Wednesday, September 27, 2006

China Falls Deeper Because of IPR in Global Competitiveness Index Ranking

The World Economic Forum launced its Global Competitiveness Report 2006-2007. As country highlights the following text is given in case of China:

"China’s ranking has fallen from 48 to 54, characterized by a heterogeneous performance. On the positive side, China’s buoyant growth rates coupled with low inflation, one of the highest savings rates in the world and manageable levels of public debt have boosted China’s ranking on the macroeconomy pillar of the GCI to 6th place – an excellent result. However, a number of structural weaknesses need to be addressed, including in the largely state-controlled banking sector. Levels of financial intermediation are low and the state has had to intervene from time to time to mitigate the adverse effects of a large, non-performing loan portfolio. China has low penetration rates for the latest technologies (mobile telephones, Internet, personal computers), and secondary and tertiary school enrolment rates are still low by international standards. By far the most worrisome development is a marked drop in the quality of the institutional environment, as witnessed by the steep fall in rankings from 60 to 80 in 2006, with poor results across all 15 institutional indicators, and spanning both public and private institutions." See here.

Not a word about intellectual property protection and enforcement.
On page 34 of Part One, the Competitiveness Index it said: "There are concerns about the strenght of auditing and accounting standards, protection of minority shareholders' interests, the burdern of government regulation, the climate for the protection of property rights, as well as the independence of the judiciary from undue influence." Right, the protection of intellectual property could fall within the definition of the protection of property, and a problems with the independence of the judiciary could lead to IPR related problems. But why not mentioning IPR not explicitly?

So what are, according to the World Economic Forum, the key elements for sustainable growth?
9 pillars were identified:

1. Institutions
2. Infrastructure
3. Macroeconomy
4. Health and primary education
5. Higher education and training
6. Market efficiency
7. Technological Readiness
8. Business sophistication
9. Innovation

Each pillar can be subdivided into indicators. If we look at the nineth pillar Innovation, we see:

9.01 Quality of scientific research institutions
9.02 Company spending on research and development
9.03 University/industry research collaboration
9.04 Governement procurement of advanced technology products
9.05 Availability of scientists and engineers
9.06 Utility patents (hard data)
9.07 Intellectual Property protection
9.08 Capacity for innovation

Ok, so utilty patents and intellectual properyt protection are included as indicators. But only the aggregated score for the whole pillar is given, and how the indicators are weighed relatively is unknown to me: Rank 65, score 3.24. See page 22.

If China would clean up its environment and improve intellectual property protection it probably would rise like a rocket in the next Global Competitiveness Index.

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