Today just 8% of U.S. businesses are startups, down from about 12.5% in 1980.

Lei Jun, chief executive officer of Xiaomi Corp., during the launch of the company's Notebook Pro 15.6'’ and Mi Mix 2 smartphone in Beijing, Sept. 11.

Lei Jun, chief executive officer of Xiaomi Corp., during the launch of the company's Notebook Pro 15.6'’ and Mi Mix 2 smartphone in Beijing, Sept. 11. PHOTO: GIULIA MARCHI/BLOOMBERG NEWS

By David Kline

Nov. 20, 2017 7:10 p.m. ET

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The last time I visited China, I had tea with Deng Xiaoping. It was 1978, and the Chinese leader outlined for me a plan to modernize his country by unleashing its enormous entrepreneurial energies. At the time, I thought his approach seemed pie-in-the-sky.

But today, having just returned from my first visit to China in 40 years, I’m a believer. Back when I met Deng, the number of private automobiles in all of China could be counted in the thousands. Today there are about 200 million. Since 1978, China’s economy has grown more than 5,000%, and the disposable income of its citizens has skyrocketed. By 2030, China could surpass the U.S. to become the biggest economy in the world.

The size of China’s economy, though, isn’t what should worry President Trump. It’s China’s entrepreneurial dynamism—its intense drive for innovation—that poses the greatest threat to America’s economic leadership. No longer a nation of “copycat” industries, China today leads the U.S. in a number of vital sectors, including mobile payments, advanced microchips and artificial intelligence.

More than 10,000 new businesses are registered every day in China. That’s seven startups a minute. In the U.S., unfortunately, the entrepreneurial itch seems to have faded. Today barely 8% of all businesses are startups less than a year old, down from roughly 12.5% in 1980. That should concern every American, given that startups are a nation’s engine of economic progress, not to mention its primary job creator.

Typical of Chinese business zeal is Xiaomi (sha-oh-mee), the Chinese smartphone maker founded in 2010. It is growing so fast, as Strategy Analytics noted earlier this month, that by next year, “if current momentum continues, Xiaomi could catch or overtake OPPO, Huawei and Apple to become the world’s second largest smartphone vendor.” (Samsung is the first.) Even more surprising, Alvin Tang, an analyst at Seeking Alpha, suggested in September that Xiaomi should be valued at $69 billion—which would make it the world’s most valuable startup, slightly ahead of Uber.

Xiaomi also shows the originality and bold experimentalism of Chinese businesses. Beyond smartphones, Xiaomi’s network of over 100 partner startups has created everything from fitness bands to air purifiers to rice cookers. Many of these products are internet-enabled and designed to complement Xiaomi-made phones and smart TVs. They’re also tightly integrated with the online services that Xiaomi offers, such as games and microloans. Oh, and Xiaomi also runs its own stores, which inspire in many Chinese consumers a Costco-style loyalty.

The complete package is more customer-centric than anything I’ve seen in the U.S. They like to call it “the Xiaomi way,” for lack of a better term. “We don’t yet have the language to describe exactly what we do,” a senior vice president, Wang Xiang, told me.

China’s entrepreneurs have been fueled by reforms in recent years that strengthened intellectual property rights—ironic for a country long accused of stealing trade secrets and ignoring IP protections. Today Chinese companies are filing for more patents than American ones. The patent application and examination process has been streamlined, and China has established specialized intellectual property courts and tribunals to adjudicate lawsuits and issue injunctions against infringers. “IP infringers will pay a heavy price,” President Xi Jinping warned this summer. In August, the shoe company New Balance won $1.5 million from Chinese shoemakers who had infringed its logo. The amount might seem small by U.S. standards but represents the largest trademark-infringement verdict ever handed down in China.

In the U.S., by contrast, a series of legislative actions and Supreme Court rulings have weakened patent rights, especially for startups. A new way of challenging patents called “inter partes review” results in at least one patent claim being thrown out in roughly 80% of cases, according to an analysis by Adam Mossoff, a law professor at George Mason University. Unsurprisingly, many of these cases were brought by defendants facing patent infringement lawsuits in federal court.

This does not bode well for America’s global competitiveness. The U.S. used to rank first among nations in the strength of its intellectual property rights. But the 2017 edition of the Global IP Index places the U.S. 10th—tied with Hungary.

Hungary?

Here’s my advice to Mr. Trump: Worry less about what China is doing and more about America’s declining entrepreneurship. As for Chinese theft of intellectual property, it isn’t half as worrisome as the damage the U.S. is doing with its own self-destructive patent policies.

(http://www.autoadmit.com/thread.php?thread_id=3804055&forum_id=2#34735093)