International

Will Alibaba Stand Down In Its Fight With China’s Commerce Ministry?

A war of words between the Chinese commerce ministry and Alibaba may now be cooling down after several days of heated rhetoric that has seen accusations, threats and personal attacks, after a government report last week criticized Alibaba’s Taobao, China’s largest online marketplace, for the large amount of counterfeit and substandard merchandise it said was being sold on the site.

On Wednesday evening (Jan. 28), Alibaba chairman Jack Ma adopted a conciliatory stance, stressing Taobao’s cooperation with the government and announcing the company had formed a 300-person team to fight counterfeiting, according to the South China Morning Post.

“Fake products are not a problem created by Taobao, but Taobao has to bear responsibility and resolve the issue,” Ma said.

But earlier on Wednesday, the State Administration for Industry and Commerce (SAIC) published a white paper containing memos from meetings in July between SAIC and Alibaba, in which SAIC expressed concern about fake merchandise on Taobao. The same day, Taobao said it would file a formal complaint with the SAIC.

The tempest began last week, after the SAIC published a report that said 40 percent of a sampling of products on six Chinese online marketplaces were either substandard or fraudulent. The bad merchandise came from five of the sites — Alibaba-owned Taobao.com and Tmall.com, Tencent-backed Jd.com, and Yhd.com and Zol.com — but Taobao was singled out because only 37.3 percent of the goods sampled there were found to pass the standards for conventional Chinese retailers.

In contrast, at Taobao’s sister site Tmall 85.7 percent of the merchandise reviewed was up to standard. At Jd.com the rate was 90 percent, and at Yhd.com 80 percent.

According to the study, which was commissioned by the SAIC and performed by the China Consumers’ Association, substandard fertilizer was the product most likely to fail standards — only 20 percent of fertilizer products bought in the survey were deemed authentic. Just 28.6 percent of mobile phones were authentic, compared to two-thirds of cosmetics, toys and apparel, and 77.3 percent of lubricant oil. Of the faulty toys, many didn’t have the required China Compulsory Certification tag to show they have passed safety tests and are safe for children.

On Tuesday (Jan. 27), after the faulty-merchandise story was widely reported, Taobao.com published an open letter on its official Weibo blog addressed to the director of SAIC’s e-commerce division, Liu Hongliang. The letter, titled “Don’t make unfair calls, Director Liu. You’ve crossed the line” and reportedly written by an anonymous employee, accused Liu’s department of commissioning an unfair quality survey to pick on Taobao.com.

Taobao.com removed the letter on Wednesday morning — but by then, the SAIC had published its white paper on Taobao’s failure to ban substandard products. The white paper included memos from meetings between SAIC officials and unnamed Alibaba executives in July 2014, when SAIC presented its findings of “the long-term existence of illegal problems regarding the management of transaction activity and other issues,” the white paper said.

In the report published Wednesday, SAIC said it found 19 problems in five main areas on Alibaba’s sites, including a number of unlicensed or unregistered vendors selling items, along with counterfeit goods and goods that were improperly imported or banned from sale in China. Among the bad products were fake cigarettes, wine and mobile phones; knockoff handbags; gambling equipment; wiretapping devices; and restricted types of knives, The New York Times reported.

The SAIC also said it kept the results confidential at the time so as “not to affect Alibaba’s preparations for a stock market listing” — Alibaba’s record $25 billion IPO in September.

That detail may be telling. Alibaba has just launched a credit-scoring service and is about to launch a private online bank in China — and its payments subsidiary Alipay is edging closer to its own IPO in China, but all those payments-related efforts could run into serious problems if a fight with Beijing bureaucrats lasts too long.

Last month, Alibaba said it spent about $160 million in 2013 and 2014 combating the sale of fake goods on its sites. The company also said it will cooperate with the U.S. Consumer Product Safety Commission to keep merchandise banned by the CPSC off its U.S.-facing websites.

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