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Is China Starting To Crackdown On Alibaba's "Illegal Operations"?

It appears the Chinese government has decided it is time to remind the nation's richest man (and millions of retail investors in America) who is in charge. According to a report released by the Chinese government - citing closed-door meetings in July 2014 that were kept quiet so as not to affect the September IPO - there are at least 19 problems with Alibaba's various platforms. As Bloomberg reports, Alibaba failed to properly oversee merchants and allowed the sale of counterfeit products on its e-commerce platforms, according to a Chinese government report. The report concludes, rather ominously, "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." While Alibaba has tried to clean-up its image, the report cites issues with counterfeit goods, merchant screening, false advertising, and lax controls.

The report is extensive...

  • *CHINA GOVT RELEASES INSPECTION WHITE PAPER ON ALIBABA:PEOPLE.CN
  • *ALIBABA SALES PLATFORM HAS ISSUES: CHINA GOVT PUBLICATION
  • *CHINA GOVT IDENTIFIED 19 PROBLEMS WITH ALIBABA PLATFORMS
  • *ALIBABA'S TAOBAO HAS UNREGISTERED MERCHANTS: GOVT PUBLICATION
  • *ALIBABA LACKS CENSORSHIP ON PRODUCTS SOLD ON PLATFORMS: PAPER
  • *ALIBABA PLATFORMS HAVE RIGHT-INFRINGING PRODUCTS: GOVT PAPER
  • *ALIBABA LACKS SUPERVISION ON PRODUCTS SOLD ON PLATFORMS: PAPER
  • *ALIBABA ONLINE PROMOTIONS VIOLATE RULES: GOVT PAPER
  • *ADVERTISEMENT VIOLATIONS FOUND IN STORES ON ALIBABA: PAPER

And then there's this...

  • *ALIBABA, CHINA SAIC HOLD CLOSE-DOOR MEETING JULY 16 2014
  • *ALIBABA, GOVT MEETING HELD CLOSE-DOOR NOT TO AFFECT CO.'S IPO

As Bloomberg details,

Alibaba Group Holding Ltd. failed to properly oversee merchants and allowed the sale of counterfeit products on its e-commerce platforms, according to a Chinese government report.

 

Many merchants didn’t apply for a business license and misled consumers during holiday promotions, including the Nov. 11 Singles’ Day, according to a document published by a media outlet run by the State Administration for Industry & Commerce. 

 

A meeting was held in July, though the report wasn’t published until now to avoid affecting Alibaba’s initial public offering, it said.

 

“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.”

 

The report from the government cited perceived flaws in its customer
feedback system, false advertising and lax controls by Alibaba staff.
Alibaba wasn’t stringent enough on merchant screening and there are
flaws in its internal credit-scoring system, the report said.

*  *  *

Alibaba has promised to clean-up...

  • *ALIBABA PLEDGES TO IMPROVE MANAGEMENT: GOVT PAPER
  • *ALIBABA TO ADD SPENDING TO CLEAR COUNTERFEIT PRODUCTS: PAPER

Alibaba has worked to get rid of counterfeits as it expands internationally, with 90 million listings for products that breached intellectual-property rights removed before its record $25 billion IPO in September. The crackdown is part of Alibaba’s plan to build its reputation now that it is Asia’s largest technology company with a market value of $254 billion.

 

In December, Alibaba said it spent $160.7 million from the beginning of 2013 through November to block counterfeit products and boost consumer protection.

*  *  *

Is Jack Ma the next to be taken down by the corruption probe? We doubt it, but when you're the richest man in the country, it would appear a rather large target is painted on your back.