Alibaba runs into a regulatory ruckus.
Love on the rocks.
The storm subsides, but clouds remain
Mr Ma is also keen for Alibaba to be regarded as a global innovator: “We are an internet company [that] happens to be in China.” His ambition is for Alibaba to serve two billion consumers and tens of millions of small companies worldwide.
To further this aim, this week his firm unveiled a partnership with Lending Club, a peer-to-peer platform based in San Francisco, to extend credit to American firms buying Chinese goods on its site.
A regulatory kerfuffle shows how Chinese Alibaba remains, however, and how hard it is to have even a harmless flirtation with the government. The first sign of grief was an apparently official “white paper”, published online in January, from the State Administration for Industry and Commerce (SAIC), an agency responsible for supervising China’s internet firms. It described a meeting last July in which a middling official, citing a study of counterfeit designer goods on Alibaba’s portals, lambasted the firm for not doing enough to fight fakes. The regulator claimed that he delayed releasing this document in order not to disrupt the firm’s initial public offering (IPO) last September.
The posting was highly irregular and has since been deleted, but it started a commotion. Investors, fearing a regulatory crackdown in China, punished the firm’s shares. Lawyers, arguing that Alibaba may have failed fully to disclose pending regulatory action before its IPO in New York in September, began preparing class-action suits in America.
Such is the power of the state in China that local firms rarely protest at a regulator’s official ruling. It is shocking, then, that Alibaba not only challenged the regulator but also denounced the study as unscientific. Mr Ma even demanded and got a meeting with Zhang Mao, the head of the SAIC, on January 30th. That seems to have smoothed things over. The agency now says that the document was not, in fact, official but rather the minutes of a routine meeting and, disappointingly for class-action opportunists, has no legal weight.
The storm appears to have subsided, therefore, but the episode points to two lingering threats. First, investors in Alibaba are now painfully aware that it is exposed to China’s arbitrary and politicised regulatory system. That should worry them. Antitrust authorities elsewhere would probably not allow an e-commerce firm to control a whopping four-fifths of the market, as Alibaba does at home with its Taobao and Tmall portals. Can the company keep its privileged position?
The second risk arises from counterfeiting. It is wrong to blame Alibaba for China’s love of making and buying fake bags, shoes and other luxury knick-knacks. The firm is fighting bogus goods: more than 2,000 employees work to take down more than 100m fraudulent listings a year. These efforts have won praise even from tough-minded American regulators, who removed Taobao from their annual list of “notorious” fake markets in 2012.
Yet shoppers on Taobao can still find counterfeits purporting to be Manolo Blahnik shoes, Coach purses and Ugg boots, all for a few dollars. A firm that aspires to be a world-class marketplace for quality goods needs to do better.
economist.
