by Dana Thomas
Counterfeit designer T-shirts and simple dresses are usually manufactured by Vietnamese or Latin American immigrants in nearby Riverside and Orange counties because turnaround is a mere matter of days. Some knockoff handbags are locally made, too: Santee Alley vendors go to neighboring Main Street, buy generic bags for a couple of dollars, stamp on a logo or sew in a label, and sell them for $20. But the good bags with the logo integrated into the design—as well as sunglasses, watches, and high-design garments like Burberry raincoats—are imported, primarily from China. Often you find a mix of both locally made cheapos and imported top-quality items within one shop, like the one run by a mild-mannered fifty-ish Indian vendor who, when we visited in 2004, was on probation. “I kept telling him to stop selling but he didn’t,” said Buckner as we walked into the shop.
By the looks of things, he still hadn’t. On the shelves sat faux Vuitton-style bags stamped with colorful hearts rather than LVs and Chanel Cambon-style purses with a bold “OC” instead of the house’s signature interlocking “CC,” making them technically not fake. Next to them, however, were a couple of black leather handbags with regular Gucci labels on the front. Realizing he’d been caught, the shopkeeper quickly reached over and peeled off the Gucci labels; they were stuck on like Post-its. Buckner gave him a firm warning. “I treat all these guys with respect because it’s nothing personal,” Buckner told me. “These vendors shouldn’t be selling counterfeits—what’s wrong is wrong, what’s right is right—but it doesn’t make them bad people. The networks behind them are the slimiest.”
When we walked out, Buckner spied one of his informants, who beckoned us into a discreet entry around the corner. He had just witnessed our visit and told Buckner that the “OC” is really a “CC”—that half the O peels off, leaving a Chanel-like double-C logo. “They do it like that to get it through U.S. Customs,” he explained.
Then he showed Buckner a piece of fake Louis Vuitton hardware.
“You know where it’s coming from?” Buckner asked.
“Yeah.”
“I’ll call you later.”
The informant slid the gold fixture back into his shirt pocket.
Santee Alley attracts everyone. “Judges, prosecutors, defense attorneys shop here,” Buckner said. “Affluent people from Newport Beach.” A vendor named Peter concurs. “The whole world passes by here,” he told me. “I sold some shirts to Chaka Khan three days ago. The police chief convention is in town and all the wives are down here buying Louis Vuitton.”
Peter is a tall, handsome African-American in his early thirties. His shop is actually a one-by-three-foot sidewalk space in front of a store. He sells T-shirts with prized logos—when we visited, it was Abercrombie & Fitch. Most vendors in Santee Alley pay about $12,000 a month for their shops, then sublet the sidewalk to folks like Peter for about $1,000 a square foot, in cash. It’s often on the sidewalk that you’ll find the most blatant counterfeit goods, like Louis Vuitton and Chanel handbags and Gucci and Armani sunglasses.
Buckner told me that Peter was “the smartest man in Santee Alley.” Peter just laughed. “I just know how to stay out of trouble,” he said. A native of Rancho Cucamonga, a sprawling suburb on the road to Las Vegas, Peter started selling in Santee Alley in the early 1990s when he was a student at UCLA and needed some quick cash. He first sold fake handbags, but after three years switched to T-shirts. “When you are selling handbags, you are selling somebody else’s designs,” he reasoned. “I like designing things myself.” He studied street fashion and would pick up on a new trend even before the main brands did. He printed “Tommy Sport” T-shirts and other products before Tommy Hilfiger trademarked it and made a killing.
In his fourteen years in Santee Alley, Peter has seen the market evolve. “What they used to sell here was garbage,” he said. “Now you can get the same quality as in Nordstrom, because the consumer is smarter.” I asked how much he earns. “I’m doing all right,” he answered. When I asked him if he had any qualms about what he does, he shrugged. “Wherever there’s a demand, you’ll always have someone taking the chance.”
What I realized from my tour is that people don’t believe there is a difference between real and fake anymore. Bernard Arnault’s marketing plan had worked: consumers don’t buy luxury branded items for what they are, but for what they represent. And good fakes—the kind that can pass for real—now represent socially the same thing as real. I remember an American woman I saw one morning in the Peninsula Hotel in Hong Kong. She was a chic New Yorker in her fifties, well dressed in a designer pantsuit, good jewelry, and Chanel sunglasses, and obviously wealthy enough to pay $500 a night at one of the world’s top hotels. She walked up to the concierge desk and asked its chief, “Where can I buy a good fake Rolex? You know, a really good fake.” The concierge looked at her incredulously and said he didn’t know. I looked at her and wondered, “Are the sunglasses fake, too?”
ONE WEEK AFTER my tour in Santee Alley, I boarded a train in the Hung Hom station in Hong Kong for a two-hour ride north to Guangzhou—which was known in the West as Canton—a city of eight million and the capital city of Guangdong Province. I was escorted by a luxury brand intellectual property expert and a local counterfeit private investigator. Once past the seemingly endless forest of high-rise towers of Hong Kong, we crossed the lush plains of the Pearl River delta into Guangdong Province, where fourteen million Chinese live on four thousand square miles, making it one of the most densely populated areas in the world. There remain some collective rice and duck farms, and we spied a few farmers out in the fields, working the fertile land with their oxen. But as we approached the city of Guangzhou, the farms gave way to enormous blocklike factories, hundreds of them, where workers make leather shoes, toys, clothing—everything. “This is why this region is called ‘the Factory of the World,’” the expert told me.
Guangzhou has served an important international port for centuries. Arab merchants who traveled to China on the Silk Road in the seventh century settled in Guangzhou and turned the city into a trade center. In the sixteenth century, the Portuguese colonized nearby Macau and made it a base for foreigners who wanted to do business in China. The Portuguese, Dutch, French, British, and American traders would sail up the Pearl River from Macau to sell opium and buy Chinese porcelain, silk, and tea. In 1839, the First Opium War broke out when Qing Emperor Dao Guang shut down the opium trade. In the early twentieth century, it was the center for much of the republican movement that brought down the Qing Dynasty. The republic’s first president, Sun Yat-sen, was from the region, and he was the head of Guangzhou’s Kuomintang, the nationalist party.
During the first thirty years of communism, Mao Tse-tung neglected Guangdong, and the once prosperous and flourishing province became one of the poorest in the country. As Jasper Becker noted in his book, The Chinese, the state’s investment per capita in Guangdong was the lowest in all of China. When Deng Xiaoping came to power in 1978, all that changed. Deng wanted to use Guangdong as a laboratory for his economic reforms. The following year, he changed the national one-child-per-family rule to two children in Guangdong and told the provincial government that it could keep its tax revenue rather than contribute to the central government. Factories sprouted across the delta like rice plants. As the demand for counterfeit versions of luxury goods in the West increased, legitimate manufacturers in the region began to produce fakes at night and on holidays. Eventually, workshops opened in Guangzhou solely to produce fakes. Today, Guangzhou is the capital of China’s counterfeiting business.
Fighting counterfeiting in Guangzhou is not easy for several reasons. First, China does not have a history of intellectual property ownership. Confucius was the first to democratize education, and he encouraged the works of great scholars to be copied in order to spread knowledge to all classes. To further complicate the issue, China’s communist leaders declared that the state—not individuals, not companies or corporations—owned all property. Since the economic reforms in 1978, the governmen
t has slowly embraced the notion of intellectual property ownership. The first patent and trademark laws were enacted in the early 1980s. “You have this strong heritage for many centuries [of copying], and then suddenly everyone tells you to stop,” says Frederick Mostert, past president of the International Trademark Association. “It’s a real cultural dilemma.”
Anticounterfeiting was one of the subjects discussed during the U.S.-China Joint Commission on Commerce and Trade in Washington in April 2004. In response, the Chinese government announced the formation of a task force to tackle the problem, which implemented two new initiatives: it lengthened the prison terms of convicted counterfeit vendors to three years in order to deter counterfeiting, and it shut down the famed Silk Alley counterfeit market in Beijing to make way for a new five-story shopping mall that would ban counterfeit sellers. Both initiatives failed. When the new mall opened three months later, the international counterfeit syndicates moved in and took over the shops formerly occupied by small-time dealers. One vendor who squawked to the police was shot dead gangland-style. A month later, the U.S. trade representative declared that despite the Chinese government’s efforts, intellectual property “infringements remain at epidemic levels,” and that China’s overall piracy rates have not dropped since the country’s 2001 entry into the World Trade Organization.
In an effort to raise awareness in China, martial-arts movie star Jackie Chan starred in an international public awareness campaign called “Fakes Cost More.” During the June 2005 press conference that kicked off the campaign, Chan fought off a group of faux assailants wearing Jackie Chan masks, attacked a staged counterfeiting stall with a chain saw, and ripped the fake Gucci, Armani, and Versace clothes off an actor dressed up as a tourist. “The ease with which authentic works can be copied in the digital world and the instant wealth it brings has given new rise to the second oldest profession in the world: piracy,” Chan said. “It is easy to copy but difficult to create.”
That was evident the moment we walked into Xinxing, the central wholesale market for counterfeit leather goods, just down the road from the domestic train station in Guangzhou. The market is a series of big warehouses with air-conditioned stalls filled with fake Louis Vuitton, Gucci, Chanel, Fendi, and Burberry products. One warehouse is for the Grade AA product—fakes that look so good it’s hard for a non-expert to tell they aren’t real. “Counterfeiters take the original item and do a three-D scan of it,” the expert explained to me. “The process produces perfect copies of patterns.”
The market stalls were clean and well appointed with glass display cases; vendors had catalogs, business cards, and a genial, courtly manner. It was hard to imagine that it was all completely illicit. The only differences between Xinxing and a legitimate wholesale market were the prices and the customers. I watched as a rotund middle-aged British man with a sweaty red face and balding pate negotiated with a Chinese vendor for an order of bogus Louis Vuitton bags. Going rate: 18 yuan ($2) for a monogram wallet, 150 yuan ($19) for the classic monogram purse. The price dropped by 30 percent for orders of more than one hundred. A pair of veiled Muslim women who were on our train from Hong Kong that morning were there, too, placing orders. “Gucci definitely has a problem,” the expert said as he clocked the glut of double-G logo bags on display—almost as many as the ubiquitous LV fakes.
Across the street in another warehouse are the lower-quality goods: the stuff that looks fake and is often a bastardization or mélange of brand names—like Bossco or Emilio Valentino—and costs next to nothing. Small wholesale orders are taken along in a suitcase by the customer or a courier. Big orders are far more complicated. An order of ten thousand handbags would be divided into ten groups of a thousand to be made by workshops around Guangzhou. Counterfeit workshops are light and mobile; after two weeks, they pack up and move to escape detection. Once the order is completed, it is wrapped up and deposited in a neutral place, like the courtyard of a local school, where it will be picked up by a local transporter, often simply a guy on a bike with a cart. The local transporter will deliver it to the wholesaler in Xinxing, who will have it taken to another neutral place to be picked up by the international shipping agent and put in a shipping container. The goods are often packed in shipments of foodstuffs or legitimately manufactured clothing to escape detection by receiving customs officials. Sometimes the goods (particularly watches) are shipped in pieces or without labels or monograms, and are finished, assembled, or stamped by illegal immigrants in clandestine workshops at the destination. Each time the goods change hands, the prices double. All transactions are done in cash.
Hong Kong used to be the primary port, but its container fees have become prohibitive for counterfeiters, so more and more shipments leave directly from the ports of China: Shanghai, Dalian, and Guangzhou. From there, the ship goes to a “cleansing port” such as South Korea to change its point of departure and then onward to Japan, the United States, Italy, or Belgium. Shipments directly from China are more carefully checked; by passing through a cleansing port they become less suspicious.
On occasion, the shipment gets discovered during inspection by receiving customs officials. In June 2004, the U.S. Bureau of Immigration and Customs Enforcement (ICE) arrested a dozen people and seized six shipping containers—five with bogus handbags, luggage, and wallets, and the sixth with counterfeit cigarettes—coming into the United States from China, valued at $24 million. ICE agents also seized $174,000 in cash and eleven bank accounts. Officials said the suspects probably imported about two containers per week, each container earning $2 to $4 million in profit. That same month, seventeen Chinese men were arrested in a government sting operation for paying $1 million in bribes to undercover ICE agents at Port Elizabeth, New Jersey, to guarantee entry of thirty shipping containers of fake Louis Vuitton, Cartier, Gucci, and other luxury brand handbags, luggage, wallets, and sunglasses. The goods were to be sold by New York City retailers and street vendors. The smugglers, members of the Li Organization, one of the most powerful gangs on Canal Street, wired thousands of dollars in proceeds back to China.
The street value of Chinese goods carrying counterfeit trademarks seized by the United States doubled between 2005 and 2006 to $125 million, and counterfeit goods from China and Hong Kong made up 90 percent of all U.S. Customs and Border Protection’s intellectual property seizures. The same is true in Europe: Nearly three-fourths of all counterfeit luxury goods seized at ports originated in China or Hong Kong.
While customs seizures of counterfeit goods continue to rise, a vast amount makes it through. The shipping containers are put directly onto trucks and hauled either to warehouses to be stored or to workshops to be assembled or stamped by clandestine workers. This is where human trafficking fits into the puzzle: the workers, sometimes children, have been sold into labor. They, too, have been shipped over and smuggled in. They are taken to tenement factories and often locked in. There they live, work, sleep. “I went on a raid in a sweatshop in Brooklyn, and illegal workers were hiding in a rat hole,” Barbara Kolsun, senior vice president and general counsel for Kate Spade, told me. “It was filthy, and it was impossible to know how old the workers were.”
The gangs then have the counterfeit goods transported to stores in wholesale markets like Canal Street and Santee Alley, where they are purchased by tourists, flea market merchants, purse-party ladies, and suburbanites who believe that buying, selling, or owning fakes is, as McDonald put it, “a victimless crime.”
SHORTLY AFTER LUNCH in Guangzhou, we drove over to a Chinese law enforcement agency, a typical linoleum-floored, fluorescent-lit office that could be found anywhere in the world. The officers, most in their thirties or forties, were friendly and polite—offering us green tea as they spoke proudly of the success they had recently in fighting counterfeiting. After a few minutes the chief came in and announced that they’d gotten a tip about a counterfeit workshop across town. The informant was the landlord: he rents to the counterfeiter with full payment up front in cash, call
s the cops and gets a reward for the tip, then rents the space again. “There are no ethics in this business,” the expert tells me. “None.” The cops strapped on their holsters, and a few put on bulletproof vests. Raids can be dangerous: sometimes workshop owners will pull a knife or have thugs there to beat up the cops. During one raid in Xinxing market, someone shot a gun in the air; when everyone hit the ground, the counterfeiters fled.
We all went downstairs, hopped into a pair of official vans and sped across town. Guangzhou is an industrial city with impenetrable smog, dingy high-rises, elevated highways slicing this way and that, and traffic congestion that would make Los Angeles look fluid. We pulled into the courtyard of a white stucco tenement. The cops jumped out, guns drawn, ran up seven flights of an open-air stairwell to the top floor, scurried across the balcony, looked through the window of one of the flats to confirm it was the right place, saw the door open, and went in. If it had been closed, the cops would have needed a warrant. Once they checked out the place to make sure it was safe, they waved us up.
We hoofed it up the steps, over empty Coke cans and other trash, and as we approached the top, the acute toxic smell of glue burned in our noses. We walked into the workshop—a long, wide room with barred windows—and before us stood two dozen Chinese boys and girls, roughly eight to fourteen, sitting at old sewing machines and standing behind plywood worktables littered with scraps of black leather, gooey pots of glue, and a cookie tin filled with stamps reading Versace, Boss, Dunhill. The children stopped midwork. One bag was stuck in a machine, half sewn. In the corner were big cardboard cartons filled with counterfeit luxury brand handbags in black leather. I picked one up and checked it out: the materials were cheesy, the sacks lined with plastic, the seams uneven. “Cheap fakes,” the expert declared.
The cops told the children to line up single file. They looked at us with their sweet faces filled with confusion, their eyes tired and sad: they didn’t know why they were told to stop working. As they walked out, some stopped to punch their time cards in hope of getting paid. Some glared at the owner, an overweight middle-aged Chinese man, and his factory manager, a Chinese woman in her thirties who sat in the small office next to the door, glum over a cold pot of tea. The investigators said it was rare to find the owner onsite. Both were arrested. The cops started to box up the handbags, the machines, the materials, everything. It would take two hours. A truck pulled up in the courtyard to haul it all off to a scrap yard, where it would be immediately destroyed. “They are out of business now,” the expert said. The squad does at least two of these raids each day.