The Economist's Lax Attitude Towards IPR in China

The cover story of the Economist (May, 19th-25th) is entitled America's fear of China, it's about whether a revaluation of the yuan would do much for the US (not much in the opinion of the Economist). This article is introduced by a leader that gives the essence of a more elaborate article. This time, however, the leader mentions intellectual property in China, while the full article does only mention that in early April the Bush administration filed two complaints at the WTO, one on Chinese pirating of DVDs and CDs, and the other on restrictions on the sale of foreign films and music in China.

In the leader it said:

"China's intellectual-property violations cost American firms far less than many would have you believe: pirated DVDs may sell for peanuts in the markets of Shanghai, but if Hollywood tried to sell the genuine articles at full price, it would quickly discover that most Chinese could not afford them. Similarly, a stronger yuan would do little to dent America's trade deficit." See the leader of the Economist here.

Now, it might be true that IP violations cost American firms far less than many would have you believe, as the Economist asserts, see here. However, the Economist is using a rather arbitrary and suggestive supporting argument: "[I]f Hollywood tried to sell the genuine articles at full price, it would quickly discover that most Chinese could not afford them." Hollywood has started experimenting with different pricing systems, instead of trying to sell their films at the full price, see here.

The conclusion "Similarly, a stronger yuan would do little to dent America's trade deficit", suggests that stronger IPR in China would do little to dent America's infringed copyrights in China. However, one can argue that even if Hollywood would sell its films at the full price and indeed would quickly discover that most Chinese could not afford them, these firms could profit from the adequate IPR protection and enforcement in China. These firms might anticipate that one day they can serve China's expanding middle class that might be able and aspire to buy such premium products. To compare the revalution of the yuan with IPR protection is comparing apples to oranges in my view.

The Economist suggests that it is only worth your while to protect and enforce IPR of blockbuster movies, and ignoring changing demographics and the future potential to sell premium products in a dramatically dynamic market.