Xia Wenquan was among the earliest stallholders in Xiushui. In 1984 he resigned from the state-owned Beijing Towel Factory and started a small business in the market, which was then a conflux of peddlers in a lane adjacent to the foreign embassy district. Xia sold commodities like underwear and socks from a small barrow and all his patrons were expatriates. “It was easy to do business with foreigners. They never inquired much before opening their wallets. I pressed a few buttons on the calculator, and the deal was done,” Xia recalls nostalgically.

    Li Shulan was among the first to sell silk in the market. Foreign tourists reappeared in China in the early 1980s after the commencement of reform and opening-up, and many crammed their suitcases with traditional Chinese arts and crafts on departure. “With its distinct Chinese features, silk was snapped up like hot cakes by foreigners. Business was brisk,” recalls Li. Other merchants in the market soon followed suit. By 1985 the 200-meter lane was flooded with silk and related products, and soon became known as Silk Street.

    As the flow of visitors increased, some merchants expanded their stock to include leisurewear and leather, mainly surplus items that had been produced for export. The majority of customers were still foreigners, as Chinese in the 1990s remained largely conservative in their dress and had yet to develop expensive tastes. “Luxury brands such as LV, Prada and Hermes were little known domestically at the time,” says Wang Zili, general manager of Xiushui. “International customers came to Silk Street with overseas advertising brochures, searching for the designs featured in them. This huge demand stimulated the emergence of, and surge in, counterfeits. As long as the market is there, sham products cannot be rooted out.”

    “Xiushui had some really nice stuff years ago, but was later overwhelmed by fakes,” says Xia Wenquan. “Now you may get a pair of Lee jeans for RMB 50. But I can tell their poor quality with a single touch.” After many years in the garment business, Xia can discern the quality of textiles merely by a running finger over the surface and taking a sniff.

    Xia admits he also dealt with fake goods before joining a domestic shirt brand franchise. “That was good easy money, but not any more. The government has become more vigilant and rigorous about policing piracy.”

    In a renovation in 2005, Xiushui was remolded into a mall-like complex. In addition to creating a more pleasant environment with better facilities, the change allowed closer supervision of tenants. Despite the changes, many are still reluctant to quit the lucrative fake name brand business.

    Also in 2005, five fashion companies — Chanel, Louis Vuitton, Burberry, Gucci and Prada — filed a lawsuit against Xiushui for trademark infringements. A local court ruling against the market forced it to pay RMB 100,000 in compensation, and trademark infringements against these brands immediately ceased.

    The event was widely reported that year, ringing alarm bells in Xiushui and beyond. Now a poster hangs at the market’s entrance, warning of illicit dealings in 24 brands, including Hermes, Estee Lauder and Dunhill. “Inspectors check around the market every day. Anyone selling imitations of brands on the prohibited list is caught and punished,” claims Xia Wenquan.

    But imitations of other global brands are still traded with impunity.

Who Is Buying?

    Xia Wenquan feels it is unfair to put all the blame on sellers. “Most customers at Xiushui knowingly buy fake products. Approximately 80 percent of counterfeits of top Western brands go to foreign buyers, and are loved for their near-genuine design and quality.” Market manager Wang Zili also alludes to this fact with the comment, “Xiushui receives roughly 10,000 visitors every day, and 60 percent are from abroad.”

    China Today saw a man from the Middle East purchase a Polo coat at RMB 800, which was initially offered for RMB 2200. “Foreigners are hard bargainers nowadays,” jokes the salesgirl. Loraine from the U.S. found her way to Xiushui with a copy of a travel guide, and was soon attracted by silk toe shoes bearing Tod’s brand name, priced at RMB 30 a pair. A tour guide with the Beijing Youth Travel Service confirmed that many of her international clients asked to be brought to Xiushui for shopping.

    The presence of Chinese shoppers has also been growing at Xiushui. As Western culture wields a broader and deeper influence, luxury brands become widely perceived as tokens of high social status. For those with their eye on big brand names but unable to pay high prices, Xiushui offers an easy solution.

    The first basement floor of the tower holds bags and shoes, many of which bear logos resembling international brand names. Li Shuang, a college girl with delicate makeup and huge loop earrings, brandished her latest trophy — a “Bally” handbag. “It is neat and cheap, costing only RMB 120,” she smiled. When a hesitant customer murmured it is not a real Bally, the salesgirl quickly retorted: “Is there anyone who doesn’t have phony articles? Our bags are high precision imitations. Nobody will know it is not a genuine one.”

    Huge numbers of handbags branded as D & G and other top names leave the market everyday. A real D & G bag costs as much as RMB 10,000, while official figures show that the per capita annual disposable income of China’s urban residents averaged barely RMB 20,000 in 2008. While international brands are out of reach for most Chinese people, cheap copies can at least make them feel closer to their well-heeled peers.

    Ironically Silk Street sits across the street from the up-market Scitech Plaza, whose stated aim is to bring the world’s top names into China.

A Painful Changeover

    Xiushui has increased efforts to come out from under the shadow of piracy since the 2005 lawsuit. In 2006 it established an Intellectual Property Rights Protection Fund of RMB 30 million, which grants annual rent rebates to tenants without IP infringements. The winning list can be found on the tower’s billboard under the heading “Names of Honor.” The market also hangs a reminder of the 24 established brands that are most counterfeited next to every counter. In 2007 more than 100 businesses were evicted for selling pirated goods. Progress was acknowledged by the Intellectual Property Rights Committee of the EU Chamber of Commerce.

    The draconian enforcement of these rules has backfired in terms of business flow however, and some tenants have voluntarily moved out of the market. Turnover in the shirt business Xia Wenquan runs is flat. “With no good prices, there are not many buyers,” he groans. “I used to make more than RMB 100 on one Jack & Johns jacket.”

    Wang Zili admits that the transition Xiushui is working through could be a long and painful process. “The old prosperity may not be restored in the short term,” he predicts. The market intends to eventually become a conglomeration of national brands and discount stores of top world names. In working towards this aim, it offers lower rent to dealers of native arts and crafts such as silks and porcelain. So far 19 time-honored Chinese corporations have set up branches here, including the roast duck restaurant Quanjude, and the traditional Chinese medicine maker Tongrentang.

    During the Beijing Olympic Games Xiushui received 1 million visitors, 80 percent of whom were from abroad. Among them were dozens of state leaders and celebrities, such as former U.S. President George H. W. Bush and IOC President Jacques Rogge and his wife.

    Xiushui’s growing reputation is an incentive to steer business towards legitimate trade. But for the moment the fake goods that brought the market its fame are still what lures most customers. Signs urging people not to buy pirated products can be seen everywhere in the Xiushui tower, but few in the jostling crowd take them seriously.

A Bahamian athelet learns to unfold a Chinese fan during the Beijing Olympics.