Crackdown’s UQ, China has no incentive to enforce now – costly crackdown and brands fear to retaliate

The discussion in this paper indicates that in approaching the counterfeiting problem, the PRC government is faced with a balance of two competing sets of interests. On the one hand, counterfeiting now supports many local economies and millions of people in China. Any serious crackdown on counterfeiting will result in serious economic losses and social costs that will require the expenditure of a great deal of political capital, as well as economic resources. Of course, China has many pressing problems that demand the attention of its leaders and would prefer not to have to incur the significant costs of a crackdown if they can be avoided. On the other hand, China’s leaders are well aware that MNEs, the worst victims of counterfeiting, are afraid of doing anything to offend the Chinese government. The PRC government knows that MNEs fear retaliation to their businesses in China and will avoid any actions that might cause any offense. Faced with the significant costs and social consequences of a nationwide crackdown on counterfeiting and a group of MNEs that appear to be intent on avoiding any offense to the Chinese government at all costs, China has no real incentive to incur the significant costs associated with a crackdown on counterfeiting. Rather, China has engaged in a strategy of appeasing MNEs through largely cosmetic changes that do not address some of the fundamental underlying issues, i.e. the importance of counterfeiting to local economies, local protectionism and corruption, and the need to find alternative lawful economic activity that can replace counterfeiting. Unless China finds the political will to engage in a meaningful crackdown on counterfeiting, there is unlikely to be any significant improvement in the foreseeable future.