Sanctions on Counterfeit Smartphones
As news broke out that US President Donald Trump was reportedly trying to pressure China to solve the North Korean nuclear issue, the Chinese counterfeit market is garnering much attention. According to US CNN reports on August 12 (local time), President Trump would call Chinese President Xi Jinping and say, “I will direct US Trade Representative Robert Lighthizer to launch an investigation in China's intellectual property infringement.”
China is the world's largest counterfeit market. According to a report released by the Organization for Economic Cooperation and Development (OECD) last year, the world's counterfeit market is worth about US$500 billion. The OECD analysis says that 84% of them are produced in China and Hong Kong.
Chinese counterfeit goods, which were rampant in the fashion and general merchandise market, moved quickly to electronic products since the mid-2000s when manufacturing technology was enhanced. In particular, the Chinese smartphone market where demand has surged over the past five years has been quickly dominated by counterfeit products.
Among Chinese counterfeiters, Apple is the most preferred brand. Counterfeit iPhones have come out in China before Apple’s official launches of new iPhone models, which are synonymous with premium smartphones in China.
In fact, Youtube's smartphone special channel "Every Thing Apple Pro" recently released a video where the host unpacks the "iPhone 8 Red Edition" bought in China for US$100. The product is similar to the iPhone 7 Red Edition released in March. In particular, the phone has the same user interface (UI) as Apple’s iPhone. "Its screen switching speed and functions are not so bad for a US$100 product," the channel said. "Especially, the product has excellent detail packaging and UI design."
Envy toward Apple products led even to the creation of fake Apple Store in China. Apple Store in Kunming, the capital of Yunnan Province in southern China, was reported as the most plausible Apple Store by US media several times. Not to mention the Apple logo on the exterior of the store building, employees of the store wore T-shirts with the Apple logo and the store displays not only counterfeit Apple products also Apple posters.
Such counterfeit products will be just a tip of the iceberg in this coming trade war. If US companies begin to find faults with technologies that the Chinese electronics industry uses without paying patent fees, it will deal a huge blow to the Chinese economy.
One good example is US company Qualcomm that receives patent fees for mobile telecommunication technologies from smartphone manufacturers around the world. According to the electronics industry, many Chinese smartphone companies are making parts without paying royalties on Qualcomm’s mobile technology. "Qualcomm did not react strongly when Chinese authorities lowered royalties, saying that patent fees for Qualcomm technology were too expensive because there are so many patent thieves in China," said an official in the electronics industry. "Qualcomm judged that it was advantageous for the company to receive royalties even after they were lowered as there were too many companies that did not pay royalties.”
Korean companies are also falling victim to Chinese counterfeit electronics. Especially, premium products of Samsung Electronics and LG Electronics, which are in the first and second place in the global home appliances market, are counterfeited in China.
A typical example is LG Electronics' premium TV “OLED TVW” unveiled earlier this year. In just three months after its release, a similar product was launched in China including a similar external TV design and even a similar "Innovation Stage" sound and control system. "There is also a Chinese product that copied the design and functions of LG’s clothing manager ‘Styler’ which is one and only in the world,” LG Electronics said.