25 October 2016
China tolerates fake goods because jobs and tax revenue are at stake. Photo: Bloomberg
China tolerates fake goods because jobs and tax revenue are at stake. Photo: Bloomberg

Why China won’t give up Kingdom of Fakes title any time soon

Earlier this year stores in Hong Kong that sell paper goods to be used as offerings to the dead were astonished to receive a letter from Italian luxury brand Gucci warning them to stop selling paper versions of its goods.

“These products are offerings for the dead, not the living, so how can we be violating copyright?” said one indignant shop owner in Sheung Wan.

The story is vivid evidence of how, 15 years after joining the World Trade Organization (WTO) and despite high-profile campaigns by the government, China remains the undisputed King of Fakes.

The latest report by the OECD in April this year estimated that the global value of imported fake goods in 2013 was US$461 billion, accounting for 2.5 percent of all trade, up 84 percent from US$250 billion or 1.8 percent of all trade in 2007.

The goods include handbags, perfumes, footwear, toys, milk powder, pharmaceuticals, Viagra, computer software, chemicals and machine parts.

The report found that China, including Hong Kong, was responsible for 84 percent of the fakes, compared with 17 percent of manufactured goods it exported that year.

A report issued by the US customs bureau in April this year said that China accounted for more than half of the US$1.35 billion worth of fake goods seized in the most recent tax year.

Beijing protests that it is taking action. In May, Vice Premier Wang Yang said China had handled 1.1 million piracy cases since the new leadership took over in 2013, with 59,000 cases prosecuted and 78,000 violators sentenced.

“Fighting online piracy and the sale of fake goods to emerging markets is a key priority this year,” he told a conference on fake products.

A State Council circular issued on May 4 said China would take strict measures to crack down on intellectual property infringement and the making and selling of fake goods.

The measures include the establishment of a tracing system for fake goods and an instruction to departments to crack down on online piracy and infringements, especially in online literature, music, videos, games, comics and software.

So what is going on? As the figures show, the business of fakes in China is a multibillion-dollar industry that employs tens of thousands of people in production, distribution and export. 

Each year local officials receive dozens of circulars from the State Council – like the one on May 4 – that they are supposed to enforce. 

This one is way down the priority list: jobs and tax revenue are at stake.

Second is the attitude of most Chinese that was vividly illustrated by the speech of Alibaba chairman Jack Ma in June.

“Fake products today are of better quality and better price than the real names,” he said in a speech at the company headquarters in Hangzhou that received global media coverage.

“They are exactly the same factories, exactly the same raw materials but they do not use the names.

“The way of doing business has changed for the brands; it’s not the fake products, it’s not the IP that is destroying them. It’s the new business model that has revolutionized the whole world,” Ma said.

In May, Alibaba was suspended from the International Anti-Counterfeiting Coalition, a global retail body, because of accusations it sold fakes on its platforms.

It had joined the coalition just a month before.

Ma is one of the richest people in Asia and the most prominent businessman in China.

He frequently accompanies national leaders on foreign trips and receives high-ranking visitors.

He enjoys the protection and patronage of those at the top of the government, who consider e-commerce a vital engine of economic growth.

So Ma speaks for millions of Chinese who consider the production of fakes a legitimate business and the current trading system unfair – a Chinese factory that makes a product for a luxury brand receives a modest processing fee, while the brand owner earns thousands of dollars from the retail price.

Lin Guo-shu, who runs an e-commerce business in Shenzhen, said officers of the Customs and the Industrial and Commercial Bureau were cracking down on fakes on sale in retail outlets and when they cross the border.

“The difference is e-commerce. An enormous volume of goods on the internet is fake but the government tolerates this. It considers e-commerce too important an engine of growth, especially Premier Li Keqiang. How many million people are employed in this sector? The government wants to promote domestic brands to replace foreign ones,” he said.

China is not going to give up its crown as the Kingdom of Fakes any time soon.

And, for foreign governments, there are many issues it wants to raise with Beijing that take precedence over fakes. So do not expect any change.

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Hong Kong-based journalist and author. He had worked as a correspondent for the South China Morning Post in Beijing and Shanghai.

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