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Fakery persists as China moves into world trade pantheon

Posted: Sunday, April 21, 2002

CHENGDE, China -- With four floors of merchandise and 200 vendors, the cavernous Chengde Shopping City has it all. There's Snoopy bedding straight from Peanuts -- ''the Woreld-Famous Comic Strip.'' There are Swoosh-festooned duffels straight from the ''Nikey'' factory.

Best of all, for just 55 yuan -- about $7 -- there's the children's jacket featuring those oh-so-familiar golden arches and the burger behemoth they represent: ''EcDlncnd.''

''OK, OK, it's not really McDonald's,'' the jacket's hawker, a woman in an Adidas parka, reluctantly acknowledges in Chinese. Then she grins. ''But it's close, isn't it?''

As China's government welcomes the access to global markets that World Trade Organization membership brings, it is grappling with a torrent of homegrown fake goods -- some well-made, some with major problems, all selling briskly in a nation of appetites whetted for famous brand names on the cheap.

Adidas, Colgate, MGM, North Face: From soap to software, purses to parkas, Chinese cities are endpoints of a vast market of fake goods. The government, cultivating its image as a worthy global trade partner, is working to reduce the flow -- or at least look like it's trying.

''Every time such instances come to my attention, I am filled with a strong sense of indignation and I cannot sleep well,'' Premier Zhu Rongji said last year.

Counterfeiting from China costs Western businesses an estimated $16 billion in sales each year, trade groups say. The problem has so vexed American manufacturers that it almost led to trade sanctions against China in the 1990s. U.S. Assistant Trade Representative Joseph Papovich says it's not getting much better.

But for legions of Chinese who can't afford genuine products, fakes satisfy a hunger to join the international craze for brand names. It's a syndrome especially acute in China, home to the factories where many world-renowned consumer goods are made.

''Famous brands are what everybody wants,'' says a woman surnamed Yu, buying a pinstriped Polo oxford shirt for her brother in Beijing's Silk Alley Market, where name-brand labels sell for prices far below normal. Coveted Kipling bags, $75 in lower Manhattan, can be had here for as low as $10.

''Fake or real, who cares?'' Miss Yu says.

The government frames the anti-counterfeiting effort as a ''struggle'' -- a word invoked by Communist officials to blend patriotism, duty and, now, good economic sense. State TV often airs reports like one in February in which a camera crew stormed a southern Chinese supermarket looking for fake shampoo.

China has just finished a 100-day ''war against fake products'' -- a quality inspection with rewards for whistle-blowers and coordination across the country's labyrinthine bureaucracy. Its results were not announced.

The road to success is difficult, though.

On Beijing's main drags, DVD purveyors still accost passers-by to sell $1.20 copies of new Hollywood movies like Tim Burton's ''Planet of the Apes'' remake ($22.95 on Amazon.com); between customers, they chat with traffic cops who know exactly what they're up to. In Silk Alley, only during sporadic raids do merchants scamper to shove fake products under blankets or into trash bags.

Less than 1 percent of all counterfeiting cases reported in China are prosecuted, says Bill Thompson, senior managing director of Pinkerton China, which investigates product fraud across the country. In Yiwu, a town near Shanghai, experts estimate 90 percent of consumer products like shampoo and soap are fake.

While foreign governments and companies praise Beijing for tougher laws and enforcement training, they say penalties remain insufficient to discourage repeat offenders.

The main thing deterring sterner enforcement by the central government is local protectionism -- the fact that a nationwide crackdown can decimate local economies in places where fakery feeds families.

Says Thompson: ''If you go into a small backwater and walk into a station house and say, 'Raid this pants factory,' and it's the only factory for 30 miles and their wife and daughters are working in there, they may say, 'Come back after lunch.' And that's code for, 'We'll make a few phone calls and it'll be clean as a whistle when you get there.'''

Last year, in the southern Guangxi region, people in the village of Teng surrounded 100 law officers seizing counterfeit cigarettes and equipment. One woman set the tobacco afire; a man vandalized a bridge to impede the authorities and it took them four hours to get out.

Such reactions locally make the problem especially difficult to combat nationally. But Long Yongtu, China's vice minister of foreign trade and chief WTO negotiator, says stamping out counterfeit goods is critical to China's economy.

''We need to establish an orderly market environment, so we must adopt international practices,'' he says. ''But that's not enough. We need the surveillance of the general public. We need people watching.''

The government's vigilance has led to some high-profile busts, which state media duly showcase.

The list is long: Pharmaceutical giant Glaxo SmithKline asking authorities to investigate a hospital suspected of selling medicines falsely labeled as Glaxo products; reports of fake Viagra in Shanghai sex shops; thousands of fake boxes of Kodak film seized in the north; phony brand-name rice and soy sauce confiscated in the south.

Companies are fighting back. Pinkerton helps dozens of multinationals enforce trademarks here, and in December, a new trademark law strengthened corporations' legal recourse. Two anti-counterfeiting coalitions launched in recent years -- with such big-time members as Gillette, Unilever and Microsoft -- now represent nearly 100 companies.

Such progress may attack the supply in places, but it doesn't stem the appetite for logos in a consumer landscape that, until recent years, was a drab place filled with citizens who wore communist-era uniforms and bought state-made products from, say, the Shijiazhuang 10th Cotton Textile Mill.

''It's more intense in China because of the absence for so long of competitive brand names,'' says Daniel C.K. Chow, an Ohio State University law professor and former secretary of the China Anti-Counterfeiting Coalition.

''The obsession is really with the brand name and the prestige more than it is with the product,'' he says. ''And with counterfeits, you get the same brand name.''

And while trademark protection is crucial to keeping foreign investment on the rise, some wonder if the sheer volume of China's economy -- genuines and fakes alike -- is creating a model never before seen in commercial history.

''It's possible that we're seeing the emergence of a new type of economy,'' Chow says. ''There's always been this axiom that you can't reach high levels of development without strong protections for intellectual property. China may defy history. We've never seen anything like this -- an economy this size with this level of counterfeiting that's growing like it's growing.''



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