The Hidden Benefits of China's Counterfeiting Habit

When addressing the counterfeiting problem in China recently, Alibaba founder Jack Ma said, “The problem is that the fake products today, they make better quality, better prices than the real products, the real names.” This comment outraged international brands and brought the problem of Chinese shanzhai culture back into the spotlight.

Translated literally, the phrase shanzhai mean “mountain village,” but in recent decades, the phrase was given a life of its own. Today, it means an imitation of trademarked brands, including (but not limited to) international fashion labels and electronic products.

For a long time, this norm in China’s manufacturing sector has invited bitter denunciations. International companies have been infuriated by Chinese manufacturers’ infringements on their intellectual properties, while Chinese authorities and scholars have been perturbed about how the shanzhai phenomenon could jeopardize the country’s international standing and hamper the sprouting of creativity.

Meanwhile, the “brighter sides” of shanzhai have often been muted. Recently, WIRED produced a four-part documentary on the development of shanzhai culture in the electronic manufacturing industry in Shenzhen, a major city in Guangdong Province, which is also the heartland of Chinese shanzhai products.

A number of intriguing arguments appear in the documentary, though they do not necessarily reflect the stance of the tech magazine. Jack Ma’s viewpoint that shanzhai products could indeed be of better quality and of better prices is brought into the discussion; this contention is not only supported by local shanzhai producers, but also echoed by foreign investors.

The documentary also explores the perspective that the affordability of shanzhai products has allowed a wider public to gain access to modern technology and, in this sense, a shanzhai manufacturer could be considered a modern Chinese “Robin Hood.”

Without any doubt, the above allegations and shanzhai culture itself give life to inexhaustible debates, especially in regards to the moral grounds of the concept. Yet the most thought-provoking aspect of shanzhai culture concerns how it has shaped a unique ecosystem in the Chinese tech industry.

In the West, the tech industry is rather monopolistic while manufacturers and designers usually take on quite different and well-defined roles. But in China, where shanzhai culture prevails, the market operates under a more competitive structure and the boundary between the two sides is nebulous. Often producers function out of small workshops and simultaneously take on “design” duties.

In this market structure, shanzhai producers are subject to fewer bureaucratic constraints in developing their new products. Equally important is their guerrilla-like modus operandi; it allows skills and market information to flow more quickly, and enhances their responsiveness to market demands.

Originally, shanzhai producers made a living by making knock-offs with constituents from the same or similar manufacturers as those used by the real brands. But due to increasing market demand, today they also manufacture hybrid gadgets with self-developed components accompanied by parts from different names.

In terms of technical procedures such as re-configuration, enhancing functions, and refining designs, as the WIRED documentary reveals, the shanzhai producers already enjoy a high level of skill that critics of shanzhai culture often underestimate.

The most unique part of the ecosystem indeed lies in how the industry players view the sharing of techniques and skills. In the West, tech industry players hold patents in high regard, since patents are considered as the ultimate tool to protect intellectual property. But in China, shanzhai culture has forced industrial players to accept that preventing others from copying is impossible. Thus, they allow skills and techniques to be shared in an open-source environment, and waste no time and effort in playing the protracted games of patent lawsuits. Most importantly, as brands recognize that they could easily be replaced by their competitors, they strive to leap forward before others copy their techniques.

Survival is always the most powerful source of motivation; the cruelty of the shanzhai ecosystem has made the Chinese market a perfect breeding ground (also battleground) where industrial players are motivated to achieve faster delivery, higher affordability, and higher quality.

Intellectual property rights should be definitely respected and this article is not trying to justify shanzhai culture – which is often deemed as theft in Western societies – on moral grounds. But the security granted by patents could also be a hindrance barring innovators from leaping forward. In societies where innovators are too comfortable with patent systems, it will be difficult for them to accept a competitive, open-source ecosystem — not to mention the harrowing survival-oriented market structure. Now that shanzhai culture has prepared Chinese industrial players (and not only those in the tech industry) to sustain themselves and even thrive in tough but effective environments, the country could indeed seize this advantage when coping with the “new normal” of slow growth.

In 2015, Chinese government-backed venture funds raised an historic 1.5 trillion yuan ($224 billion) fund to support high-tech start-up companies. Known as the government guidance fund, the money has granted the government the power of purse over the future development of the Chinese tech industry. Certainly, the industry needs better-defined laws and patent systems to protect intellectual property. But it is also a golden opportunity for the government to strengthen the open source culture. Should it be able to preserve this unique advantage across various industries through well-designed sharing systems, the transition of the Chinese economy into a knowledge economy will surely be smoother than many observers expect.