Counterfeits key to Chinese trade and economics---CCP intentionally avoids counterfeiting regulations now

Due to its illicit and illegal nature, it is inherently challenging to understand the exact numbers behind counterfeit trade. Statistics based on product seizures, however, indicate that around 90% of all counterfeit products originate from China.[103] These estimates place the value of counterfeit goods coming from China at over $400 billion dollars.[104] This has not always been a major issue, however, as the illicit industry has grown by over 10,000% since 2000.[105] Though no metric is entirely reliable on its own, together, these statistics highlight how China’s counterfeiting enterprise has grown into an unparalleled giant in the past two decades.

[FIGURE 2 OMMITTED]

In understanding how China has become the global hub for counterfeit products, it is important to narrow down exactly where counterfeits in China are being produced. Using court data published online from China Judgements Online[106], the Chinese court database, Figure 2 highlights how the counterfeit manufacturing industry is not uniform across the country but instead, focused in specific regions and provinces. Though nearly every province prosecuted at least one case, the distribution skewed towards provinces along the coast, specifically those known to be high in manufacturing. Guangdong, Fujian, Zhejiang, Jiangsu and Sichuan are all notable provinces, who together accounted for 49.6% of the total cases of trademark violations. Additionally, provinces containing Special Economic Zones (SEZs, similar in policy to Free Trade Zones) had far more instances of counterfeiting than provinces without this designation, indicating that a decreased presence of regulations, combined with an increased opportunity for trade, amounted in greater opportunity for counterfeit goods.

Not only does the Chinese judicial system know the regions in which counterfeiting takes place, but law enforcement also has the capability to identify exactly where these businesses are located. For Chinese-facing third party e-commerce marketplaces, such as Taobao or JD.com, independent sellers are required to upload business licenses, including the registrant’s name, the business name and its address. Oftentimes, this information is available publicly, allowing for anyone to investigate the business. Figure 3 showcases a business license found for a distributing company, named, “Lowest Price Women Bag,” selling probable counterfeit handbags.[107] In an age where the Chinese government requires more information from its citizens than ever before[108], the process of identifying a business, its owners, and the operating location is genuinely simple.

[FIGURE 3 OMMITTED]

The trade of counterfeit goods is massive in scope, value and size, yet the effort needed to dismantle it is often minimal. When businesses identify that their goods have fallen victim to counterfeiting in China, several barriers exist in reporting. Chinese law enforcement seldom investigates intellectual property rights claims seriously, meaning that in many cases, successful businesses will initiate their own private investigations by employing Chinese partners to gather evidence.[109] Then as they gather sufficient evidences, the businesses will present it to local law enforcement. Even with enough evidence gathered, however, these cases often will not receive the attention they deserve. In one instance, Alibaba reported that of the 1,910 cases of suspected counterfeiting that it had referred on to police, only 129 people were found guilty, highlighting the dire need for effective law enforcement.[110]

Understanding the Chinese Actors: Politicians, Public Servants and the People

The enforcement of intellectual property rights in China highlights a division that many individuals fail to understand. Though Western states often describe the country in a negative view, highlighting an authoritarian regime supplied by a population homogenous in thought,[111] views of intellectual property rights throughout the country highlight the division in thought between three key political bodies: high-ranking members of the Chinese Communist Party, local party officials located throughout the country, and the people. Each of these groups experiences different driving factors, and as such, the enforcement and interpretation of intellectual property right laws varies between each group. The purpose of this section is to explore how each group of people views intellectual property, highlighting some of the contributing factors to China’s failing enforcement measures.

The Communist Party from a National Perspective: How Intellectual Property Shapes Economies

The Communist Party of China faces a conundrum that few, if any, other states encounter in their economic decision-making process. While it is true that the promotion of intellectual property rights generally improves and strengthens a growing economy, the People’s Republic of China has become a massive exporter of counterfeit goods, whose manufacturing and distribution sustains a large part of the Chinese GDP. Party members face the unique challenge of balancing long-term and short-term economic strength, for in the case intellectual property laws in China, one must come at the expense of the other.

Before diving into the complexities of enforcing intellectual property rights, this paper will first outline the primary goals of the Communist Party of China. In 2008, Chinese State Councilor Dai Bingguo stated that the three primary concerns of the People’s Republic of China are maintaining regime stability, maintaining territorial sovereignty, and continued economic growth.[112] China needs to maintain a high GDP growth rate, generally between 6% and 6.5%, in order to ensure employment for its population.[113] By utilizing a balance of state-owned enterprises (SOEs) and market mechanisms to target this range each quarter, the government can plan its economy, keeping people employed and ensuring regime approval. When this number faulters, fears arise that a slowed economy will decrease citizen approval for the government, creating the potential for instability.[114] As a result, economic growth is key to the Communist Party.

Though intellectual property right laws protect and promote innovation, they also halt the counterfeit manufacturing industry. If China exports counterfeit goods valued at approximately $400 billion,[115] and China has a total export value of $2.4 trillion,[116] one can see that illicit goods contribute significantly to the country’s trade economy. The Communist Party, when determining intellectual property rights law, has to balance the potential for long-term growth promoted by intellectual property rights with the reality of short-term losses that strict enforcement would instigate.[117] This creates an apparent contradiction when working with foreign entities that want stricter laws, such as the United States. Though the US pressures China into stronger intellectual property enforcement, the Chinese government cannot allow for its economy to suffer, especially to appease outside actors.