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SCMP Reporter

With a seasoned kick, trademarks officer Ou Xujian sent the wooden door flying and launched a series of raids on an underground shampoo-manufacturing ring.

 The apartments Mr Ou entered late last month, together with a dozen of his colleagues from the Guangzhou Administration for Industry & Commerce (AIC), were located in a four-floor family dwelling in the city's northern Baiyun district.

 They included a first-floor production site, where six migrants mixed a pungent concoction of soap powders, water and chemicals to produce between 50 and 60 cases of fake shampoo each day.

 Scattered throughout the concrete chamber were the ingredients of their counterfeiting enterprise - blue industrial barrels containing the milky 'shampoo' soup, flattened packing boxes stacked floor-to-ceiling and empty chemical packages.

 There were also filthy burlap sacks stuffed with empty bottles bearing international brand names, such as Procter & Gamble's (P&G) Head & Shoulders and Unilever's Hazeline.

 A separate apartment at the top of the building was home to a production line making shampoo sachets. Drying racks loaded with the sachets, strung in strips like soup noodles, littered the premises.

 In the back, boxes crammed with the palm-size sachets were stacked besides sealing machines and empty bogus packaging. The colour and printing on the sachets was precise and indistinguishable from the real thing.

 According to Mr Ou, the haul that day 'wasn't bad'.

 'This place is typical of a medium-sized underground factory that is located in a residential area,' he said.

 Including the haul from busts at a nearby manufacturing site and storage rooms, more than 100,000 yuan (about HK$93,350) worth of goods and equipment was confiscated. Among items seized were six packaging and sealing machines, 146 cases of bottled counterfeit shampoo and more than 120,000 sachets.

 Missing, however, was the factory's owner, and officials said that even should AIC officers find him he is unlikely to receive a punishment more serious than a fine.

  For the hundreds of multinational and domestic manufacturers whose products are targeted for similar rip-offs in this multibillion-dollar-a-year business, therein lies the rub.

 Trademark infringement in the mainland does not constitute a criminal offence, and continues to draw exceedingly light penalties, even as the practice grows more commonplace, particularly in Guangdong. The province is arguably the world's largest manufacturing source of bogus goods.

 Assessed penalties, generally speaking, are based on the likely 'illegal profits' that would be made from the fake goods seized and the production capacity of an operation.

 Fines in many Guangdong municipalities top off at 100,000 yuan, making AIC crackdowns, when they do take place, little more than a business expense for counterfeiters.

 In Guangzhou, for example, the local AIC investigated more than 300 trademark violation cases last year, but issued fines totalling only 'several million' yuan.

 'The penalties are nowhere near where they should be,' Alexander Theil, of investigation company Pinkerton Consulting Services, said.

 Less frequent, still, are cases where mainland courts order trademark violators to pay compensation to ripped-off companies. When compensation has been ordered, it seldom amounts to a substantial amount.

 For example, a Xiamen court last year directed a local counterfeiter to pay Unilever 67,000 yuan for bootlegging the company's Lux soap. Seized in the raids were an estimated 400,000 yuan worth of product.

 What is being pirated is not just soap but anything with a profit margin. From cigarettes to confectionary, batteries to designer handbags, sports shoes and motor oil.

 In Guangzhou alone, the city's AIC in recent months has busted pirate shops making counterfeit Sony-formatted computer discs, semi-finished Casio watches and Danone yogurt drinks.

 One of the most targeted mainland businesses is P&G, whose shampoos were among those bootlegged at the Baiyun factory site.

 The company estimates somewhere between 15 and 30 per cent of P&G-branded shampoo sold in the mainland on any given day is fake, with annual losses attributable to rip-offs and trademark violations of its soaps and washing powders put conservatively at US$150 million.

 'Counterfeiting is probably the largest single problem facing the company,' Procter & Gamble (China) vice-president Bill Dobson said.

 Unilever (China), which estimates annual mainland losses to trademark infringement of its soap and food products at $30 million, has taken the unprecedented step of forming a six-person anti-piracy task force to combat fakes.

 Among their successes was last year's bust of a Shenzhen factory making fake Lipton products. Altogether, 2,000 cases of bogus tea were hauled-in, with a marketplace value of about 1.6 million yuan. It was Unilever investigators, too, who alerted Guangzhou AIC officials to the existence of the Baiyun counterfeiting ring.

 While rip-offs remain ubiquitous and their availability in the marketplace is unlikely to diminish anytime soon, the mainland attitude towards those who manufacture fake goods is slowly changing.

 That is primarily true of some AIC officials who have traditionally looked the other way to protect what they considered a profitable business.

 'People are slowly starting to realise that while one factory makes money, a million people are being cheated,' Mr Theil said.

 In Guangdong province, authorities also are attaching greater importance to curtailing the problem.

 Much is attributable to Premier Zhu Rongji's visit to Shantou last year, when he lambasted smugglers and counterfeiters for hurting the mainland people.

 Yuan Liqiang, a vice-director with Guangzhou AIC's trademarks division, said the municipality had already handled more than 700 cases during the first nine months of the year, 70 per cent of which involved trademark violations, a 100 per cent increase compared to last year.

 On Monday, new landmark Guangdong legislation went into effect that allowed the province's Technical Supervision Bureau (TSB), nominally responsible for overseeing manufacturing quality and standards, to investigate cases of trademark infringement.

 That, believe investigators, will allow companies the option of turning to the TSB for help, should AIC officials decide not to act on reports of counterfeiting.

 The new law also increases fines and enlarges the definition of what constitutes 'illegal profits'.



The mainland punishment hardly fits the crime, writes Matthew Miller