China raps Alibaba over fake goods, bribes

SHANGHAI — Alibaba Group Holding has a “credibility crisis” fuelled by its failure to crack down on shady merchants, counterfeit goods, bribery and misleading promotions in online malls, the Chinese government said.

In an unusually strong government criticism of one of the country’s biggest private firms, the State Administration for Industry and Commerce (SAIC) published a scathing report on its website yesterday that accused Alibaba of allowing merchants to operate without required business licences, run unauthorised stores that co-opt famous brands, and sell fake wine and handbags.

Alibaba employees took bribes and the e-commerce giant did not fix flaws in customer feedback or internal credit-scoring systems, the report said.

The report was later removed from the main page of the SAIC website.

“Illegal business activities on Alibaba Group’s platforms have for a long time failed to elicit sufficient attention and (the company) for a long time has not adopted effective measures to address the situation,” it said. “Alibaba not only faces the biggest credibility crisis since its establishment, it is also a bad influence for other Internet operators trying to operate legally.”

The SAIC also said Alibaba allowed the sale of contraband such as fake cigarettes and alcohol, and items “that threaten public safety” such as knives and phone-tapping devices.

In addition, “some operators on the platform have created fake transactions and deleted negative comments to improve their own and others’ reputations”, the report said.

In a separate Jan 23 report on China’s e-commerce industry, SAIC said it found that sites sold fake cigarettes, wine, mobile phones and handbags. Only 19 of 51 samples sold via Alibaba’s Taobao.com were authentic, it said.

Alibaba declined to provide immediate comment about yesterday’s report, which summarised a July 16 meeting last year between government business regulators and Alibaba.

At the meeting, the company had acknowledged that problems existed on its platform and said it would improve monitoring efforts and increase communication with regulators, the government said.

The publication of the report was withheld to avoid affecting Alibaba’s initial public offering, the government said. Alibaba, which raised a record-setting US$25 billion (S$33 billion) from its New York IPO in September, is due to release its quarterly results today.

Alibaba, which until a few years ago was on a United States list of “notorious markets” for intellectual property infringement, has fought hard to tackle counterfeit products to keep its reputation from being tarnished in the run-up to the IPO, the world’s biggest listing.

Online fakes, however, remain a big problem in China.

Mr Joe Simone, director of Hong-Kong based intellectual property consultancy SIPS, said the regulator’s accusations about counterfeit goods were no surprise.

“The frankness of the report and its condemning tone are unprecedented and speak volumes about what the SAIC found in its inspection,” he added. Agencies