Wu Yixue

Is Taobao the king of fakes in China e-commerce?

Taobao has challenged China's market regulator, which said in a report that it had the worst performance among six online shopping sites.
Taobao has challenged China's market regulator, which said in a report that it had the worst performance among six online shopping sites.PHOTO: CHINA FOTO PRESS

The squabble between China's e-commerce giant Alibaba and the state's market regulator, caused by a product quality report, points to improved market environment and governance.

A quality report issued by the State Administration for Industry and Commerce (SAIC) on Jan 23 said Alibaba-owned taobao.com, China's largest consumer-to-consumer platform, had the worst performance among six online shopping sites.

The quality check, conducted between August and October, showed that only 37.25 per cent of the sampled goods from Taobao were authentic, compared with 90 per cent for JD.com and 85.7 per cent for Tmall, an Alibaba business-to-consumer site.

Following the quality controversy, Alibaba's US-trade shares lost about 4 per cent and dropped to US$98.45 (S$133.50) on Jan 28, after falling to US$102.94 at close on Jan 27, down by 1.01 per cent from Jan 26.

On Jan 27, Taobao said that it would file a complaint against Mr Liu Hongliang, deputy head of SAIC's e-commerce trading supervision department, for abusing power and using improper supervision procedures, which, it said, had resulted in "very serious" losses to the company.

"We welcome fair monitoring but we are opposed to misconduct... Liu employed a wrong method to reach a conclusion that is not objective," Taobao said. That it has challenged the regulator reflects a more tolerant government which allows the market to play a key role.

The SAIC responded by posting a white paper on its website on Jan 28, saying Taobao had failed to clean up its business in five areas, including a flawed rating system for vendors, a low threshold for opening up on-site business, lax scanning of information on goods and allowing merchants to operate without business licences. The report shows that the state regulator is committed to its task while trying to give full play to a healthy market.

The method used by the SAIC in the August-October quality check, however, has led to protests from Taobao as well as some netizens, because 51 of the 92 samples chosen for inspection were from Taobao. This means 41 of the samples came from as many as five online retailers. The SAIC's refusal to allow the companies the right to apply for re-examination has also been a source of conflict.

Despite the doubts, the report still sent shockwaves through consumers, especially online shoppers, across the country. Given that online shopping has become increasingly common among Chinese consumers, the report may dampen many people's enthusiasm for online retail, dealing a blow to the country's prospering yet fledgling e-commerce sector.

China's e-business has seen explosive growth in recent years, with its market volume rising from 4.5 trillion yuan (S$976 billion) in 2010 to 8.2 trillion yuan in 2013, an annual growth of more than 25 per cent. In the first half of 2014 alone, online transactions topped 5.66 trillion yuan.

E-commerce is attracting an increasing number of consumers, especially the young, because online shopping saves time and money. But the growth of e-commerce has also come with excessive advertising and flow of counterfeit and substandard products, prompting the authorities to take measures to ensure quality.

The new law on the protection of consumers' rights and interests, which took effect on March 15 last year, gives consumers the right to unconditionally cancel a deal within seven days of receiving goods bought online.

But quite a few online shoppers still complain that they face trouble returning goods or getting their dues in cases of online disputes. This, along with other problems associated with e-commerce, calls for the SAIC to make greater efforts to strengthen monitoring and improve the online shopping process.

Although e-commerce platforms in other parts of the world are also struggling to prevent substandard and counterfeit goods from entering the online chain, this cannot be used by the SAIC and online shopping platforms as an excuse for inaction or lax monitoring.

The booming sector should be encouraged to expand its business provided the ever-increasing number of online shoppers are guaranteed delivery of authentic goods.

And it is time Alibaba and the SAIC sat down to work out more feasible ways to prevent fake and substandard goods from entering the online buying-and-selling chain instead of engaging in legal battles.