China surprises in illicit trade report

China has been performing better than its reputation would suggest when it comes to tackling counterfeits and illicit trade, a new report from The Economist Intelligence Unit has revealed.

The report - the Illicit Trade Environment Index - scores 17 economies in Asia on the extent to which they enable illicit trade. It rates the countries across the categories of intellectual property, transparency and trade, customs environment, and supply and demand.

Overall, Australia came out top with a score of 85.2 out of 100, followed by New Zealand (81.8) and Hong Kong (81.4). The second tier included Japan, Malaysia, South Korea, Singapore and Taiwan with scores in the 70s or high 60s. China, along with India, Thailand, Vietnam, the Philippines and Indonesia all made up the third tier, while the worst performers were Cambodia, Laos and Myanmar.

The EIU states that China has been at the centre of global illicit trade, namely counterfeit and pirated goods, for two decades, aided by its new status as a global manufacturing hub. At one point estimates suggested that three-quarters of the world's counterfeit production was from China.

Despite limited action by the Chinese government up till now, the report claims the environment in China is changing and there is hope there will now be more concerted efforts in tackling illicit trade.

"The time has come for China to make more effort against counterfeits and low-quality goods. Now there are domestic producers with intellectual property to protect. That, along with rising labour costs, currency appreciation, and a populace that wants higher-quality goods, means we should see further improvements in the years ahead," commented Shang-jin Wei, chief economist at the Asian Development Bank.

China has made great strides in regards to transparency and trade, ranking fifth in the category based on government cooperation and the use of track and trace services. In comparison, New Zealand ranks 12th in this category and Singapore 14th.

"While it still comes up short on Free Trade Zone governance, China in general was praised by respondents for the progress it has made in recent years, even if the scale of the problem means that substantial work remains for the Chinese government," the report authors wrote.

Meanwhile, China ranks seventh in regards to intellectual property laws and enforcement and 11th both for customs environment and for supply and demand.

"Recent improvements in the illicit trade environment in China, while still short of what needs to be done, at least indicate the country is moving in the right direction," the report said.

There will however be increasing opportunities for illicit trade in the Asia region as it continues to integrate, and there is also a concern that illicit trade will move to and increase in poorer Southeast Asian countries such as Laos and Myanmar as labour costs rise in China and manufacturers look to these cheaper Southeast Asian countries.

Overall, the EIU's verdict is that that there are encouraging signs illicit trade is being tackled in the region but the effort will need to continue.

The report was sponsored by the European Chamber of Commerce in Singapore.