Friday Rant: China — Making, Taking and Stealing

As a college student, I remember a rather depressing sign that I think was in Trenton, New Jersey at the transfer stop for New Jersey Transit and Septa (the combination of these two regional train providers is between 60-90% cheaper than taking Amtrak from Philadelphia to New York). I'm not sure if the sign is there anymore, but it said something to the effect of: "We make, the world takes." Obviously today, the context of the sign is a bit sad, due to the general decline of manufacturing in places like Trenton and the rest of the United States. But when I was thinking about China the other day, I thought that a more appropriate updated sign that would fit at a similar train stop in Beijing would be: "We make -- and take (and take, and take, and ...)"

In recent weeks, I've heard again and again that companies are increasingly concerned with IP theft from China. But it's not just a question of stealing product IP legally through joint ventures that the Chinese government requires of many US multinationals operating in the region (or even the non-legalized theft of parts, components and finished products through the running of third shifts, counterfeiting and simple fraud). Rather, companies are increasingly concerned and talking behind the scenes about widespread corporate (and what appears to be Chinese government sponsored) espionage, including both breaking into company computer networks and systems within the US and the use of Chinese operatives that have in many cases successfully infiltrated companies as employees to steal secrets (much like traditional spies, individuals can spend years or decades getting themselves in position before engaging in espionage activities). Even though there have been more headlines of late, the vast majority of these cases go unreported (yet you can believe, according to my sources, that the FBI another more secretive three letter agency takes the threat very, very seriously).

Perhaps given the rise of intellectual property theft, it's no surprise to see surveys like this which suggest that "electronic theft [is] now a bigger threat than physical theft." According to an annual fraud survey conducted by Kroll, a consultancy, "companies are losing more money through electronic theft of data and information than physical theft." And for "at least half the companies surveyed ... electronic theft was the greatest deterrent to foreign investment." Specifically, "of the emerging markets, China showed the highest levels of fraud, with 98% of businesses affected."

Of course companies are responding to Chinese IP theft in multiple ways (including some that just acknowledge it and continue to do business because it represents such a large growth opportunity -- even if their JV partners and others end up competing against them with identical, "stolen" products in the years to come). Yet I think it will take more than companies taking the China IP threat seriously. I think as individual and families, we need to take action as well. In our house and office, we have a "no China" policy outside of electronics and computers. We also try to source locally whenever possible. For example, we recently purchased a new metal table that we had made by a local fabricator (rather than buying one from retailers sourcing from China).

But it's not always easy to follow this policy. When I was in the Helsinki airport last month, I was looking to buy a gift for my wife. I stopped in a local clothing boutique that exclusively featured clothes from a Finnish brand I had never heard of. It was beautiful and classic Nordic design. And it wasn't cheap. Yet there was no country of origin tag on the merchandise. When I brought a sweater to the counter I inquired if their production facility was in Finland. The lady responded it used to be, but now they source from China. Next, even before I could get in a word, she pointed out they do all of their design locally. I tried to be as polite as possible when I told her we tried to avoid buying China made products and I could tell she understood. With that, I walked away.

As long as China continues down the path of organized and sanctioned theft, I encourage everyone to think twice about how to reduce their dependence on Chinese products in the categories where it's possible. Ask retailers where the products they sell come from. And tell them (especially local stores and boutiques) that you have a no China policy and challenge them to help you identify alternatives. In many cases, this will mean (as we've observed and followed as a family) making do with less. But if enough of us send a message by voting with our wallets, it will have an even greater impact that legislation ever could, starting first with reduced orders from retailers that, thanks to activist consumers, look to identify alternative geographic options for buying their merchandise.

Jason Busch

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