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Crackdown on fakes failing to stem trade

At Shanghai's Xiangyang Road Clothes and Gift Market, among a maze of shops selling discounted winter coats, trousers and crossword puzzles, a universe of fraud can be found offering famous brand goods on the cheap.

Hawkers display Rolex watches starting at 80 yuan (HK$75), the latest Prada and Fendi handbags sell for 95 yuan and towels emblazoned with Disney's Mickey and Goofy fetch less than 10 yuan.

The selection and quality of the fakes are a breathtaking counterpoint to the Government's anti-counterfeiting campaign, a three-month push launched by the State Council at the end of October to stem the mounting tide of bogus goods hurting the mainland economy.

Announcing the latest effort, Vice-Premier Wu Bangguo told provincial and city leaders that counterfeits were threatening the health and life of China's citizenry, disturbing market order, infringing upon the interests and rights of enterprises and damaging the image of China-made commodities and the nation.

'Fake and substandard goods are so rampant that they have become a major social evil,' Mr Wu said.

It is one of the rare instances where political hyperbole matches reality.

China, plainly, is awash in bogus goods. In recent weeks, media reports have uncovered shadow markets for just about anything with a trademark or a margin, from soaps to cigarettes and motor parts to rice. That includes prescription drugs and blood products. Some mainland-based Western pharmaceutical manufacturers put the counterfeit rate for some branded drugs at 10 per cent or more.

Just how much the mainland's counterfeit industry is worth is anybody's guess. The Government estimates the value of fake goods produced domestically at about 130 billion yuan per year, which results in direct losses of 25 billion yuan in taxation revenue.

Truly worrying to foreign manufacturers, however, are the increasingly sophisticated techniques employed by the counterfeiters in making and marketing their goods. That includes packaging. Procter & Gamble (China) was forced last month to cancel contracts with two of its biggest suppliers, Dalian Dafu Plastic and Colour Printing Co and Zhongshan Dafu Plastic Packaging, after it discovered counterfeit shampoos and detergents were using Dafu-manufactured packaging.

Some pirate soap merchants have gone so far as to separate their manufacture and packaging operations to limit their liabilities when underground factories are busted. Similarly, pharmaceutical counterfeiters are establishing risk funds to cover legal expenses and lost revenue when members are arrested.

Local law enforcers often have been complicit, either participating or turning a blind eye to the illegal trade.

Likely to exacerbate the problem, foreign businessmen fear, is China's impending entry into the World Trade Organisation, a move that will open global markets to smaller mainland exporters, thereby allowing the flood of fakes to breach local borders and pour into world markets.

Only this week, the Ministry of Foreign Trade and Economic Co-operation announced the Government was preparing to loosen its restrictions on private firms seeking foreign trade licences starting next year.

Already, bogus mainland-exported Yamaha motorcycles have been spotted in American showrooms, while counterfeit bulk pharmaceutical chemicals have been linked to contaminated drugs and death.

A US congressional committee this year put the blame for the damaging effects of gentamicin, an antibiotic linked to deafness and kidney damage, on contaminated bulk gentamicin imported from the Long March Pharmaceutical Co in Sichuan province.

'Clearly, mainland resources are stretched to the limit and more needs to be done,' said Bill Dobson, vice-president for Procter & Gamble (China). That would include increasing budgets and amending laws that would improve working conditions for the Administration of Industry and Commerce and the Technical Supervision Bureau, the two government agencies charged with controlling piracy.

One key ingredient would be revision of the mainland criminal code to provide stiffer penalties for counterfeiters and their accomplices.

Presently, the threshold for prosecuting counterfeiters is suitably high and the fines imposed on bogus goods makers and traders are sufficiently low to allow the practice to thrive.

'The biggest deterrent to counterfeiting is criminal sentences, particularly jail time,' said a mainland-based lawyer. However, criminal penalties may not be enough. 'Counterfeiting has become a social problem and the Government cannot only crack down, it must also educate,' cautioned Liu Hua, who researches trademark issues at the Law Institute of the Shanghai Academy of Social Sciences.

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