Alibaba clashes with Chinese regulator over online sales of fake goods

Alibaba was quick to protest some of the regulator's conduct in making its findings

The Alibaba Group logo at company offices in Hangzhou, China.

The Alibaba Group logo at company offices in Hangzhou, China.

Alibaba Group is facing harsh criticism from the Chinese government over sales of fake goods on its e-commerce sites.

The country's State Administration for Industry and Commerce (SAIC) issued the report as a way to urge Alibaba to clean up its act.

According to the government regulator, Alibaba faces a "crisis" of credibility, after failing to address the alleged offenses, which revolve around the company's online retail sites Tmall.com and Taobao Marketplace.

It was a striking statement, given that the Chinese government has at times lavished praise on the company. On Tuesday another government ministry pointed to Alibaba's successful IPO as a reason why China needs to carefully regulate the Internet.

China's SAIC said it had even brought up the problems with the company last July in a meeting. But it had kept the gathering out of the public eye so that Alibaba's listing in the U.S. would go without a hitch, the regulator said in the same report.

Chinese President Xi Jinping has been leading a government crackdown on corruption, putting the spotlight on other tech companies such as Microsoft and Qualcomm.

Alibaba is a particularly big fish. Its Tmall and Taobao sites together control over three-quarters of China's online retail market, according to Beijing-based research firm Analysys International. The platforms are home to millions of different merchants, from big brands to small businesses.

But among SAIC's complaints against Alibaba were that the company's Taobao sites continue to offer a plethora of counterfeit and illegal goods, including fake smartphones, fake designer bags, and fake alcohol. Not only does the company do little to rein in the offending merchants who sell on its sites, but Alibaba may also be deliberately allowing the activities to occur, the regulator alleged in its report.

China hasn't been the only one to level criticism. U.S. authorities have also accused Alibaba's Taobao sites of being hotbeds for counterfeit goods, but they later dropped Taobao from their list of major offenders back in 2012 due to the progress Alibaba made in eliminating the products.

Alibaba issued a lengthy response to SAIC's report, saying it has been working hard to fight the counterfeit goods, and is willing to cooperate with Chinese authorities on tackling the problem.

But the e-commerce giant also sought to prevent Chinese authorities from stifling its growth, and risk over-regulating the market. "Please do not throw the baby out with the bath water," the company said in an email.

At the same time, Alibaba wasn't happy to take all the criticism. It accused SAIC's director Liu Hongliang of "irrational enforcement of the law" and reaching a "biased conclusion" that damaged to Taobao's business.

"We welcome fair and just supervision, and oppose selective omissions and malicious actions," the company said, adding that it has filed a complaint with the SAIC.

The Chinese regulator could not be reached for comment. But a week earlier, SAIC released another report, and found that only 37 percent of the goods it had bought in a sampling from Taobao were authentic.

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Tags e-commerceregulationAlibaba Groupgovernmentinternet

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