I'm not making a moral argument about IP and whether it is good or not. I'm saying that if you've entered into agreements with other nations on the premise that you do something (in this case, protect and not steal IP) then you should honor those agreements. Whether there is some Machiavelian reason to say you're doing one thing while secretly doing something else is a different question. I also don't think that Google should use espionage to steal secrets from Microsoft and vice versa, even if there is something to be gained.

One should also note that China is not some innocent bystander in this since Chinese companies have sought and obtained patents to stifle competition as well. I also think the distinction made between "developed" and "developing" countries is not useful in this case. China has the second largest economy in the world and is very modern by many standards. They have gained great wealth from the "developed" countries least of all because the developed countries are their largest market for trade. China has a net trade surplus of hundreds of billions of dollars. They are not an underdog in this.

  IP is just a made up way for incumbent producers to squash competition. 

You are just saying that. Remember IP is not just patents. You seem to confusing different forms of stealing IP.

Do you feel that stealing source code is justifiable too?

http://www.wired.com/threatlevel/2010/01/google-hack-attack/

If so, then where do you draw the line?