As of this writing, shares of Alibaba were down 9.09% to $89.50 per share
Alibaba is fighting back against a report released by China’s State Administration for Industry and Commerce (SAIC). The regulator criticized the online retailer for not doing enough to fight against fake goods being sold on its site.
Alibaba must fight fakes on Taobao
Joe Tsai, Alibaba Executive Vice Chairman, said today that they are preparing an official complaint against the SAIC because the agency’s report is flawed. He said they first reviewed the agency’s white paper on Wednesday and that they never asked it to delay the release of the report, which specifically focuses on fake goods being sold on Taobao. They are planning to accuse the agency’s lead director of “procedural misconduct,” according to a post on Chinese micro-blogging platform Sina Weibo.
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The white paper focused on a meeting between the SAIC and Alibaba which happened this past July, report John Ruwitch and Paul Carsten of Reuters. Tsai reportedly told CNBC that Alibaba was “unfairly attacked by a report that was a sample check of some of the items.” He said they also felt like regulators were specifically targeting Alibaba and that it was unfair.
USA Today‘s Calum MacLeod reports that the public argument between Alibaba and Chinese regulators is unusual because the Chinese government has often praised the online retailer for its innovation and leadership. Also most companies don’t publicly air their complaints against the Chinese government because they don’t want to upset powerful people in the government.
Alibaba stock on the decline
Alibaba stock was quick to respond to Wednesday’s report about the SAIC’s white paper. Shares started declining immediately and then kept falling after the company posted revenue results that were weaker than expected.
Fortune‘s Scott Cendrowski reports that on the company’s earnings call, there was just a single question about the SAIC’s report. In addition to criticizing Alibaba for not doing enough to control the sale of fake merchandise on Taobao, regulators also accused the company’s employees of taking bribes from merchants who wanted to boost their placement in search rankings on the website.
Wall Street seems particularly perturbed by this allegation, which goes beyond simply letting fake goods be sold on Alibaba’s sites. Taobao has long been known to be a hotbed of fake merchandise for sale, but consumers tend to read the comments section before making a purchase on the site because they’re aware of this reputation.
As Cendrowski notes, the timing of the report is interesting as it came out after Alibaba’s initial public offering in September. It’s possible that report could have been ready before the IPO, as it focused on a July meeting. It’s unclear why the report wasn’t released earlier, but Alibaba CEO Jack Ma is going to have to move more quickly in stamping out fake merchandise on Taobao—if only to appease Wall Street.