Despite steps by the authorities to combat the problem, China remains the world leader in software piracy.
The rate of software piracy in the country reached 90 per cent in 2004, compared to 27 per cent in the UK and a world average of 35 per cent.
Counterfeit goods are still widely available in China, ranging from pirated DVDs to fake branded mobile phones.
US software and entertainment firms alone claim that Chinese piracy costs them $2.5bn a year; in one instance pirates were selling bootleg DVDs of The Da Vinci Code only two days after its premiere.
Speaking to students at Beijing's Renmin University, Mandelson warned that China would face a backlash in Europe unless it did more to "apply rather than circumvent the rules".
Earlier this week, in a speech to Chinese business executives and lawyers, Mandelson described piracy as "probably the most important issue in Europe's relations with China. It is as serious and as big as that."
The Chinese authorities have had some success in combating the problem. The recent annual global PC software piracy study from the Business Software Alliance, conducted by IDC, noted improvements in a number of markets including China's.
The nation is predicted to become a major market for legal music downloading, with estimated annual revenues of $222m by 2008, thanks to ongoing copyright crackdowns.
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