VZCZCXRO0729
RR RUEHAG RUEHCN RUEHDF RUEHGH RUEHIK RUEHLZ
DE RUEHGZ #5726/01 1500816
ZNR UUUUU ZZH
R 300816Z MAY 06
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 9050
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEAWJA/DEPT OF JUSTICE WASHINGTON DC
RUCPDOC/USDOC WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 04 GUANGZHOU 015726 
 
SIPDIS 
 
USDOC FOR 4420/ITA/MAC/MCQUEEN, DAS LEVINE 
STATE FOR EB/TPP MASSINGA, FELSING 
STATE PASS COPYRIGHT FOR TEPP 
STATE PASS USPTO FOR DUDAS, BROWNING, BOLAND, ANTHONY, NESS 
STATE PASS USTR FOR MENDENHALL, MCCOY, ESPINEL, CELICO 
USDOJ FOR SUSSMAN 
DHS/CPP FOR PIZZECK 
USPACOM FOR FPA 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: KIPR PGOV ECON ETRD CH
SUBJECT: Guangdong Vice Governor:  IPR Protection Crucial 
for Innovation 
 
Ref:  A) Guangzhou 14710 and previous, B) 05 Guangzhou 
18895 
 
(U) This document is sensitive but unclassified.  Please 
protect accordingly. 
 
¶1.  (SBU) Summary:  Guangdong Vice Governor Song Hai said 
that the province's intellectual property rights (IPR) 
protection efforts were improving but many gaps remained. 
He noted that the urgency of the issue so that the province 
could proceed vigorously down a path of innovation.  In 
that regard, Guangdong must do a better job of intellectual 
property creation and management, with greater emphasis on 
the private sector in research and development.  He 
emphasized that risk and entrepreneurship are crucial to 
innovation and economic growth, which are impossible 
without improved protection of the products of such risk. 
Song acknowledged the need for better benchmarking on IPR 
enforcement and better management of intellectual property 
and expressed openness to USG and American private sector 
involvement in these endeavors.  End summary. 
 
Consulate Guangzhou-Guangdong Province IPR Roundtable 
--------------------------------------------- -------- 
¶2.  (SBU) Before the May holidays, Congenoffs called on 
Guangdong Vice Governor Song Hai for the third session of a 
U.S. Consulate Guangzhou and Guangdong Province IPR 
cooperation dialogue begun in the spring of 2004 (ref B and 
previous).  Vice Governor Song is the Guangdong 
government's leading figure on IPR issues and also 
participates in national level discussions as well, and 
Song assembled top provincial officials from provincial 
offices of the Public Security Bureau (PSB), Administration 
of Industry and Commerce (AIC), Intellectual Property 
Office (IPO), Customs, and Foreign Trade and Economic 
Cooperation (DOFTEC) for the occasion. 
 
IPR Protection and Innovation Essential for Growth 
--------------------------------------------- ----- 
¶3.  (SBU) Song stated that innovation, a key objective of 
the 11th Five-Year Economic Plan, is crucial in Guangdong's 
effort to upgrade its industrial structures and transform 
its means of economic growth.  Innovation leads to wealth, 
which stimulates further innovation.  He added that 
innovation cannot thrive without a public respect for the 
ownership of ideas, and strong IPR regulations and 
effective enforcement are the lynchpins.  Song expressed 
regret that many of Guangdong's entrepreneurial and 
innovative intellectuals are struggling because of the lack 
of IPR protection.  Guangdong has only 20 years of 
experience in IPR protection, and thus has much to learn 
from the United States, which China views as a teacher on 
IPR issues. 
 
Spotty Enforcement 
------------------ 
¶4.  (SBU) Song briefly noted that enforcement efforts have 
been stepped in the year since the last Consulate-Guangdong 
high-level dialogue on IPR, citing many of the 
accomplishments reported separately in Guangdong Province's 
white paper (ref A).  After hearing the Consulate's 
presentations of the mixed experience of American 
businesses in various parts of the province, Song 
acknowledged that there were still many gaps in enforcement. 
 
Administrative Protection is Effective 
-------------------------------------- 
¶5.  (SBU) Song said administrative protection remains the 
most effective means of IPR enforcement in Guangdong. 
Though he acknowledged foreign complaints of insufficient 
judicial protection of IPR, Song said administrative 
offices are nevertheless responsive to disputes and 
complaints and can appropriately penalize counterfeiters. 
By using the administrative channel, rights-holders can 
also avoid lengthy periods of litigation. 
 
GUANGZHOU 00015726  002 OF 004 
 
 
 
Public Education Efforts 
------------------------ 
¶6.  (SBU) Song also touted Guangdong's IPR public awareness 
efforts associated with World IPR Day on April 26.  He said 
all IPR-related government agencies were involved, with 
white papers coming not only from Guangdong but also 
Guangzhou and Shenzhen.  In addition, Song instructed the 
Guangdong IPO to extend its relevant activities for April's 
IPR Week from one week to one month.  Song said Guangdong 
has introduced IPR awareness courses into local high 
schools to ensure that students understand that it is 
illegal to buy counterfeit products.  The Consul General 
noted that in a visit to Shantou University, a student said 
she was quite aware of the illegality of downloading 
American movies from the internet but felt that she needed 
to do so to improve her English language abilities.  This 
encapsulates the challenge -- public education is indeed 
effective in raising awareness, but the violations 
nevertheless continue.  Song agreed that this was a 
challenge. 
 
Using the Private Sector to Protect IPR 
--------------------------------------- 
¶7.  (SBU) Song continued that said Guangdong would like 
local enterprises to play a major role in intellectual 
property development and protection.  Local companies have 
the skills to aggressively innovate their technical and 
management systems.  Such innovation would lower their 
costs and accelerate their growth.  The Guangdong 
government has encouraged industrial associations to play a 
more significant role in IPR development and self- 
enforcement.  Song said Shenzhen's fast growth and 
prosperity is due in part to an improved IPR environment. 
Song said Guangdong is transforming its economy from a 
labor-intensive focus to increasingly high-tech industries, 
stating that that the province's high-tech output value has 
increased from RMB 280 billion (USB 35 billion) in 2000 to 
RMB 1,016.8 billion (USD 127 billion) in 2005. 
 
Song's 2005 Visit to the United States 
-------------------------------------- 
¶8.  (SBU) Song also said that his trip to the United States 
in December 2005 had helped the Guangdong and central 
governments in shaping new approaches.  He met with U.S. 
government IPR-related agencies and several members of the 
U.S. Chamber of Commerce.  With the U.S. Chamber he 
discussed future joint training programs both at a 
conceptual level and in detail.  Song also hopes to set up 
an information-sharing program with the Chamber, which will 
focus on IPR-related statistics and enforcement efforts. 
(The U.S. Chamber hopes to use a late June seminar to help 
develop benchmarking tools to measure Guangdong's IPR 
enforcement progress in real terms.)  Song added that, 
after talking with U.S. journalists, including a reporter 
from New York Times, he believes the American public 
continues to underestimate the Chinese government's IPR 
protection efforts.  He also said, however, that this 
situation meant that neither the Guangdong authorities nor 
the central government has been doing a good job in 
publicizing China's IPR accomplishments, a situation that 
he reported to Beijing.  Song said that Guangdong was very 
much interested in working with the USG and American 
business associations in this area. 
 
Disappointing Commercialization of IP 
------------------------------------- 
¶9.  (SBU) Turning back to the topic of innovation, Song 
said local institutions of higher education have failed to 
become major sources of intellectual property (IP), and the 
amount of commercialized IP developed by them has been 
limited.  He welcomed U.S. input on how to stimulate more 
IP commercialization from local research organizations, 
including those in the private sector.  Song also 
highlighted three universities in Guangzhou that have set 
 
GUANGZHOU 00015726  003 OF 004 
 
 
up IPR schools -- Jinan University, Zhongshan University, 
and South China University of Technology -- all of which 
offer masters degrees. 
 
Building a Culture of Innovation 
-------------------------------- 
¶10.  (SBU) Song said that these were all elements of a 
larger challenge for Guangdong and China -- building an 
entire culture of innovation in which inventiveness, 
creativity, efficiency, and productivity are fundamentally 
ingrained into the government and private sectors with IPR 
protection in full play.  This is clearly the path that 
Guangdong must take if it is to maintain its edge as the 
most prosperous province in China. 
 
"Tolerance of Failure" 
---------------------- 
¶11.  (SBU) Song cited the "tolerance of failure" as a key 
facet in innovation.  Government officials and 
entrepreneurs must recognize that many more ideas fail than 
succeed.  To punish failure would only create a cautious 
culture, unwilling to take risks.  To encourage risk-taking 
and entrepreneurship, the Guangdong government included the 
of "tolerance of failure" in its 11th Five-Year Plan, and 
the Shenzhen government is using it in its economic 
development guidelines 
 
Evaluating Officials 
-------------------- 
¶12.  (SBU) When asked how Guangdong evaluates the 
performance of IPR officials, the attendant officials 
admitted that their offices lack specific guidelines.  The 
Guangdong IPO deputy director-general said IPO work largely 
involves encouraging enterprises to develop their IP and to 
increase public awareness.  To evaluate this type of 
activity one would need to measure whether more people are 
aware of the IPR issue and whether more enterprises develop 
their own IP.  He added that he would be interested in to 
developing an evaluation standard with the input of U.S. 
experts.  Song echoed this, saying he supports the 
establishment of a scientific system of standards to 
evaluate the usefulness of government IPR efforts. 
 
Valuation of Seized Products 
---------------------------- 
¶13.  (SBU) In response to a question about valuation 
methods, officials from AIC and IPO said they typically use 
market price as the standard in valuing counterfeit 
trademark goods.  They explained that the Supreme Court's 
2004 Judicial Interpretation permits three evaluation 
standards: market price, real value, or a middle price. 
They added that government agencies choose a middle-level 
price when it is difficult to determine the market price. 
 
Comment 
------- 
¶14. (SBU) Even if the Vice Governor's comments are rhetoric, 
at least they are the right rhetoric.  He clearly 
understands that innovation and IP-creation -- and the 
encouragement of risk-taking enterprises -- are vital for 
Guangdong's continued growth.  There is also significance 
in the fact that Song brought his entire IP team to the 
meeting, including the PSB -- which usually doesn't show up 
for such things.  Nevertheless, his defense of Guangdong's 
IP administrative agencies distracts from the issue at hand 
-- namely the lack of deterrent effect of administrative 
enforcement to date not to mention the spotty record of 
criminal prosecution.  Song's and IPO's interest in 
evaluating IP officials might be a worthwhile opening for 
USG assistance in establishing an effective evaluation 
system.  More importantly, the willingness of Guangdong to 
engage in genuinely transparent benchmarking would be a 
considerable contribution -- a proposition that we will 
test at the U.S. Chamber of Commerce seminar in late June. 
 
 
GUANGZHOU 00015726  004 OF 004 
 
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