China agency slams Alibaba for fakes

Eunice Yoon and Haze Fan
China targets Alibaba online fakes
China targets Alibaba online fakes

A rare public clash has broken out between Alibaba and Chinese authorities over the authenticity of the merchandise sold on the Chinese e-commerce giant's sites, especially its popular consumer to consumer site Taobao.

In an unusually strongly worded white paper, the State Administration of Industry and Commerce said many of the products sold on Alibaba's websites were substandard, violated trademarks or were illegal. The release of the documents comes less than a week after the agency unveiled a survey that found only 37.25 percent of the goods the authorities examined on Taobao to be genuine.

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After the survey, Alibaba's Taobao posted an open letter on its official social media Weibo account responding the agency's findings and questioning the sampling methods. The agency fired back with the white paper criticizing Taobao for lax internal controls. The paper was dated July 2014, showing the review had been conducted before the company's $25 billion IPO in September.

On its Weibo account, Taobao said it is also a victim.

Jin Lee | Bloomberg | Getty Images

"Fake goods are a tumor in economic development," the company said. "We are willing to work with departments to get rid of this tumor."

The site said the online retailer would ramp up its fight against counterfeits with a new 300 person team.

In a separate statement to CNBC, Alibaba said, "We have a zero-tolerance policy toward counterfeits on our platforms. We will continue to refine and harness technological tools at our disposal to protect intellectual property rights, working together with brands, associations and government agencies."

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The move addresses a long time complaint many international brands have had about fakes sold on Taobao. It also highlights a concern among wary investors that the company is dogged by the unpredictability of Alibaba's relations with the government.

The government's moves have sparked a debate among Chinese consumers about the quality of the goods they buy online. Many are calling on the government to tighten supervision over Taobao. "Alibaba needs to ensure better products and join in the fight so that it will create a much better environment," one online user wrote.

Alibaba releases quarterly results before the opening bell on Thursday. (Get the latest stock quote here.)

—Additional reporting by Wendy Min.