This is an interesting article from Shaun Rein at Business Week:
How to Win the China Piracy Battle
As Shaun correctly identifies, economics plays a crucial role in the demand for and the supply of pirated goods. Where I would take issue is that even if counterfeiting was removed entirely as of tomorrow it would make only a small dent in the US trade deficit and not as has been written "a long way to reducing the deficit".
The bottom line is that China is still developing and at this stage of development with per capita incomes still so low piracy is inevitable. As China gets richer demand for authentic goods will increase and the problem will solve itself. Meanwhile Western multinational need to take a pragmatic approach and consider their pricing policies. Creating brand loyalty now will pay off in future years. Indeed, the owners of fake Rolex watching will be constantly dreaming of the day they can afford a real one.
A Matter of Economics
First, multinationals should try to stop the piracy by taking a business approach rather than a legal or moral one. They must become less moralistic about intellectual property theft by the Chinese. While they do have the legal high ground, their current posturing does little to stop the pirates or generate revenue from legitimate sales.
The problem is more a matter of economics than of a morally corrupt Chinese populace. As the disposable incomes of Chinese consumers continue to grow, brand loyalty gains currency, and domestic Chinese companies begin to lose revenue to pirates, intellectual property problems will be solved in much the same way as they were in Taiwan and Korea. Smart multinationals will make sure they are in a strong position to reap the benefits in China.
One positive sign is that Chinese are in many ways no different from other consumers. Millions are entering the ranks of the middle class, and they want to look the part of the urban aristocrat. If they cannot afford genuine items they turn to touts on the street hawking fake Louis Vuitton, Tiffany (TIF), Montblanc (CFR.VX), Rolex, and Polo (RL) items. But as Chinese consumers become increasingly sophisticated, the situation is changing. Now consumers can value the difference between a real Giorgio Armani tie and a fake one.