China's piracy hurting its own industries

Yet trade groups and foreign governments say that despite repeated crackdowns, China's output of pirated goods is rising steadily, along with its rapid economic growth.

A report in May by the American Chamber of Commerce in China said that 43 percent of 76 U.S. companies surveyed said they have seen an increase in the amount of counterfeiting of their products, while 55 percent said the amount has stayed the same. Only 7 percent saw a decrease.

Film and music companies relunctant
Losses to piracy have made film studios and muic companies reluctant to finance new releases at a time when they might be cashing in on rising foreign interest in Chinese pop culture.

Chinese musicians say piracy makes producing new CDs so unprofitable that they are treated as just promotional material for concerts, which provide performers' real income.

Web sites that carry unlicensed copies of CDs often give away the music for free and make money from advertising. That takes advantage of a provision in Chinese law — one that trade groups are lobbying Beijing to change — that requires pirated goods to be sold before violators can be prosecuted.

Chengdu Xiangsha Music Co., in the southwestern city of Chengdu, got out of its main business of distributing CDs and promoting new performers in 2003 when it saw that losses to piracy “would be huge,” said general manager Liu Jiming.

Now Xiangsha focuses on supplying music to Web sites and mobile phone companies, Liu said.

“Things are much better now,” he said. “But we are still bothered by illegal downloads and online linking.”

Losses to software piracy are especially damaging to China's plans.

Battered by piracy
Beijing wants to see the industry flourish, both to create jobs and to reduce reliance on foreign software, which communist leaders consider a strategic weakness. China has scores of small software companies and its universities produce thousands of programmers every year.

But battered by piracy, software developers are switching from selling products under their own brand names to working as subcontractors for U.S., Indian and other foreign companies — just the anonymous status that Chinese leaders don't want. Most Chinese software companies — such as DHC, Sinocom Software Group Ltd., Broaden Gate Systems Inc. and UFSoft Corp. — focus on subcontracting for foreign clients instead of selling to the general public.

A report this month by the Business Software Alliance, a U.S.-based industry group, said 86 percent of software used in China last year was pirated — one of the world's highest rates — though it said that was an improvement over 2004's figure of 90 percent.

Even though China is the world's No. 2 PC market, “the legal market for software is relatively small, because of the large piracy rate,” said Jeff Hardee, the BSA's vice president for Asia.

“When the piracy rate is as high as it is, it's hard for (Chinese) producers to develop a market, while the foreign developers have the whole world market,” he said.

In a separate report in December, BSA argued that China could see its information technology industries triple in size and create 1.8 million new jobs if its piracy rate were cut by just 10 percentage points over the next four years.

“China could potentially gain more than any other country,” the report said.

Ren says the problem is not lack of official enforcement but Chinese consumers, who he complains don't see that they are supporting innovation when they pay for legitimate goods.

“Ordinary Chinese people don't see anything wrong with buying pirated goods,” he said. “We need to change people's attitudes. That is going to take time.”

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