A leading Chinese IPR official has admitted that China is struggling to control online piracy and has called for more muscle and tougher punishments.

Yan Xiaohong, VP of the National Copyright Administration, told a news conference that “following the rapid development of Internet technology, online piracy cases have proliferated, and the fight is far from over.”

Yan described the problem in China as “very severe” and called for stiffer fines and sentences.

Online piracy is a major challenge for the industry given the growing importance of the market here. China had 210 million Internet users at the end of 2007, second only to the U.S., and looks set to overtake the U.S. this year.

The nature of piracy in China is changing. Rip-off DVDs are becoming irrelevant as pirates focus on downloading movies and music and distributing them through Internet cafes and other online outlets.

Netizens are increasingly turning to pirate downloads of Hong Kong and Taiwanese TV skeins, which are banned on the mainland for what the communist government sees as risque or politically incorrect content.

During a campaign against online piracy between August and October, officials investigated 1,001 copyright infringement cases, 60% more than the combined totals in 2005 and 2006.

The campaign shut down 339 illegal websites, confiscated 123 servers and imposed fines of more than 870,000 yuan ($120,000).