China’s IP transactions market slows “under economic pressure,” according to state-run media outlet

The IP Development and Research Centre of China’s State IP Office (SIPO) published its latest annual report on the development of the country’s IP system this week (press release here, in Chinese), indicating that its somewhat curious industry in IP-backed financing has entered a slump.

The Centre’s ‘China Intellectual Property Development Report’ focuses on what it takes to be the four key aspects of a functional IP system. These are creation, including application and grant statistics; protection, including litigation trends and legislative changes; the development environment, which considers the availability and sophistication of IP-related service provision; and utilisation, which looks at the the exploitation of IP assets to create value through means such as collateralisation and securitisation - as well as sales and licensing transactions, to a lesser extent.

Using an in-house developed metric referred to as the National IP Development Index, the report suggests that China's overall IP development has accelerated over the past five years, from a base rate of 100 points in 2010 to 187.35 points in 2015. Digging down into the four aforementioned areas, IP creation has risen to 164.83 points; protection to 211.75 points; the development environment to 198.34 points; and utilisation to 174.48 points. However, the report also states that the rate of this growth has slowed over the past year, especially in relation to IP utilisation.

This trend was reported in a fairly negative light by state-run newswire Xinhua, which said that the country’s IP market “slowed last year under economic pressure,” as “the index evaluating trademark transfers, patent pledge financing and technology market transactions fell markedly in 2015 compared with the previous year due to the economic slowdown”.

Finding and interpreting data on IP business matters pertaining to China can be frustratingly difficult. Nearly all of the official information out there is published exclusively in Chinese, and even for those able to read the language it is often presented in a rather impenetrable format. What’s more is that it appears that many such reports are not always made available in full online, so we have to rely on excerpts, abridgements and secondary sources to get a picture of what’s going on. As such, it is tough to draw any solid conclusions about these kinds of reports.

IAM has previously speculated on the possible link between China’s current economic troubles and its seemingly generous approach to lending money against IP assets of questionable quality. It is difficult to say if official news reports suggesting that the IP loans industry is ailing represent further evidence of its shaky foundations, or instead stand testament to its integrity as a functioning lending market that is affected by prevailing economic conditions just like any other. Or both, for that matter.

However, China’s apparently successful and wide-ranging industry in IP-backed lending has always been rather mysterious. It is certainly puzzling that a country which did not even have a patent law until the mid-1980s now, just three decades later, has an established market for collateralising and securitising IP rights – something that other economies with far longer established IP systems have seemingly only just begun to come round to. After all, US-based BlackRock, the world’s biggest asset manager, only felt confident enough to make its first known IP-backed loan last year; while Singapore’s IP Financing Scheme announced its first official loan just last week. That makes it even more extraordinary that Chinese financial institutions handed out a reported Rmb56 billion (US$8.56 billion) in patent-backed loans to almost 2,000 enterprises in 2015 alone.

That said, it is also the case that in the past three decades China has gone from having no legal framework for patent protection, to filing for, granting and quite possibly possessing more patents than any other country in the world. Stranger things have happened.