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All eyes on China’s grand reopening

All eyes on China’s grand reopening

Covid-19 has exacted massive economic and social disruption across the globe. As the epicentre of the worldwide pandemic, China was the first to experience the upheaval of the infectious disease. Even as the world began reopening, China has remained cut off from the rest of the world. The Asian nation has been staunch in its commitment to a zero-covid policy that has included stringent border controls, quarantines, mass testing and movement tracking. 

The impacts of this restrictive regime have pervaded the local economy. 2022 was one of China’s worst economic results on record. According to official data, the world’s number two economy grew by only 3% last year, well shy of the targeted 5.5%, its second-lowest growth rate since 1976. 

In early December 2022, amid rising social discontent, the Chinese central government announced the end of the zero-covid policy. China confirmed its borders would reopen on January 8, 2023, so passengers could enter China without quarantine and even those not fully recovered from the virus were encouraged to return to work in some jurisdictions. 

Investors are hoping the move will reinvigorate the local economy and all eyes are shifting to the strength of China’s post-Covid-19 recovery. A sharp rebound is anticipated in the second quarter of 2023 with analysts expecting it will also fuel a rebound in neighbouring Asian countries. In its Oil Market Report published in January 2023, the International Energy Agency (IEA) predicted that the lifting of restrictions in China will boost global oil demand to a new record high of 101.7 million barrels per day (mb/d) this year, despite likely mild recessions in Europe and the United States.  

China has achieved astonishing growth over the past few decades with an average annual GDP growth of more than 8% from 1980 to 2019. The East Asian nation initially played catch up to its western adversaries before more recently assuming a greater role as a global technology leader. Some analysts had predicted China would unseat the United States as the largest economy as early as 2030. 

All eyes on China’s grand reopening

However, as China begins revving its economic engine, questions are emerging around the long-term sustainability of the Chinese economy amidst mounting evidence of stagnation. Some commentators are blaming the intensifying control of President Xi Jinping’s regime for slowing innovation and productivity growth. Private companies have endured greater regulatory scrutiny in the past couple of years and some of China’s most innovative technology companies have been suffering. Tencent reported its first-ever quarterly fall in sales in the second quarter of last year and e-commerce giant Alibaba reported flat quarterly revenue growth for the first time in its history in August 2022. Experts have suggested China’s growth needs to become more balanced, coordinated, and sustainable with less reliance on external demand.

A declining population is delivering further economic headwinds. Data released by China’s National Bureau of Statistics (NBS) in January 2023 indicated that the population fell by 850,000 in 2022 to 1.4118 billion, the country’s first decline in 60 years. The influence of Covid-19 on the death rate in China is murky at best, however, the national birth rate fell to a record low in the past 12 months as China entered a period of negative population growth. 

While the population decline is of concern to officials, equally impactful is the demographic profile of the falling population. China has an ageing population—a large proportion of whom are male. The working population has fallen by 5% from a 2011 peak and one in four Chinese people will be a retiree by 2050. 

This deepening demographic crisis has far-reaching implications for economic growth in the region. Innovative markets typically have younger workforces, not elderly populations. The finger of blame can be pointed, in part, to the controversial one-child policy introduced in the 80s. However, an about-turn and the introduction of two- and three-child policies in the last five years has had little impact. A decade ago, China overtook Japan to become the world’s second-largest economy. Now, there are fears China may follow the same path as Japan—which has faced decades of economic stagnation due to ageing demographics. 

Nevertheless, in the short-term China will continue to propel global growth at a time when other major economies are enduring higher inflation and interest rates. Together with India, China will account for half of the global growth this year, according to the International Monetary Fund (IMF). There have been positive signs following China’s reopening. Strong quarterly and monthly economic data suggests China’s reopening could occur faster and earlier than expected—despite a surge in infections.

A thawing of U.S. and China relations, following a November meeting between Chinese President Xi and U.S. President Joseph Biden in Indonesia, offers cautious optimism for businesses operating in the large and growing market. The two leaders committed to improving communications and maintaining engagement at a senior level.  On January 18, 2023, Vice-Premier Liu He and U.S. Treasury Secretary, Janet Yellen, met for the first time in Zurich, Switzerland, to enhance economic coordination.  

Several recent developments may also strengthen intellectual property (IP) rights and help create a more level playing field for businesses in the region. A webinar, staged by the United States Patent Trademark Office (USPTO) on China IP developments: A view from the ground on January 17, 2023, highlighted key changes in the region over the past couple of years. The USPTO’s primary mission is to help IP protection enforcement for U.S. companies.

Julie Schwartz, IP Attaché at the U.S. Consulate in Shanghai, indicated that alternative dispute resolution is now big across the country and several measures have come out in the last couple of years regarding the resolution of overseas IP disputes and the promotion of mediation.  

Duncan Wilson, IP Attaché at the U.S. Embassy in Beijing, outlined the establishment of a nationwide administrative adjudication channel through the China National Intellectual Property Administration (CNIPA) for major or significant patent disputes. Historically, administrative enforcement in China tended to be very localised and low fines meant prosecution had minimal impact. This new mechanism provides an opportunity for patent holders to gain a nationwide injunction, says Wilson. While this is not as substantive as civil enforcement through China’s courts, it allows patent owners to consider administrative enforcement for patent disputes on a nationwide scale when previously they would have needed to navigate the court system.

However, as China reopens and engagement returns on IP-related issues, the USPTO also noted significant administrative roadblocks. China’s enforcement resources are stretched, particularly when it comes to criminal enforcement. Schwartz stressed the potential need for companies to increase resources and personnel on the ground for monitoring and enforcing their IP rights and disputes or they may wish to review their China footprint, she says. Companies should plan for longer timelines to resolve disputes, particularly in civil litigation, she says.

China operates a “first to file” system which means whoever files a trademark first generally gets the trademark.  This has been a problem for decades, says Wilson, emphasising the amount and frequency of bad faith trademark applications. China has made reforms over the past few years to try to address this issue. Nevertheless, we still see bad faith actors able to obtain registrations for U.S. company brands, he says. It is an extensive and time-consuming process to attempt to get a brand back—with no guarantees.  

Wilson outlined a problematic new approach to addressing this significant trademark issue. Trademark applications are now being blocked en masse at the application stage. The result is a growing volume of companies unable to register trademarks—and a notable time and cost burden to produce the necessary evidence to justify legitimate filings. Bad faith actors won’t hesitate to file fraudulent evidence—which puts foreign companies at a disadvantage, says Wilson. CNIPA has recognised the impact of this change and informal channels to help address these issues are being established, he says.

All eyes on China’s grand reopening

China recognises that IP helps spur innovation and economic growth and is gradually modernising its legal and regulatory framework. In practice, it reserves the right to give unfair advantages to help Chinese entities dominate key sectors. Respect for rule of law doesn’t always apply in China as it prioritises the pursuit of global technology dominance.

Wilson noted that the ruling Communist Party increasingly views IP through a national security lens. He outlined an “interesting shift” in how IP is discussed in China’s 20th Party Congress Report which was released in October 2022. IP and innovation policies are no longer referred to as a form of economic reform and instead are now under a section focused on strengthening China’s science and technological abilities—kind of as an element or extension of state power.  There is no reference to the protection and enforcement of rights, he says. The strategic needs of the nation will be the guide for innovation and IP policies.

While most rights holders will continue to enjoy the benefits of reforms of China’s IP system over the past few decades, Wilson believes certain companies in high tech, green tech and other sensitive sectors will face greater state intervention in administrative and judicial decision making in cases that are deemed to implicate China’s innovation capabilities, access to technology and even economic development.

“Future reforms of China’s IP system will less and less mirror their western counterparts and more and more reflect China’s priorities and their view of IP building up China’s science and technological abilities,” says Wilson. Foreign rights holders are likely to be more impacted and there will be less predictability and transparency for these companies, he says.

Schwartz emphasised e-commerce and online infringement as the most difficult environment. There have been consistent reports of backsliding in online platform’s co-operation with rights holders— particularly during the investigatory process, she says. Transactions shifting to social media—including channels that are shielded from visibility such as WeChat and private messaging—are particularly concerning, she says.