February 20, 1996
Copyright Pirates Prosper in China
By SETH FAISON
UANGZHOU, China -- Inside a military compound, where the veranda alongside his office looks out on a grand, white-columned building used by the Chinese air force, Wang Binyan leaned back in his black leather chair and spoke genially about being a copyright pirate.
Pirating is not so bad, Wang said, if it means selling compact disks at prices ordinary Chinese can afford, like $1. Never mind that for two years -- until Beijing ordered him to suspend operations in December -- exports made up most of the 5 million disks copied at the Cai Ling Audio and Video Co., where he is chairman and general manager.
"It's the Hong Kong and Taiwan people who bring us the master disks," said Wang, 52, nodding with a firmness intended to identify the real culprits. "And it's the Japanese who create the demand by pushing so many electronics on China."
Inside a military compound: the location of Wang's office says more about today's piracy of intellectual property in China than his roundabout self-justifications.
His cozy relations with the military are doubtless why he seems so relaxed, even in the midst of a crackdown that is apparently timed to counter another American threat of trade sanctions on more than $1-billion worth of Chinese goods shipped to America.
A year after a landmark agreement between the United States and China promised to fight intellectual property violations and pirates like Wang aggressively, factories like his in Guangdong Province are still flouting enforcement efforts.
In the meantime, 220 million cassette tapes and 45 million CDs, worth a total of $250 million, were copied illegally in 1995, the International Federation of Phonographic Industries says.
Although a few compact disk factories were finally suspended by Chinese government officials late last year, not one has been prosecuted, nor has a business license been revoked.
In fact, it is increasingly evident that pirates like Wang are protected by powerful forces -- military, secret police, and organized crime -- which the central government has failed, or simply declined, to rein in.
The more Beijing insists that it has succeeded in cracking down on flagrant pirating, the more those factories still punching out everything from computer software to music CDs stick out with prominence.
For his part, Wang did not deny that some compact disk factories were partly owned or controlled by military people, but he maintained that it was merely a coincidence that his own landlords were military.
"My only connection to them is the rent I pay," he said, smiling broadly.
Music industry executives say that virtually all of the 19 factories here in Guangdong, the engine room of China's booming coastal economy, have violated copyright laws at some time, and that some are still making thousands of high-quality illegally copied disks each week.
One piece of evidence is a CD-ROM -- compiling Windows 95, OS/2, and other computer software on a single disk -- that is widely sold for $2.50 in Shenzhen, across the border from Hong Kong.
Over the last year, the executives estimate, the total reached tens of millions of compact disks and hundreds of millions of cassette tapes, making China the largest producer of pirated music in the world, and one of the five largest of pirated software. The Business Software Alliance reports that an estimated $525 million worth of software was copied illegally in 1995.
It is the export market that most concerns international music and software companies.
True to Wang's explanation, it is often organized criminals from Hong Kong and Taiwan who carry master tapes to a factory in China and then transport pirated disks back out for sale in Southeast Asia, though some Chinese-made copies have been found as far away as Russia and Latin America.
In their own defense, Chinese officials like to point out that task forces have been formed and raids on retailers carried out, including a blitz in January that netted 400,000 illegally made compact disks in the city of Guangzhou, the capital of Guangdong Province. That looked like a lot when the disks were being bulldozed, a scene replayed on national television.
But the raids attacked the symptom, not the cause. And attacking the cause itself requires a political will that China's leaders -- for a variety of reasons -- have not yet shown.
"It may be that the guys in Beijing believe it when local officials report that they have the situation under control," said Stephanie Mitchell, a vice president of the Business Software Alliance, an advocacy group. "It may be a mixture of naivete, incompetence, turf battles, and something worse."
The U.S. trade representative, Mickey Kantor, recently warned China that 100 percent tariffs could be imposed on more than $1 billion of Chinese imports to the United States if more was not done. While there is no written requirement that China meet the terms of last year's agreement by the Feb. 26 anniversary, American officials call it a "benchmark" that should not be ignored if future trade agreements are to be respected.
If trade talks look futile, music and software industry executives and lawyers agree that the United States is taking the right tack, laying the groundwork for better enforcement and alternating carrots with sticks to urge Beijing to eventually get serious.
"You've got to keep the pressure on any way you can," said Joseph T. Simone, an intellectual property lawyer in Hong Kong. Chinese companies that are themselves victims of pirating will be the greatest beneficiaries of tougher enforcement, Simone said, but until they can exert serious leverage it will be up to American and international business groups to do so.
In a meeting here on Feb. 8, Guangdong officials assured Lee Sands, an assistant U.S. trade representative, that they had enough evidence to revoke the business licenses of more factories, but they declined to say which or how many.
Of the 19 compact disk factories in Guangdong, the officials said, 4 have been ordered by Beijing to suspend operations and 5 more have stopped production for other, presumably business, reasons. But none have been prosecuted, and music industry executives say they suspect that several of the suspended factories are actually operating after hours, including Wang's. He denies it.
Sands finished a round of negotiations with trade officials in Beijing on Feb. 15, and the U.S. trade representative's office said the talks would resume at an unspecified date after the Chinese New Year holiday.
Apart from questioning Chinese officials about enforcement problems, Sands also broached a touchy issue in his talks that, in a way, cuts to the core of Beijing's commitment to enforcing intellectual property rights.
In early December, representatives for a worldwide organization of music companies closed down their office in Guangzhou after they were warned that their lives were endangered by organized criminals who had been hired by pirates.
The representatives, who work for the International Federation of Phonographic Industries, opened the office in 1993 to collect information on music piracy and to use China's legal system to fight it. Fifteen people worked there.
"It's a fact of life in fighting piracy that you get death threats," said Catrin Hughes, the federation's communications director in London. "What made this more serious was that our people learned that a contract had actually been taken out on members of our staff."
An assistant to Cheng Ching-ming, the federation's chief representative in China, said Cheng could not talk publicly about the incident because the organization is currently negotiating with the Chinese authorities about reopening the office and seeking assurances that the staff will be protected.
But two lawyers familiar with the incident said what was perhaps most remarkable was the identity of the man who delivered the warning to the federation staff -- an officer in the Guangdong State Security Bureau, a local arm of the secret police. It was not a friendly warning, Cheng told associates.
"It's impossible to untangle the web of who's working with whom," one of the lawyers said. "There's a Wild West mentality. But this was pretty shocking."
Although federation's staff likes to keep its distance from American officials, to avoid fueling Chinese suspicions that they are tools of the Americans, their aims are identical: to stop piracy and the resulting losses to businesses.
Sands specifically asked his Chinese counterparts to insure that the federation could reopen its office safely, American officials said, emphasizing the right of legitimate organizations to carry out legitimate activities.
But Wang, the genial copyright pirate, lost his composure when asked about the federation's representatives.
"Those people are snakes!" he yelled, recalling that he tried to help them when he was first approached by Cheng, even arranging a lunch with his friends in the local government to introduce them.
"I help them, and what do they do?" he said. "They send people here undercover to buy CDs to see what we were making! They were spying!"
Wang admitted that what he had sold the federation's buyers was indeed pirated music, and said he understood that it was against the law. And he did not seem sheepish about displaying his closeness to local officials whom he invited for lunch with Cheng.
But he seemed to be most offended by what he saw as a violation of a code of honor.
Though he denied any detailed knowledge of the threats made against Cheng and his staff, Wang said he thought they deserved whatever they had coming, and acknowledged that the matter had been discussed at length among competing compact disk pirates.
"We were all deeply offended by them," he said, referring to the federation staff. "They want to protect intellectual property rights. I have no problem with that. But it is wrong for them to spy."
Wang, originally a stage actor and film director before taking over a music publishing house that spent $2 million on a compact disk production line, is formally under investigation by the Guangdong authorities and may be subject to a fine. But he doesn't seem too worried about it.
"I've done something wrong, OK," he said. "Give me a chance to change. They'll give me another chance."
Other Places of Interest
Software Publishers Association Anti-Piracy Home Page
Copyright 1996 The New York Times Company