| Summary: | Along many dimensions, China has made progress in strengthening the protection of intellectual property (IP) and expanding its research and development (R&D) base over the past two decades. Meanwhile, people's understanding of IP has gone beyond a mechanical interpretation of patent law or copyright law. Instead, with years of experience in innovation, imitation and knowledge management, firms have begun to realize that IP protection is part of a complex business environment including various cultural, economic and strategic factors. This study takes a firm-level perspective and addresses two related topics. First, the paper examines the IP environment faced by various firms. In particular, the importance of IP protection and the strength of protective measures vary widely depending on the firms' ownership structures and industry characteristics. Second, the paper analyzes firms' strategic responses to the perceived IP environment. Firms not only adjust their R&D strategies, but also product and marketing strategies based on their assessment of the IP environment, which may have significant implications for China's economic development in general. The paper concludes that momentum for IP reform is related to the economic potential in China. Such reform is an on-going system project involving not only patent, trademark and copyright laws, but also privatization policies, trade and FDI policies, as well as the role of the government in China's innovation strategy
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