China is seeking to transform itself from being the world's factory floor into a global pioneer by setting ambitious state-mandated patent targets -- a goal that has already resulted in it surpassing the United States last year in patent filings.

The European Union Chamber of Commerce said in a report that China filed more than 1.6 million patent applications in 2011, but only 32 percent met the highest threshold for patent quality -- new inventions.

The study noted that while China's innovation potential is "impressive", its actual innovation is "overhyped".

"This explosion (of patent applications) has come with a price in terms of the quality and mix of patents. This is not in the right direction," European Chamber Secretary General Dirk Moens said.

In some cases, financial incentives and performance evaluations for state-owned firms, officials and academics drive the filing of low-quality patents as they seek to meet quotas -- 2 million annually by 2015 under one national plan.

In addition to inventions, China also gives patents for designs and "utility models", incremental developments that can advance an existing product but rarely result in technological breakthroughs.

The United States does not use utility model patents, though some developed countries, such as Germany, do.

Sixty-five percent of patent applications filed by medium and large-sized Chinese state-owned enterprises in recent years have been for the lower end design or utility model patents, making them among the country's least effective innovators, the study said.

"One cannot drive or 'force' creativity, but only nurture it, whereas creativity leading to breakthroughs of the type that typically produce the highest quality patents at best comes in spurts ...," it said, noting that at least 20 countries have greater innovation potential than the world's second largest economy.

But Elliot Papageorgiou, an intellectual property expert at Rouse Legal in Shanghai, said utility model patents are good for China.

"In developing economies, you're not going to get a new wheel, you're going to get an improved or cheaper wheel," Papageorgiou told Reuters.

INDIGENOUS RULES RILE FOREIGNERS

Experts say weak intellectual property rights (IPR) have scared off some foreign firms from transferring technology or filing patents in China. Last year, U.S. Treasury Secretary Timothy Geithner lamented Beijing's lax controls that made possible the "systematic stealing" of American innovations.

China has said it would drop some of its "indigenous innovation" rules that have riled foreign companies who say access to government equipment and technology orders hinge on their transferring patents and other intellectual property to Chinese firms or partners.

But the EU Chamber study said indigenous intellectual property ownership was still a requirement for firms to access some Chinese government financing and subsidies, with the language writ large into many of the country's more than 10 national and 150 sub-national patents target plans.

"The essence of the IIP (indigenous innovation policy) system, in terms of setting forth controversial IPR requirements with financial incentives, appears very much still in force," the study said.

Web Link: http://www.reuters.com/article/2012/08/21/us-china-patents-eu-idUSBRE87K0D720120821