Putting China’s patent rise into context

By all accounts, China became a trail-blazing world economic power in the early 21st century. Adjusting for purchasing power parity, China’s gross domestic product per capita increased by 240% from 2000 to 2011. China’s State Intellectual Property Office (SIPO) currently receives more patent applications than any other patent-granting authority, with 80% of applications coming from Chinese residents. To compare, fewer than half of all applications to the US Patent and Trademark Office (USPTO) come from US-based inventors.

This growth in patenting represents a new reliance on technological development. Patent applications to SIPO from large and medium-sized enterprises grew at an average annual rate of 38% over the same period. Instead of relying solely on manufacturing, the Chinese are attempting to grow their economy through technological advancements.

This article presents an empirical study of Chinese patenting trends in the United States across several decades and uses three primary approaches to present a comparative analysis of these trends. First, it compares current US patenting trends from Chinese applicants to those from other Asian countries, as well as from emerging economies in Brazil, Russia, India, China and South Africa (BRICS). Second, it uses historical data to compare the recent growth in Chinese patent applications filed in the United States to similarly active periods of growth for applications from South Korea and India during the late 20th century. Third, it examines data on the influx of foreign capital into China.

The results show that China’s patenting trends at the USPTO have much in common with other East Asian technology booms. These similarities are striking when looking at the growth of South Korea in the 1980s. The role of foreign direct investment can also be observed as shifting in technological focus and geographic concentration. This analysis provides helpful insights into possible future developments.

Conventional wisdom

The underlying hypothesis of this article is that China’s recent innovation boom differs from similar booms in other countries, taking into account unique factors such as population size, growth rate and political history. China overtook the United States as the world’s biggest economy in 2014, with the number of Chinese patent applications received by the USPTO rising as well. This article examines whether China has followed a historical pattern of development in innovation or blazed an unprecedented trail, first exploring patenting trends in light of increased investment in R&D, changes to the government’s agenda and foreign policy, and increased exports of advanced technology products.

Many scholars point to the surge in Chinese R&D spending as a cause of increased innovation and the subsequent increase in patent applications, with both the government and multinational corporations being the source of this increased spending. For instance, corporations such as Huawei Corporation and ZTE Corp are now among the most prolific patent holders in the world. In total, China spends approximately $300 billion on R&D annually, second only to the United States.

The efficiency of China’s R&D spending in leading to patent applications provides a further explanation for the exponential growth in patent applications. For every million dollars spent on R&D, Chinese companies apply for 3.5 patents. US companies, by contrast, apply for fewer than one (0.9) patent for the same amount of R&D expenditure. These figures raise certain questions. Do they indicate a lack of quality in these patents? Or perhaps that Chinese patent holders focus on incremental innovations, as is the practice in Japan?

Experts suggest that the accelerated restructuring of state-owned enterprises and increased privatisation may offer a better explanation for the upsurge in patenting in China. Nonetheless, multinational enterprises and foreign investors deserve at least partial credit for the boom. The growth of foreign direct investment has prompted Chinese companies to file for more patent applications than ever before. This increased international cooperation may in turn have helped to foster Chinese companies’ growing interest in protecting their intellectual property.

Another contributing factor to China’s success is the government’s IP agenda. The State Council adopted its National Intellectual Property Strategy in June 2008, emphasising the active development of intellectual property in China. China’s innovation policy was accompanied by aggressive patent law reform and the adoption of many practices similar to those of the USPTO. China enacted detailed filing instructions and patent examination guidelines in February 2010 which are equivalent to the US Manual of Patent Examination Procedure. By making the SIPO application process more similar to the USPTO process, China made its inventors more knowledgeable and better equipped to apply for patents in the United States.

Another explanation for the rapid increase in the number of patent applications from mainland China is an increase in patent-intensive advanced technology products (ATPs). An increasing share of Chinese exports to the United States are ATPs in sectors such as information and communication technology and optoelectronics. Because one ATP may contain several inventions, their production is often considered highly complex. When exporting a computer, for instance, a large number of patent holders will want the destination country to enforce their rights. The share of ATP exports from China increased from 16% in 2002 to 33% in 2012. Meanwhile, the ATP share of total exports to the United States fell for the other BRICS, with most occurring in Brazil and Russia.

Chinese industry has shifted from discrete product industries (where the output sold to the consumer stands alone) towards complex product industries. Operating in these complex industries brings far greater incentives to patent, both to protect one’s own innovative products and to equip one’s firm with a complex patent portfolio for negotiation purposes. A more educated population also provides additional human capital to support R&D efforts. Demand-side drivers may cause an increase in complex product industries which address specific challenges, such as pollution and high population density.

The results of our study are organised by the four patent trend measures on which we focused:

• patent applications;
• allowance rates;
• concentration in technology mix; and
• geographic concentration.

Figure 1. Utility patent applications to the USPTO from China and other BRICS economies, 2000-2012

For each trend, the results from the first data set (focusing on the current time period and on applications from China, the BRICS countries and Japan or South Korea) are discussed first, and the results from the second set (focusing on the respective 10-year high-growth periods for China, South Korea and India) are discussed second.

Figure 2. Comparing the rate of growth of USPTO utility patent applications from China to the comparison groups, 2000-2012

Figure 3. Comparing allowance rates of disposed applications, 2000-2012

China’s innovation economy pulls away from other BRICS

Since 2000, China has distinguished itself from other BRICS nations in its approach to patenting. Our results show that China has seen an increase in patent applications, in addition to higher allowance rates. China has also emphasised the development of technological areas such as computing and semiconductors, where new products often require a large number of innovations.

The increase in USPTO patent applications from mainland China since 2000 has outpaced applications from the other BRICS economies, as shown in Figure 1. This is due in part to the tax incentives given to US companies in China, leading to an intensification of R&D which has prompted Chinese firms to file for more patent applications both at home and abroad.

Even with the growth in Chinese patent applications, the number of applications from China was still quite small over this period compared to the number of applications coming from Japan and South Korea, which accounted for roughly 50,000 applications in 2000, increasing to over 80,000 in 2007. That number fell following the financial crisis in 2008, but rebounded to 79,000 by 2012.

Figure 4. The growth of USPTO utility patent applications from China by technology area, 2000-2012

The growth rate of Chinese patent applications far exceeded that of other foreign applications. Figure 2 compares China’s rate of growth in patent applications with those of the two comparison groups. The number of applications from the other BRICS grew at an average annual rate of roughly 11%. However, over this same period the number of applications from mainland China grew at an average annual rate of 31%. This means that by 2012, the USPTO was receiving 25 times as many applications from Chinese inventors as it had received in 2000.

The dramatic increase in the number of patent applications from China did not drive down the quality of patent applications, as measured by patent allowance rates. Figure 3 illustrates how the allowance rates for Chinese applications are converging with those for the two comparison groups, Japan and South Korea. At the same time, Chinese allowance rates have been diverging from the lower allowance rates of the other BRICS countries, where China found itself in previous years. This may indicate that Chinese applicants are adapting to the system in use by the USPTO. The allowance rate may also have been improved by increased international cooperation with inventors who were already familiar with USPTO practices and regulations.

Figure 5. Change in technology mix, applications to the USPTO from various countries, from 2000-2002 to 2010-2012

Technologies driving China’s patent boom

The growth rate of the number of applications from China has not been uniform across technology areas, as illustrated by Figure 4.

Comparing the technology mix from 2000 to 2002 with that from 2010 to 2012, it is immediately apparent that Chinese patent applications shifted from the biotechnology, chemical and mechanical areas to computing and semiconductors. Panel A in Figure 5 illustrates this change to the technology mix. Given the results presented in Figure 4, it is not surprising to see a shift away from the technology areas that had been slowing (ie, the biotechnology, chemical and mechanical sectors) to the fastest-growing areas (ie, computing and semiconductors). The change in the share of all applications assigned to the computing sector has grown much larger, from 24% to 40%. Panels B to D in Figure 5 show the changes in the technology mixes for three different groups. Panel B shows the changes for the other BRICS economies; Panel C shows the changes for Japan and South Korea; and Panel D shows the changes for all applications to the USPTO for the same period.

Similar to the Chinese patent application technology mix, the technology mix for the other BRICS economies has skewed more towards computing and away from biotechnology, chemical and mechanical.

The relative stability of the technology mix for Japan and South Korea is likely a result of a greater level of maturity in those countries’ economies. As a final comparison, Panel D of Figure 5 presents all patent applications received by the USPTO. The rush to try to patent all computing innovations by inventors in these emerging economies, including China, does not appear to be a broader trend encompassing other technology areas. For China and the other BRICS economies, there has been a much greater shift into computing and semiconductors and away from the other technology areas.

Figure 6. Technology mix concentrations of applications from China, Japan and South Korea and other BRICS economies

The technology mix of Chinese applications has changed significantly over the past decade and has become more concentrated. In 2000, China’s technology mix was not concentrated in any one or two areas. However, by 2006 the technology mix of Chinese applications had become much more concentrated in computing and semiconductors. The involvement of multinational corporations in the electrical and electronics/computer industry helps to explain why the semiconductors sector has become so concentrated. Since 2006, a sudden increase in new Class 361 (the USPTO’s designation for electrical system and device patents) patents from China can be traced to R&D focusing on China’s electrical and electronics industry.

The technology concentration of applications from the other BRICS economies has also increased, although this was not pronounced until 2012. The technology mix concentration of Japanese and South Korean applications was high relative to those of the other comparison groups for the first part of that period, but has also remained fairly consistent. Since 2006, the technology concentration for Japan and South Korea has been lower than China’s and similar to that of the other BRICS countries.

Figure 7. Utility patent applications to the USPTO: China (1997-2007), South Korea (1986-1996) and India (1998-2008)

Source: Authors’ calculations based on PALM data collected by the USPTO

Figure 8. Comparing the technology-adjusted allowance rates for South Korea, China and India

China’s development boom mirrors other East Asian countries

Our empirical results demonstrate that as China’s patenting trends have diverged from those of the other BRICS nations and emerging economies, they have become more similar to patenting trends observed in South Korea and India during their high-growth periods. The shift in technology mix that has accompanied each country’s technology boom provides additional insights into the big picture of innovation and patent protection.

In India, South Korea and China, the number of applications in the base year was quite small at the beginning of the high-growth period (131 from China in 1996, 158 from South Korea in 1986 and 164 from India in 1998). The number of applications from each of these countries grew over the following 10 years. The growth in Chinese applications was similar to the growth in South Korean applications over the previous decade, especially through the first eight years (through 2005 for China). In each case, the number of applications at the end of the period was roughly 30 times higher. Even India, with its 30% average annual growth rate in applications from 1998 to 2008, was left lagging. This comparison shows that the recent explosive growth in applications from China has at least one precedent.

Figure 9. Technology mix of Chinese applications to the USPTO

When adjusted by technology area, the allowance rate for South Korean applications increased while the allowance rates for Chinese and Indian applications fell over the periods of interest. However, it appears that these trends were driven by general trends in the overall allowance rate for all patent applications in the USPTO. The fall in the allowance rate for Indian applications was more dramatic than the underlying fall in the allowance rate for all applications to the USPTO. The technology area-adjusted allowance rate for South Korean applications from 1988 to 1996 was generally on par with the overall allowance rate at the USPTO, while the allowance rate for Chinese applications from 1997 to 2007 was lower than the overall allowance rate, with a recent reduction in 2012. The allowance rate for Indian applications went from being much higher than average from 1998 until 2002 to being average by 2005.

Figure 10. Change of the concentration of the technology mix for applications from the three countries and for all applications (HHI measure)

For each high-growth period case, we also analyse the evolution of the technology mix for applications received from the country over the 10-year period. Figure 9 illustrates how the technology mix changed for Chinese applications. At the beginning of the period, the CHEM and SEMI technology areas were most important. By the end of the period, the CHEM area accounted for 9% of all applications, while the COMP area had grown from 10% to a 35% share. The BIO area had also accounted for a smaller share of applications, falling from 15% to 7% over the same period.

By comparison, applications from India in the late 1990s were concentrated in the BIO area. By the end of that period, the Indian applications were still concentrated in one area, but it had switched to COMP. From 2006-08, the COMP technology area accounted for roughly half of all applications. During South Korea’s 10-year high-growth period, the share of all applications in the SEMI area grew from 20% to 35%. During this same period, the shares of applications in the TRANS and MECH areas each fell by at least 30%.

In each high-growth case, the technology mix concentration rose after an initial drop. The technology mix of applications from China was the least concentrated of the technology mixes during the country’s periods of fast growth, except towards the end of the 10-year period where China’s technology mix concentration for 2006 and 2007 was slightly higher than the concentration for South Korea for 1995 and 1996.

Figure 11. The geographic mix of applications from China, 2000-2012

China’s innovation centres

As the technology mix of Chinese applications to the USPTO has become more concentrated, so has the geographic mix of patent applications from regions in China. The results focus on different regions in China. At the beginning of the millennium, more applications came from Beijing than from any other region. However, patenting in Guangdong province outpaced overall growth in China for the next several years and by 2006 Guangdong applications accounted for nearly half of all Chinese applications to the USPTO. Over the most recent period, Guangdong (45%), Beijing (21%) and Shanghai (14%) accounted for 80% of Chinese applications. By comparison, geographic patent concentration in China is little different from in the United States, where the Silicon Valley region is responsible for 25% of US-issued patents.

As a measure of the concentration of the geographic mix in China, Herfindahl-Hirschman Index (measure of market concentration) points were calculated for each year from 2000 onward. The results show that applications to the USPTO from China have become more geographically concentrated since the turn of the millennium. The most recent trends seem to indicate that the geographic mix may be becoming less concentrated, although a similar trend between 2006 and 2008 reversed itself.

These concentrations suggest that researchers looking for patterns and trends should focus on innovation within specific regions rather than examining it throughout the nation as a whole. Other researchers found that India displays similar geographic concentrations, and that future studies applying this approach could compare the booming technology centres of China with those of the comparison groups, such as similar technology-producing clusters in India or South Korea, or even cities such as San Francisco and New York.

Role of foreign co-inventors

The influence of foreign companies doing business in China receives much attention. To analyse the effects of these companies and their investments on Chinese development, we first examined US patent applications from China which named at least one foreign co-inventor. Second, we investigated the country or region of origin of the foreign co-inventor. Third, we compared the rates of having foreign co-inventors on patents originating China with the same rates from South Korea’s high-growth period in the late 1980s and early 1990s.

Figure 12 shows the percentage of US patent applications from China with at least one non-Chinese co-inventor by year of application for the years 2000 to 2011, which we used as a proxy for the level of foreign involvement in Chinese R&D. These figures represent a lower bound for joint R&D activities conducted by multinational corporations in China.

We also analysed the country or region of the foreign co-inventor in Chinese patent applications in the United States (see Figure 13). The major countries of origin for foreign co-inventors on Chinese patent applications are the United States, Taiwan, Hong Kong and Macau. The results in Figure 13 indicate that joint R&D activities which result in joint patenting involve Chinese collaborations with the United States and with its nearest neighbours.

Figure 12. Percentage of US patent applications from China with at least one non-Chinese co-inventor, by year of application, 2000-2011

Figure 13. Percentage of US patent applications from China with at least one foreign co-inventor from various countries/regions, by year of application, 2000-2011

Note: “Other China” includes Taiwan, Hong Kong, and Macau. “Other East Asia” includes the ASEAN countries and Mongolia. EU includes all EU members plus Switzerland

Figure 14. Percentage of US patent applications with at least one foreign co-inventor during the high-growth periods for South Korea and China

China and South Korea differ significantly when comparing the percentage of US patent applications with foreign co-inventors from China with those from South Korea during its boom (Figure 14). From 1986 to 2006 – a period of high growth for South Korea – fewer than 2% of US patent applications originating from South Korea named one or more foreign co-inventors. For the corresponding high-growth period in China from 1996 to 2006, the percentage of US patent applications from China with foreign co-inventors was much higher. This indicates that multinationals have a greater interest in pursuing joint R&D activities in China than they did during South Korea’s boom. It is also possible that with increasing globalisation, multinational corporations are more willing to locate R&D activities in foreign locales in the 2000s than they were in the 1980s.

Figure 15. Change in technology mix of applications from China and various comparison groups, 2000-2002 to 2010-2012

Source: Authors’ calculations based on PALM data.

Even with globalisation, the percentage of foreign co-inventors in US patent applications from South Korea has remained under 2% for over two decades – during the entire period from 1986 to 2006. This is in sharp contrast to China, where the percentage of foreign co-inventors in the period from 1996 to 2006 ranged between 10% and 15%, as shown in Figure 14. For the same high-growth periods, the percentage of foreign co-inventors in US patent applications from South Korea compared to that from China is significantly different. Our data and analysis support the view that, at least in part, the steadily increasing US patent filings originating from China are spurred by multinationals engaging in joint R&D activities in China.

Figure 16. Change in technology mix, Indian applications to the USPTO, 1998-2008

Source: Authors’ calculations based on PALM data collected by the USPTO.

Parallels between China and South Korea

It appears from this analysis that China is not exhibiting exceptional trends in technology innovation and in seeking patent protection. Instead, it is developing in a manner similar to other innovative countries in Far East Asia, primarily South Korea. The number of applications from South Korean inventors also increased at a yearly rate of roughly 40% from 1986 to 1996. Using South Korea as a guide, we should expect the number of Chinese applications to continue to grow for at least the next decade.

While the number of applications from China has increased over the past decade, the relative concentration of these applications in high-tech areas such as computing, telecommunications and electrical engineering has increased, while the share of applications in biotechnology and chemical and material engineering has fallen – an ongoing trend since the mid-1990s. Similar results have occurred in several other major emerging economies. The technology mix was more stable for Japan and South Korea, indicating that we may expect a more stable technology mix for Chinese applications as well.

Finally, the allowance rate for Chinese applications has climbed in the past decade towards the allowance rates of South Korean and Japanese applications. South Korea and Japan hit an 82% allowance rate compared to China’s 72% in 2000, but by 2010 the difference was a mere 1%.

Why Chinese application quality is advancing

Increased familiarity with USPTO procedures (providing a double benefit to Chinese inventors) and growth in capital investment and R&D expenditures have likely played major roles in improving patent application quality as measured by allowance rates. International collaboration has likely also contributed to increased success before the USPTO. In short, applicants that submit patent applications more successfully likely do so because of increased experience dealing with the USPTO or entities that follow similar procedures.

Multinationals also play a key role in filing US patent applications originating in China. As these move beyond low-cost manufacturing in China and start creating R&D centres in China to capitalise on educated, local Chinese talent, the production of innovative technologies in China will increase. To the extent that this is already taking place, it can partially explain the increase in patent quality suggested by our results.

Figure 17. Change in technology mix, South Korean applications to the USPTO, 1986-1996

Source: Authors’ calculations based on PALM data collected by the USPTO

The increase in high-quality patent applications from Chinese applicants may also be a result of China’s shift from discrete product industries to complex product industries. Our findings support this interpretation by highlighting the high rates of ATP exports from China compared to rates of ATP exports from other emerging economies. This suggests that increased patenting activity in China is partly a result of Chinese businesses focusing on more complex products and services.

China is differentiating itself from its BRICS counterparts by seeking more patent protection, achieving higher allowance rates and exporting more ATPs to the United States. While the increased allowance rates suggest that Chinese patent applications have improved in quality, we cannot authoritatively state that patents are now of a higher quality than earlier submissions by Chinese applicants until they have survived challenges in post-grant proceedings or infringement lawsuits. Confirmation by the USPTO of the enforceability of these patents could encourage more innovation and patenting in China and throughout Asia by assuring new participants in the global economy that other influential governments will recognise and enforce their IP rights.

Figure 18. Geographic mix concentrations of applications from China, 2000-2012

Source: Authors’ calculations based on the geographic data for patent applications originating from China

Figure 19. The number of annual utility patent applications from South Korea (1986-2011) and from China (1997-2011)

Source: Authors’ calculations based on PALM data collected by the USPTO

Similar patenting trends seen before

The innovations of Chinese industries have caught the attention of global economic actors, making it likely that innovation in China will play a critical role in the trade, policy and business decisions of governments and corporations. It is our hope that the data and analysis set out in this article will help to inform those decisions and fuel further research in this area.

With regard to the question of whether China’s recent surge of patent activity is an idiosyncratic event or is following established patterns, the two sets of data analysed here focus on the number of patent applications submitted to the USPTO, the allowance rate of these applications and the technology mix of these applications. The first set of data compares these figures for China, other BRICS countries, Japan and South Korea from 2000 to 2014. The second set looks at China, India and South Korea during their respective 10-year periods of highest patent application growth.

Our analysis indicates that China is following patenting trends similar to those exhibited by other East Asian countries, although at a more accelerated pace. Compared to other emerging BRICS economies, China is submitting more patent applications, the subjects of the applications are more sophisticated and the patent allowance rate is converging with that of developed economies such as South Korea and Japan. China’s current patenting trajectory is similar to other patent trends apparent from historical data, suggesting that China is not following a unique developmental path. However, if we scale up the patterns observed during South Korea’s highest growth period to China’s size and level of economic activity, the data suggests that the growth observed in Chinese patent applications so far is only the beginning. Its patent application rates will probably continue to increase over the next decade before they begin to slow.

The increase in Chinese patenting activity is therefore not without precedent. However, our results suggest that increased R&D expenditures and the influx of foreign capital are more significant contributing factors which were not present in the same concentrations in other high-growth economies, such as South Korea. Therefore, while these developments are not an anomaly, they have also been enhanced by the nature of our increasingly globalised economy. Exposure to foreign direct investment and multinational corporations in China has contributed to a culture that accepts and relies on foreign IP protection.

Our work also distinguishes Chinese technological development from more established economies by the geographic concentration of patenting activity within China. Increasingly, technological innovation is centred in innovative geographic clusters in the United States, Europe, Japan, South Korea and China. Future research should focus not just on innovation within a country as a whole, but also on innovation within observable clusters of inventive activity within these countries. In particular, our findings raise the possibility that the global innovative city is becoming the new model for sourcing technology innovation.

Future research should also explore factors responsible for rising patent allowance rates, especially whether the increased allowance rates are better explained by the effects of Chinese inventors becoming more familiar with the US patent system or by increased collaboration with multinationals already familiar with the US patent system. Other future work could supplement the comparative data discussed in this article with economic indicators to examine where along the economic development spectrum this boom in innovation occurs. This type of analysis could allow for projections of future patent booms.

In the future, US patent litigation and licensing could involve many more Chinese-owned US patents. If the USPTO and courts uphold the validity of these patents, it is safe to say that the Chinese pursuit of patent protection in the United States is the new normal, cementing China’s status as a global economic and innovative powerhouse.

Figure 20. Share of total exports to the US that are classified as advanced technology products (ATPs), China and comparison groups, 2002-2012

Source: Authors’ calculations using data from the Foreign Trade Division of the US Census Bureau