A persistent question that follows stories about counterfeiting is why do most of the counterfeits come from China and why do they get away with doing this? Unfortunately, the answer lies in differences in our laws, politics, and cultures that may not be as easily resolved as people would like. However, understanding the issues may make it easier to understand how to resolve the problems.
The easiest part of the explanation is the legal standpoint of what we see as counterfeiting versus what the Chinese legal system sees as ordinary commerce. In the United States, every coin ever minted is still legal tender and legally an instrument of the government. Although the Trade dollar was demonetized in 1876, it was remonetized as part of the Coinage Act of 1965 making it legal tender (31 U.S.C. § 5103) for trade in the United States. Even when the United States changes the design of a coin, it remains legal tender.
To protect its currency, the United States has anti-counterfeiting laws that say it is illegal to counterfeit the nation’s money and use in commerce. To protect the collection of collectible coins and currency, the United States created the Hobby Protection Act (15 U.S.C. § 2101 et. seq.) to protect the money supply when it is a collectible and not an instrument of commerce.
In the United States, laws a cumulative. Once passed, they remain the law until repealed or declared unconstitutional by the courts. This is not the way in many other countries. When a new government takes power they are given the authority to rewrite the laws in some form. Not only does this happen with authoritarian governments but in most parliamentary democracies. While new parliamentary governments have restrictions on the changes they make, authoritarian governments do not.
The People’s Republic of China has been run by the Communist Party since 1949. Their rules and laws were changed with the rise of Chairman Mao Zedong and get altered by the party every time a new chairman takes over the party. This includes the control over the money supply. Thus, when the Communist Party took over the country, they demonetized the money produced by the Republic of China and issued renminbi, the “people’s currency.”
In real terms, all coins struck since 1955, the first issued under the current government, are legal tender. Currency printed since 1999, the fifth series are the only legal tender notes. Any other coin or currency note has been demonetized.
Under Chinese anti-counterfeiting laws, it is illegal to duplicate any legal tender coin or currency note for any reason. However, since coinage from previous regimes is no longer legal tender, it is legal strike coins with designs that are no longer legal tender. Chinese laws do not recognize the collection of these coins as a market to protect. Coins are an instrument to facilitate commerce.
Buying and selling coins as an object is just a matter of commerce between individuals under Chinese law and not something that requires protection. While the Chinese buyer can use the obsolete coin as an object of barter, bartering does not hold the same legal status as paying with legal tender currency. Basically, once it is demonetized for new coinage, just about anything goes.
Unlike United States law Chinese law does not recognize the perpetual legal tender status of every coin issued. Chinese law also recognizes that counterfeiting current issues of other countries is also illegal because someone could try to use the coin in commerce where it is legal to use foreign currency. This means that in China, it would be illegal to reproduce a presidential dollar or Washington quarter, but producing Morgan dollars or a set of 1921 Walking Liberty half-dollars is legal in China because these are coins no longer issued in the United States.
When China is asked to assist the United States to stop the counterfeiting of coins, China does not recognize that its people are doing anything wrong. The coins are no longer being made, they are not in circulation, and their laws allow people to make copies of these coins. China does not recognize a collectible coin market. In fact, the only laws they have regarding collectibles are laws protecting antiquities and cultural properties. Under Chinese law, you cannot duplicate the proverbial Ming Dynasty vase and try to pass it off as real but it is legal to reproduce a Rembrandt masterpiece since he is not Chinese and his work was not made in China.
A trade attorney that was consulted for this article confirmed that when it comes to these issues, Chinese law is very protectionist. The claim is that they follow their laws consistently regardless of outside circumstances and they refuse to make exceptions citing the complication with enforcing their laws in a country with a population of more than 1.3 billion people.
Making the problem more difficult, copying and counterfeiting of grading service holders is not covered by Chinese law because they are not government entities. The grading services would have to fight the counterfeiters using Chinese patent and copyright law. A patent attorney confirmed that not only would this not stop the problem, but foreign challenges to alleged patent and copyright violations are rarely successful in Chinese courts.
The Chinese government has no incentive to help the United States or any other country fight counterfeiting in what is perceived by the Chinese as a small market problem. To put the resources necessary into what looks like a petty crime for selling inexpensive, non-circulating duplicate coins that are within Chinese law to manufacture is not worth their resources.
While there is anecdotal evidence that the Chinese government knows about the counterfeit trades and some officials informally support the efforts because they get kickbacks, official Chinese policy denies everything.
A lot has been written about the nature of the relationship between the United States and China since President Richard Nixon’s trip to China in 1972. Neither side trusts each other nor does neither side believe each other. Today, the United States decries the Chinese for buying too much of our debt, allegations of spying, industrial espionage, and cybercrimes. The Chinese say that the United States is trying to bully the world and that these naysayers are making up the stories to scare the world into following them. The United States talks about civil rights violations within Chinese border and the Chinese government tells the United States to mind its own business.
The greater opening of markets between the country and the increase in popularity of bullion coins has made the Chinese Panda a popular coin amongst collectors and investors. Those of us who buy these coins know that even with the production increases since 2010 new issues continue to command a premium greater than other bullion coins.While the Chinese are happy to sell coins and be the factory to the United States, there remains an underlying tone of political and commercial hostility between the nations. A trade attorney said that the Chinese would rather keep the relationship to business between the countries that the United States should stay out of China’s domestic policy. In one example, it was explained that the Chinese central government was upset over how the United States passed judgment over companies in their high tech electronic manufacturing sector because these companies are doing better and is safer than other Chinese manufacturers. To the Chinese government, it is not a problem if a few workers die for whatever reason. There is an ample supply from the population to keep the plants running.
These are the values of the Chinese government. Whether you agree with them or not, Communist Party officials will resent anyone telling them how to manage their domestic affairs. They want advice about how to treat their citizens as much as the United States wants similar advice from China.
All things considered, there is no incentive for China to stop the manufacture of counterfeit collectable coins.
It is not against Chinese law for these people to manufacture coins that are no longer in production. Chinese people who are manufacturing these coins are working in China and many employ other people. It means there are fewer people on what little government assistance the Chinese government provides and they can collect taxes on the incomes.
When a United States trade representatives negotiate with their Chinese counterparts, it gives the Chinese a chance to lecture the United States how they resolved the counterfeiting issues which leads to a discussion on currency handling and management, which is a sore subject in the United States since the United States questions Chinese monetary policies.
Finally, it gives China a measure of moral superiority against the United States. After all, China figured out a way to prevent the impact of counterfeiting of older currency, why can’t the United States do the same?
China has no incentive to help the United States to solve a problem that they perceive does not exist. It is up to the United States to resolve these issues. This is why the industry needs the Collectible Coin Protection Act (H.R. 2754) to allow law enforcement to cut off the supply lines from the counterfeit manufacturers in the United States.