You are right, there will be no economic development. But I believe so long as the goal is economic development, protection for intellectual property rights will naturally become important as the margins decrease and innovation is demanded by economics. This is the same reasoning on alternative energies (once gas prices go high enough, there will be economic incentive to develop alt energies). In other words, nothing is written in concrete, and the Chinese legal system is still in infantile stages, greater protection of property rights is not an impossibility, even in Communist China. The point is, you first have to have the property to protect, for there to be collective awareness of its importance.
Well, that's how it happened in the West. if the Chinese wish to enjoy Western-style prosperity, they will have to adopt western-style legal and economic systems. Without them, there is no capitalism.
What you have now in China is more akin to National-Scoialism than it is capitalism, frankly.