 Aloha, welcome to ThinkTech Hawaii Law Across the Sea program. I'm Mark Schlaug, the host of Law Across the Sea. Today my guest is David Ai. David is the Chief Innovation Officer of the University of Hawaii System. Today we're going to go across the sea to China and talk about the Chinese dream, China's intellectual property development. Where it is now and where it is going. David, welcome, welcome to our program, good to see you again. Well thank you Mark for having me again. Now, the Chinese dream, let's put the first slide up, the first slide about the Chinese dream becoming a world-class innovator by 2035, a leading country by 2050, signed by the President of China. That is correct. President Xi, what is this all about David? Thank you. I think that some people may remember a little bit about Chinese history. Over the last 200 years, it really was a page of very infamous setbacks and retreat. And at various times that is how, for example, Hong Kong and Macau were essentially ceded and later became leased to the Great Britain and following the infamous opium war. So over the- Colonial powers taking over- Yeah, and China was a really ill-prepared to deal with foreign power. So through that page in history, I think it remained to be a very vibrant dream shared by most Chinese that one of these states, they could also be strong enough, big enough, be able to actually share the stage with foreign powers. So the cultural history of China continues to hammer on them and President Xi is saying we don't want this to happen again. Now he didn't say it in an aggressive way, but so that's what's behind this. Yes, very much so. And back in the early 1900s, there was a very strong movement called the May 4th movement that occurred on May 4th in the early 1900s. And the two major slogans or people were clamoring for were science and democracy. This is now 100 years later. I think they're continuing to hope for that. And hopefully that science- Well, all right, tell us. What is the science? What is innovation? What are the innovators? What is- What's he talking about? Well, of course, China understands that it still is coming from behind and lagging in many, many areas. So there has to be some kind of prioritization. But at the same time, China in terms of the organization and in terms of strategic thinking, it's dramatically different from the U.S., because it's very centralized power and it's still a communist regime. And therefore, there is a very, very heavy political economy factor driving this. So you will see that as part of my conclusion. In the case of China's IP or technology development, we're not talking about an invisible hand or talking about a very visible hand, which is very different. And what is happening then? Where is it going? Where are they starting? What are they trying to do? Yeah, we can probably pick up the next slide and talking about the IP development, intellectual property development. And you are seeing that these are the patent applications by year, comparing China and the U.S. in particular. Of course, there's another line there, a couple of lines you don't have to worry about. But you could see the leading line today is actually China. And this is not just in one area of intellectual property. The same kind of picture can be in the same kind of curve can be seen all over the place, whether it's patents, whether it's domestic patents or they're filing international patents and also trademarks, copyright and all kinds of things. In other words, China has really awakened to the need to do IP development. And you say that this is really prompted by the government in China, whereas maybe in the United States you would find more private enterprise or something like that. Is that right? Is that what's happening? How does that affect everything? To give you one example, starting last year, 2018, the government has identified a concerning trend that in some areas the result was a bit too good to be true. For example, they called that one supposedly inventor, Mr. Wu, somewhere. This very crafty Mr. Wu actually filed 206 patent applications. And upon further examination, they were all based on the same invention. He just tweaked it here and there a little bit. And that was because he was getting support from the government? Is that it? That's exactly right. We were talking about the visible hand. In this situation, the Chinese government, especially a lot of local government, in this hot competition against their next town or the next big city, they have provided very rich incentives. In some cases, the incentives would actually be more than the cost of filing patent applications, thereby encouraging a little cottage industry, represented by people like Mr. Wu. So we have the government, and we have President Xi saying, based on our cultural history, well, he didn't say that, but that's the background I hear in a way, silently. And he says, based on what's happened to us in the past, we don't want that to happen again. We want to encourage innovation, science, development. So the government gets involved, but then people take advantage of that. Whereas in the United States, if you don't have it, it's not going anywhere. No one's going to pay you for it. Is that right? Is that what's happening? That's very true. So in today's situation, a lot of Chinese government research grants will come with specific requirement. It's not an option for you to actually file. You need to promise how many patents that you are going to develop through the sponsorship of this particular grant money. And therefore, at the end, you better produce so many patent applications. And there's associated money to support for the filing. It's all from the government. It's almost all from the government. Okay. And there may be other sources. We'll get into that perhaps a little bit later. But the government is supporting this. Is China in a race with itself? Is this just a dream of its own, or is it competing with the rest of the world? We saw the patent competition. I don't know if that was competition, but we saw the comparison between US and China. Is that a competition, or is this really a solo race? It just happens. Everybody's on the solo race. That's a very fair question. I think that in the lack of better metrics, people tend to measure what they can measure. That doesn't mean that the measurements actually make sense. In this case, a patent count happens to become the surrogate to indicate how far advanced that a country has traveled. And China has certainly fallen for it. And now they're understanding they're getting more sophisticated. So in recent months, various local governments have actually started telling people, don't do this anymore. We're going to cut back on the incentives for filing patents. In the case of Shanghai, they took away most of the incentives, leaving a very important incentive for PCT application, which is international patents. They cost more money. And that's where the Shanghai government sees as an area to actually not stop subsidizing, but enhance. They actually tweak PCT application subsidy end times higher, while they actually cut back dramatically all the other forms of subsidies. And I guess the international patents are going to be more subject to scrutiny than domestic patents. Who owns the patent, by the way? Who owns patents? In the case of China, actually, depending on what category, if you're talking about domestic patents, a lot of them are owned across the board. And also a lot of research institutes, again, because of a strong encouragement or scrutiny, they almost have to file for patents. So a good-sized university will be filing thousands of patents each year. And the individual inventor won't have an interest? The individual inventors, actually, in this case, would typically not be the patent owners. They will be just like us. They will be the inventors on the patent record. That's why they want the incentives, because they're not getting anything else out of this. They're thinking very out for themselves, not for the dream, perhaps. Well, the dream helps. Okay, so what's your first conclusion? The next slide will tell us. The next slide would say that certainly their dominance in patent filing on the global scale is very much influenced by the incentives. So this is where you see the visible hand at work. And this is also a very telling story about China's political economy or industrial policy at work. And also the conclusion is that it's maybe not as strong as it is influenced by the government might not be as good showing what happened to Mr. Wu as an example. Sure. Okay. All right. Let's take a look at that. What is this? This is World Economic Forum, which is a very reputable organization. Last year, they ranked the global countries for competitiveness, and especially in innovation scores. And you can see on the screen, number one, went to Germany, number two, the U.S., and so on and so forth. Taiwan was actually ranked number four because they have normalized the scores based on the size of the economy, because otherwise Taiwan is a very small region and would not possibly be ranked so highly. But you also see smaller countries, Switzerland and Sweden ranked up there. And people always ask, so where's China? Well, China is ranked number 24. It may not seem very impressive, but you've got to recognize this is already the head of all the other BRICS countries. That's Brazil, Russia, India, China, and South Africa. So China is definitely improving dramatically in terms of innovation. And when you're talking of innovation, you're meaning development of intellectual property and also technology, is it new technology or what is it? It's actually quite a few different areas. I would like to think that in one sense, in terms of the academic publication, you are going to see that even formal statistics will show you they're doing quite well. In fact, in the pure paper count, just by the sheer peer-reviewed journals, internationally well-known journals, China has already outpaced the U.S. paper count. But then again, some people will go a little bit deeper to analyze the reference count. So how many times a paper is referenced or used or cited, the citation index, and that still shows U.S. being number one. But you can see that they're really catching up in that area. And you mentioned that this is China, but I also heard you say that cities are competing. Is that true in cities within China? Yes, very much so. China is a very complicated country and with very uneven growth and speed of growth. In terms of intellectual property development, one amazing statistic most of my friends actually don't know about is one city of Shenzhen, which is right next to Hong Kong. City of Shenzhen currently has about 48 or 49% of all PCT applications in China. And that is amazing because City of Shenzhen is not even the largest city in China, but it actually accounts for almost half of international patent applications. And that is because it's a city of innovation. That's just like Silicon Valley. That's where all the domestic immigrants will flock there chasing their dream and pushing up the real estate prices just like Silicon Valley. Interesting. We're going to take a one minute break and we'll be right back. And I want to follow up a little bit and also want to find out where this dream is taking China. But we'll take a break right now, be right back with David Ai. Hello, I'm Dave Stevens, host of the Cyber Underground. This is where we discuss everything that relates to computers that's just going to scare you out of your mind. So come join us every week here on thinktecawaii.com, 1 p.m. on Friday afternoons. And then you can go see all our episodes on YouTube, just look up the Cyber Underground on YouTube. All our shows will show up and please follow us. We're always giving you current, relevant information to protect you. Keepin' you safe. Aloha. Aloha. I'm Yukari Kunisue, the host of Konnichiwa, Hawaii. Japanese talk show on thinktecawaii. Konnichiwa, Hawaii is all Japanese broadcast show and is streamed live on thinktec at 2 p.m. every other Monday. Thank you so much for watching our show. We look forward to seeing you then. I'm Yukari Kunisue. Mahalo. Welcome back to Thinktecawaii's Law Crosses C. I'm Mark Shklav. I'm here with David Ai, the Chief Innovation Officer at the University of Hawaii. I'm having a conversation about China's dream to become a leader in intellectual property and innovation. And David, so this is interesting. You say the government is supporting a lot of this innovation and there's some problems with that because people are trying to show more than they actually do because they get it from government not out in capitalist society per se, if you will, because it's a communist country and the government's trying to support it. And there's cities within the greater China that are competing and Shenzhen is next to Hong Kong, which might be meaningful that it's so close to Hong Kong and it seems to be like Silicon Valley is what you're comparing it to. And it seems to hold most of the innovators at present, is that right? That is correct. So what does the future of all this innovation mean for China's economy? And it's gross domestic product and it's growth. We can probably bring up the next slide to see the GDP situation. And this is directly from Bloomberg website, a very nice little tool showing you that by the year about 2028, which is not so many years from now, China's overall gross domestic product number will probably exceed that of the US. But of course, as for the whole country, they have a lot more people than we do. But there's still a long way to go. Yeah, but people will be surprised that they're catching up so fast, nevertheless. So why do we mention this? Because one thing you should know is that China and the US are spending roughly in the same ballpark, roughly similar numbers of GDP on R&D. In the case of US, US has been spending about 2.8 percent per year on R&D overall, both public and private sectors. In the case of China, it's not 2.8, but 2.1 percent. Not bad. And noting this particular GDP picture, you will also get a sense that as we move forward if China continues their GDP growth at the current pace at 6.5 percent, roughly, or 6 percent, something like that, and the US continues with 2.0, which is actually a pretty good number historically. But pretty soon, we will be looking at a situation where China's investment in R&D altogether will be higher than the US picture. So that certainly has some implication. And especially if they learn to focus their national resources on specific, well-chosen areas, you would expect those areas to create more breakthroughs. Well, OK. What are those areas? And I mean, are there specific areas of IP and innovation that they're focusing on? And are there areas that they're running into some barriers? Sure. Perhaps. There are several things. For instance, in terms of academic, pure science and technology development, not talking about industry, just pure academic papers, they have been pretty strong in chemistry and plant biology and nanotechnology areas, some of the material science and biomedical engineering and astronomy. You would expect them to continue to be very strong because these are areas where they have actually invested heavily over the decades. For instance, they are able to have, as you saw recently, they sent a satellite to land on the moon, on the dark side of the moon. So certainly in certain areas they are catching up very fast. And curious, the dream comes out of a cultural historical background. Do any of these innovation come out of that same background? Is there any historic scientific background that focuses on the moon, for example, or anything like that? Not necessarily. But one thing that people really don't quite know about is that underlying the communist government form, you're really looking at an economy supported by hundreds of years of small kind of mom and pop operation type of economy. That kind of a long standing history of capitalism at the micro level has really told people to go ahead and innovate because you want to bring up your children, bring them into a better world. So there's a very, very strong incentive for them to improve their livelihood for every single family. So in some sense, if you go to China today, you would really feel that this is probably what capitalism is supposed to look like. No joke. They're willing to work 24-7, they're willing to work two or three jobs. So that is the cultural background for the innovation. It is. Exactly. Yeah, okay. Are there any particular intellectual property products that the government is pushing? And I want to go back to the barriers. I mean, is the United States putting up any barriers to some of this stuff or not? The US certainly, I don't think, is putting up a whole lot of barriers and the US competitive landscape has always been quite open to outsiders. But there are areas that the Chinese government has really chosen to focus on. One such area is artificial intelligence or AI. And the other is some of the more financial innovations. But I take two very different positions on these two areas. I think AI is for real. The China's upcoming speed is something that we have to recognize and we need to learn from them in some cases. In terms of our financial innovation, especially in something like blockchain technology, will be a very difficult technology for the Chinese government to fully embrace because deep down at the core, blockchain technology says you should not have any centralized coordination among all the servers to decide where your records are located and how you can piece together the transaction record. And that fundamentally goes so much against the bureaucracy, which has a really strong tendency to want to control everything. So I think that maybe they will want to develop their unique version of blockchain to be controlled by the government, much like the internet. They put up a lot of controls. So people could still enjoy the internet, but it's actually a sanitized version of the internet, if you will. And I suspect blockchain is the same way. There will be a domestically developed blockchain kind of a rules, which may or may not be fully compatible with the international standard. Let's go to your next conclusion, the next slide. Sure. What is this? This one goes back to what I was saying size matters. When the overall country of China is actually going to become number one GDP in the whole world and their spending in terms of percentage GDP on R&D is not that far off from the U.S., you would expect them to eventually outpace the U.S. in terms of overall R&D spending. So this is definitely going to come and therefore we should actually be prepared for it. Be prepared. Okay. Let's look at that. Okay. This is a financial innovation. Some of these are, at this point, not a lot of people have really implemented very exciting blockchain technologies. One such thing is all the tokens, all the cryptocurrency. But cryptocurrency as a whole, as a sector, is entirely banned in China. So you can see that the Chinese government is really trying to take advantage of this kind of a new tool but at the same time remain in control, which would make it very difficult for them to fully embrace that. But the next is to, we could bring up the next slide talking about some of the, what kind of things are for real? And one thing that I want to talk about is artificial intelligence. And this is an area where China is actually ahead in several areas. For example, in a lot of pattern recognition, especially facial recognition and voice recognition, China is already ahead of the U.S. And this is partly because of the social structure and the rules. When the government is in control, the government wants to know every face showing up on the surveillance camera. So they were actually very proud not too long ago announcing that they were able to in fact arrest a fugitive in a very crowded stadium attending just an ordinary sports game I think. And without any other assistance, they were able to spot a fugitive from the surveillance cameras and arrested him on the spot. Now this is tremendous power, but it also sends some kind of a chill down your spine considering what kind of implications it might have. So that's, but nevertheless, as we're talking about technology, technology is definitely there for facial recognition. So they are really moving ahead. A lot of banks are beginning to register their customers face as an ID, as a way to unlock your account. But of course, they haven't really experienced too much hacking that. I worry about such a biometrics because our face is different from your password. Once your face is stolen, what are you going to do? You cannot replace it. Okay. David, we have about a minute left. What can we conclude from all of this? Where China is going and what the future will hold? I think that we continue to have this situation where U.S. will continue to dominate in most of the area. But there are selected areas where China will become very strong and very good. And that should not cause significant concern and only recognize the fact that we have to learn to share. And technology happens to be a wonderful currency. Technology knows no boundary. Technology by itself also knows no politics. So in terms of technology, you can always try to facilitate intercommunication and exchange and some kind of a goodwill. So hopefully, we'll continue to thrive as a civilization. I like that conclusion very much. And maybe technology can help us all dream together as a world together. Awesome. That's a nice thought. Well, David, thank you very much. I appreciate you being here today. That's it for our show today. Aloha, everybody. We'll see you in a couple of weeks. Next law across the sea program, aloha.