China Consumer

Footing the bill

How a Bengbu factory produced half a million knock-off Nike sneakers

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For some people in China, uncovering counterfeits is a career. Ji Wanchang, a Beijinger, told the New York Times that his job is to travel around town looking for fake or sub-standard goods. Then, using China’s consumer protection laws, he earns reward fees from the companies that make or sell them. The more he turns in, the more he is paid.

Were Ji based in Bengbu he might have retired early, as it turns out to be home to one of China’s most prolific counterfeit rings. Anhui police have uncovered half a million pairs of fake shoes at a factory in the city. This is China’s biggest ever sneaker counterfeit case and it is believed that the factory had sold more than Rmb600 million ($87 million) worth of fake shoes in the last three years.

The raid actually occurred in December, but the news only came to light last week via a report by state-run broadcaster CCTV which said fake Nike, Converse and Vans shoes were found at the factory. The trainers were made to look like the genuine items but remarkably each pair cost no more than Rmb13 to make.

The bust occurred after Nike tipped off local police in December 2015, saying that it had noticed the presence of shoes resembling its branded products in  the Middle East. The fake shoes, which came with labels that said they were made in Vietnam and Malaysia, were produced well enough that industry insiders believe untrained eyes would find it hard to tell they were fakes.

CCTV says the perpetrator – the Jinfeng factory – had actually been producing genuine goods for foreign brands such as Nike, but in 2012 had stealthily established a parallel facility to illegally supply shoes to many provinces and cities in China. It also tapped export markets: its products “nearly monopolised” the counterfeit trade in places like the Middle East and Africa, says National Business Daily.

Most distributors turned a blind eye not only because its products looked genuine enough, but also to earn a more lucrative margin. Consumers also snapped them up as they were sold at a discount to the regular Nike retail price of Rmb400 in some markets.

The case once again shows that even as China has made significant strides in protecting brands and intellectual property, it still struggles to battle the proliferation of fakes. The level of sophistication exemplified by this counterfeiter also reveals just how difficult it is to combat the problem. The illegal Jinfeng factory reached a scale that at one point employed over a thousand people. It also had a thorough supply chain, with clear division of labour amongst the workers and even quality control processes to make sure the fake merchandise looked top-notch.

And Bengbu is not even the capital of counterfeit shoes. That title goes to Putian. The coastal city in Fujian has been known for selling some of the most well produced knock-offs in the country, a byproduct of a legitimate footwear industry that employs a tenth of the city’s 3 million people. Jack Ma, the chairman of Alibaba Group, once told reporters that a visit to Putian would “surprise anyone”.

In a sign of how difficult it is to eliminate counterfeiters, a news report recently revealed that unscrupulous manufacturers are now offloading their fake shoes by pretending they are being shipped from overseas and charging more for them than the genuine items in China (products from abroad usually enjoy premium pricing).

When consumers place their orders online via platforms like Taobao, the scammers fabricate shipping invoices to give shoppers the impression that the shoes were purchased from the likes of the US and the UK. More sophisticated fraudsters have even created fake websites where shoppers can track their ‘foreign’ shipments, though all the information is fictional.

“Most of the counterfeiters are vertically integrated. Logistics is only a small part of the whole ‘black industrial chain’. Everything from production, distribution and raw material procurement is managed by one large entity,” logistics expert Zhao Xiaomin told Beijing Business Today. “The only way to fight counterfeits is to find the beginning of the supply chain, which is the manufacturers.”


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