The following is a further extract from "China Shakes The World" and focuses specifically on the issues of intellectual property.

By the mid 1990s, piracy was becoming an all-too-common phenomenon. Once if had infected an industry, it spread like a virus up the value chain and leapt from company to company. By the early years of this century it was endemic, no longer a peripheral handicap to doing business but a fact of life that almost every company in virtually every sector was forced to consider or confront. Various estimates had it that American, Japanese and European companies may have been losing more than $60 billion a year through Chinese piracy of one sort or another. By necessity such estimates were rough, but if they were anywhere near accurate it mean that the loss to Western companies through intellectual property theft was far in excess of the total flow of foreign direct investment into China.

Some rip-offs were systematic. Almost every time a Hollywood blockbuster was cut, it would appear on DVD in China before it had been released in the same format in America. To accomplish this, pirate networks had to have operatives under cover in the film companies that they were ripping off. DVD copies seen in Beijing often bore intermittent warnings saying “Studio screening only. Copying strictly forbidden.’ Another victim of chutzpah has been the book publishing industry. A sixth volume in the series of harry Potter novels appeared in China months before J. K. Rowling had written it. When the real harry Potter and the Half-Blood Prince did appear in English, several pirates competed to translate it and sell it online. A number of the translators, unhappy with the way the book ended, wrote their own denouements.

Similarly, a series of “how-to’ business books written by Paul Thomas, a Harvard Business School professor, became a mini publishing sensation in Beijing in 2004. As his fame grew, he lent his reputation to other books by writing prefaces, and everyone seemed to be winning. But then it emerged that there was no professor at Harvard that fitted his description, and the books bearing his illustrious name had been written by students paid the equivalent of one-third of a US cent per word to make it all up. Fake books, it turns out, are big business. Several publishers, including state-owned houses, had over 100 bogus titles on the market in early 2005.

Other counterfeits are either tragic of comic, or both. Golf clubs have been widely pirated but with varying degrees of success. A bag full of impressive-looking clubs can cost less than one-tenth of their price in the US or Europe, but some snap mid shot, releasing the head of the club to chase the ball down the fairway. Other fakes are even more dangerous. Kettles blow up, electrical transformers short-circuit, medicines have no effect, brake pads fail, alcohol poisons those who drink it and fake milk powder has had the effect of starving several babies to death.

For many foreign companies, however, the problem is not sub-standard knock-offs so much as fakes that faithfully replicate the quality of the original. Motorbikes aside, the car industry has provided a prominent case study for this kind of abuse. Chery Automobile did not exist when Volkswagen, the market leader, launched its popular jetta car in the late 1990s. But thirty-three months after starting at zero with a new company in the city of Wuhu on the banks of the Yangtze River, Chery had made its first car, a four-door saloon called the Chery that bore more than a passing resemblance to the Jetta, which at that time was China’s best-selling car. Suspicions were immediately raised, partly because Chery’s main investor, SAIC, was a joint venture partner of Volkswagen and partly because one of Chery’s top executives used to make the Jetta in China for Volkswagen’s subsidiary Audi. Volkswagen launched an investigation and found their own original parts inside the Chery. They wrote and spoke to executives at Chery, which is owned by the Wuhu city government, and eventually the Chinese company agreed not to use any more original parts.

But Chery’s intellectual property tangles were not over. GM, which is also partnered with SAIC, is suing Chery for $80 million for piracy following its launch of a compact car, the QQ, which GM claims is a dead ringer for the Spark, a popular car produced by GM’s subsidiary Daewoo. Chery denies all wrongdoing and says officially that it welcomes the case, which is to be held in a Beijing court. But while both sides wait for their day in court, the QQ – which has a price tag of $3,600 – is selling like hot cakes and the Spark, costing twice as much, has yet to win much of a following.