This article arises from Future Tense, a partnership of Slate, the New America Foundation, and Arizona State University that examines emerging technologies and their implications for policy and society. On Friday, Oct. 12, Future Tense will host an event called “Arms Race vs. Relay Race: What Does Innovation Hold for China?” at the New America Foundation in Washington, D.C. To learn more and to RSVP, visit the New America Foundation website.
When discussing innovation, the Chinese like to tout the country’s “Four Great Inventions”—paper, gunpowder, the compass, and woodblock printing—and their enormous impacts on human civilization. Of course, that dates China’s creative peak at more than 1,000 years ago. When it comes to originating the great inventions of the last century—the semiconductor, the microprocessor, the Internet—China’s fingerprints are nowhere to be found.
It’s a source of anxiety, both economic and nationalistic, among China’s leadership. President Hu Jintao promised in 2007 to “enhance China’s capacity for independent innovation and make China an innovative country.” In 2010, the State Council announced seven “emerging industries” that it would target for special investment, including information technology, alternative-fuel cars, and biotech. That kind of top-down planning may work in the long run. Among the legions of engineers graduating from Chinese universities every year, you’re bound to get a Steve Jobs or two, no matter how stultifying the education system or corrupt the academic culture. But right now, some of China’s biggest innovators aren’t working at the big tech firms. They’re ripping them off.
The question of Chinese innovation is often phrased in stark terms: Will China continue to steal intellectual property, or will it start producing its own? Will it be a thief or an inventor—or, as the title of an Economist forum in Beijing put it, a “pirate or pioneer”? The answer is, it’s already both. In China, piracy and innovation go hand in hand. Some of the most innovative products and business models coming out of the country are the result, either directly or indirectly, of copycats. And for China, that’s not necessarily a bad thing.
Everyone knows piracy can deter innovation, since it prevents companies from profiting off their copyrighted products and thus diminishes the incentive to create. But it can cut the other way, too: Pirates come up with new variations on existing products, nudging the slower-moving companies to adapt and, in many cases, improving on the original products. For example, some knock-off iPhones reportedly come with features that the originals lack, like two SIM card slots instead of one (so users can place calls using two different mobile accounts) and removable batteries (the iPhone’s battery is hard to replace). Pirates copy products with impressive speed, in some cases rolling out fakes before the originals, such as LG’s Chocolate phone, even hit stores. In other cases, the innovation is simply the price. I asked a vendor at Beijing’s Dinghao electronics market to describe the special characteristics of her down-market tablet, as compared with the iPad. “It’s cheaper,” she said. Fair enough.
The same factors that make Chinese manufacturing so appealing to big companies like Apple—speed, flexibility, cheap parts and labor—make it a pirate’s paradise. Entire cities have evolved to manufacture a single off-brand product: Qiaotou makes buttons, Datang makes socks, Wengang makes pens. The result is a sort of collective innovation, each person playing a distinct role in the manufacturing and distribution process, says Anne Stevenson-Yang, research director at J Capital: “This kid learns Swahili, that one learns Arabic, some people do the dyeing, others do shipping and logistics. It’s an amazing thing to watch.”
While pirates hijack name brands for profit, they can also provide free advertising. In Beijing’s Zoo Market, buyers can get pink-and-white sneakers studded with jewels in the shape of the Apple logo and T-shirts featuring a giant sequined Mario. These designs aren’t likely to be sold in traditional clothing stores, let alone be approved by brands like Nintendo or Apple. But pirates are clearly meeting a demand. And because the pirates aren’t siphoning, say, shoe sales away from Apple, it’s win-win.
Piracy also spreads creative content to places it doesn’t otherwise exist. Bootleg DVDs command an estimated 90 percent of the market in China. But when the government allows only 34 Western films to be screened every year (the quota was recently raised from 20) and legitimate DVDs are nearly impossible to find (not to mention unaffordable for most Chinese), piracy becomes not only a creative workaround, but also a symbol of free speech. In his book The Pirate’s Dilemma, Matt Mason argues that piracy is a fine American tradition, inspiring developments from Thomas Edison’s phonograph to Hollywood films. “During the nineteenth-century Industrial Revolution, the Founding Fathers pursued a policy of counterfeiting European inventions, ignoring global patents, and stealing intellectual property wholesale,” Mason writes, noting that the term Yankee is derived from the Dutch word for pirate. It was only once U.S. technology surged past the rest of the world that America started demanding international copyright compliance—a piece of history Chinese leaders have no doubt studied.
Even above-board Chinese companies like Tencent, Baidu, Sina, and Alibaba began as rip-offs of Western counterparts like Google and Amazon. They then evolved and in some cases surpassed the originals. For example, Baidu’s MP3 search beats looking for music on Google. Tencent’s QQ and WeChat chat services top U.S. counterparts like AIM and GChat. Sina’s microblog service, unlike Twitter, lets users post photos and video to their timelines, with comments threaded below. Alibaba’s scale and selection makes Amazon look like a mom-and-pop store. In these cases of copy-and-evolve, the evolution eventually eclipses the theft.
Pirated products also spur the original companies to adapt. A 2011 study conducted by two professors at the University of Washington found that, while piracy leads to a loss in revenues for the originating company, it often then produces a higher quality product. The authors cite the example of Valve, a video game company that responded to widespread pirating of its game Team Fortress 2 by offering weapon and avatar upgrades to users who downloaded the game legally. Likewise, file-sharing programs like Napster and Limewire famously led record labels to partner with Apple and sell music on iTunes, an easy alternative to piracy. Movie studios are now considering closing the window between cinematic release dates and DVD or online release dates. PopCap, the gaming company that makes Plants vs. Zombies, even struck a deal with Chinese pirates to pay licensing fees in exchange for in-game advertising.
That’s not to say piracy is good, or even that it produces a net gain in innovation (as if such a thing were measurable). Despite China’s claims that piracy is at an all-time low, the Business Software Alliance estimated in 2011 that 77 percent of software in China is pirated, resulting in annual losses of $8.9 billion. Microsoft CEO Steve Ballmer estimates that piracy costs the company 95 percent of its potential revenue in China.
But when it comes to creating new riffs on old products, taking advantage of market opportunities, and rolling out cheap products fast, Chinese pirates are as innovative as anyone. And while China may not have invented piracy alone, they’ve certainly perfected it, enough for it to qualify as Great Invention No. 5.