Alibaba in "credibility crisis", failing to fight shady merchants and counterfeit products

According to a report released by the Chinese authorities, Alibaba Group Holding Ltd. is now in a “credibility crisis” due to a failure to crack down on shady merchants, counterfeit goods, bribery and misleading promotions using its online malls, Bloomberg reports. 

Although the encounter came in July, the report wasn’t published until now to avoid affecting Alibaba’s record-breaking $25 billion initial public offering in September.

In a caustic report by The State Administration for Industry & Commerce accused the Hangzhou-based company of allowing merchants to operate without required business licenses, to run unauthorized stores that co-opt famous brands and sell fake wine and handbags. Alibaba employees took bribes, and the e-commerce giant didn’t fix flaws in customer feedback or internal credit-scoring systems, according to the report.

“For a long time, Alibaba hasn’t paid enough attention to the illegal operations on its platforms, and hasn’t effectively addressed the issues,” the report said.

“Alibaba not only faces the biggest credibility crisis since its establishment, it also casts a bad influence for other Internet operators trying to operate legally.”

Bob Christie, a spokesman for Alibaba, said Alibaba couldn’t immediately comment. Back in the past, in its IPO prospectus Alibaba said that there were allegations in the past, and would likely be in the future, that the company’s platforms were selling goods that were counterfeit or infringed on other copyrights including music.

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

“A huge number of merchants” haven’t registered for operating licenses and are engaging in illegal behavior that includes bribing Alibaba employees and misleading customers during sales promotions on Nov. 11 and Dec. 12, it said.“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 report on China’s e-commerce industry released Jan. 23, SAIC said it found that sites sold fake cigarettes, wine, mobile phones and handbags. Only 19 of 51 samples sold via Taobao were authentic, yet another report released on the same day said.

Fighting fakes

Alibaba has put many efforts in getting rid of fakes as it expands internationally, saying it removed 90 million listings for products that breached intellectual-property rights before its IPO. The crackdown is part of Alibaba’s effort to build its reputation after becoming Asia’s largest technology company with a market value of $254 billion, says Bloomberg.

“There is a bit of irony here since Alibaba loves to tell the world about how strict it is on piracy and how it moves quickly to shut down sites that sell fake goods,” said Doug Young, the Shanghai-based author of “The Party Line: How the Media Dictates Public Opinion in Modern China.”

In December, Alibaba said it spent $161 million from the beginning of 2013 through November to block counterfeit products and boost consumer protection. Last week, China’s richest man, Jack Ma said he wants to reach 2 billion customers through his websites.