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Jan 14th 2012 | HONG KONG | from the print edition
WHEN Da Vinci, a retailer of expensive imported furniture, opened its new
showroom in Shanghai recently, it spared no expense. The gallery, over 10,000
square metres spread over four stories, was filled with extravagant pieces from
brands such as Armani Casa and Versace Home. The theme of the event was zhen de
jia bu liao (roughly: what is genuine cannot be counterfeited. ).
Yet Da Vinci is embroiled in a scandal. CCTV, an official media outlet, alleged
that some of its imported kit may actually have been made locally, shipped
overseas or to a bonded warehouse, then brought back into the country to earn
an undeserved imported seal. The firm hired a public-relations agency to put
a more positive spin on the story. Da Vinci claims this involved paying
$150,000 through a broker to a journalist who, it alleges, threatened to run
more damaging stories if not paid off.
All parties involved deny wrongdoing. An initial official ruling seemed to
clear Da Vinci, but in December the Shanghai authorities slapped fines on the
firm for alleged misdeeds including improper labelling. Da Vinci now says it
will take the authorities to court to clear its name and has filed a police
complaint against the broker and journalist over what it says was an extortion
plot.
Whatever the truth behind this murky affair, it has revealed something about
how the attitudes of Chinese consumers are changing. Counterfeiters are no
longer popular. Not long ago, Chinese shoppers applauded the fakers for saving
them money. Now they scorn them. If it s a fake, the well-heeled sneer, you can
t flaunt it.
Fakery is not dead, of course. In 2009, roughly 30% of mobile phones in the
country were thought to be shanzhai a popular term for clever fakes. The
Business Software Alliance, a trade group, claims that nearly four-fifths of
the software sold in China in 2010 was pirated. In December the US Trade
Representative issued its annual report on the world s most notorious
counterfeit markets. Of the 30-odd markets identified, eight were in China.
Some, such as Beijing s Silk Street market, are well-known. The report also
points the finger at Taobao, an online marketplace owned by Alibaba, China s
biggest e-commerce firm. That may be unfair. Taobao has clamped down so hard
recently that it is enduring protests by angry vendors.
Still, as China grows richer, life is growing harder for fakers. A recent study
of China s luxury market by Bain, a consultancy, concludes that demand for
counterfeit products is decreasing fast. McKinsey, another consultancy, found
that the proportion of consumers who said they were willing to buy fake
jewellery dropped from 31% in 2008 to 12% last year. This is good news for all
brands, not just the blingy ones. Consumers are looking for the real thing,
and they are increasingly willing and able to afford it, say the authors.
The real bling
Cash-strapped youngsters still love counterfeits, says Chen Junsong of the
China Europe International Business School. But those over 30, if they have a
bit of money, have become extremely brand-conscious. There is a comparison
culture , he observes. People are ridiculed if spotted with a fake Gucci
handbag.
Another reason why fakers are under pressure is that Chinese firms now have
intellectual property of their own to protect. Brands such as Lenovo (a
computer firm) and Haier (a maker of everything from fridges to
air-conditioners) are highly valuable and therefore worth defending. The more
Chinese innovators gripe about fakery, the more strictly the government
enforces the law. It just announced that it aims to stamp out counterfeit
software in government offices by the end of this year.
Even sceptical foreign manufacturers believe China is changing. Douglas Clark,
an expert on China s intellectual-property regime, points to a survey by the
EU-China Chamber of Commerce suggesting that counterfeiting, long the first or
second gravest concern of its members, is now third, fourth or not even ranked.
and the bonfire of the bogus
Tougher law enforcement has helped, he says, but so too has the fact that
foreign firms have learned how to cope with fakes. Some have set up their own
branded retail outlets to control distribution. GlaxoSmithKline, a British
drugs giant, has introduced fake-proof e-coding of pills.
Chinese consumers are realising that brands are not just about showing off.
They can also send useful signals about quality. A Coke probably won t poison
you because it would cause billions of dollars of harm to the Coca-Cola brand
if it did.
In December China suffered another scandal involving tainted milk. Shoppers
instantly shunned the local firm involved. Nestl , a Swiss food giant, saw an
opportunity. It announced this week that with its local partners it will invest
some $400m to boost its dairy operations in China.
from the print edition | Business