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. Last Updated: 07/27/2016

China's Property Pirates Die Hard

BEIJING -- The Chinese government invited journalists recently to watch Chang Junbin drive a new, American-made steamroller over 50,000 pirated laser discs and other audio-video products -- including many popular American movies -- crushing them to bits.


It was just one instance of theatrics in the persistent drama over China's struggle to control rampant violations of copyrights, trademarks and technology that have been a key irritant in the troubled relationship between the United States and China .


A year after the two nations signed an agreement averting tit-for-tat trade sanctions over the issue, industry representatives and lawyers say China has made some progress, particularly against retail sales of fake goods.


But they say China has moved more slowly against factories illegally using intellectual property, and that the production of phony goods remains massive.


Intellectual-property protection has become critical to trade relations because the United States is eager to reduce its trade deficit with China, which stands between $23 billion and $38 billion, depending on calculating methods.


Moreover, weak safeguards for intellectual property remain a key obstacle to China's entry into the World Trade Organization.


Many sources suggest, however, that no matter how modest China's progress has been over the past year, the Clinton administration will avoid imposing sanctions.


U.S.-China relations already are strained over China's policies on human rights, arms exports and military threats against Taiwan. Many analysts say the administration has decided to back off from threats of trade sanctions over intellectual property and give other issues higher priority.


Lee Sands of the U.S. Trade Representative's office was in China last week to gauge progress. The Chinese government called the visit "useful," but comments by other officials suggested a high degree of tension.


"We're not interested in hearing promises," a U.S. official told news agencies in Hong Kong. "Only action at this point is going to make a difference."


Chinese government spokesmen said U.S. sanctions would only hurt the ability of American companies to do business in China.


For the past month, China has blitzed the media with tales of crackdowns on pirated goods, inadvertently hinting at the scale of the piracy problem.


The State Administration for Industry and Commerce recently said it had seized fake Esso and Shell motor oil and containers in Guangdong Province; fined a Wuxi maker of portable telephone cases that used the Motorola name; and confiscated 1.8 million fake zippers with the trademark of Japan's YKK Co.


The agency also said it took action against a Jiangsu firm for making fake Singer sewing machines; two Shanghai companies for making fake Crocodile and Lacoste shirts; and a printing house in Shantou for illegal use of Toshiba, Marlboro and other foreign trademarks.


Even so, many foreign firms are not satisfied. Some complain of unskilled judges, insignificant damage awards and politically well-connected pirate factories that are virtually impossible to shut down.


In last year's intellectual-property accord, China promised to shut down factories that were churning out pirated CDs and destroy their equipment. Half a dozen factories were closed briefly, but they reopened within four months.


"We're not seeing any decrease in the flow of the stuff at all," said Stephanie Mitchell, a Hong Kong representative of the Software Business Alliance.


"Do they close down for a few days while they are inspected? Maybe. But are they still producing? Yes," Mitchell said.


China has 34 laser and compact-disc factories, which U.S. music and software industry experts estimate can produce 90 million music and video discs a year in a country with a market a small fraction of that size.


Although many industry experts say the pirating of music CDs has dropped, bootleg computer software is on the rise.


American industry representatives say some CDs have 60 to 70 software programs with full retail values of $5,000 or more. In China they sell for as little as $15. U.S. industry officials claim that losses from piracy are now more than the $866 million estimated last year.


A Chinese trade official said two copyright inspectors have been installed in every CD factory to check licensing arrangements, and that 31 of the 34 factories have registered and the other three applications have been rejected.


"Some overseas people have criticized China for not living up to its promises on protection. Such attacks are totally groundless," Zhang Yuejiao, director general of the Ministry of Foreign Trade and Economic Cooperation's treaty and law department, told the official China Daily last week.