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Chinese regulatory body tells Alibaba, JD.com to play nice

Xaume Olleros | Bloomberg | Getty Images

In the heated run-up to the world's biggest shopping event, China's industry and commerce boss has warned the country's e-commerce behemoths: Play nice.

On Thursday, Zhang Mao, the head of the State Administration of Industry and Commerce, said that e-commerce platforms should remember to compete with each other in a "sufficient, fair and orderly manner," and not resort to "malicious marketing tactics." This included not restricting rivals from doing business, state-media outlet Xinhua quoted Zhang as saying.

The warning followed public slanging match between Alibaba, China's largest e-commerce company, with the sprawling Tmall and Taobao platforms in its stable, and its closest domestic rival, JD.com.

On Wednesday, JD.com accused Alibaba of anti-competitive behavior ahead of Singles' Day, the Chinese retail extravaganza that happens on November 11 every year. JD.com asked the industry and commerce administration, which supervises all activities in those sectors, to investigate whether Alibaba was forcing vendors to chose only one platform on which to sell on Singles' Day.

Alibaba quickly refuted the allegations. Jim Wilkinson, senior vice president of international corporate affairs at Alibaba Group told CNBC by email, "JD is panicking because they're losing. They simply can't match our customer and merchant experience and logistical scale because Alibaba wins with customers and merchants as we provide a superior experience for users on our platforms."

The response from Alibaba on Chinese social media site Weibo was more colorful. In a post, the e-commerce giant wrote, "The situation today is, chicken report ducks, claiming that the ducks have monopolized all the lake."

Undeterred, JD.com on Friday filed a lawsuit with the Beijing Haidian Court against Alibaba's Tmall, accusing the platform of unfair competition.

There is very serious money behind the spat.

Last year more than $9.3 billion worth of retail transactions were made on Singles' Day, making it more than four times the size of the famous Black Friday shopping day held annually in the US in November.

Although the event has been running since the 1990s, Alibaba was the first to monetize it, in 2009, by offering deep discounts on product listings on its site. In a press release, Alibaba said it expected more than 40,000 merchants, 30,000 brands - including 5,000 overseas brands from 25 countries - and 6 million products to be made available this year.

Read MoreChina consumers prepare for record Singles Day

But the e-commerce giant has an additional problem on its hands.

On Monday, Xinhua reported that an investigation had found more than 40 percent of goods sold online in China were counterfeit or of poor quality.

Xinhua said the findings, which were delivered to China's top lawmakers, included a near-357 percent jump in customer complaints on online orders, up from two years ago to 77,800 last year.

As well as its name being synonymous with Chinese e-commerce, Alibaba's struggles with counterfeit products have been well documented. Until 2012, the company's biggest domestic online marketplace, Taobao, was on the U.S. Government's Notorious Markets List. The list, put together by the office of the United States Trade Representative, is a name-and-shame compilation of marketplaces, online and offline, around the world that facilitate piracy and counterfeiting.

Taobao was taken off the Notorious Markets List after Alibaba promised to better tackle counterfeits on its platforms. Executive chairman Jack Ma told Xinhua in October that the company itself was hurt by the sale of fake goods, because the sale of one counterfeit product could deter five people from returning to its platforms.

Ma also said that counterfeits were not a matter for Alibaba alone, as they were sold everywhere in China.

But one person who thinks Alibaba should back on the Notorious list is Juanita Duggan, president and chief executive at the American Apparel and Footwear Association (AAFA). AAFA is a trade body that looks after the interests of U.S. retail brands.

Speaking to CNBC recently, Duggan said AAFA members continued to "have nightmares [and] problems getting counterfeits taken down from [Alibaba's] sites."

And earlier this year, French company Kering, which owns luxury brands such as Gucci and Yves Saint Laurent, filed a lawsuit in New York against Alibaba. The suit alleged the company was not doing enough to tackle the prevalence of counterfeits on its platforms.

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Since then, Alibaba has launched a series of measures to improve the reporting of fake goods, including the introduction of an English hotline designed to make it easier for Western retailers to report knock-offs on Alibaba's marketplaces.

An Alibaba spokesperson told CNBC by email:"To protect consumers, brand owners and legitimate sellers and to maintain the integrity of our marketplaces, we use and will continue to enhance a broad range of measures to prevent counterfeit and pirated goods from being offered and sold on our marketplace."

Further steps, according to the Alibaba spokesperson, include computer models that can predict the likelihood of a seller to sell counterfeit products, as well as providing options through which buyers can verify the authenticity of their purchase. The spokesperson said Alibaba was also working with relevant government authorities to tackle the counterfeit problem.

But Duggan was not convinced. She said, "What we've asked for, from Jack Ma and his senior team, is a process that is easy to use, a process that everyone can understand; that's easy to use and that will result in taking the counterfeits down off the site."

She added, "[Right now] nobody can understand what the policy is and they don't understand how to use it. And when they do try to use it, it turns into a nightmare of delays, blackholes, lack of communication."

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Duggan claimed AAFA outlined to Alibaba a "simple four-step process" that American brands can use and have confidence in to do business on its platforms. "I fail to understand why they're not taking us up on our offer or talk to us about this and do something."

The Alibaba spokesperson refuted the claim and told CNBC that "despite numerous attempts, the AAFA refuses to meet with Alibaba at the working level to discuss and address specifics."

- Haze Fan contributed to this report.

Clarification: This report has been updated to reflect that Zhang Mao made his comments on Thursday.