Late last month, the United States -- consistently critical of Beijing's failure to stop the illicit production of US brands -- issued an annual report saying piracy in the Asian giant remained at "unacceptably high levels".

Analysts say despite official crackdowns and successful prosecutions, graft and weak policing means factories continue to churn out fake goods, costing foreign and domestic firms billions of dollars in lost revenue.

"Local protectionism and government corruption are the real issue," Daniel Chow, a professor at the Ohio State University College of Law, told AFP.

"The central government is probably sincere but enforcement occurs at the local level, and local governments have a direct and indirect interest in protecting counterfeiting, which is important to the local economy."

China's counterfeit and piracy market is the biggest in the world and employs millions of factory workers, distributors and shop assistants across the vast country of 1.3 billion.

Fake products are readily available in stores and on the Internet in China, as well as in overseas markets from New York to Sydney, at a fraction of the cost for the real thing.

"Avatar" is smashing box office records in North America but can be bought for about a dollar in Beijing shops. Cheap copies of Apple's iPhone were available in China long before the smartphone was officially launched in 2009.

"In China, you can get enforcement but no deterrence," said Chow.

"You can easily get a raid but there are no consequences to the counterfeiter, who usually pays a light fine and is back in business in two to three weeks."

In his annual report to Congress before Christmas, US Trade Representative Ron Kirk -- a key member of US President Barack Obama's delegation for his first official visit to China in November -- was damning.

"Despite repeated anti-piracy campaigns in China and an increasing number of civil IPR cases in Chinese courts, counterfeiting and piracy remain at unacceptably high levels and continue to cause serious harm to US businesses across many sectors of the economy," Kirk said.

Kirk's comments followed a decision by the US Congressional International Anti-Piracy Caucus to place China among the top five countries on its "International Piracy Watch List" for 2009.

But Beijing says it has made "notable progress" in the war on Internet piracy and copyright infringement, state media reported last month, citing an official from the National Copyright Administration of China.

Since August, Beijing has investigated more than 500 Internet copyright infringements, closed hundreds of illegal websites and fined those involved in online piracy 1.28 million yuan (187,500 dollars), the China Daily said.

Foreign companies have also been targeted. A Chinese firm successfully sued Microsoft Corp for infringing its intellectual property rights by including certain fonts in its operating systems.

And a Chinese author has launched the country's first civil lawsuit against Internet giant Google for scanning one of her novels into its digital web library without consent.

But many more cases of piracy and counterfeiting go undetected, said Victor Ho, a Shanghai-based lawyer with Allen and Overy, with understaffed enforcement agencies overwhelmed by the scale of the illicit industry in China.

"It's not easy to police," Ho told AFP.

A major hurdle facing Beijing in its battle against counterfeits is local government officials, who are determined to protect jobs and maintain fast economic growth -- seen as crucial for their own career advancement.

"If the local government cracks down on counterfeiting, millions of jobs will be lost, not just in counterfeiting but in legitimate industries that support counterfeiting and millions in tax revenue," Chow said.

But as Beijing demonstrated in the lead-up to the Olympic Games in 2008, it has the power to stop the illegal reproduction of merchandise when it is truly motivated, Ho said.

"The Olympic products were being sold and the central government made sure everyone understood that it was not going to tolerate any knock-off products," Ho said.

"If there is a significant amount of will to do this, it can be done."

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