like Apple to sue Chinese companies and stop the sales. Hence, Apple loses out on the sales in China. Apple also has to spend a lot of money fighting intellectual property cases in China. Also, Apple has to drop the price of its products in China so that it can compete with local manufacturers. However, these low priced products are smuggled to other countries. As a result, Apple ends up cannibalizing its own sales.

The bottom line is that China’s economic policies are still very regressive. It is using its status as the second largest economy in the world to threaten and steal intellectual property from American companies. On the other hand, China says that America is forcibly trying to sell it stuff it does not need. China has criticized Trump’s focus on the trade deficit. The Chinese believe that the trade deficit is the result of the failure of American industries and not manipulation by the Chinese government.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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