China Criticizes Alibaba Group Holding Ltd Over Fake Goods

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Many Alibaba employees took bribes and the company allowed ‘illegal advertising on its platforms

On Wednesday, the State Administration of Industry and Commerce (SAIC) of China slammed Alibaba Group for its failure to crack down on counterfeit goods, shady merchants, and misleading promotions. The regulator accused the e-commerce titan of not paying enough attention to consumer protection. The report summarized a July 16, 2014 meeting between the regulator and Alibaba officials. But SAIC had withheld it until now to avoid strangling the company’s stock market debut.

Alibaba has a credibility crisis

The strongly-worded whitepaper said Alibaba has a “credibility crisis.” The company allowed merchants to operate on its platform without required licenses. Shady merchants still run unauthorized stores that violate intellectual property of famous brands and sell fake goods. The report accused Alibaba of still allowing the sale of items that “threaten public safety” such as phone-tapping devices and knives.

It was the first time the Chinese government has officially criticized Alibaba, which is believed to have strong ties with the government officials. Alibaba’s Taobao and Tmall platforms have more than 50,000 active merchants. The SAIC report said that Alibaba allowed “illegal advertising” with false claims that misled consumers.

The regulator said Alibaba employees took bribes and the company had failed to deal with the “commercial fraud.” The Hangzhou-based company did not fix flaws recognized through internal credit-scoring systems and customer feedback. Thousands of items on its platforms infringed upon trademarks, were illegally imported, substandard, and had been banned.

SAIC teaching Alibaba a lesson

Arete Research Service analyst Li Muzhi told Bloomberg that the SAIC was now teaching Alibaba a lesson and telling the Jack Ma-led company to learn its place. The U.S. Commerce Department had also added Taobao to a blacklist of “notorious markets” in 2011, but removed a year later. Last month, Alibaba announced that it had spent over $161 million since early 2013 through its September 2014 IPO to remove counterfeit goods from its websites.

Earlier this month, Alibaba assured the U.S. Consumer Product Safety Commission that it won’t sell recalled goods to the U.S. consumers.

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