VZCZCXRO0315
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0529/01 2410658
ZNR UUUUU ZZH
R 280658Z AUG 08
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 7548
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEHIN/AIT TAIPEI 9509
RUEAUSA/DEPT OF HHS WASHDC
RHMFIUU/DEPT OF HOMELAND SECURITY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEAWJL/DEPTJUSTICE WASHDC
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UNCLAS SECTION 01 OF 03 GUANGZHOU 000529 
 
SENSITIVE 
SIPDIS 
 
State for EAP/CM - PSecor; EEB - AColeman, JBoger 
State for INL - JVigil 
USTR for China Office - AWinter; IPR Office - RBae; and OCG - 
SMcCoy 
Commerce for National Coordinator for IPR Enforcement 
Commerce for CIsrael 
Commerce for MAC 3204/ESzymanski 
Commerce for MAC 3043/McQueen 
Commerce for MAC 3042/SWilson, JYoung 
Commerce for NWinetke 
LOC/Copyright Office - MPoor 
USPTO for Int'l Affairs - LBoland, EWu 
DOJ for CCIPS - MDuBose 
DOJ for SChembtob 
FTC for Blumenthal 
FBI for LBryant 
DHS/ICE for IPR Center - DFaulconer, TRandazzo 
DHS/CBP for IPR Rights Branch - GMcCray, PPizzeck 
ITC for LLevine, LSchlitt 
 
 
E.O. 12958: N/A 
TAGS: ETRD KIPR ECON PGOV CH
SUBJECT: Local Focus on Brand Promotion Leads to Stronger IPR 
Enforcement and Economic Growth 
 
REF: A) GUANGZHOU 438, B) GUANGZHOU 267 
 
(U) This document is sensitive but unclassified.  Please protect 
accordingly. Not for release outside U.S. government channels. Not 
for internet publication. 
 
¶1. (SBU) Summary:  Next to industrial powerhouses like Shenzhen and 
Dongguan, Shunde is small potatoes among Pearl River Delta cities. 
But its brand promotion efforts have yielded impressive results. 
The town boasts market leaders in the household appliance industry 
that rank among China's top 50 enterprises, and local firms own some 
of China's best-known domestic trademarks.  City officials took an 
active approach in encouraging the development of local intellectual 
property (IP) with awareness programs and subsidies.  The 
enforcement of intellectual property rights (IPR) has strengthened 
as industry and government have come to more fully appreciate the 
economic value of IP, which has been central to the success of Midea 
and Galanz, Shunde's two appliance manufacturing giants.  Shunde 
officials believe that their IP promotion practices can be a model 
for other jurisdictions in south China.   End summary. 
 
A Fresh Economic Start for Shunde 
--------------------------------- 
 
¶2. (SBU) The city of Shunde is one of south China's great success 
stories when it comes to establishing local brand names.  According 
to Administration for Industry and Commerce (AIC) Deputy Section 
Chief Li Yingfeng, the city's economic transformation began in 1992. 
 It was then that the Shunde Communist Party Committee and 
government - perhaps under the impact of Deng Xiaoping's southern 
tour - decided to "start business for the second time."  The city's 
growth was already heavily reliant on local companies rather than 
foreign direct investment, so the government's new local brand 
promotion strategy seemed to be a natural extension of the area's 
comparative advantages.  With a population of approximately 1.8 
million people, the city lacks the size and resources of many 
neighboring communities, but is well-known as a center of certain 
kinds of industries, especially household-appliance manufacturing. 
 
 
¶3. (U) Sixteen years after the government's fresh start, the city's 
economic rebirth looks like an unqualified success.  Midea and 
Galanz, two appliance makers headquartered in Shunde, were ranked 
7th and 39th on Forbes 2008 list of top Chinese enterprises. 
Overall, Shunde firms have registered more than 30,000 Chinese 
trademarks.  Many have been formally designated "famous trademarks" 
at the national and provincial level.  The city is also a leader in 
promoting new trademarks based on geographic indicators. 
 
Focus on Intellectual Property Development 
------------------------------------------ 
 
¶3. (SBU) City officials attribute the success to a belief in the 
economic value of intellectual property.  An interagency group of 
officials who met with econoff emphasized that this led to concrete 
strategies to support development of local brands.  For example, 
Shunde's government has initiated numerous awareness programs that 
include hosting training seminars, promoting local trade fairs and 
leading delegations to international trade fairs.  The city also 
sponsors an annual International Patent and Brand Expo.   Post's IPR 
 
GUANGZHOU 00000529  002 OF 003 
 
 
Officer and staff from the Guangzhou branch of the U.S. Patent and 
Trademark Office plan to attend the this year's expo September 
19-21. 
 
¶4. (SBU) In addition, Guo Bujiang of the Shunde Intellectual 
Property Office (IPO) explained that his office had created a 
website that disseminates available patent information for use by 
local innovators who might wish to develop new applications or build 
on existing technologies.  Guo argued that the website and other 
government outreach programs have been instrumental in transforming 
Shunde's household appliance industry into the world's leading 
producer of microwave ovens; it has also been a top producer of 
other categories, from air conditioners to small kitchen appliances, 
in the last couple of years. 
 
¶5. (SBU) Shunde's government helps subsidize local firms interested 
in registering their trademarks overseas.  AIC's Li told us that 
although Shunde firms had registered numerous brands in China, local 
exporters were known to face IPR problems in overseas markets after 
failing to properly register their marks.  He argued that high 
registration costs overseas were part of the problem, noting that 
fees in China - just RMB 2,000 (about USD 300) - were about 
one-tenth the cost of registration fees in the United States. 
(Comment: Various factors affect the cost of registering and 
protecting a trademark in different jurisdictions.  Li's description 
is oversimplified and ignores these factors.  End comment.) 
 
¶6. (SBU) In addition, Yang Xixue of the Technical Supervision Bureau 
(TSB) said his agency worked closely with manufacturers to improve 
quality in support of brand development.  He noted that TSB also 
discouraged substandard firms from production that might damage the 
reputation of other firms in the area. 
 
And Rights Enforcement, Too 
--------------------------- 
 
¶7. (SBU) Officials argued that increased attention to IPR protection 
had also been a factor in the successful development of local 
brands.  They acknowledged having received serious complaints about 
IPR enforcement in the mid-1990s shortly after launching the new 
brand promotion strategy.  However, they claimed that stronger 
enforcement efforts had led to a decline and subsequent 
stabilization in the level of complaints that has lasted for 10 
years.  The Shunde government also registered geographic trademarks 
for each of Shunde's major districts, as well as a "Made in Shunde" 
mark.  They believe IPR enforcement improved as local officials 
became more interested in protecting each new local mark. 
 
Midea and Galanz - Contrasting Brand Strategies 
--------------------------------------------- -- 
 
¶8. (SBU) Midea and Galanz are home appliance manufacturing giants 
headquartered in Shunde, but they place different value on the 
importance of developing their own brands.  Han Qian, Overseas 
Marketing Manager for Midea, told us his company has steadily built 
its brand and increased market share with several major appliance 
product lines.  Midea, which currently employs more than 100,000 
workers across China and in Vietnam, started making fans and air 
conditioners in the 1980s and expanded more recently into kitchen 
appliances.  Despite the strength of its domestic brand sales, Han 
 
GUANGZHOU 00000529  003 OF 003 
 
 
said top-level executives continue to focus on original equipment 
manufacturing (OEM) for foreign brand-name firms in overseas markets 
rather than aggressive expansion of the Midea brand internationally. 
 They see the OEM business as less risky and more flexible than 
building and managing independent sales, marketing and distribution 
networks in other countries.  OEM sales currently account for 90 
percent of Midea's overseas sales.  It plans to test Midea-brand 
products only in its strongest markets, like Southeast Asia. 
 
¶9. (SBU) For Galanz, however, developing its own IP is more central 
to its strategy for international expansion.  The company, which 
employs 40,000, is the world's largest producer of microwave ovens 
(despite a relatively recent transition from apparel manufacturing 
to appliances in 1993).  Vice Director for Foreign Trade Jack Lau 
told us the company's brand was "almost more important than its 
products."  Galanz has registered its trademark in over 100 
countries and jurisdictions around the world.  According to Lau, 
innovation is key to the company's success.  Although it had 
initially obtained licenses from Toshiba technologies, Galanz now 
develops and manufactures its own components without reliance on 
licensed IP.  A headquarters staff of ten works full-time on patent 
protection and brand management, with most domestic Chinese IPR 
disputes resolved by negotiated settlement.  Galanz opened its first 
U.S. office in Los Angeles in 1999, and many mid- and senior-level 
managers have spent time working there and learning about the U.S. 
market.  Lau said that Galanz microwave ovens accounted for 
approximately 40 per cent of the U.S. market.  The company also has 
offices in several other countries and Lau pointed out that 
international IPR disputes are handled according to local law and 
practice. 
 
Comment - A Model for South China 
--------------------------------- 
 
¶10. (SBU) Although city officials were reluctant to provide details 
on IPR enforcement challenges, it is clear that an appreciation of 
the economic value of protecting intellectual property rights has 
taken root in this factory town.  Officials are proud of their past 
successes and expressed optimism that their strategies are not only 
good for Shunde but should also be applied in other jurisdictions. 
They believe this will happen as officials are rotated, and word of 
IP-related best practices circulates to other parts of south China. 
Shunde's interagency IP working group displayed a willingness to 
engage in bilateral discussion that Post hopes might be a starting 
point for future IPR cooperation.  We plan to work with other 
communities as part of our effort to have deeper provincial-wide 
engagement on this subject. 
 
GOLDBERG