China’s Crack Down on E-Misconduct

E-commerce has proven to be an important and growing sector of China’s economy. During 2013, $307 billion accounted for ecommerce spending, which is predicted to approach $1 trillion by 2019. While giants such as Alibaba are stimulating market growth in China, counterfeit sellers are increasingly infringing on the marketplace with fake or shoddy goods and scams. This rise in “e-misconduct” has been previously unregulated, and is now a focus of Chinese policy.

Common issues in this Chinese industry include false reviews and credibility ratings, false advertisement, and a common scheme called “brushing.” Through brushing, retailers actually fake transactions to drive up sales quantities and positive reviews. In 2013, Alibaba apparently found 17% of total sellers had “brushed” 500 million transactions worth $1.61 billion. Moreover, predictions suggest only 2% of these merchants are prosecuted.

These figures beg the question of whether or not e-commerce platform companies are ignoring the falsehoods. Alibaba claims to not tolerate brushing and “scrubs them from reporting on merchandise volume.” Minimal proof exists suggests the company ignores the activities on its platform and the it has publicly supported the government intervention of the marketplace. On the other hand, vendors explain that the high competition on the e-commerce platforms, unchecked for misconduct, has made brushing common in the markets.

New efforts to regulate this sector may put pressure on large e-commerce giants in the short term, but are necessary, in the long term, if China wants to foster this massive industry. More importantly, a market full of fake goods increases consumer distrust, hurting the e-commerce giants and hindering the development of a true Chinese consumption market. In response, China’s Commerce Ministry is proposing a general law that will regulate the circulation of goods. The operators of the trading venues must ban brushing tactics and will face fines for not properly responding to government requests for information regarding the matter.

Sources:

http://www.wsj.com/articles/china-tries-to-clean-up-e-commerce-1427894413

http://www.wsj.com/articles/inside-alibaba-the-sharp-elbowed-world-of-chinese-e-commerce-1425332447