Imitation nation

Is piracy-crazed China a nightmare vision of the future, or just a developing country going through some severe growing pains?

By Lisa Movius
Published July 8, 2002 7:30PM (EDT)

In the shadow of century-old plane trees, art deco apartment buildings, gleaming A-grade office buildings and bustling department stores, they ply their trade. Seconds after you step off a bus, out of the subway or onto the curb a young man or woman sidles up to whisper, "Hello! CD? DVD?"

The stretch is found along Huaihai Road, as Shanghai's old Avenue Joffre has been called since 1949. Should you pay no heed to the whispers and continue on, they intensify into to a cacophony, as yet another salesman calls out the same refrain every few meters. Slip into the adjacent Xiangyang Market and the noise continues, only the mantra has diversified: "Hello! Prada?" "Hello! Rolex?" "Hello! Calvin Klein?" A dizzying array of products with Western brand names meets the eye, all available at impossibly low prices.

Places like Xiangyang Market, its Beijing equivalent Silk Alley, and similar retail centers in all of China's urban centers are hotbeds of pirated goods, but the trade is not confined to their boundaries. On every pedestrian overpass, subway stairwell or crowded street, there is at least one man, invariably middle-aged with greasy hair, opening a briefcase to reveal a selection of imitation name-brand perfumes. Next to him, resting on a folding chair, is the inevitable cardboard box crammed with pirated discs.

Mainland China is the piracy capital of the world. China's imitation industry feeds not just its own economy, but those of other nations as well; 46 percent of the pirated goods sold in America come from China, according to the International Intellectual Property Alliance (IIPA). The Quality Brands Protection Committee (QBPC), an anti-piracy body under the auspices of the China Association of Enterprises with Foreign Investment, claims that government statistics show that counterfeits outnumber genuine products in the Chinese market by 2 to 1. Pirated audiovisual materials occupy 95 percent of the market in large cities, and the proportion approaches 100 percent in the rural interior. Stricter laws have stemmed the tide only slightly, because anti-piracy law, like most of Chinese law, is enforced haphazardly at best, and everyone knows it.

Enforcement efforts are made even more futile by popular acceptance of piracy. Rising incomes have created an enthusiasm for foreign goods and brands, but Chinese consumers have become so accustomed to cheap, pirated goods that they are unwilling to pay full prices for the real thing. Traditional Chinese moral relativism combines with a modern sense of short-term opportunity cost and self-interest to justify what everyone knows to be wrong and illegal.

Piracy is one of the largest flies in the ointment of China's supposed economic miracle. Dollar figures for losses attributed to counterfeit goods are notoriously hard to pin down, but there appears to be little question that whatever the numbers are, they are big -- the Business Software Alliance (BSA) claims that software piracy in China alone costs the industry $4 billion a year worldwide. And while the multinational giants will hardly be sunk by piracy's encroachment on their profit margins in China, the situation is especially grim domestically. Piracy severely hampers the international competitiveness of Chinese companies, and the lack of adequate intellectual property protection dampens the impetus for local corporate, scientific and artistic innovation.

And yet, China's intellectual property mess isn't entirely bleak. Piracy may be bad for business, but it's great for consumers, and in some ways good for society. By providing small-business opportunities to the uneducated, unemployable underclass, piracy helps relieve China's mounting social unrest. The production of imitation goods, or "daoban" in Chinese, has become one of the country's major light industries, employing both the growing masses of workers laid off from state-owned industrial behemoths and the floating population of illegal migrant laborers.

Copycat publishing also serves as one of the only chinks in the armor of state censorship. Banned books, even a Chinese version of the scandalous "Private Life of Chairman Mao" and the works of Nobel Prize winner Gao Xingjian, can be found at pirated book vendors, usually operating from bike carts parked near busy bus stops. Films from the U.S. and elsewhere can take as long as three years to arrive at local theaters and even longer to come out on legal DVD. But illegal copies of Hollywood blockbusters appear in video compact disc format weeks after their release -- and sometimes they appear even before their release, as copies of promotional versions. Without piracy, the Chinese music scene would still be relying on home-copied cassette tapes and John Denver for inspiration, as it did in the 1980s.

In China, the forces of 21st century technology, consumer choice and pop culture are converging on a society struggling desperately to modernize, producing contradiction after contradiction. China in some ways represents a nightmare scenario for corporate America, a post-Napster Wild West chaos where any intellectual property can be illegally copied, and commonly is. But China is also emblematic of the growing pains of much of the developing world. Blame Confucius, blame Mao, blame Deng Xiaoping's trickle-down economics, or blame Western companies' unrealistic pricing policies: Imitation is a way of life in modern China, and it will take more than diplomatic pressure or a handful of laws to eradicate it.

In Shanghai's Xiangyang Market, if you ask one of the "Hello? CD? DVD?" people what exactly their racket is, he or she will laugh nervously about avoiding the police and scurry off. Better to ask to see their stash, as I did of one woman, whose short, sturdy build and round face identified her as coming from far south of Shanghai.

She bade me follow her, a meter or so behind to avoid arousing suspicion, through the maze of stalls overflowing with tourist kitsch and name-brand rip-offs, out of the market, and to a small room at the back of a men's clothing store, where a large box of CDs was produced for my perusal. Later, back in the market, the same woman approached me again, offering to lead me to a few more suppliers. One consisted of two men squatting behind the bushes next to a Japanese noodle shop; another operated out of a stall selling watches and novelty lighters; and a third hid behind racks of sequin-encrusted tube tops. My guide explained that, while she technically is employed by the first place, other vendors will pay her a few pennies for each customer she brings by, and a few more for each disc purchased.

The lanky young man handling the stash at the first stop confirmed that the scores of CD/DVD agents prowling the market are all migrants -- outsiders or "countryside people," as they are derogatorily called. Each "shop" employs 12 to 14 scouts. They buy the discs for 5 RMB or renminbi (60 cents), through an intermediary to keep them from incriminating the supplier if arrested, and on a good day resell about a hundred discs for around $1 to $1.20 apiece. He has been in the business for a couple of years, and has been arrested three times in periodic police raids. Each time, he was imprisoned for three months, paying fines totaling over $1,200, but he always returns to the market.

"This is a hard business, but so is all business in China, and this isn't as bad as most. It sure beats manual labor, and it beats staying in the countryside," he shrugged. "It's not like I earn much money doing this, but it's a way to survive."

Piracy is arguably the most classic example of free-swinging capitalism in China's transitional economy. Operating independently of five-year plans, growth targets and restructuring directives, it and other illegal or semi-legal sectors have the flexibility to accommodate the Chinese dispossessed by harsh but necessary economic reforms and the shrinking of the social safety net. Cost-slashing state-owned enterprises have fired 25 million employees since 1998, and the pensions of countless more have dwindled to uselessness. Some 80 million migrant laborers have seeped into the cities since the launch of Deng Xiaoping's trickle-down reform policy of developing the urban coastal areas first. Without residence permits, this floating population cannot legally work, find accommodation or school its children. Foreign investment is the great white hope of China's emerging economy, but these refugees of the post-socialist economy have no hope of getting work with a foreign or foreign-invested firm. Ripping off the products of a foreign or foreign-invested company is, for them, a far more golden opportunity.

And the general public urges the pirates on. After more than a decade of proliferation, piracy has become so commonplace in China that consumers rarely give it a second thought. While everyone knows pirated goods are illegal, and most acknowledge that it is wrong on some level, or at least bad for the economy, no one cares. Winston Zhao, a partner with the law firm Jones, Day, Reavis and Pogue, who is based in China, cites the Chinese proverb, "If everyone does wrong, no one will be punished." China Record Co.'s Tang Haiyang recalls the evolution of piracy's acceptability. "No one thinks of it as theft anymore. At first, there was no choice but to pay 30 RMB [$3.60] for a real album, which is a day's salary for most. Then the pirates came along, at 10 RMB [$1.20] for a CD, and at first people were uncomfortable, and would still pay more for the real thing. But now, everyone's used to it, it's normal and accepted, and people just think, 'It's very cheap, very cheap, that's good!'"

Moreover, dynamics within both traditional attitudes and the current social climate help absolve any residual guilt about buying pirated goods. Traditional Chinese morality is relative, reflecting a hierarchy of responsibilities and priorities rather than Judeo-Christianity's clear-cut absolutes. The Confucian ethic dictated the individual's behavior based on their position in a rigid hierarchy, starting with the nation, then the emperor, then descending levels of government, followed by the household structure, according to age, gender and rank. One owed filial devotion and obedience to those above, and guidance and providence to those below. Stealing medicine for a sick parent would be a forgivable offense, for example, and what would be considered correct for a rich landlord would of course be wrong for his servant girl.

While the Communists abolished the Confucian structure, its rationales persist throughout the new social order. In the current hierarchy, the conducting of business and the making of money have dethroned the previous emperors of family, nationalism and revolution. Decades of Maoist witch hunts followed in rapid step by the "get rich quick" obsession have created two generations with little if any community ethic, allowing easy, low-risk profits to take priority over right and wrong and long-term economic growth.

Additionally, the lack of cultural emphasis on individuality and well-developed critical faculties has lent Chinese society a propensity to mimic. Foreign models, for everything from fashion to architecture to urban and economic development plans, are commonly adopted wholesale without any consideration of or adaptation to local conditions. For example, a large company in one Shanghai suburb has erected for its office a small but precise replica of the Capitol Building, seated a few meters from a freeway and sandwiched between a rice paddy and a factory. The reasoning appears to be that if something is good in the first place, then copying it must also be good -- just as Chinese artists have copied their predecessors, down to the last calligraphic stroke, for centuries.

China's economics-obsessed leadership is well aware of the damage done to its economy and international reputation, and is proactively reforming its legal code, although not the system that keeps the laws from being enforced. Chinese trademark law has progressed impressively since the promulgation of its first patent law in 1985. The most recent revisions were enacted in October last year just prior to China's WTO ascension, and significantly extend both protections and liabilities. According to Winston Zhao, the new law is very close to the international standard of the Council for Trade-Related Aspects of Intellectual Property Rights (TRIPS) and puts China a step ahead of Taiwan and Japan by criminalizing not only production of imitation goods but also their sale and even their purchase.

But rule of law has been a problem for China ever since Shang Yang introduced the first legal code in the fourth century B.C.E. and as thanks for his effort was torn to pieces by five horses running in different directions. An old saying points out, "Heaven is high, and the king is far away." Given its size, disorganized economy and opportunistic consumers, China is a place where anti-piracy efforts would be difficult to implement even under the best of circumstances. Authorities tend to focus more on appearances than substance, and it remains a land mired in symbolic gestures and short-lived campaigns. China watchers are fond of bemoaning the country's lack of a coherent legal system, but that is only half of the equation. The flip side is that Chinese law is relative, depending on whether you get caught and, more importantly, who you are (and who you know).

The shortcoming now is not in the law itself but in the enforcement, or lack thereof. Despite the advantages of central control, a uniform national legal system and few civil liberties, enforcement efforts are haphazard. One problem is the diffusion of responsibility for oversight and enforcement activities. The Public Security Bureau handles only major cases and those that involve safety concerns; the State Administration for Industry and Commerce (SAIC) juggles general problems of trademark violation; and another bureau handles complaints where shoddy pirated goods threaten a company's reputation. Both the Cultural Bureau and the National Copyright Administration deal with copyright piracy; the State Intellectual Property Organization handles patents and policy; and the State Drug Administration addresses pirated medicines.

As a result, the police are not primarily involved in or charged with the enforcement of anti-piracy law. "The police have too much to do, are too busy, and can't get involved in a case until after the judiciary has ruled it a criminal case," explains Zhao. However, a case cannot reach the courts without evidence of wrongdoing, so the impetus for tracking down violators falls on the aggrieved company. And even when the police are charged with enforcement activities, they cannot be expected to always recognize which goods are fake.

Also, authorities on the local level will often seek to protect pirate factories that are beneficial to the area's economy. Bribery and corruption exist, but are declining, and perhaps present less of a problem than self-interested and selective enforcement of piracy law.

Ultimately, the task of enforcement rests at the local level, but China's local leadership is at best inept and lacking in the resources it would take for a campaign of the requisite magnitude. County- and township-level cadres are among the last vestiges of the Iron Rice Bowl system, and as such are terrified of rocking the boat. Given the already fragile social and economic conditions of rural China, it is hard to blame the petty bureaucrats for their reluctance to crack down.

Until it progresses beyond the current transitional economic and enforcement systems, it is virtually impossible for China to eliminate the production of pirated goods. But there is one arena in which change may be coming on the demand side, as demonstrated by consumer attitudes toward luxury brands.

Brand-name clothing and accessories, authentic or not, and preferably foreign, are incredibly popular with the Chinese. The expanding numbers of upwardly mobile, white-collar urbanites are more savvy about the prices and associations of upscale Western brands than most of their Western counterparts. Even farmers and migrant laborers can be spotted sporting the Nike swash, and you can bet your sneakers that they could never afford the genuine article.

For China's status-conscious nouveau riche, brands provide a fast track to prestige. They serve as an easily quantifiable marker of rank and wealth, establishing the wearer or bearer's position in the monetarily determined social pecking order. The absence of individualism in Chinese society also means heightened susceptibility to advertising's promises to provide the buyer with a certain prepackaged image and identity. Although China had its own brands almost a century ago, decades of Maoist drabness made brand names a novelty upon their reintroduction. Adding to that novelty is the glitz of the modern branding campaign, and an open-armed affection for things foreign that flies in the face of China's innate national parochialism.

"In China, the income disparities are so wide that any means of standing out at a glance is valuable," observes Godfrey Firth, a consultant with market research firm CBC. "Brands are an instant way to advertise one's financial ranking, which is increasingly required to find a job, get contracts or attract a potential spouse. Any way of distinguishing oneself as not a peasant is good. Moreover, people have yet to move beyond the Chinese tradition of ostentatious display of wealth, such as elaborate weddings and funerals. Showing off, the whole peacock thing, isn't seen as bad or tacky."

Buying authentic brand items carries more weight for those who can afford it. A typical example is a former Chinese colleague of mine who boasted about spending the equivalent of $40 on a pair of socks at Lane Crawford. However, copies provide an acceptable if less prestigious alternative for the vast majority of the population who cannot. Firth points out that "if people could afford it, they would buy real brand items; most just can't, but they still want to show off as if they could. When they get rich enough, they do buy real brand items and boast about it: 'Someone bought mine for me in Japan, and paid so much, but yours is fake.'"

Although definitive statistics are unavailable, imitations probably equal or outnumber originals for popular low-end brand clothing and accessories, such as casual wear or items featuring popular icons like Disney and Peanuts characters. A 2000 South China Morning Post article cited Nike as estimating its piracy rate at 50 percent, although the company now claims a more optimistic 15 to 20 percent.

High-end brand products are less pirated, as their higher quality makes them harder to convincingly replicate. Benjamin Simar, assistant operations manager with risk management firm Hill and Associates, points out that Chinese buyers of luxury brand goods are increasingly "sophisticated consumers" who view the purchase as an investment in a certain image and are unwilling to buy copies. Luxury goods are also one of the categories subject to intensified government scrutiny and to aggressive action by the companies whose trademarks are violated.

As China develops, its consumers may grow less willing to purchase pirated clothing, cosmetics, food and cigarettes, and perhaps with time that desire to distinguish themselves will evolve into a fan loyalty sufficient to cause them to reject pirated music, films and software. But a world of difference separates the English-speaking Shanghai slickster willing to pay thousands for a Hugo Boss suit and the illiterate, unemployed Hunan peasant who makes only hundreds a year copying Hugo Boss suits.

Yes, improved legislation and heightened government commitment are steps in the right direction. Corporate piracy is heading toward extinction, as listed Chinese companies that have offices overseas and high volumes of exports are susceptible to international lawsuits, and software piracy is declining. However, the Communist Party has proven itself unable to address the desperation of the economically disenfranchised, who will continue to gravitate toward piracy until the legitimate economy can provide a better option.

Lisa Movius

Lisa Movius is a freelance writer living in Shanghai.

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