Peril Escalates for Team Fighting Piracy of CDs : China: An office is closed and staff sent into hiding after colleague’s abduction, death threats.

Hits and contracts? As part of the music industry, the anti-piracy unit of the International Federation of the Phonographic Industry knew the terms--but not as some Chinese have recently applied them.

Rogue compact disc makers under investigation in southern China, who had issued plenty of threats to the group, apparently made good on them this month: a local employee was kidnapped by thugs, who also announced that hit men had been contracted to halt the staff’s operations.

The kidnap victim was returned unharmed, but with a message for the rest of the office workers: Stop work or disappear. As a result, the anti-piracy unit shut its Guangzhou, China, office and sent its people into hiding.

“The more successful we are, the more dangerous it gets,” said J.C. Giouw, the group’s regional director for Asia. “If the pirates have their factories shut down, they lose millions of dollars. We’re used to threats, but why be sitting ducks?”

The frightening incidents help explain the difficulty in getting China to comply with its agreement to crack down on product piracy.

The industry group, which represents 1,100 record producers in 70 countries, opened three offices in China to monitor music bootlegging earlier this year. China has become the world’s biggest producer of pirated CDs, with sales of about 256 million units a year worth about $250 million, the group estimates.

In February, faced with the threat of $1 billion in U.S. trade sanctions, China agreed to crack down on piracy of music, films and software and promised to shut 29 factories that were the worst offenders.

But American investigators have found that only one factory remains closed and production of black-market CDs has doubled in China since the agreement.

A team of U.S. trade negotiators was in Beijing last month, following up on the pact and other trade issues.

U.S. Trade Representative Mickey Kantor said he was “very disturbed” by the death threats against the industry group and urged the Chinese government to take action.

American government officials, distressed by this violent turn amid China’s seeming inability to shut down renegade bootleggers, predicted that they would be “going to the brink” next year on intellectual property rights negotiations.

The majority of the pirate CD factories are in Guangdong, the southern Chinese province adjacent to Hong Kong. And the farther from the reach of the central government in Beijing, the more brazen bootleggers become.

In the capital, covert vendors sidle up to would-be customers and hiss, “CD? CD-ROM?,” then lead the way to alleys or back rooms for selections including Whitney Houston, the Carpenters and Windows ’95 for about $5. In Guangzhou, fakes are openly on display in stores or sidewalk kiosks.

The southern factories’ managers are similarly cavalier. Many have strong local ties that protect them from closure or warn them of impending raids.

When the music industry federation set up its own office to monitor factories and provide evidence to Chinese and American enforcement officials, local bosses flexed their government links, warning that they would have the group “kicked out of China.”

Giouw, the group’s Hong Kong director, said the Guangzhou office’s 15-person staff was often followed and harassed, but threats had escalated in the last three months since they tried a new tactic: They had sought to get the government to launch a campaign not to enforce intellectual property rights--a vague, foreign concept in China--but to make it an anti-pornography campaign.

And that suddenly meant trouble for factories making explicit CD-ROMs.

“The penalty for bootleg CDs is two to seven years,” Giouw said. “But for pornography, it can be execution. The Communist government hates pornography. We identified some of the factories [making explicit CDs] and, in turn, they targeted us. For them, it has become a matter of life and death.”

Giouw’s group has experienced tough times before. During crackdowns against bootlegging in Taiwan and Thailand, offices were shot at, windows shattered and Giouw was stabbed. The abduction and death threats in Guangzhou are the most extreme he has seen, but in a twisted way, it gives him hope.

Violence in the other countries signaled the death throes of local mafia control, so he hopes that, after this last backlash, China may follow the path to a cleaner market.

“It shows that they are quite desperate,” he said, “which is good. As long as my staff stays alive, we can see a silver lining.”