A Financial Revolution 

April 10, 2006
North Face Anyone? China and IPR
I made a quick stop at the Silk Market in Beijing to pick up some gifts for colleagues back at the office (Pashmina shawls for $2.25). The Silk Market - formerly Silk Alley comprised of small shacks creating little alleys of knock offs - is in a shiny new building where you can buy pearls, clothing, silk items, electronics, and more. With a little bargaining, shoppers are picking up North Face jackets ($18), Louis Vuitton bags ($4), Hermes scarves ($1.50), DVDs ($1). Of course, they aren't authentic. Occasionally the government cracks down on the knock offs, but brands and intellectual property are seldom protected in China.

Here are a few examples of busts from today's China Daily newspaper:
  • In Beijing, officials seized 4,000 counterfeit bottles of Coca Cola
  • In Xinjiang, officials seized counterfeit industrial vehicles
  • In Beijing, officials seized counterfeit high-end luxury goods (Gucci, LV, Mont Blanc) at a convention
  • In Shanghai, officials seized 15,000 pieces of fake clothing (what is fake clothing, a cloth swatch pretending to be a shirt?)
  • In Fujian, officials seized 612 bottles of counterfeit Xue Jin beer
  • In Zhejiang, officials seized 5,700 Crocodile logo items and 11,400 Playboy brand items

The limited attention to intellectual property rights (IPR) hurts businesses that own the brands. As a result, many companies are cautious about entering the Chinese market. This is a loss for consumers and businesses in China as well as the owners of the intellectual property.

There are, however, some signs of hope. The government owns the Beijing Olympic logo and they have been relatively quick to crack down on non-licensed products. In addition, large Chinese companies are starting to develop internationally-recognized brands - Haier, Huawei, Lenovo. These companies are spending significant resources to build their brands and they want protection from infringement.

But the problem for China's economy is not just IPR, it is a lack of innovation. China is the assembly plant for the world's goods. There is very little innovation or product improvement happening here. If China can transition to a country of innovators they will add greater value and earn more revenues. It can also create more opportunity for the educated Chinese middle class. That may in turn solve the IPR problems. If China has in-country brands and technologies it will be in the interest of the government and industry to protect it.

There was a time that "Made in Japan" meant a product was junk. Japan moved past manufacturing cheap, low-quality products to providing innovation. Today, "Made in China" is often associated with products of questionable quality. Will China follow Japan's lead and move to higher value added manufacturing? That is the critical question to China's long-term economic growth.

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