Counterfeits tarnish image of China’s online shopping markets
“Since the first day I ventured into my own business by renting a four-square-meter counter to trade computer parts back in 1998, I never sold one counterfeit,” Richard Liu, the founder and CEO of JD.com, now the third-biggest Internet company in the world by revenue, claimed in an exclusive interview with the Financial Times.

Although the high-profile claim has immediately attracted more buyers to his popular online shopping platform, the remarks’ effect failed to last long. Only a few days later, news about a JD.com shop selling fake Sumsung accessories broke out, reigniting debate over whether or not the online platforms could really root out counterfeits.

Unlike Alibaba, a rival which was widely criticized for selling fake brands, JD.com, being the latecomer in China’s booming online shopping market, survived the fierce competition thanks to two advantages—one is logistics and the other is genuine products.

JD.com initially centered on self-operated online shops, through which the Internet company would buy in products itself and then sell to consumers. In this model, the platform could screen all items it deals with and make sure no counterfeits get through. Nowadays, with more and more third-party shops logging onto the platform and selling directly to consumers, the authenticity of the items trading through it could no longer be fully guaranteed. Counterfeits that are hard to eradicate have put the credibility of these platforms on line.

Alibaba seems to have gained rich experience in the field. Being China’s top player in the e-commerce business, it has zeroed in on fake brands for years. In January this year, the company for the first time sued sellers of fake goods after it was blacklisted by the US once again. It filed lawsuits against two sellers of fake Swarovski watches on its eBay-like Taobao platform, claiming 1.4 million yuan in compensation.

Alibaba previously disclosed results of its efforts in 2016, claiming it had formed a team of 2000 people targeting counterfeits on its platform with an annual expenditure of over 1 billion yuan. In the year ending last August, it had totally taken off 380 million product pages, closed down 180,000 online shops and 676 companies involved in producing, housing and selling counterfeits.

In fact, Alibaba voluntarily shares information with local authorities and assists police in cracking down on illegal offline factories. Ascribing to its big data and image recognition systems, suspicious products could be identified soon. Besides, Alibaba also works with brands in fighting against pirates. Two years ago, Alibaba released a specialized report, indicating that 90 percent of online fake product sellers are based in mainly 10 specific areas, with the top three respectively being the Pearl River Delta, Yangtze River Delta and southeast China.

Despite its continuous efforts and considerable amount of investment, Jack Ma, the founder and chairman of Alibaba was quoted as saying that it would take 30 years to solve the problem. The U.S. Office of the Trade Representative added Taobao to its “notorious markets” list recently after it was taken off in 2012. This raises the obvious question of why platforms like Taobao and JD.com have worked so hard, but still failed to quench the flames of counterfeiting and piracy.

Prior to this year’s 3.15 CCTV TV show exposing items of low quality and fake brands, the Zhejiang University held a forum of specialists and academicians, discussing more effective methods to root out counterfeits in China. They reached consensus that it is not the online shopping platforms but benign lawmaking and enforcement that lag behind the time that have led to the problem, while calling for authorities to mete out more severe punishments.

According to data, only 0.7 percent of piracy cases result in criminal penalty. In most caes, people involved would just be fined, or given verbal warning. Even if their production equipment and materials are confiscated and online shops are shut down, the violators register a new shop and start to fabricate other brands.

Online commerce has facilitated the illegal practices. According to a police officer specializing in investigating counterfeits and shoddy goods, the Internet can provide cover. For example, the suspects hire some VPN agents to upload data anywhere in the world; and they may collude with local companies to tamper with logistics information. In the disguise, the fabricated items look like they are from abroad.

Analysts suggest all online shopping platforms to group together and adopt standardized criterion to avoid counterfeits leaving more strictly monitored platforms to more negligent ones who are desperate to boost sales.

The task of combating counterfieting is becoming even more urgent when the two major players set out to lure luxury brands onto their platforms. This June has seen JD.com to invest USD 400 million into online luxury retailer Farfetch, while Alibaba also launched its specialized website Luxury Pavilion.

With China’s ever growing middle class, the two top e-commerce players and analysts believe the time is ripe to make the move into luxury market. Under the circumstances, problems of counterfeiting are casting a shadow on the future growth.     

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