An escalating feud between the Chinese government and on-line shopping giant Alibaba took a strange turn Thursday, when the State Administration for Industry and Commerce erased a report accusing Alibaba of illegal actions from its website.
The report, which says that SAIC representatives met with Alibaba in mid-July, two months before the company went public, has raised concerns about gaps in the the company’s pre-IPO disclosures, and knocked 4.5% of the company’s share price yesterday.
A previously functional link to the report now produces a “Not Found” message on SAIC’s website. (A copy of the report is still available on the website of a publication run by the administration). In an emailed statement, Alibaba said “We have observed that the SAIC has removed the white paper from its website. Alibaba never requested SAIC to delay publication of any report.”
Here’s a translation of all the things that SAIC said that it found wrong at Alibaba in the initial report. (The report’s final page, which deals with general recommendations for regulating the internet commerce sector, is not included.)
On July 16, 2014, the administrative guidance group of the Internet Supervision Department, together with the Industry and Commerce Bureau of Zhejiang Province and Hangzhou City, held an administrative guidance forum at the Zhejiang Province Industry and Commerce Bureau. Principal officers and management teams of the core departments of Alibaba Group attended the meeting and accepted administrative guidance. In order not to affect the progress of the work on Alibaba’s listing, the forum was carried out behind closed doors. Given the current regulatory situation, and in order to clarify understanding, the administrative guidance forum situation is being truthfully disclosed as follows:
- Basic status
The administrative guidance meeting was presided by the Internet regulation director, Liu Hongliang. He pointed out that the objectives of the administrative guidance work was to comb, discuss and analyze the problems on Ali’s online trading platform; to emphasize the strengthening of strict law controls, the strengthening of the implementation of territorial regulatory responsibility; to effectively curb illegal behaviors; to safeguard the legitimate rights and interests of operators and consumers; and to promote the healthy development of the online economy.
At the meeting, Director Liu Hongliang introduced briefly and analyzed the situation of online trade, and pointed out that the reform of the commercial registration system has achieved good results, as the policy of “” has being effectively promoted and fulfilled. However, regarding to the illegal business on Ali’s online trading platform, the Alibaba Group has long lacked sufficient attention to the problem and has long failed to take effective measures to control it, which has led a canker to suffer. This not only let Alibaba itself facing the biggest credit crisis ever since it was founded, but also casted advert effects to other online operators who carry out their businesses in accordance with the laws. This has recently received focused criticism by public opinions, and brought huge regulatory pressures to the market regulators.
Based on an “online transaction management approach” and other relevant laws and regulations, the staff of the internet regulation department made a detailed analysis and summary of the long-term illegal transaction problems of the entry, sales, management and other aspects on Alibaba’s online trade platform – Taobao Net and T-mall, and pointed out 19 problems in 5 aspects, with local commerce and industry bureaus’ supplement of problems in another 6 aspects.
The meeting urged the Zhejiang Province industry and commerce bureau to further enhance supervision, implement territorial regulatory responsibility, and intensify the efforts to investigate illegal online behaviors; demanded the Alibaba Group to use the administrative guidance as an opportunity to increase their understandings, address the issue, take quick measures, and conduct a thorough rectification of the problems pointed out by the regulatory authorities; and to effectively contain and prevent any violation from occurring, resolutely carry out the responsibility of an operator platform, operate business activities in compliance with laws and regulations, carefully safeguard the legitimate rights and interests of consumers , and promote the healthy and orderly development of the Internet economy.
The Internet regulation department conducted careful analysis and organization of the chaos of online shopping on Alibaba’s online trading platform, and pointed out enormous problems of operators, sales and trading behavior management on the platform.
- Main entry control is lax. First, the operators on the platform made unauthorized use of other business names to conduct business activities. A large number of online shops—that are unlicensed but should get industry and commerce registration before they using the brand names in accordance with laws and regulations—are seen on Alibaba and Taobao Net. Online shops of food, cosmetics, health products, culture, business and other internet information services which must legally obtain administrative license before engaging in business, violate the relevant provisions of the main market access in network operations.
Second, operators on the platform did not comply with the regulations to reveal their identities as operators. A large number of operating subjects who did not apply for registration or did not mark their identities, violated relevant regulations in the “Internet transaction management approach.”
Third, the qualification examination registration for the operators on the platform is a formality. Part of the uploaded operating licenses from verified online shops did not register the operating subjects’ names, operating addresses and living addresses. Some even uploaded other’s operating licenses.
Fourth, the management of users’ ID is not strict. Taobao Net’s supervision of the IDs and shop names of the operators on its platform is not strict, which led to the invasion of other’s registered trademarks, the exclusive right of corporate names, and business interests of some well-known products and specific and other legitimate rights.
Fifth, the auction channel is suspected of violating the order of auction market. The auction channel of Taobao Net provided a third party information service platform for auction buyers and sellers, collected and froze bid deposit the auction commission, and offered automatic bidding by a computer system, which actually plays the functions of the auctioneers in an auction. This move has caused advert influence to the order of the auction market.
- Poor supervision on products information. On the platform of Taobao Net and Alibaba, products and service information shows there is an invasion of others exclusive rights to use registered trademarks, trade of substandard quality products, and trade of products without lawful import sources, are banned by the state, or are pyramid schemes.
Fake cigarettes, fake alcohol, imitation mobile phones, fake designer bags, fake licenses, feudal superstition and gambling supplies, items that endangering public safety, knives, eavesdropping equipment, abound.
The platform’s entry supervision, daily monitoring, and removal of illegal behavior in the product information area on the platform are insufficient. A high threshold but low efficiency are seen when solving consumers’ demands about lost money and regulatory enforcement investigations. The platform is suspected of providing convenience and conditions for behavior like conducting business without a license, trademark infringement, false advertising, pyramid schemes, and consumer infringement on the condition of knowing that, should know, or being intentional or negligent.
- Lack of order in sales activity management. First, promotions that violate regulations. During the promotion periods of Double 11, Double 12, national holidays, and heated social incidents, the platform and the operators on the platform have behavior that misleads consumers. Some operators have illegal promotion behavior like “raise the price first and then offer discounts,” “first use high discounts to attract consumers and then refuse to sell, providing the reason of no stock,” “Not truthfully providing comprehensive introductions to promotional activities to induce consumers to do mindless consumption,” “unilaterally change or cancel promotion program in case of none force majeure.”
Second, False propaganda and illegal advertising. A large number of operators on the platform use absolute languages like “ the cheapest price on the internet,” “the lowest price in history,” “ No.1 in sales,” and “ranked first” to promote products. Many shops on T-mall and Alibaba used hype, fiction in their brand and enterprise introduction, and especially some fake foreign brands use fictional foreign history to make false and misleading claims. Without approval, many shop within the platform, made unauthorized use of third-party trading platform which shall be issued approval to release advertising of goods (services).
Third, there are premium sales in which the highest prizes worth are more than the legal limit of raffle. During the promotion periods of Double 11, Double 12, national holidays, and heated social incidents, in the Raffle Premium Sales activities of the platform itself and the operators within it, highest prizes worth more than the 5000 yuan limit according to the “Anti-Unfair Competition Law.” House prizes, luxury car prizes are commonly seen.
Fourth, [Alibaba is] forcing unreasonable additional conditions contrary to the wishes of the users when providing third-party trading platform. During the major promotions like in Double 11, and Double 12, T-mall, using the fact that its third-party trading platform market share is relatively large and dominant, mandated platform operators (suppliers) who participated in promotional activities within the platform could NOT participate in promotional activities of ANY other platforms.
Fifth, Using unfair standard terms to violate consumer rights. In Taobao net and T-mall’s webpage of “Legal Notice,” “Taobao service agreement,” and “Taobao rules”; and in Alibaba platform’s webpage of “Copyright and Trademark Statement “, ” Legal Notice ,” ” Terms of Service “, and ” Privacy Statement”, there are contract forms to exclude or limit the rights of consumers , reduce or waive the responsibility of the operator, increased consumer responsibility unfair to consumers, and unreasonable rules.
Sixth, Commercial bribery. Recent years have seen the focused outbreak of Alibaba’s staff’s use of commercial bribery, which give suppliers, platform and other platforms user participants advantages of trading opportunities to exclude competitors in the “Tmall flagship store”, “together cost-effective “, “through train” , “Taobao search ranking,” ” Home billboards”, “booth during major promotional activities ” and other transaction processes.
Seventh, interference with credit rating to cause unfair competition. Some operators themselves or with others, conduct fictitious transactions and delete unfavorable evaluations on themselves or others to enhance their business reputation, or to damage malicious competitors business reputation, which has disrupted the normal order of competition .
Eighth, inadequate disposal of commercial fraud. Alibaba platform has been a longstanding part of the “China Suppliers’ ” alleged contract fraud and even economic fraud. There are also some shop on Taobao Net that conduct consumer fraud. The platform lacks monitoring for similar platforms and lacks disposal. The platform is not fully carrying out its business obligations after operators’ rights are damaged.
Ninth, unreasonable internal management rules. In “Taobao rules”, the punishment to those operators within the platform who violate the laws and regulations is too light. This largely make illegal or potentially illegal business operators have the erroneous psychological and behavioral guide that illegal network operating costs are not high, fueling the illegal network operators to seek illegal interests improper psychological expectations and actual behavior.
- Flawed feedback. First, it is difficult to verify the authenticity of the users’ evaluation. Taobao’s credit evaluation system is difficult to distinguish true and false trading, which left a room for hyping credit. Second, the cumulative value of the credit scores are too simple. Evaluation is divided into positive, neutral, negative feedback, which does not include the handling of consumer complaints, the administrative punishment cases of relevant departments. Third, unreasonable setting of rating permissions. Taobao’s existing credit evaluation system is generally a one-time assessment that consumers have only one opportunity of evaluation after buying goods. The design flaw makes consumers difficult to maintain their own interests when the products are still in warranty period.
- Lax internal controls of staff. In recent years, in SAIC’s mission to investigate precursor chemicals, fake Donkey-hide gelatin, and do spot-checks on some online products, when SAIC provided information of illegal online shops to Taobao Net, we found most of the information of those shops were deleted. The staff of Taobao Net was suspected of revealing the information beforehand to those shops, which led a passive position in SAIC’s job.