The Blurry Line Between Real and Fake

Here is an interesting and rather disturbing article about the Chinese watch industry. It appears that no product is immune from knock-offs. Most disturbing is the description of working conditions:

Conditions range from Dickensian workhouse – the sweltering plating room which reeks of chemical fumes with teen-age employees incurring long-term brain damage – “No OSHA in China,” cracks my translator....

We Americans in particular are addicted to cheap Chinese goods, watches included. It is getting to the point where it is almost impossible to know where a wristwatch component is made. Certainly many watch companies, especially small boutique companies that aspire to the "low-luxury" market, rely on Chinese components to hit their price points. I'm annoyed with companies that won't comment on where their components are made. These Swiss/Chinese products should be clearly labelled as such (in the UK new consumer protection laws will eventually demand this). But that would shatter our happy illusion that a fine "Swiss" mechanical watch can cost $600.

China’s Blurry Line Between Fake and Real
(from China Sentinel)

Written by Justin Mitchell
Monday, 28 May 2007

Inside a counterfeit factory in Shenzhen, the reality of China’s massive knock-off goods trade is on display, one watch at a time.
Here in Wong Tinghua’s bustling counterfeit watch factory in Shenzhen, the niceties of copyright are not an issue. Wong, 35, used to manufacture legitimate time pieces in the northeast Chinese city of Dandong, bordering North Korea on the Yalu River in Liaoning Province. Now he specializes in watches on demand. You want Disney? He’s got Disney. Hello Kitty and Doraemon, too, as well as more upscale European and American brands and Chinese counterfeits, if the Beijing Olympics grab you.

Shenzhen’s lure as a get-rich-quick zone as well as competition from North Koreans counterfeiting Chinese watches eventually drove Wong south three years ago where he’s now the number two man in a non-descript third floor “Arts Manufacture” watch factory squatting in the middle of one of Shenzhen’s less-developed, yet thriving district neighborhoods.

Inside the factory a time clock has roughly 30 cards for employees working 7.30pm-6pm six days a week, though Wong claims his total staff is about 100. He says can make up to 10,000 watches a month and brings out three catalogues featuring a staggering selection of phony designer faces ranging from Rolex, Seiko, Omega, Fossil and Tag Heuer to Russian President Vladimir Putin astride a white steed, BMW, Bacardi, Dunhill, the Lone Ranger, US flag, Thomas the Tank Engine and the Beijing Olympics characters.

Conditions range from Dickensian workhouse – the sweltering plating room which reeks of chemical fumes with teen-age employees incurring long-term brain damage – “No OSHA in China,” cracks my translator to near-luxury as in Wong’s office which features an aquarium, large mahogany desk and chairs, though no lights and only air conditioning-on-demand as the Sunday afternoon sun begins to set.

Wong, who sports a flawless looking sleek, black, fake Hugo Boss time piece, gets his company’s watch guts shipped from Dandong and he fills orders from anywhere he can, mostly Hong Kong and Russia. The main distributor is in Guangzhou.

Wong is just one of presumably thousands of pirate entrepreneurs in Shenzhen and throughout China.
Awhile before the visit to Wong, on April 26, it was World Intellectual Property Day in Shenzhen and the city eagerly joined in public exhibitions to destroy pirated DVDs and demonstrate their commitment to ensuring that Disney, Sony, Microsoft, Rolex, Paramount, Playboy, the Charles Schulz estate, Adidas, Burberry, Louis Vuitton, and the 2008 Beijing Olympics, et al are not be ripped off. It’s difficult to assess the damage, but U.S. officials say pirates cost legitimate producers worldwide up to $50 billion a year in lost potential sales.

It hurts Chinese manufacturers also. Recently reported domestic piracy cases included nearly half a million US dollars worth of bootleg Wuliangye, a popular Chinese liquor, as well as counterfeited Chinese cigarettes and phony Li Ning sport clothes and shoes. Li Ning has aspirations to challenge Adidas, Puma and Nike.
I celebrated the day with a visit to the Lohou Commercial Center, one of Shenzhen’s top tourist sites due to its enormous selection of mostly high quality, low priced pirated goods. I was buying red embroidered Chinese slippers as a gift for my sister, but I easily could have scored some bogus Prada, Gucci, Pedro Garcia, or Skechers footwear as well as a flawless and unauthorized Godfather Trilogy DVD for her husband and a quickie copy of Spiderman 3 (with or without Russian dubbing) for her son.

If the Shenzhen Municipal Intellectual Property Bureau truly wanted to make a public display of its commitment to IPR it would condemn and raze the Lohou Commercial Center and then go after the myriad manufacturers, like Wong, but in doing so it would also be severing a major financial and social artery.
The system is so entrenched, says Dutch native Danny Friedmann, a Cantonese speaking resident who has studied the China IP issue for two years, the local courts are practically useless. He adds, however, that courts in big cities can be useful. "That is why forum shopping is important for lawyers. It is hard but you can enforce your intellectual property rights in China, at least in the big cities.

“It’s a combination of corruption, local protectionism and lack of enforcement,” Friedmann adds. “If an IP infringement dispute goes to court some local Chinese courts are inclined to rule in favor of local companies even though they clearly infringe on intellectual property rights. The reason is that the local judge is appointed by the local party official and financed by the local government, which in turn is dependent on the tax revenues and management fees paid by the local businesses.
“And the company's employer or employees are often friends and relatives of the local party or government. So it’s not in the interest of the local government for an infringing company to go out of business because this will lead to unemployment and even possibly to ‘social unrest.’ And it is possible that the infringing company is a state owned company, with direct connections to the local government. Another problem is that local courts oftentimes are not willing to enforce judgments rendered by courts elsewhere in China against local defendants.”

Friedmann says that even if a company does succeed in gaining a judgment in its favor, China’s IPR laws do not guarantee the plaintiff can recover any damages if the defendant’s ill-gotten gains are not readily located or have wound up in the wrong hands.
The problem can be seen in a 2005 Shenzhen People’s Court case that didn’t involve piracy but corruption. The defendant, a 31-year old buyer for Wal-Mart named Li, was convicted of taking more than $4 million yuan in bribes for rigging bids for Wal-Mart suppliers.

He’s currently serving a year in a Shenzhen jail but, according to a former Wal-Mart co-worker of Li’s who spoke to Asia Sentinel on the guarantee of anonymity, Li says he bribed the judge 800,000 yuan in exchange for a lenient sentence and plans to collect about 3.2 million yuan of stashed bribe money upon his release. Reportedly his one regret is that a house, two automobiles and a mistress he also accrued will not be available. The house and automobiles were seized and destroyed as part of an official Shenzhen campaign against corruption. No word on the mistress.

And the judge? He’s Pei Hongguan, one of five senior judges – including Pei’s ex-wife – from Shenzhen’s Intermediate People’s Court who were arrested in 2006 on corruption charges. Three were sentenced to jail terms ranging from four to 11 years with two others, including Pei, reportedly still awaiting trial.
Meanwhile inside the Cititzens Center, the Shenzhen Municipal Intellectual Property Bureau was following-up the DVD and software destruction blitz with a five-day exhibition highlighting the protection of Shenzhen's intellectual property rights over the past three years.
It includes a mass photo of 1,000 artists painting “original” works in the Dafen Oil Painting Village in 2004. Yet another small irony, in that Dafen’s appeal for tourists are its copy-cat renderings of copyright-free Old Masters as well as more current and protected creators such as Warhol, Picasso and Dali.

The Shenzhen effort as well as a national one the Xinhua News Agency claimed that “workers across the country set fire to 30 million pieces of smuggled and pirated audio and video materials, software and 11 million copies of pirated and illegally published books and magazines” followed complaints by US Trade Representative Susan Schwab at the World Trade Organization against China over piracy and restrictions on the sale of US movies, music and books. Vice-Premier Wu Yi, China’s top envoy on trade talks with the US, has since vowed Beijing will "fight to the finish" against piracy.
Meanwhile, Wong continues well below the radar grinding out his watches, though he is proud to say he also makes “real” goods as his business straddles a line between legitimate and counterfeit. He shows off a customized, hefty stainless steel Chinese People’s Army watch with English lettering that he says was commissioned by an army unit in Inner Mongolia, wholesale price 80 yuan. Then he leaves the office to return with colorful sport watches that double as MP3 players priced at about 200 yuan.

Impressive, I think. This is original. Later research on Google uncovers the fact that in 2002 the MP3 watch fad flared briefly with 12-year-olds in American suburbs, was then strangled in its crib only to be briefly revived in 2005, snuffed once again and has yet to catch on, including in China, Russia or Hong Kong.

Yet Wong, perhaps sensing that we aren’t as hip to watch marketing has we’d pretended to be, has hope. As we leave he mentions that he can also whip up MP4 watches and if that’s not enough he can drop the MP3 price by 30-40 yuan for a “large order.”