Joe McDonald wrote for the Associated Press a big article on how Piracy Hurts China's Own Industries, which was picked up by the Washington Post.
"Web sites that carry unlicensed copies of CDs often give away the music for free and make money from advertising. That takes advantage of a provision in Chinese law- one that trade groups are lobbying Beijing to change - that requires pirated goods to be sold before violators can be prosecuted."
However, if one looks at the Criminal Law of the People's Republic of China of 1997 this does not seem to be the case:
Article 217: A person who, with a view of profit, commits any of the following acts of infringing upon copyright, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and concurrently or independently, to a fine if the amount of illegal gains is relatively huge or any other serious circumstance exists; and if the amount of illegal gains is huge or any other especially serious circumstance exists, to fixed-term imprisonment of not less than three years and not more than seven years and concurrently to a fine:
(1) to reproduce and distribute, without the permission of a copyright owner, a written work or musical, cinematic, television or video work, or computer software or any other work of the latter;
(3) to reproduce and distribute, without the permission of a phonogram or videogram producer, a phonogram or videogram produced of the latter;
For unauthorised music at websites that make profits because of advertising there is in my opinion nothing in this provision that prevents a prosecution. There is no need that the pirated goods must first be sold before the pirates can be held criminally liable.
Nevertheless selling is required for counterfeited trademarks:
Article 214: A person who knowingly sells goods bearing counterfeited registered trademark shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and concurrently or independently, to a fine if the amount of the sale is relatively huge and; if the amount of the sale is huge, to fixed-term imprisonment of not less than three years and not more than seven years and concurrently to a fine.
Neither is selling a requirement in case of litigation because of copyright infringement:
article 47 (3) of the Amended Copyright Law of 2001 states:
reproducing, distributing a sound sound recording or video recording of a performance, or transmitting the performance to the public through the internet without the consent of the performer, unless otherwise provided in the law (Exceptions of the Rome Convention article 15).
McDonald may have meant that if the actual damages can not be calculated, only 500.000 yuan can be awarded for the infringing act (article 48).