Originally published by Gordon Orr on LinkedIn: Is the End of Fakes in Sight for Chinese Ecommerce?
If the proposed ecommerce law comes into effect in the next few months as planned, and China’s new super regulator (the State Market Regulatory Administration - SMRA) moves to enforce as aggressively as it has in other areas under its control, we could be at a major tipping point for foreign and domestic companies seeking to sell to consumers in China.
What does the draft law propose? Simply – it proposes to hold the ecommerce platforms liable for fake goods sold on their site. Consumers could sue Alibaba and its competitors if a product supplied through the platform is fake. Potentially, suppliers of genuine products could also sue platforms for allowing competing fakes on their site.
While the financial penalty in each case would still likely be small (likely related to the volume of fake product sold), the volume of cases could be enormous. In many ways this is a very common form of Chinese regulation – identify the richest players in any industry chain, encourage them to consolidate the sector, and then hold these big guys accountable for policing their sector.
Any complaints by Alibaba’s leadership that this kind of regulation is anticompetitive and will squeeze small producers off their platform (as they have stated in the past) are not likely to go over well with China’s middle class or the regulators, with their focus on consumer health and safety.
Big ecommerce platforms will also claim that they have takedown policies when they are informed that a merchant is selling fakes. However, this process can be slow and burdensome and simply lead to a company creating a new site on the platform from which to sell its fake products.
While the platforms may claim that it is too much to expect them to play this policeman role and in a timely fashion, they don’t really have a leg to stand on:
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China’s major social media platforms are expected to employee tens of thousands to ensure all content on their sites is compliant with Chinese law and regulation. If they can do it, why can’t the platforms?
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The platforms are always trumpeting their AI and big data capabilities. If it is so good then surely it can’t be hard to identify a fake product or a repeat offender merchant popping up yet again on the platform?
For multinationals selling to Chinese consumers on or offline, the availability of fakes online, often advertised alongside their own genuine products, is one of their biggest complaints about operating in China. If the regulator really does move firmly into this space, then many multinationals will find themselves with much greater competitive freedom. They should be happy and their home country governments should also be happy – some will doubtless claim it is their lobbying that has brought about this change in China.