What has China’s PMI got to do with Chinese Patent Activity?

Measuring Chinese manufacturing activity is a current pre-occupation of financial markets and readers of financial media nearly everywhere. How is measurement done?

One metric often referred to is the PMI, the Purchasing Manager Index, which involves a survey of Purchasing Manager views on contraction/expansion. To confuse things a bit, there is not just one PMI, but two. The official PMI is produced by the National Bureau of Statistics (NBS). Another PMI is produced by Caixin Media Co Ltd. To confuse things a bit more, PMI measures are produced for both the manufacturing sector and the non-manufacturing sector. NBS PMI statistics can be accessed at www.stats.gov.cn and Caixin PMI statistics can be accessed, for example, at http://english.caixin.com using the term “PMI” in the search field.

Using either measure, a PMI below 50 indicates a contraction in manufacturing activity and a PMI above 50 indicates an expansion in manufacturing activity. A graph of the Caixin manufacturing PMI for the 2012-2016 timeframe appears below:

RHB Feb9 article graph1

Source: Caixin Media/Markit Economics

The Caixin data is volatile, perhaps reflecting the relatively small sample size used to collect the data but a clear downward trend is evident for 2014 to date with other contractions in manufacturing evident for 2012-13 interval.

Does this contractionary picture, relied on by some for dire predictions about the future of the global economy, correspond with filing for intellectual property rights (IPRs) in China? With a contraction in manufacturing activity, a similar contraction in creative activity could reasonably be expected. For example, the downturn in mining and manufacturing activity in Australia has led – at least anecdotally – to a reduction in research and development activity. IP Australia has also reported a downturn in some IPR filings (Intellectual Property Report 2015, IP Australia available at www.ipaustralia.gov.au).

Somewhat surprisingly perhaps, the opposite has been the case in China. Consider the Chinese State Intellectual Property Office (SIPO) patent, trade mark and design statistics sourced from the World Intellectual Property Organisation (WIPO) website (www.wipo.org).

RHB Feb9 article graph2

Patent applications are booming with steep continuous growth over the time interval where the Caixin PMI indicates general contraction. A growth in trade mark filings is also evident even with GDP growth rising only gradually. To opposite effect are the industrial design filing statistics which have dipped but remain at historically high level. Industrial design applications are prudently filed before product launches and perhaps the statistics indicate a reduction in this sort of activity.

What does this mean for those considering IP protection in China? First, there is no obvious correlation between the manufacturing PMI data and patenting activity which is typically directed by a longer term commercial view. The manufacturing PMI is almost certainly influenced by a shorter time horizon. Contrarily, IP investments, as with other investments, should be made with a longer term view. If patent activity indicates an optimistic view about the future, this optimism for the longer term is certainly borne out by the Chinese IPR filing statistics.

If China is an important market or manufacturing centre, IPR filing decisions there are best not influenced by commentary about the manufacturing PMI and evidence of contraction. This contraction may only be short term. Expansion also continues in the non-manufacturing sector where IPRs remain very important. The NBS non-manufacturing PMI remained above 53 (expansionary) throughout 2015.

Second, potential Chinese competitors are clearly building their IP stocks. It is advisable to do the same and continuing activity to protect creative output in China whether in the form of inventions, designs or branding. More broadly, for those using China as a proxy for global economic activity generally, there is also good news. Join the China scene and take an optimistic and long term view on IPR filing and business generally!