The Many Faces of Chinese Counterfeiting

Business & Technology, Society & Culture — By on June 10, 2011 1:12 am

By Fred Badlissi
For ChinaInFocus

Call of Duty: Black Ops, by many measures, is a very popular video game. Released on November 9, 2010, the game set a one-day sales record of $360 million in the United States, and today has sold more than 13.7 million copies there. Activision Blizzard, the game’s publisher, has raked in more than $1 billion from US sales alone.

But if you’re in Beijing, you can buy a bootlegged copy for just 9 RMB ($1.38).

That’s just one example of the increasingly sophisticated line of counterfeit products available in China – products that win the hearts of price-conscious shoppers around the world and chill the veins of intellectual property holders. From handbags to heavy machinery, manufacturers allege that counterfeiters cost them not only billions in lost revenue, but also ruin their brands’ reputations by producing substandard goods. In a nation that has enjoyed such high economic growth, however, the personalities and the forces behind China’s counterfeiting habit aren’t nearly as cut and dried.

Nicholas Blank should know. Based in Hong Kong, he is the Associate Managing Director for Kroll, Inc., which provides risk consultancy for corporations. For the past 10 years he’s assisted companies of every size and type in protecting their intellectual properties in greater China and Korea, which includes not only trademarks and brands, but also trade secrets as well.

In a telephone conversation from Hong Kong, Blank offered a historical perspective on counterfeiting in China.

“Ten years ago, what you saw was a lot of counterfeiting in the marketplaces,” he said, especially transactions at the retail level. This includes things like handbags and garments, which can be found on street corners and assorted retail establishments.

In recent years, Blank said that counterfeiters have become more sophisticated, expanding the breadth of goods being produced. One recent example is the seizure of over 1,900 counterfeit karaoke machines in Los Angeles on June 3, bearing the name of memory card manufacturer SanDisk, with a street value of over $1 million.

Even legitimate factories can be the source of counterfeit goods. “Sometimes the factory’s been authorized to make handbags under a given trademark owner,” Blank said, “[and] sometimes they go over quota,” further blurring the line between authentic goods and fakes.

Knock-off T-shirts seem innocuous, but the narrative changes when talking about medicine. “In the terms of fake pharmaceuticals,” Blank said, “they could put anything in there, including sugar or fertilizer.”

For many Chinese in 2008, that ingredient was melamine, and was found in milk supplies from Hubei province. Producers added it to make watered-down milk appear more nutritious. Before authorities intervened, the tainted milk caused at least six deaths, and sickened over 300,000, according to the New York Times.

Fake pharmaceuticals are not limited to China. According to the World Health Organization, half of all anti-malarial drugs sold in Africa, worth $438 million annually, are fake.

The motivation to counterfeit, said Blank, is simple: “It’s money.” And in modern China, the suggested retail price is no longer a hurdle. Blank said he believes that most urban Chinese can afford it. Owning an original is a status symbol that some Chinese will fly half a world away to attain.

“If you saw them with a luxury product, they’ll say ‘Oh, I bought this in France,’” he said. “What they’re trying to tell you is that they didn’t buy the fake.”

But just as all counterfeit goods are not created equal, neither are the motivations behind their sales, or the people that sell them.

The open-air Panjianyuan Flea Market in Beijing plays host to “Chou Y,” 48, who rents a 10 feet by 6 feet space for 600 RMB ($90). Due to the nature of his business, he did not want to be explicitly named in this article.

Chou offers a selection of counterfeit books on subjects ranging from test preparation to Chinese medicine that sell for an average of one-sixth of the cover price. “I’m poor,” he said, as he described his reasons for selling counterfeit goods.

One of his children is in vocational school, and the other in high school. Since Chou’s residency permit is for Hunan province, and not Beijing, his younger son will soon have to make the 1,000-mile trip to take the national college entrance exam instead of Beijing where he currently attends school. After four years in business, Chou said that increased competition is making business harder.

Chinese authorities have historically turned a blind eye to counterfeiting, as it plays a role in regional employment and economic growth. But that may be changing. In 2008, Beijing cracked down hard on Olympic-branded bootlegs in a lead-up to the games. And on June 9 2011, a Chinese court handed down record fines against counterfeit valve manufacturers amounting to 7 million RMB (over $1 million), and a 15-year prison sentence for the company’s manager.

But demand hasn’t let up, and it’s not just Chinese buyers that drive the market.

Just steps away from the Dawanglu subway stop is the Silk Street Pearl Market, locally renown as a Mecca of counterfeit products. Formerly located behind the old US Embassy until 2006, the current building houses 1,500 stalls where vendors can, and will, lure customers in their native tongues like sirens to a bootleg shore.

“We don’t care too much about quality,” noted Jae Kyo Park, who was at the market with his girlfriend, Mon Shuang from South Korea. The pair cited savings of over 80 percent on the brands that they were looking for.

American tourist Flemming Fano, 66 of Utah, came with a tour group and noted a similar outlook, saying “When you buy a Rolex [watch] for $10, you know it’s junk.”

But perhaps the most loyal customers were Texas A&M undergraduates Kelsey Miller, 20 and Caroline Weather, 18, who are studying abroad. This was their fourth trip to the market, where a love of haggling and an exciting atmosphere has kept them spending money. The reason was plain enough, as both cried in unison, “it’s cheap!”

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  1. Karl Wickman says:

    Great article! I’d ask for a copy of Black Ops, but customs might not agree…! :)

  2. Evan Alcala says:

    Screw the handbags, video games, karaoke machines and t-shirts, the real crime is within the pharmaceuticals! Pharmaceutical companies are some of the most degrading criminal cartels in the world! Let the people have their knock off toys and gadgets, just make sure the medicine is legit!