in lost sales for software producers, but also provides an unfair commercial advantage to such SOEs. Many SOEs compete directly with U.S. businesses, and to the degree that these SOEs do not pay for the software that runs many of their operations, they obtain an advantage relative to their U.S. and other competitors, who pay to acquire software lawfully.
Online piracy
In 2011, China reportedly sanctioned 14 websites for providing illegal music downloads, requiring those web sites to remove links to offending files, which had been identified by the government (in addition to the 18 mentioned above). Nevertheless, illegal downloads account for an estimated 99 percent of all music downloads in China, and piracy of copyrighted material over the Internet thus continues to be a major problem. China's Internet users are increasingly turning to streaming media to watch foreign television shows and movies. While it appears that a number of user generated content sites have eliminated most of their pirated content, these streaming sites have become the preferred method to watch illegal content. The United States urges the Chinese Government to focus on these streaming sites, and to prevent illegal transmission and rebroadcast of motion pictures and television and sports programming.
Industry submissions detail the improvements as a result of the Special Campaign and the increased emphasis on ensuring that IPR is protected in the digital environment. However, despite many "Special Campaigns" in China over the years to combat IPR infringement, and despite repeated bilateral commitments to increase IPR enforcement in China, the United States Government is concerned that sales of IP-intensive goods and services to China from U.S. companies remain substantially below levels in other markets, measured in a variety of ways, ranging from spending on legitimate music as a percentage of GDP to software sales per personal computer. For example, total music revenue (which includes both legitimate physical and digital sales) in China for 2010 was only US$64.3 million. This compares to almost $4.2 billion in the U.S., US$178.4 million in South Korea and US$68.9 million in Thailand — a country with less than 5 percent of China's population and with roughly the same per capita GDP. If Chinese sales were equivalent to Thailand's on a per capita basis, music sales would be almost US$1.4 billion. The United States urges China to continue its efforts to improve IPR protection and enforcement and to ensure that this results in an increase of sales of legitimate goods and services from all sources, including imports.
Counterfeiting
As we noted in last year's report, China's manufacturing capacity also extends to all phases of the production and global distribution of counterfeit goods. The list of goods that are counterfeited includes apparel and footwear, mobile phones, pharmaceuticals and medical equipment, herbal remedies, agricultural chemicals, computer and networking equipment, software and related products, batteries, cigarettes, cosmetics, home appliances, cement, auto parts, and merchandise based on copyrighted works. This year we also received lengthy submissions concerning the impact that counterfeiting was having on U.S. agricultural industries including the fruit and vegetable industry and the wine industry. Of particular concern was the submission of the Semiconductor Industry Association that warned of counterfeit semiconductors entering the supply chain, noting the risks of installing fake and shoddy
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