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Inside Hong Kong's Counterfeit Market

Wednesday, December 14, 2005

David Louie
More: Bio, abc7news.com News Team, E-mail, Twitter

Dec. 14 - KGO (Hong Kong, China) (KGO) -- Not only are we buying more from China than we're selling, China is also getting a bad report card for what the U.S. calls an epidemic of piracy. We take a close-up look at the crackdown on Chinese counterfeiting.

Hong Kong is known as a shopper's paradise. It's also a haven for counterfeit goods. We went shopping with a concealed camera to a popular street market in Mong Kok, a working class neighborhood. You can find famous brands at a fraction of the price because they're fakes. Where do they come from?

Kenn Kurtz, Steele Foundation Chief Executive: "China is responsible for a significant portion of the counterfeit products in the world today."

Kenn Kurtz is chief executive of the Steele Foundation, a San Francisco based security firm. One of its services is helping companies crack down on counterfeiters. China is a major focus.

Our undercover video shows the wide range of counterfeit goods, including designer label shirts with peel-away labels. You pick the designer label.

This is the Golden Computer Arcade where you can find bootleg versions of popular DVDs, video games and software. U.S. trade officials point out China is one of the fastest growing users of computers, but it ranks 25th down the list of software buyers -- a clue how rampant piracy is.

Foreign tourists are often the customers, looking for a bargain. But they may not know who they're supporting.

This undercover investigator for the Steele Foundation knows.

"Allen," Steele Foundation investigator: "Every time anyone buys any counterfeit, they're fueling organized crime groups, plain and simple."

Allen pays informants in China to find the counterfeit operations. They are growing more and more sophisticated, especially in their packaging.

"Allen," Steele Foundation investigator: "Some of them are so well made, the counterfeiters had to be sent back to the original manufacturer to authenticate whether this is actually a genuine product or it is a counterfeit."

Counterfeiters are now flooding the world with fake prescription drugs that can fool doctors and nurses. But investigators say Chinese officials are reluctant to take action.

Kenn Kurtz, Steele Foundation Chief Executive: "The authorities said they'd rather not shut the factory down and when we asked why, they said because the factory provides jobs to an entire village, and we wouldn't want to hurt that village by shutting the factory down."

A former U.S. trade negotiator, who made agreements with China, says China has tough laws against piracy, but poor enforcement.

Michael Brownrigg, China venture capitalist: "China's a very big country. The directives that come down from Beijing weaken, weaken, weaken, as they get farther away from Beijing. There's a classic Chinese expression about this that you probably know 'the sky is high and the emperor is far away.'"

That means American companies have to out-smart the counterfeiters.

U.C. Berkeley international business professor Sebastian Teunissen says one electronics company ships in technology they want to protect.

Sebastian Teunissen, U.C. Haas School of Business: "Key components are still made in the U.S. because they don't want to have that know-how in China because once it's there, then those items can be copied."

What's the answer? Patrick Lo is the chief executive at Santa Clara's Netgear. Netgear uses China for low-cost manufacturing, but its designs are quickly stolen and copied.

Patrick Lo, Netgear Chief Executive: "We got to help them generate more intellectual property of their own so now they have an equal stake, and then they have a vested interest to help us to fight."

With so many high-level trade ministers in town, Hong Kong officials tried to crack down on counterfeiters. But it's such a big business in one of the world's freest economies.

David Louie's Video Blog:

David Louie is in Hong Kong this week covering the WTO meeting. He's filing images and video of what he's been seeing first-hand in Hong Kong, exclusively for our web audience. Watch the first entry of his video blog below:

<IMG BORDER="0" HSPACE="2" CLASS="video" SRC="http://KGO.images.worldnow.com/images/static/video/gfx/icon_video.gif">Video Blog: Day One (12/13)

Images from Tuesday's protest march.

<IMG BORDER="0" HSPACE="2" CLASS="video" SRC="http://KGO.images.worldnow.com/images/static/video/gfx/icon_video.gif">WTO Protest March: Clip #1 (12/13)
<IMG BORDER="0" HSPACE="2" CLASS="video" SRC="http://KGO.images.worldnow.com/images/static/video/gfx/icon_video.gif">WTO Protest March: Clip #2 (12/13)

Bonus footage of video shot by David Louie of Sunday's first protest march at WTO Hong Kong. They give a flavor (video & sound) of the peaceful but noisy nature of the activists. 4,000 protestors took part in the march. An even larger march is planned for Tuesday in the afternoon that coincides with the official opening of WTO.