China and Counterfeit: How and Why are we Here?
Updated: Feb 23
Dear Asian Youth,
As much as I hate to admit it, the immediate association to counterfeit goods when the phrase “made in China” is mentioned has become almost a natural cognitive response. But why did this happen? Why has China become the face of counterfeit trade?
According to estimates from the Organization for Economic Cooperation and Development (OECD), over 500 billion US dollars (or 3.3%) of world trade can be attributed to counterfeit goods in 2016. And over 70% of those counterfeit goods are produced within China. It is not news that China has been long-recognized as the number one source of counterfeit commodities within the international trade scene, surpassing all other countries added together. Not only does China generate the highest revenue when it comes to counterfeit production, it also has the widest variety of counterfeit commodities, ranging from electronics to clothing to cosmetics and pharmaceuticals. Though China is the greatest exporter of counterfeit goods, it is also a victim of its own crimes. The effects of counterfeit trading are clear and immediate: it primarily decreases revenue generated by legitimate businesses, destroys the integrity of brands, incurs high costs in order to enforce intellectual property rights, diminishes consumer satisfaction, and causes job losses. The negative implications of counterfeit production are obvious. However, the complexities behind why China is the biggest producer of goods and how they curated this culture of fake goods is what needs to be understood.
There are two main types of counterfeiting: deceptive and non-deceptive. Deceptive counterfeiting has the aim to deceive consumers into believing that the fake products they are purchasing are originals. Deceptive counterfeit commodities utilize brand names and logos to confuse unsuspecting customers. This method of counterfeiting results in diminished economic welfare for the people purchasing the goods. In these cases, the consumers are the greatest victims. In contrast, non-deceptive counterfeiting refers to the situation where consumers are knowing and willing to purchase a counterfeit item due to a desire for lower prices. In these cases, the original suppliers are the greatest victims. Non-deceptive counterfeiting creates competition for original brands who manufacture their products at higher costs. Both types of counterfeiting, however, ultimately damage the legitimate global trade of goods, negatively impacting consumers and suppliers respectively.
To understand China’s current large involvement in counterfeiting on a global scale, China’s past economic and financial standings must be examined. Though counterfeiting itself is an illicit activity, the industry, to my surprise, seems to have developed as a result of economic growth. During the late 1970s, Chinese politician Deng Xiaoping spurred progress to reform China’s economy. During this period, international companies were welcomed to place their investments within Chinese borders. Due to China’s minimal wages and looser production regulations, many foreign businesses were interested in offshoring their manufacturing to this country. As new industrial influences appeared in China, locals found the opportunity to recreate these branded products as cheaper counterfeits. Throughout the decade between 1990 and 2000, the trend of counterfeiting rapidly grew in mainland China. This can be attributed to the presence of more luxury fashion brands from Western countries within Chinese borders. Due to its experience collaborating with international brands, Chinese factories developed the skills to counterfeit all of the most popular products being sold globally. Thus, China was able to disrupt the global economy with its large counterfeit industry. In the late 2000s, an estimated 230 million US dollars of counterfeit products from China were identified in the United States alone, which is close to 90% of counterfeit commodities intercepted cumulatively. In Europe, officials believe that over 60% of counterfeit items intercepted originated in China. In recent years, the development of e-commerce platforms have also created channels for distributors to sell counterfeit products, creating more challenges when monitoring online transactions. There are millions of sellers on various platforms, and it is impossible for all to be monitored properly.
The lack of emphasis on copyright and patent regulations may be another reason the counterfeit industry in China is able to flourish the way it does. Many manufacturers try to cheat the laws by making minimal alterations to certain products. For example, the spelling of brand names could be changed by one letter. NIKE may be written as NIKKE or PUMA may be written as PAMA. At other times, the counterfeit product will visually look exactly the same as their authentic counterparts, but because they don’t have labels or brand names, it can easily fly in the markets without much notice. For example, I’ve seen a ton of Brandy Melville baguette bags sold all over Chinese e-commerce sites with the exact same designs but the labels removed. With these sneaky changes, it becomes harder for law enforcement agencies to pursue