Caixin
Feb 02, 2015 05:53 PM
POLITICS & LAW

Closer Look: Alibaba Meets with Regulator, but Its Problems Remain

(Beijing) – A meeting between Alibaba Group chairman Jack Ma and the head of China's commerce regulator on January 30 may have helped calm a rare tussle between the leading e-commerce company and a powerful government agency.

However, it could do little to contain the fall-out from the high-profile feud as neither party addressed the crucial questions: whether counterfeiting is as grave as regulators claim and how they are going to address the rampant sale of fake goods online.

In his meeting with Zhang Mao, director of the State Administration for Industry and Commerce (SAIC), Ma promised to "actively cooperate with the government and devote more technology and capital" to weeding out fake goods, Xinhua reported.

While praising Alibaba for making an effort in safeguarding consumer interests, Zhang said his agency should find new modes of oversight for e-commerce.

Zhang stopped short of saying how his agency is going to address the sales of fake products on Alibaba's websites.

The meeting took place on the same day that SAIC backtracked on an earlier white paper that had slammed Alibaba for not doing enough to suppress the sale of counterfeit goods its websites.

In the document, which detailed a closed-door meeting between Alibaba executives and SAIC officials in July, SAIC criticized Alibaba for selling products that flouted trademark standards and those deemed substandard or fake.

The SAIC also said in the white paper that the July meeting was deliberately kept from the public in order "not to influence preparation work prior to Alibaba's initial public offering."

This type of communication between a major business and a regulator behind closed doors is not uncommon in China as a form of protectionism intended to ratchet up economic growth.

The shocking revelation prompted five law firms in the United States, including Pomerantz in New York, to reach out to investors regarding a class-action lawsuit against Alibaba for a possible breach of the U.S. Securities Exchange Act.

Alibaba listed in New York in September, raising a record US$ 25 billion.

By now, the purpose of the latest meeting could not be clearer: both sides are becoming worried that the fallout from their clash is getting out of hand.

In an about-face, an SAIC spokesman said the report was in fact not a white paper, but minutes of a meeting, and as such is not legally binding.

This back-tracking will do little to stop the fall-out outside China because it is no longer up to the Chinese regulator to interpret whether the document carries any legal weight.

As a first-hand witness to Alibaba's bid for an IPO in the United States, Ma knows full well what a class-action lawsuit means.

The SAIC released the white paper after Alibaba's Taobao, a website that facilitates sales between small businesses and consumers, publicly challenged a survey by the regulator that found that more than 60 percent of sampled goods on the site were "not genuine," fake or inferior.

On January 27, Taobao disputed the fairness of the survey and rejected its findings in an open letter posted on its account on Sina Weibo, China's version of Twitter.

The open letter specifically criticized Liu Hongliang, head of SAIC's online trading supervision department, accusing him of "a black whistleblower."

Alibaba has failed to acknowledge the severity of the fake goods problem on the e-commerce sites it owns, arguing instead that counterfeiting is a social problem that cannot be tackled by one company.

As a listed company, Alibaba has failed to demonstrate a social responsibility matching its business standing. Considering this social responsibility, it shouldn't be successful just because it has the protection of usually merciful regulators.

(Rewritten by Li Rongde)

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