First Minster Jack McConnell said Scottish firms faced risks operating in China and warned they could be frightened off unless the country's government did more to protect intellectual property rights there.

First Minster Jack McConnell said Scottish firms faced risks operating in China and warned they could be frightened off unless the country's government did more to protect intellectual property rights there.

Highlighting concerns that companies which introduced products to China could see their ideas stolen, McConnell said abuses such as piracy were so serious that global heavyweights were having a tough time doing business in China.

"In music and games, there are real issues for global companies who are finding that what is about to become the biggest consumer society, which should be very open and available, is obviously affected by the growth of the black market," he told a business audience in Edinburgh.

The rise of the internet may create more scope for people to deal in products illegally.

Against that sort of backdrop, McConnell said, many firms in Scotland might find the prospect of doing business in China so daunting that they decide not to bother.

"There are many issues for Scottish companies in China," he said.

"There are risks. I can understand why people might hesitate as a result."

While Scottish firms could help minimise the risk of running into trouble by doing careful preparatory work, McConnell said the Chinese government also had to take responsibility for addressing the problem.

"It is not just our companies that have a challenge, the Chinese government has a challenge in creating the right legal framework to protect intellectual property."

McConnell's comments came in response to questions following a speech he made to a Confederation of British Industry Scotland seminar on doing business in China, in which he said the rapid expansion of the country's economy created huge opportunities for Scottish firms.

After building world-leading, low-cost manufacturing capacity in the late 20th century, China has been developing sophisticated technology and services sectors in recent years. These are helping spawn an army of middle-class consumers which is expanding at the rate of 22 million people per year.

A potentially vast market for Scottish expertise and for products such as Scotch whisky with which the newly affluent can flaunt their status is emerging.

However, Gavin Hewitt, chief executive of the Scotch Whisky Association, said the industry faced lots of competition from counterfeiters who tried to pass local hooch off as genuine.

When association staff attended trade fairs in China they did so as much to look for counterfeiters as to sell products, he said.

While the situation had improved in the last 10 years, the organisation was lobbying hard to get Chinese authorities to beef up legislative curbs and to ensure that enough effort went into enforcing the laws.

Andy Scott, director of international operations for the CBI, said improving protection of intellectual property rights was one area highlighted in a submission to the Chinese authorities about key issues facing UK firms made last November.

"You can't have a discussion (about China) without IP coming up," said Scott, who warned that sorting out the problem would require sustained action.

"I don't think anybody is kidding themselves this is going to be solved overnight, it's a big, big issue," he said.

Other issues highlighted by CBI included the possible liberalisation of the financial services market in China, where leading Scottish players like Royal Bank of Scotland and Standard Life are jockeying for position.

In view of the importance of the Chinese market, McConnell said he hoped Scottish firms would still be prepared to "put a toe in the water" in the country.

He said developing links between Scotland and China should remain a priority of the Scottish Executive following elections to the Holyrood Parliament in May.