IP theft is an ingrained feature of the Chinese economy.

U.S. observers have long complained that Chinese firms steal intellectual property (IP) from American companies, universities, and research institutions.¹ Most of these complaints stress that the government of the People’s Republic of China (PRC) directs this theft. Other analysts focus on military applications of the theft. Both arguments are true, but presume that the problem’s ultimate source is policy. It is not. The fundamental source of the problem is China’s political system. The current Chinese political, legal, economic, and business structure disincentivizes innovation in favor of acquisition and imitation both domestically and internationally. IP theft is not simply a longstanding Chinese government policy; it is an inherent feature of the Chinese Party-State-Economy. Therefore, addressing the problem is far more challenging than most American policy makers and business leaders understand. This essay is for anyone who wants to defend U.S. IP from theft. My intention is to help Americans understand the origins, character, and scope of the threat, as well as some possible mitigations. Sadly, no comprehensive, effective, short-term solution exists.

IP theft is endemic to the Chinese political-economic system internally as well as externally. Therefore, to fully comprehend the threat and why it is impossible to eradicate, U.S. policy makers and business leaders must understand the massive incentives all Chinese companies face to steal IP. I start by examining those incentives, which stem from the PRC’s Party-State system. Next, I explain why that system discourages innovation, despite the frequently articulated contrary intentions of Chinese leadership. Third, I outline the connection between lack of innovation and IP theft. Finally, I conclude with recommendations for the U.S. government and private sector.