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TimetoreclassifyChineseInnovationandIntellectualPropertyStrategy

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TimetoreclassifyChineseInnovationand Intellectual Property Strategy:From Copycats, the Year of the Dogand their implications for theDiagnostics&MedtechfieldAfter a decade of expansion, Chinesemanufacturingslowedin2016,arguablydueto rising wages, maturing markets andmediocre global expansion. Premier Li’s“Made in China 2025” strategy, togetherwithInternetPlus,isdesignedtohaltthisandtransform the country into a moreinnovative, intelligent manufacturingeconomy with high-end production. ThisambitiousupgradeprogramrivalsGermany’sdigitaleconomy“Industrie4,0”andinvestsinboth state-owned enterprises and smallbusinesses. Reforms are being fuelled notonly by government policies, but also bythose maturing markets whose advancedconsumers have embraced technologysignificantlyquickerandtoagreaterextentthanthoseinothercountries.Therestoftheworld has been forced to takenotice,withAlanMurray,Fortunepresident,considering“Can China become theworld’s innovationleader?” For some, such as Kathryn Shih,president of UBS Asia Pacific, it is alreadyclear that Chinese digital technologies areleapfrogging other developed countries.Digitalideasaretransferredwithin1weekinChinacomparedto3weeksinSiliconValley;US dominance is threatened. Reflected inhigher smartphone ownership and adeveloping cashless society, the newlyexpanded, loyal and empowered middleclass are responsible for an e-commercegreater than that in the USA and Europetogether.Chinaisalsoatthecuttingedgeofartificial intelligence, with projects such asthetechnologypioneerBaidu’sApollo,whichplans to provide manufacturers with freedriverlesscarsto

accelerate uptake and could potentiallyleapfroginthisareatoo.Thecountryhasthemostgloballyaggressivegovernmentalplansto promote electric cars via productionquotas,whichwill position companies suchas BYT as direct competitors to Germanautomobilemakers.Thepatternisrepeatedacross other modes of transport andindustries, including chemicals andrenewable energies, where efficiency andclimate-friendly advances are boostingproduction and consumption; Germany’sprominenceinhightechisthreatened.BloomingChinese innovation is reflected inrising world rankings across variousinnovation indices. Importantly, it isincreasingly evident in the medtech field,particularly concerning cancer and allergyimmunotherapies,whichareexemplifiedbythe groundbreaking clinical gene editingtrials that are underway. This is drivenprimarilybythegovernment,whichremainsthemajor funding source for research anddevelopment,andwillbefurthersupportedby investment through the 5 year publichealthcare program launched last year.Healthcare expenditure is thus increasingannually,reachingalmost6%ofGDPin2016andpredictedtorise3%peryearupto2020.Withcompoundannualgrowthrates(CAGR)between 2016-2020 forecast to be around4%,theglobalmedicaldevicemarketcouldbeworthUS$500billionby2020,accordingto various sources. Over this period, theChinesemedtechmarketisexpectedtogrowat triple the rate of that in the USA (seeFigure1),whichwillsee itmovefromthird(valuedataroundUS$40billion in2016)tosecond largest worldwide market. The invitrodiagnostic(IVD)marketwillremainthegreatest sector (13%), with sales forecastaroundUS$67billionby2020.

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China is also spearheading the developingbiosimilarsmarket,withthemostcompanies(3; 3SBio, Beijing SL Pharmaceutical andShanghai Fosun Pharmaceutical) in theglobaltop10.

Figure1:RevenueandCAGRdevelopmentofChinesemedtechmarketssince2011

Our own experiences in the life sciencessectoralsosupportthesepredictions.Since2016 we have been conducting numerousroad-shows around the country, initiallyaimed at meeting with IVD companies onbehalf of European customers seekingdistributionpartnersinChina.However,weare seeing more and more innovativeproductsoriginatingfromChinaitself.SmallChinesemedicaldeviceproducersarenotingthatsuccessfulenterprisessuchasMindray,YuwellandLepuMedicaldiversifiedthroughjoint ventures. As a consequence, we areexperiencing greater interest from Chinesecompanies to support their market accessstrategy inEuropeand, in turn,discoveringincreasinginterestfromGermancompaniesin Chinese products. In our view, Chinesecommercialization is being propelled byprivatecompaniesanduniversityspin-offs.

The latter are accumulating in centers ofexcellence in newly created life scienceparks, which foster innovation and attractinvestment.Thishypothesisissupportedbythe number of startups attaining unicornstatus($1billionvalue)thisyear,beingjustshortofworldleaderUSAandtriplethatinEurope(Figure2).

Figure2:TotalnumberofunicornsbornbycountryWe are meeting Chinese CEOs, who areambitious, young and charismaticentrepreneurs. They are often Westerneducated, culturally aware and possess asocial conscience, aiming to protect theenvironment and improve healthcare.AlthoughPresidentTrumprecentlylaunchedaninvestigationintoChina’sviolationsofUSintellectual property, we believe that theconcept of a stagnated state-dominatedeconomydependentonplagiarizingwesterntechnology, with little room for originalideas, is outdated. New Chinesedevelopments will match the quality andperformance of German products, andcontinue,asbefore,tobehighlycompetitiveonprice.Chineseentrepreneursunderstandthat economic viability is dependent onadoptionofinternationalstandards,suchasIPprotection.

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So, despite a poor record for IntellectualProperty in the past, the desire to protecttheir new innovative products could nowbecomeapriority.Thisisreflectedbya45%leapinChineseinternationalpatentsin2016(World Intellectual Property Organisation),promptingdirector-generalFrancisGurrytosuggest “Made in China” has evolved to“CreatedinChina”.Atthisrate,thecountrywill overtakeworld leaders Japan this yearandtheUSA in2years.Chinesecompaniestoppedtherankingsforcorporatepatenting.Although these were telecoms andelectronics firms, this could change as theMedtech sector still has thehighestpatentranking in Europe. In China, patentapplications are concentrated aroundBeijing, Shanghai and Shenzhen, and newresearch institutes (under the umbrella ofthe Chinese Academy of Sciences) areprovidingpatent andbusiness support. Taxbreaks and other incentives also serve topromote patent applications and arepotentially contributing to theall-timehighdomesticfiling,whichhasreached1millionannually, and comes principally fromtelecoms and medtech applications. Webelieve the Chinese are strengthening thisarea to facilitatemore global business andthat such increased product protection isreassuring for potential Germanassociations.

With regard to medtech and diagnosticsinnovations,asforotherfields,wherethereis a lack of homegrown ideas, Chinesecompaniesseekskillsabroadandprincipallyfocus on German firms because of theirexcellentreputation.AstheChinesepossessthecapacitytobuytargetcompaniesbutstillretain close ties to the ruling communistparty, German authorities areunderstandably cautious and have recentlyannounced tighter regulationon takeovers.However, we suggest that joint ventureopportunities with this principal tradepartner should not be underestimated.AuthorEdwardTse seesanemergingmoreconfident and relaxed Chinawith which toconductbusiness.WeseektohelpGermanmedtech and diagnostics companiesunderstand China’s new strategies,recognize changes, and adapt to benefitfromnewstrengths.HereatSilverSkyLifeSciences,wehavebeenfacilitating German-Chinese collaborationsovermanyyears.AidedbyfrequentvisitstoChina and colleagues fluent in bothlanguages, we can find suitable GermanpartnersforChinesecompaniesandensureasmooth transition toa successful and long-termpartnership.Asweseeit,withthestartof 2018, the Chinese Year of the Dog hasfinallychasedawaythedaysofthecopycat.

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