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ICG Risk Blog - [ Olympian embarrassment coupled with central government revenue loss produce instant Chinese Intellectual Property (IP) compliance ]

Olympian embarrassment coupled with central government revenue loss produce instant Chinese Intellectual Property (IP) compliance

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Excess optimism in the face of asset harvesting

This writer has long identified IP risks in China:

[E]dicts on IP infractions, or anything else, often rarely leave Beijing as provincial, city and enterprise zone mangers do largely as they wish and are tolerated so long as they bring growth and revenue without significant embarrassment to the Party (CCP)...

The CCP (Chinese Communist Party) can only maintain its "mandate from heaven" to govern by providing rising economic growth, nor can it maintain the PLA (People's Liberation Army) solely on the "imperial wheat" of government subsidy.

Various Chinese sources have pleaded the 'youth' of their nation, implying that foreign aggrieved targets must grant China more time to reform such practices. The reality is that China is unique among developing nations. Even in 1980 it had a "first world" mentality atop a "third world" industrial capacity. China's controlled economy closed off industrial penetration and investment that it did not like while it turned a benign eye on the means by which domestic industries nurtured growth, revenue and industrialization. The Chinese Communist Party (CCP) encourages IP collection and can and will suppress it when it suits state needs.

 

Suppliers and those with assets of interest to the PRC inhabit a Panglossian world if they do not believe that their assets are at risk or subject to interdiction by the authorities if party or state security is deemed at risk. For readers immune to the attractions of Voltaire, his novella "Candide" (Optimism) showcased a character Dr. Pangloss ("all tongue" or "windbag") in order to:

point out the fallacy of [Gottfried] Leibniz's theory of optimism and the hardships brought on by the resulting inaction toward the evils of the world. Voltaire's use of satire, and its techniques of exaggeration and contrast highlight the evil and brutality of war and the world in general when men are meekly accepting of their fate. Leibniz, a German philosopher and mathematician of Voltaire's time, developed the idea that the world they were living in at that time was "the best of all possible worlds." This systematic optimism shown by Leibniz is the philosophical system that believed everything already was for the best, no matter how terrible it seemed. In this satire, Voltaire showed the world full of natural disasters and brutality. Voltaire also used contrast in the personalities of the characters to convey the message that Leibniz's philosophy should not be dealt with any seriousness... Voltaire created the character Dr. Pangloss, an unconditional follower of Leibniz's philosophy. Voltaire shows this early in the novella by stating, "He proved admirably that there is no effect without a cause and that, in this best of all possible worlds...." Pangloss goes on to say that everything had its purpose and things were made for the best. For example, the nose was created for the purpose of wearing spectacles...

Intersection of state embarrassment, national pride, and central government revenue loss

The Summer Olympics in Beijing is the latest in a series of intrastate events that repeatedly demonstrate that the PRC can act decisively to curtail threats as diverse as Intellectual Property (IP) theft (below) and unrest in the aftermath of the Sichuan earthquake:

The furtive trade in the five official, adorable Olympics figures -- including Huanhuan, Jingjing the Panda and others -- is part of an Olympic-size battle that has erupted between the keepers of the Games' lucrative symbols and an army of Chinese citizens who traffic in counterfeit versions of the world's most coveted brands.

 

For years, China has been known as the leading exporter of fake goods, from Louis Vuitton handbags and Patek Philippe watches to auto and jet engine parts. The underground economy, which according to U.S. trade officials costs American companies $3 billion to $4 billion annually, has been allowed to flourish by a Chinese government that seldom prosecutes intellectual property violations.

 

But the Olympics have mobilized China's piracy police like never before. Beijing, the host city, stands to receive up to 15 percent of all revenue from Olympic merchandise, a figure expected to easily top the $62 million raised in Athens four years ago. Aside from the mascots, China is also reportedly collecting up to $120 million each from Coca-Cola, McDonald's, Adidas and other companies that have qualified as the highest-level Olympic sponsors.

 

With the world's gaze on China in the run-up to the Aug. 8-24 Games, officials have moved to make sure counterfeit goods don't reflect poorly on the festivities. Fake Adidas clothing that was widely available at popular Beijing markets a year ago is now hard to find.

 

"It's a political mission, and the government doesn't want anything to ruin the quality of the Games," said Wang Hai, a Beijing-based advocate who has campaigned against fakes and worked with government officials to crack down on counterfeiters. "The Olympics are about the country's image, so it has a priority."

 

Through stepped-up market raids and better interagency coordination, officials have demonstrated that they can reduce counterfeiting. But in doing so, they have forced the sale of fake Olympics mascots and other souvenirs onto the black market...

 

"It proves that China can do something about the problem when its own interests are aligned with the crackdown... More police have joined the fight against counterfeiting, which used to be primarily the domain of commerce and quality-inspection officials, Wang said. Companies are beginning to successfully sue markets for selling fake merchandise. And thresholds for the amount of illicit proceeds that constitute a crime have been cut in half, to about $7,000 for individual suspects and about $21,000 for companies.

 

The counterfeiting of Olympic products has cost other host cities, including Atlanta and Salt Lake City, millions of dollars. But the scope of the problem in China is particularly vast. At Yiwu market, for example, a major destination for Chinese wholesalers and tourists, there are tens of thousands of shops and more than 200,000 vendors.

Conversely, when the PRC is secure that no international embarrassment will occur, the penalty for even modest transparency is swift:

The Communist Party's Central Propaganda Department and the official All-China Journalists Association issued a directive ordering [Pang Jiaoming's] employer, the China Economic Times, not only to fire him, but also to "reinforce the Marxist ideological education of its journalists." In a separate notice to news organizations across China, Pang said, propaganda officials announced that he was also banned from further work as a reporter at other publications.

 

Pang's offense was a pair of articles reporting that substandard coal ash was being used in construction of a showcase railroad, the $12 billion high-speed line running 500 miles between Wuhan, in Hubei province, and Guangzhou, an industrial hub just north of Hong Kong. The ash is a key ingredient in concrete used for tunnels, bridges and roadbed, Pang wrote, and a substandard mix raised the specter of collapsing structures and tragic accidents.

 

Pang's report, which was published on the front page, illustrated the growing desire of young Chinese reporters to push the limits of the country's draconian censorship system. In a booming and fast-transforming economy riddled with corruption, they have found a fertile field for investigative journalism, along with readers increasingly hungry to know about malfeasance that affects their lives.

 

But his fate also dramatized how helpless China's journalists remain under the thumb of an authoritarian government that maintains a vast propaganda bureaucracy with unquestioned power to control what is published and decide who rises and falls in the news business.

"The Chinese government usually only manages during a crisis... When things reach a peak and they have to deal with it, they will."

 

While the following action outcome was written in 2008, it could have easily been 2002 0r 2006:

Counterfeit mascots were produced almost immediately after the government unveiled the official versions in November 2005. For a time, fake versions of Beibei the Fish, Yingying the Tibetan Antelope and Nini the Swallow, as well as Jingjing the Panda and Huanhuan the Olympic Flame, were easily found at Beijing subway stops. Now, in the capital, they are harder to spot. "When the authorities feel more pressure from America, they can do it, they take it seriously...

 

[Chinese] officials were generally taking a greater interest in protecting [Chinese] intellectual property, in hopes of encouraging entrepreneurs to create their own brands while assuring them that those brands will be protected. But the Olympic Games provide another incentive. "The Chinese government usually only manages during a crisis... When things reach a peak and they have to deal with it, they will."

In 2002, the authorities made a determined and largely successful effort to protect the film release of Zhang Yimou's "Hero," as the Chinese government was intent on protecting the revenue of a Chinese director well known in the west and whose film needed recognized attendance figures:

When the members of the preview audience showed up at China's fanciest new movie theater here this week, they were treated to much more than just the first look at Zhang Yimou's big-budget martial-arts film, ''Hero.''

 

Viewers had identity card numbers inscribed on their tickets. They were videotaped as they entered the theater's foyer. They handed over all cellphones, watches, lighters, car keys, necklaces and pens and put them in storage. Before taking their seats, they passed through a metal detector. Then they got a welcoming address.

 

''We are showing this preview for your enjoyment tonight,'' announced Jiang Wei, an executive with the film's Chinese distribution company. ''I plead with you to support our industry. Please do not make illegal copies of this film.''...

 

Security guards heightened the drama at the theater. They ordered people to leave behind jewelry and pens to protect against ''needlepoint'' digital camcorders, though varying descriptions of how such devices worked sounded more like something Q made for 007 in a James Bond movie than a common pirate's tool. Uniformed policemen roamed the aisles during the film. A few sat in front of the screen and watched the audience with what appeared to be night-vision binoculars...

 

The belt-and-suspenders security procedures during the limited release of ''Hero'' at New South Country Cinema here, just across the border from Hong Kong, were aimed at protecting what China's film industry hopes will be the biggest martial arts sensation since ''Crouching Tiger, Hidden Dragon.'' The movie, with an all-star cast led by Jet Li, cost $30 million, making it China's most expensive film production to date. Beijing will submit it to the Oscars as a candidate for best foreign-language film. Miramax, a division of Disney, has bought the international rights...

In 2006, the authorities summarily suppressed and gerrymandered showings of foreign films in an effort to prime attendance figures for Zhang Yimou's "Curse of the Golden Flower" submission as an Academy Awards candidate. (Zhang Yimou is one of the most successful of the Fifth Generation group of filmmakers - talented graduates who emerged from the Beijing Film Academy after the Cultural Revolution. Yimou achieved international acclaim in 1991 with "Raise the Red Lantern."):

In the midst of a boffo three-week run, Chinese authorities suddenly plucked "The Da Vinci Code" from theaters. Even though "Mission: Impossible 3" was made in China with full approvals and scrutiny, local bureaucrats abruptly delayed its release... The big question: Is China limiting Hollywood pics to keep its local movie industry in the race?

 

While such speculation reflects tinges of paranoia on the part of frustrated executives -- and would be difficult to prove -- the situation is being taken seriously enough that the Motion Picture Assn. has commissioned an internal report to examine what has happened...

 

Day-and-date releases are hugely popular -- the recent gala opening of "Da Vinci Code," which had its world preem in China, was one of the social occasions of the year -- and big premieres are used to showcase China's growing openness and tolerance. But while the politicos are happy to enjoy the night out, they are less happy with the commercial and political ramifications of hugely successful foreign product...

 

A heavy hint that the government is prepared to take action favoring Chinese film at the expense of others came during last month's Shanghai Film Festival. While opening-night addresses are usually congratulatory and banal, State Administration for Radio, Film & Television (SARFT) director general Hu Zhanfan dropped a couple of sentences into his speech describing "preferential treatment for commercial Chinese cinema" and the "opportunities ahead for domestically produced movies to increase screenings...

 

State news agency Xinhua also quoted Liu Shusen, distributor of a number of recently released low-budget local films, saying, "The box offices of these movies would be guaranteed by SARFT, which required theaters across the country to allocate time spaces, and to organize officials, students and soldiers to watch."...

 

[US] Studio execs do not view China's film restrictions as malicious, but they fear worse is to come, and that administrative tools are being used to make commercial reality fit a policy goal. Specifically, they worry that:

  • the 20 films imported into China each year and eligible for revenue-sharing distribution are being selected to keep B.O. on Hollywood pics down;
  • there is an unofficial ceiling of RMB100 million ($12.5 million) placed on the revenues of foreign films. In other words, "Da Vinci" may not be the last Hollywood film whose run is cut short prematurely in China;
  • censorship and approvals bureaucracies are being used to delay the release of Hollywood movies. This keeps marketers in the dark until the last minute and allows disc piracy to erode theatrical potential;
  • the number of "blackout" periods in which foreign films are not allowed to release is on the increase from a typical two or three to perhaps five this year.

Chinese authorities deny any attempt at market manipulation... While most individual instances of release difficulties for foreign movies can be attributed to plausible explanations, taken together the list of complaints looks to some like the manifestation of a policy to suppress Hollywood's B.O. in China...

 

Trouble is, 2006 has been a lousy year for Chinese releases. And in order to maintain the very important Asian concept of "face," which roughly translates as "respect," films of other nationalities are being held down...

 

The regular April blackout of foreign films -- intended to allow room for local movies in theaters -- appeared to protect nothing much at all [while]  Zhang Yimou's crucially important "Curse of the Golden Flower" was [not scheduled for release until] December.

Beijing's willingness to damp down its long awaited international coming out party

It is hard to overstate the CCP's attention to, and expectations for, the 2008 Summer Olympics in Beijing. It was to be nothing less than an international showcase for China as well as an ambassadorial and financial windfall to the state. With party and state image now at risk, the state has reluctantly but forcefully opted for the state:

[With] the Olympics less than two months away, China has been restricting foreign visitors from entering the country in the hope of guarding against terrorist threats or unruly visitors who might plot to disrupt the Games, which begin Aug. 8. The government appears to be approving fewer tourist visas. Business executives say they face new bureaucratic hurdles to visiting the city. And hotels are being asked to give the government detailed information about foreign guests.

 

The measures, combined with the tragic news about the powerful earthquake in Sichuan Province last month, have already sapped tourism in China and cast a pall over Beijing during what was supposed to be a busy and jubilant tourist season leading up to the Olympics.

 

The high published rates for Beijing hotels during the summer and difficulty getting Olympic tickets have also dampened expectations, even though many five-star rated hotels say they are fully booked during the Olympics...

 

The government does not seem to have come to its decision lightly. In a year plagued by riots in Tibet, protests of the Olympic torch relay, a terrorist plot to kidnap journalists covering the Olympics (according to Beijing officials) and the Sichuan earthquake, the government is stressing public safety, above all else.

 

Beijing appears less concerned about being the host of a global party, experts say, and more concerned with making sure no one spoils it... If there were any doubts about Beijing's priorities, they were made clear [with] the announcement that 100,000 commandos, police officers and army troops would be placed on high alert during the Games, signaling that China is prepared for anything...

 

Nothing is hurting more than the visa policy... Hotel operators are also frustrated. A massive hotel building boom - which has bolstered the number of four- and five-star hotels in Beijing from about 64 in 2001 to 161 as of April 30, according to government figures - is beginning to look frothy. Many operators are depressed...

If any supplier believes that their assets will fare any better in the face of state interest, Dr. Pangloss has a world for you, the best of all possible worlds.

Visa limits undermine Beijing's tourism hopes

By David Barboza

IHT

Friday, June 20, 2008

 

China's Olympic Turnabout on Knockoffs

Fake Games Merchandise Targeted

By Maureen Fan

Washington Post Foreign Service

June 13, 2008

 

Chinese Parents Call Off Quake Memorial After Official Warning

By EDWARD WONG

New York Times

June 13, 2008

 

China Vows Harsher Punishment on Piracy amid "Grave" Situation

Xinhua

CRI English

2008-06-13 20:17:23

 

The "ten firsts" that follow China's massive quake

China View/Xinhua

2008-06-13 04:14:05

 

Some Chinese Officials Punished, Some Promoted for Actions After Quake

By Edward Cody

Washington Post Foreign Service

Tuesday, June 10, 2008; 10:39 AM

 

DPRK media: Chinese army's response to quake shows high combat capacity

China View/Xinhua

2008-06-03 16:59:26

 

Quake Is Formidable Challenge to China's Government

Rescue and relief efforts continue in China as the death toll from Monday's 7.9-magnitude earthquake neared 15,000 and is expected to rise, with tens of thousands still buried in rubble. An analyst examines how the country and its government have handled the disaster.

Gwen Ifill, Judy Woodruff

NewsHour

May 14, 2008

 

China moves quickly in quake zone

The country's deadliest quake in three decades hit central China Monday.

By Peter Ford

Staff writer of The Christian Science Monitor

from the May 13, 2008 edition

 

News Analysis: China's response to quake is unusually open

By Andrew Jacobs

IHT

Tuesday, May 13, 2008

 

Powerful Earthquake Destroys Buildings, Builds Mountains in China

There's a saying among seismologists: "Earthquakes don't kill people. Buildings do." The powerful 7.9 magnitude earthquake that rocked central China on Monday afternoon, killing upwards of 8,500 people, was a grim reminder of that common phrase.

By Jenny Marder, NewsHour with Jim Lehrer

May 12, 2008

 

Dishonesty in world of luxury brand goods

By Dana Thomas

China Daily

Updated: 2007-11-29 07:22

 

Chinese Muckraking a High-Stakes Gamble

Propaganda Authorities Intervening With Increasing but Unpredictable Frequency

By Edward Cody

Washington Post

November 12, 2007

 

China's global luxury brand workshop
By Olivia Chung
Asia Times
Apr 14, 2007

 

Zhang Yimou Blames China's Movie System

Shanghai Daily

CRI English

2006-12-25 14:38:00

 

Curse of the Golden Flower not violating copyright!

Posted by Joel Martinsen

DANWEI

December 22, 2006 3:39 AM

 

Chinese film industry split over "Curse"

UPI/M&C (Monsters & Critics)

Dec 20, 2006, 2:08 GMT

Original scrolled off

 

Curse of the Golden Flower breaks Chinese box office record

AFP

2006-12-19

Mirror

 

U.S. trade visit to China yields piracy promise, business deals

By JOE McDONALD

The Associated Press

Wednesday, December 13, 2006 - Page updated at 01:50 PM

 

Curse of the Golden Flower

Anne Thompson
Risky Business Blog
November 15, 2006

 

KEYNOTE ADDRESS TO THE ASIA PACIFIC ENTERTAINMENT AND MEDIA SUMMIT 2006

by Michael Schlesinger

Partner, Smith, Strong & Schlesinger LLP

NOVEMBER 6, 2006

LOS ANGELES, CALIFORNIA

 

Chinese checkers

The Great Wall shatters H'wood's hopes for pic blitz

By VARIETY STAFF

Posted: Sun., Jul. 16, 2006, 6:00am PT

 

Chamber of Commerce Asks U.S. to Crack Down on Chinese Copyright Violations

By ELIZABETH BECKER

New York Times

February 10, 2005

 

HERO (YING XIONG)

Zhang Yimou, China/Hong Kong, 2004

Interview with Zhang Yimou conducted by The Culture Show production team

BBC Four

November 2004

 

REALITY BITES: HOW THE BITING REALITY OF PIRACY IN CHINA IS WORKING TO STRENGTHEN ITS COPYRIGHT LAWS

By: Graham J. Chynoweth

iBRIEF / Copyrights & Trademarks

Duke Law & Technology Review 0003

2/11/2003

PDF

 

SHANGHAI TRIAD

Zhang Yimou, Hong Kong, 1995

Clare Norton-Smith

BBC Four

Saturday 1 February 2003 11.45pm-1.30am

 

The Pinch of Piracy Wakes China Up On Copyright Issue; It's More Than a Trade Dispute When the Victims Are Chinese

By JOSEPH KAHN

New York Times

November 1, 2002

 

Gordon Housworth



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