China Cracks Down on Knockoffs

February 7, 2015

As the world’s manufacturing superpower, China is home to thousands of factories producing millions of items each day. Keeping track of all that industrial output is far from easy, though. With little oversight to monitor them, some Chinese factories make knock-off or simply poor quality products, and then sell them to retailers as if they were up to standard.

While pirated items are mainly a headache for the company that gets ripped off, products made cheaply or without regard for safety can have worldwide repercussions. After all, in recent years China’s industrial sector has faced international condemnation for scandals involving tainted baby formula, toys and prescription drugs. The situation is even worse for domestic consumers. With an estimated $610 million worth of poor quality goods sold from 2010 to 2012, many Chinese consumers do not trust retailers. This discourages potential purchasers from buying more goods, which is certainly bad for business.

In order to establish safety standards for retailers, the Chinese government has been enlisting citizens to be on the lookout for fraudulent or unsafe items as they shop. For instance, a law enacted last year allows consumers to obtain compensation from businesses if they buy knock-off or damaged goods. In some cases, a person can recoup as much as three times the value of the product they purchased. This leads some eagle-eyed consumers to buy as many tainted items as they can, which some have criticized as an unethical exploitation of the law. However, fraud busters defend the practice by saying it prevents other consumers from accidently buying the damaged product. In some cases retailers compensate consumers on the spot for clear infractions like expired food. Other fines such as for false advertising can take months to settle, though, since they aren’t directly related to food safety. As fraud busting for profit becomes more common, retailers are expected to keep a closer eye on the items they stock.

 

Questions:

  1. Are China’s fraud busting laws too harsh on retailers?
  1. Will China’s fraud busting laws actually help retailers?

 

Source: Liza Lin, “China’s Fraudbusters Crack Down on Fake Goods,” Bloomberg Businessweek, December 23, 2014. Photo by: Sherman Wang.

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