Sunday, March 16, 2008

Back to China, and Its Less Loving Activities

After my hiatus working on other projects, such as a new blog and my actual job, I wanted to get back into the swing of things with a post about my favorite subject: China. The last time I brought up the PRC, I talked about its tying itself into the world economy and its developing economy at home. This time I would like to take a look at the downside of those efforts.
We have seen the reports on China's growing economy and we have all heard of the problems with pirated software and cheap knockoffs from China, but how many of us know how much counterfeiting is going on in that country and how much is being done about it? Worse yet, how much does it effect our daily lives?
All of those questions are easy to ask but hard to answer, partially because they are so intertwined. In order to comply with World Trade Organization regulations, China has had to publicly crack down on counterfeiting, but state owned factories are in on the game. See how complicated it has become already? Another complication to the ending the Chinese piracy is how wide spread it is. They manufacture anything from soap and shampoo to peanut butter and beer, cell phones to software, even fake motorcycles and car parts. Some estimates of the market penetration are a conservative 30% of all products sold. The shear breadth of the counterfeiting is costing legitimate businesses millions to develop means to identify the real deal from the fakes, whether it be Budweiser's temperature reactive label or Microsoft's (now faked) holographs on the boxes.
One of the reasons China is so lax on cracking down on piracy is that the state is well aware of the technological disadvantage its companies are at. Their tech base is about a decade behind most fully industrialized countries. The government aids the state run economy through efforts to steal technology from other countries to bring itself into closer competition on the world market. Like all espionage, the PRC does not limit itself to consumer goods and has had many high profile investigations into attempts to steal classified military information. This is an interesting look at China's spying tactics, for those who are interested.
Why is all of this a concern for us? After all, it's not like they are getting the one up on our industries and will be selling high quality items that do new and different things, right? Well, that isn't the concern. What the counterfeiting does to our economy is send in lower quality items (that still work) at much lower prices. The influx of low priced goods undercuts our demand economy and undermines the years of R&D and the millions of dollars in development and branding spent by our companies. It decreases the incentive to develop and makes the reputations of the companies fall. Do we really want that to happen?

1 comment:

  1. We see a lot of this in my business - there's a lot of Chinese knock-offs of speed parts like blow off valves, turbos, intercoolers, etc. Some of them have been reasonably good, others absolutely horrible. And some of them, particularly on eBay, have indeed been sold as counterfeits of existing brand names.

    Recently, I've seen something of a backlash against Chinese made goods. It seems they've been cutting a few corners too many, and now there's a lot of horror stories about Chinese made goods that failed after only a few months of use.