A team of officers from the local quality and technology inspection bureau, the office in charge of cracking down on counterfeit products in China, stepped into a clothing shop in early December on Shaanxi Beilu in downtown Shanghai.
They had been informed that the shop was selling fake Louis Vuitton suitcases. However, when they searched the premises they found no counterfeit luggage bearing the brand name of the famous French firm.
The officers then went into a house a block away, which serves as a warehouse for the shop. They combed through the place, filling a truck with 349 cases bearing the famous brand name.
While a real Louis Vuitton case may cost as much as 8,000 yuan (US$966) in Shanghai, the confiscated fakes would have been sold for as little as 200 yuan (US$24).
For China's intellectual property rights law enforcers, it was a day like any other in the country.
As the central and local governments intensify their efforts to regulate the market, such searches have become routine in the major metropolises and cities around the country.
The strengthened crackdown is a response to the increasingly rampant production and sale of counterfeit goods in recent years. Almost all brand-name products, from auto parts to bicycles, CDs to Discmans, books to films, wine to cigarettes, face the threat of being counterfeited.
The more famous a brand is, the more likely it is to be faked.
Procter & Gamble, the US-based personal-care-product giant, is among those who have suffered the most.
The company's success in China can be described as miraculous. In 1988, it began its Chinese business in Guangzhou, the provincial capital of South China's Guangdong Province. Thirteen years later, it has become an incontestable leader in the Chinese market with a dozen of its brands such as Whisper, Head & Shoulders and Safeguard finding their way deep into the hearts of Chinese consumers. It now produces three of China's top five brands of shampoo.
However, since it is easier to counterfeit daily necessity products, fake P&G products have cost the company at least US$150 million so far, according to Liang Yun, public relations manager for Procter & Gamble (China) Ltd.
Many other multinationals as well as domestic companies are also facing this thorny problem.
To crack down on counterfeiters, the country has become a signatory to many international treaties against counterfeiting and the central and local governments are making unprecedented efforts to root out these law breakers.
Meanwhile, many companies have also kicked off their own campaigns against fakes, starting about 10 years ago.
Some companies, such as P&G and Nike, have set up special squads to fight against those who attempt to fake their products.
Joint efforts
In March of 2000, a total of 28 transnational companies, including P&G, S.C.Johnson and Gillette, launched an association to unite their efforts.
Members of the group, the Quality Brands Protection Committee (QBPC), all claim that an estimated 15 to 20 percent of products bearing their tags on the Chinese markets are fakes.
The mission of the committee, which is under the China Association of Enterprises with Foreign Investment (CAEFI), is "to work co-operatively with the Chinese central and local governments, local industry, and other organizations to make positive contributions to anti-counterfeiting efforts in the People's Republic of China," a fact sheet handed out by the committee states.
Since its conception, the committee has continued to grow, with more and more Japanese, American and European transnational companies joining in. In nine months, the number of member companies reached 57. And now it has 77 companies.
The members are the real barons of business, including Coca-Cola, and Toshiba, among others. In total, their investment volume in China surpasses US$13 billion.
Problems pinpointed
The first thing the association did was to survey the Chinese market and estimate the extent of the counterfeiting. It entrusted the Foreign Economic Research Department of the State Council's Development Research Centre to conduct the survey last year.
Multinational companies are not the only ones suffering from fake goods. Since March this year, the law enforcers in Liaoning Province have confiscated 530,000 kilograms of sub-standard corn seed that would have cost local farmers 60 million yuan (US$7.3 million) in economic losses if the seed had gone on the market.
The researchers visited and interviewed representatives of 83 State-owned enterprises, 16 collective enterprises and 31 foreign-invested companies. The result showed that every year the value of counterfeit products in Chinese markets is very near to that of smuggled goods.
The survey also revealed that fakes are becoming more sophisticated than those produced 10 years ago. Take watches for example. Yesterday's fakes could be spotted by their excessively light weight; today the watches contain full-sized Swiss components.
Although fakes are produced in many regions, the manufacture of specific counterfeit products tends to be limited to specific regions with the products then being marketed across the country.
In many places, the racket is systematically managed. "The whole process of production and sales is organized by different people," said Joseph Simone, a counsellor for British American Tobacco.
Jack Chang, an inhouse counsel at Johnson & Johnson Medical (China) Ltd, told the story of a fake producer in East China's Jiangsu Province.
The counterfeiter was found to have brought tools and raw materials for manufacturing fake Band-Aid adhesive bandages to his fellow villagers.
The village was then turned into a big factory producing fake Band-Aids. Most villagers were employed in the racket, with many of them having no idea that they were actually committing a crime. And a complete distribution system and marketing channels had been established.
Lobbying for solutions
Having pinpointed the problems, the committee members have adopted a from-top-to-bottom strategy to remove the obstacles frustrating the battle against counterfeits.
Meetings have been held between QBPC representatives and a variety of high-level government leaders. The group has played an important role in assisting the central and local governments in their efforts to protect famous brands.
Last October, a national Anti-Counterfeiting Co-ordinating Committee, chaired by Politburo member and Vice-Premier, Wu Bangguo, was established in Beijing.
An unprecedented national campaign against counterfeit and sub-standard products started in March this year across the entire country. Ridding the markets of counterfeits and systematically regulating them has been listed as one of the top priorities in the national 10th Five-Year Plan (2001-05).
Wholesale markets where fakes were on sale have been raided and closed down, and numerous counterfeit products have been seized and destroyed.
"The Chinese Government is a responsible government and is confident it will solve the counterfeiting problem," said Li Chuanqing, deputy director of the State General Administration for Quality Supervision and Inspection and Quarantine.
In April, the Supreme People's Court and the Supreme People's Procuratorate issued a judicial interpretation and clarified that the conditions under which infringers may be subject to tougher criminal liability.
According to the current Criminal Law, only when the sales of fake and sub-standard commodities reached a certain level could the seller be sent to prison.
The judicial interpretation for the first time prescribes that even if the fake and sub-standard commodities have not been sold, the dealers can be charged with an attempted offence.
The Patent Law, the Drug Administration Law and the Trademark Law, have also been amended, with clauses calling for tougher penalties for infringement of intellectual property rights.
"Over the past year, China has achieved surprising results in promoting its anti-counterfeiting laws and their enforcement," said Liu Wanzhong, vice-chairman of CAEFI.
"There have been feelings of anguish, helplessness, sadness and even peril in the anti-counterfeiting struggle, but we have never lost confidence for even a single day," said Liu.
QBPC is considering recruiting many other multinational companies that have invested in China, such as General Electronics, Ford, Fuji, Sony and Motorola.
The rapid growth and extraordinary performance of some Chinese corporations have also attracted the group's attention. Local corporations which are expected to grow into multinationals such as Changhong and Legend are also included in the list of QBPC's potential members.
"Chinese enterprises also fall victim to counterfeiting, and have a strong determination to fight against it," Joseph Simone said.
(China Daily December 27, 2001)
