China's piracy hurting its own industries

PART 4 OF 5 IN A SERIES

updated 3:13 p.m. ET July 7, 2006

BEIJING - Kingsoft Corp.'s English-Chinese dictionary program is used on most of China's 60 million PCs. That's the good news. The bad news: Kingsoft doesn't make any money from it, because 90 percent of those copies are pirated.

One by one, the Beijing-based software maker has seen its sales of such popular products destroyed after black market producers flooded the market with cheap copies.

Today, Kingsoft's 600 programmers focus on making what it hopes can't be copied — online games and business and anti-virus programs that have to be linked to its own computers in order to function.

“Piracy has had a big impact on us, making it so we can't get powerful and compete with Microsoft,” said Ren Jian, a former Microsoft manager who is Kingsoft's chief operating officer.

Kingsoft is far from alone. Rampant Chinese piracy of music, movies and software that raises howls of protest from the United States, Europe and elsewhere is hitting China's fledgling creative industries hardest of all. Robbed of sales in their key home market, companies are short of money to develop new products to compete with foreign rivals.

Losses to piracy are especially damaging at a time when communist leaders want China to transform itself from the world's low-cost factory into an “innovation society” that makes its own profitable technology and brand names.

China has long been the world's leading source of illegally copied music, movies, designer clothes and other goods. U.S. officials say its exports cost legitimate producers worldwide up to $50 billion a year in lost potential sales.

50 cents for a DVD
At home, sidewalk vendors sell unlicensed DVDs of Chinese movies for as little as 50 cents. Software makers say more than 80 percent of programs used on China's PCs are pirated.

Few brands are immune. A government list released this month of recent major piracy cases included a gang that sold $300,000 worth of fake Wuliangye, a popular Chinese liquor. Another trafficked in counterfeit upmarket Chunghua cigarettes.

Sporting goods maker Li Ning Co., which has ambitions to expand abroad, says it sees copies of its shoes and athletic clothes in markets alongside Nike and Adidas counterfeits.

The High Cost of Piracy Part 1: U.S. firms fight the flood of fakes Part 2: Russia's illicit industry booming Part 3: Mexico's piracy rises with broadband Part 4: China's piracy hurts its own industries Part 5: China companies begin to fight back

Kingsoft, the software maker, aspired to be the “Microsoft of China,” but was forced by piracy to stop selling games, a media player and other mass-market programs. Ren, the COO, says the consumer logic is simple: A pirated copy of Kingsoft's Chinese-English dictionary costs one-tenth the $12 price of the real thing.

The onslaught has forced Kingsoft to narrow its product range, with two-thirds of its programmers now working on online role-playing games that players access on Kingsoft's computers for a monthly fee — part of a thriving Chinese market for online games.

President Hu Jintao called attention to piracy's cost to China in a May 27 speech to Communist Party officials. Enforcement “is an urgent need for ... enhancing the country's core competitiveness,” Hu said.

“We should strengthen our law enforcement and lawfully and severely crack down on and effectively curb law-breaking and criminal acts of violating intellectual property rights,” he said.

The government has tried to undercut the black market for software by ordering computer makers this year to sell PCs only with legitimate operating systems already installed. Officials have been told to remove pirated software from government computers. Commerce Minister Bo Xilai said in March that process was under way, but he set no deadline for compliance.

And Chinese companies are fighting back in court. The government says they are responsible for 90 percent of lawsuits filed against Chinese copyright and trademark violators.

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