When it comes to faking it, there is no place like China. But as it prepares to enter the World Trade Organisation (WTO), the country is being forced to declare war on its flourishing multibillion dollar counterfeit industry.
China ranks as the world's number one counterfeiter, faking everything from clothes, computer software, motorcycle parts, medicinal products, foodstuffs, electrical goods and CDs. The counterfeit business really took off after the country opened up to foreign investment in the late 1980s, with pirates rushing to draw on cheap Chinese labour to begin mass production of bogus goods packaged convincingly enough to fool consumers.
In a recent report, China's Development and Research Centre claimed the amount of fake goods on the Chinese market in 1998 was worth $16 billion (€18.6 billion). A survey carried out among foreign firms showed that two out of five companies in China were losing more than 20 per cent of their revenue to counterfeiters.
While China is almost at a successful end to its marathon 15-year long negotiations to join WTO, there is huge concern that it is still nowhere near ready to meets it obligations under the WTO Agreement on Trade Related Aspects of Intellectual Property Rights, known as TRIPS.
However, conscious of the new obligations that WTO will bring, China is beginning to fight back with anti-counterfeiting campaigns and promises of tough new laws. On Tuesday, the head of the State Intellectual Property Office, Mr Wang Jingchuan, announced the implementation of a revised law next month to give greater protection to patents. He promised China would increase its crackdown on patent infringement.
"We admit there are some problems in protection because China established its Intellectual Property Rights system recently. The base is weak and the social awareness is poor," Mr Wang said.
One market hit hard by the clampdown is the famous Silk Alley in Beijing. In recent weeks, fake Rolex and Cartier watches, which can be purchased for $5 each, are no longer openly on display, although traders will happily produce them when asked.
Recently, there have been widespread reports in state media of success against the fakers. The China Police Daily detailed the arrest of a gang making quilt covers in the south-eastern city of Chengdu stuffed with hospital refuse.
There have been horror stories in relation to food produce, such as the one about the pork which, once cooked, revealed green bones. Even rice, the staple food of hundreds of millions of Chinese people, has been the target of the unscrupulous. Last November, police in Guangdong and Henan provinces found 25 tons of rice had been rubbed with paraffin to make it look shinier and fresh.
One of the sectors hardest hit by counterfeiters is the pharmaceutical industry. There was one case reported recently of a medicine meant for animals being administered to humans. Tales abound of used syringes being re-packaged and re-sold, despite the risk of spreading the HIV virus or hepatitis B.
State media in Shanghai revealed last month that 99 per cent of the anti-impotence drug Viagra on the market was fake.
Pharmaceutical company Procter & Gamble (P&G) announced the results of its year 2000 anti-counterfeiting campaign last week. Its anti-counterfeiting team co-operated with local governments around China to set up more than 670 raids in 17 provinces, seizing 790,000 cases of fake P&Gbranded products worth nearly £23 million (€29.2 million).
P&G estimates that between 15 and 40 per cent of P&G products on the market are fake, resulting in losses of $150 million a year to the company.
Since March, health inspectors have seized 2,500 tons of fake and inferior food, cosmetics, and disposable medical devices worth more than $4.8 million. About 1,400 illegal producers of fake products and nearly 40,000 illegal medical clinics have been shut down, according to official statistics.
Increasingly, multinationals, whose profits are being hit by the counterfeiters, are joining together to fight the industry.
According to Mr Joseph Johnson, chairman of the Quality Brands Protection Committee (QBPC), the problem will not be solved in one day. "But upon reviewing the accomplishments achieved last year, it is very possible to make a difference through a government-industry partnership, " he said.
The QBPC was established a year ago and has been fighting for legal reform and product protection in China. Many member companies, including P&G, are actively involved in the current nationwide campaign. The QBPC now has 62 members including Coca-Cola, Compaq, Gillette, Henkel, Johnson & Johnson and Nike, which between them invest $13 billion in China each year.
The manufacture of counterfeit banknotes has been a huge problem and Chinese authorities have shown no mercy. In February, seven people were executed when convicted of counterfeiting banknotes with a face value of £64 million.
In an effort to thwart counterfeiting, the central bank issued new 100 renminbi notes in 1999 with the same high-security ink used in new US banknotes.
Senior WTO officials have expressed their concern about China's ability to meet its obligations on counterfeit goods after entry to the WTO. Substantial negotiations on accession are expected to be concluded at the 16th meeting of the China Working Party on WTO, which started in Geneva yesterday and is due to finish on July 4th. It is expected that if the talks go smoothly, accession will happen before the end of this year.
However, the US Trade Department has consistently expressed its concern about China's trademark counterfeiting problem.
While acknowledging that Beijing was introducing legislation to protect trademarks, a Trade Department spokesman said recently that it still lagged behind in enforcement. "The administrative sanctions need to be increased and the basis for initiating criminal prosecution needs to be revised so that the punishments that are handed out are more of a deterrent," he said.
The issue of enforcement is one area China claims it is looking at. This week Mr Wang said the new laws will offer more tools for enforcement, including stricter procedures for litigation, more power to local officials to investigate cases of infringement and calculation of damage "several times" the royalties.
In Guangdong province, the hotbed of counterfeiting activity in China, penalties for pirating have already increased. There is now a minimum fine of $2,400 and a maximum fine of $24,000 for all manufacturers of counterfeit products. In addition, there is a minimum fine of 100 per cent of the value of the goods or sales totalling more than $100,000 seized and a maximum fine of 500 per cent.
A trade law expert with British firm Lovells, Mr Douglas Clark, said recently it would take some time for the benefits of China's WTO membership to kick in. He predicts an initial rise in counterfeit exports after the country accedes to the world trading body. Easing restrictions on export rights will allow small manufacturers to export goods without having to go through the 300,000 or so authorised trading companies that serve as middlemen, he said.
But he believes that eventually intellectual property rights infringements will become less common.
Meanwhile, the counterfeit boom continues. When it comes to the best in luxury knock-offs, there is still no place like China.
