One of the biggest tasks facing Chinese policymakers is the reform of intellectual property rights. China’s are notoriously lax and seldom enforced, and counterfeit goods run rampant as a result. Not only does this cut into the profits of the ripped-off brands, but it discourages firms from doing business in China, and the black-market exchanges detract from China’s total output.
China, being a command economy with a state-controlled media, is usually mum on this topic—officials tend to dislike admitting policy shortcomings. Yet it seems there is some effort to reform the system, if this anecdote from the state-run Xinhua news agency is any indication:
Han Qiao, Xinhua
It’s the story of one vendor at Beijing’s Silk Market—the capital’s largest tourist trap-cum-black market, home to tens of thousands of vendors. At least, that’s the official description—I’ve been there, and it’s essentially a huge, decrepit department store shell with thousands of market stalls crammed inside. To call it claustrophobic and vertigo-inducing is an understatement. I’d estimate about 90% of the goods sold there are counterfeit—mostly name-brand garments, accessories and electronics; the remainder is domestically produced fabric and jewelry. All prices are negotiable—haggling is something of a national sport—and the quality is, well, what you’d expect. My favorite (in the ironic sense) was the Burberry-tartan coat with a Dolce & Gabbana label.
But now, apparently, the market is getting an upgrade. According to the article, its managers plan to halve the number of stalls and stamp out the counterfeits, and some purveyors of knock-off goods are landing in jail. Others, like the article’s subject, are turning from fakes to real goods and learning how to run a legitimate, profitable business.
Now, since Xinhua is state-run, it’s tough to gauge whether this is a public relations campaign or an honest sea change. Based on my recent experience (I last visited the market in summer 2011), the article’s claim that it’s “increasingly difficult” to buy designer knockoffs seems overstated—they were in ample supply. But I’ve also seen evidence knockoffs are starting to disappear from the mainstream. Black markets aren’t known for generating a ton of revenue for the state, and at some point officials likely get tired of letting them occupy real estate instead of far more productive and profitable tenants. Hence the fate of one popular market in the Lido neighborhood, which was razed in 2009 to make way for a high-end development. (Granted, that’s a symptom of another of China’s economic drawbacks—a lack of private property rights—but that’s a topic for another day.)
As big—and as much of a tourist draw—as the Silk Market is, I’m guessing it won’t get demolished. I also wouldn’t expect it to become a bonanza of authentic luxury goods, considering high markups would exclude many shoppers, but it could have a long life with a mix of mid-range Western labels and cheaper Chinese-made apparel. A similar market in the Xidan shopping district has found success with this approach—the Chinese-label clothing is cheap due to low domestic labor costs, but it’s stylish, and the fabric is quality. In my opinion, that’s preferable to paying huge mark-ups at the malls in WangFuJing and SanLiTun or buying knockoffs (something I’ll never do).
Regardless of the path the Silk Market takes though, if legitimate commerce indeed replaces knockoffs there and elsewhere, China and its citizens would benefit. Fewer knockoffs likely means lower prices for the genuine articles—it automatically expands the market for them, giving the manufacturers incentive to export more product to China. It also makes China a more attractive free-trade partner, further lowering prices over time and fostering greater economic activity. And as shops build more relationships with legitimate wholesalers, supply chains should get built out, improving distribution efficiency and providing employment opportunities nationwide. None of this will happen overnight, of course, but it is a good long-term opportunity for China and its people.