Made in China? Xi Jinping could dethrone the nation's counterfeit kings

Counterfeit Goods Flood Iraqi Market
Source: Getty

Imitation might be the highest form of flattery, but that is of little comfort to the western businesses that suffer at the hands of China’s infamous copycat kings.

From apps to caps, few products avoid the risk of spawning an illegitimate twin.

All eyes are now on President Xi Jinping, as Chinese industry looks set to hit a fork in the road.

On a global level, it has been estimated that up to 70 per cent of counterfeited goods come from China.

The fuel is a potent mix of cultural, historic, and economic factors.

China’s electronics boom in the nineties enabled local manufacturers to create their own versions of valuable products. Intellectual property laws were seen as a minor hurdle as opposed to a roadblock.

Shenzhen, the metropolis linking China to Hong Kong, became a relentless conveyor belt for “alternate” brand name electronic devices.

The only difference between a Sony and a Sonny was the name on the television set.

Read more: Everything Under Heaven: Xi Jinping is establishing his empire

In recent times, this has transformed into the nation leading the way in covert reverse engineering and a higher level of technical piracy. The theft of IP itself is clearly damaging – losing trade secrets blunts your competitive edge. But when IP is stolen, the theft is equally damaging at a macro-economic level.

When someone else is producing a direct replica of a given product, it instantly adds a new competitor, crowding the market and chipping away at your bottom line.

Domestically, in the west, it’s not such a problem – our border forces seize millions of pounds worth of counterfeit goods from the east every year. But in China’s case, the vast quantities of knock-off goods have pushed away masses of potential investment from western businesses, which see no benefit in entering an already crowded market.

U.S. President Trump Visits China
Donald Trump and Xi Jinping (Source: Getty)

Crackdown

Government crackdowns have been half-hearted in the past, an attitude not unnoticed in US halls of power. President Donald Trump has bellowed empty rhetoric about many aspects of Chinese business practice, especially regarding intellectual property theft.

His administration estimates that IP theft by China could cost the US a staggering $600bn per year in lost revenues and opportunities.

The first direct trade measure against Beijing by Trump’s administration was an investigation into its IP practices, which, while unlikely to prompt near-term change, has caught Xi’s attention.

The Chinese leader has promised the state will tighten controls to level the playing field, and provide better opportunities for foreign firms. It has been said before, but we could be on the cusp of a distinct change in attitude.

Alexander Johnson, a business guru who has navigated the Chinese business world for over a decade, says there are reasons to be optimistic.

“Things are changing but we have to be patient,” says Johnson, chief executive of SnapBoost. “You have to remember the history of China, both politically and financially. Hunger has forged a very different outlook. Here in the west, with our generational knowledge, we’ve always had things available to us.

“Chinese businessmen feel the previous restriction – it makes their attitudes towards intellectual property different. But it also makes their business leaders hungry for change and a desire to create new things.”

Copycat

Most analysts agree that Xi is wise enough to realise that, while the copycat period has served a purpose, it is not enough to now propel the country forward. China has been treated by the west as a developing nation; its bad behaviour merely growing pains.

The tendency to excuse its mercantilist behaviour – including industrial espionage – as a passing phase, and to justify inaction as necessary to secure Chinese cooperation on other, supposedly more important, issues, has been damaging to western firms.

In the Belt and Road era, in which China is trying to secure its position as the dominant world power, stealing simply won’t suffice, hence the willingness from Xi, a globalist by Chinese standards, to change, and make China a hub for innovation.

Read more: IP strategy should be at the heart of every startup’s plans

During the Chinese President’s three hour opening speech to the communist party, he promised to deepen economic and financial reforms, further opening its markets to foreign investors as it looks to move from high-speed to high-quality growth. He named judicial IP reforms as one of just a handful of top national priorities.

Creative solutions

“We should be excited about the new Chinese business leaders that are emerging,” says Johnson. “They know that robotics is a worrying game changer and it fuels their determination. The west will not have to rely on labour forces in China when robotic forces in Europe can replace them. For once, the Chinese have to be creative to adapt.”

At the start of this month, four Chinese cities were added to the Unesco Creative Cities Network.

CHINA-ECONOMY-MANUFACTURING
Qingdao, one of Unesco's Creative Cities (Source: Getty)

This recognition of the nation’s outstanding performance in innovation is a considerable milestone, given its past. The cities, including Macau and Hubei Province’s capital Qingdao, have been recognised for their creative work in fields ranging from media to art to gastronomy.

“All of these locations show a rich diversity and creative output,” says Irina Bokova, the director general of Unesco. “These are exciting times.”

The Unesco Creative Cities Network has 180 cities listed in total, and China now has a tally of 12.

China needs more than ever to get to grips with its shady yet lucrative IP fraud industry. It requires a seismic cultural shift.

In recent years, China and the US had been making noted progress on bridging cultural attitudes towards copyright. It’s a clash of the old world with the new; a deeply entrenched cultural nuance that China seems to be waking up to as it plans for the next century.

Now the world is watching to see if Trump’s hostility and Xi’s muscle-flexing can maintain the steady march to higher ground.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

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