Alibaba V Chinese government: Dawn of anti-counterfeiting

Alia | January 28th, 2015 - 10:57 pm

“It is a war between money and power!”

“It is the battle of the year!”

“It will be the start of a new kind of business-government relationship in China.”

If you are operating a business in China, how big do you need to be before you dare to openly challenge the Chinese government? Alibaba, China’s e-commerce giant who had a record-breaking IPO in the US last year, gives it answer yesterday.

What millions of Chinese consumers found out yesterday morning when they opened their newspaper (virtually or physically) is that Alibaba, whose services they use every day, and their dear government, whose (sometimes suffocating) influence they feel every day, are at war. It is rare, but also exciting.

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How did it happen exactly? Here is a timeline:

Jan 23, the State Administration of Industry and Commerce (SAIC) released its 2014 second-half year quality survey of online sales. In the report, Taobao, the C2C online marketplace site under Alibaba, was called out for having more than 60% of fake products.

Also on Jan 23, hours after the SAIC report, Taobao, in a very rare move, published an open letter on its social media account, openly questioning the methodology of the survey and accusing the report of being biased. The open letter referred Zhang Hongliang, a bureau chief of SAIC, as “black whistle” (a Chinese term for unfair/biased judge), and pointed out that the survey only sampled 51 products out of Taobao’s daily sales of over 1 billion items.

Only 37 out of the 51 sampled products met national standards. Thus the SAIC report concluded that more than 60% of products on Taobao were fake. Another e-commerce site only got 1 product sampled, and very unfortunately, that 1 sample didn’t meet national standards. So SAIC concluded a 0% satisfaction score for that site. To this end, Taobao pointed out that both the survey process and the conclusion were questionable.

The open letter also openly accused the bureau chief of power abuse, which may lead to “a loss of trust in the government to maintain a fair playground.”

And that’s just the foreplay. The real strike began when on Jan 28, SAIC openly called Alibaba to “stop being arrogant”, and released a full “executive guideline” white paper, accusing the company of lax oversight of illegal activities by merchants and urging reform.

The white paper detailed 19 problems in 5 major areas for Alibaba, including problematic products, bullying small businesses, corruption of staff, and fake transactions. The white paper also used some pretty strong words to call for Alibaba to ditch the thought that it would be an exception in front of the law.

Hours later, Alibaba issued a somewhat passive-aggressive official response, acknowledging the issue of counterfeiting on Taobao, and at the same time, pointing out the challenge of single-handedly solving China’s fake product problem by an e-commerce company.

In the response, Alibaba expressed willingness to cooperate with SAIC in whatever ways possible, and actually welcomed SAIC to send in a work group. But at the very end, Alibaba said: “We welcome fair supervision, but oppose questionable regulation or evil regulation.” The response ended by informing that the company will file a formal complaint in regard to SAIC bureau chief’s use of “inappropriate procedure” and “emotional regulation enforcement”.

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In a country where the old saying of “people don’t fight with officers” could last thousands of years, Alibaba’s response is a de facto declaration of war with a government agency that is in charge of all commerce and corporate activities in the country.  The unfolding of events are exciting so far, especially during a time when even big foreign brands like Facebook and Apple are accused of kowtowing to the Chinese government.

The mere action of openly criticizing a government agency is winning hearts for Alibaba. Many netizens hailed Alibaba’s courage to make a stand and challenge government authorities.

In a quick poll by Sina Weibo, China’s leading social media platform, about 67% of the 6000 something netizens who took part in the poll said they would side with Taobao. Other polls by several other sites revealed the same result: the Chinese consumers are backing Taobao in its war with the government.

Their logic is simple. Like many netizens commented: “The SAIC has turned a blind eye to offline counterfeiting for several decades, and suddenly it jumped out to point fingers at Alibaba. How ridiculous!”

They also argued that Taobao, with a similar business model as that of eBay, is merely providing a platform where people can trade, “Taobao isn’t selling anything itself. Why should it be the one to blame for fake products. Not like China didn’t have any fake stuff before Taobao or outside of Taobao. The SAIC is asking Alibaba to do its job. SAIC is the one that’s arrogant.” One netizen commented.

Some even speculated that Alibaba was targeted by SAIC because it hasn’t contributed enough bribes. “The government has allowed Alibaba long enough time to grow this fat. It’s time to harvest!” One netizen sarcastically commented. Another netizen, in reference to Jack Ma’s promise that Alibaba should never marry the Chinese government, commented: “The government seems to want to force Alibaba into a marriage.”

The public support may be able to help Alibaba in the short term. But in the long run, government regulation remains probably the biggest uncertainty in Alibaba’s development.

 

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