This is a good video clip produced by Ms Angela Sun dated September 19, 2005 that explains it all in a nutshell. It's worth watching though you may think its outdated. The situation in China hasnt changed pretty much as counterfeiting is still as rampant as before. Click on this link to the video.
While its a serious problem in China, dont think the authority care too much either even with the big outcry coming from the international brand owners. With Beijing Olympics around the corner, its definitely not good for China PR positioning. The authority may swing into action to clamp down just before the Games and after the Games, i m sure its going to be business as usual for the counterfeit peddlers. As long as there is a demand from the buyers, its going to be hard to stop the counterfeiters unless if the authority comes down hard on it.
Many of you would think that the Chinese goverment are not capable in combatting piracy, in reality, there isnt any thing that the government are not capable of doing. As a proof, if you live in major cities in China, try look around for a counterfeit Olympics merchandises, believe me its hard to find and even if they are people doing them, its really marketed on a very small scale. Olympics is a national project and it will surely hurt their ego and pride if such counterfeit merchandises are found all over the place.