Taobao and regulator must refine e-business

A Tmall logo made from Lego bricks is displayed in Hangzhou, the headquarters of Alibaba Group Holding Ltd.

The squabble between China's e-commerce giant Alibaba and the State's market regulator, caused by a product quality report, points to improved market environment and governance.

A quality report issued by the State Administration for Industry and Commerce on Jan 23 said, China's largest consumer-to-consumer platform owned by Alibaba, had the worst performance among six online shopping sites.

The quality check, conducted between August and October, showed that only 37.25 percent of the sampled goods from Taobao were authentic, compared with 90 percent for and 85.7 percent for Tmall, an Alibaba business-to-consumer site.

Following the quality controversy, Alibaba's US-trade shares lost about 4 percent and dropped to US$98.45 (S$133.25) on Jan 28, after falling to US$102.94 at close on Jan 27, down by 1.01 percent from Jan 26.

On Jan 27, Taobao said it would file a complaint against Liu Hongliang, deputy head of SAIC's e-commerce trading supervision department, for abusing power and using improper supervision procedures, which, it said, had resulted in "very serious" losses to the company.

"We welcome fair monitoring, but we are opposed to misconducts...Liu employed a wrong method to reach a conclusion that is not objective," Taobao said. That it has challenged the regulator reflects a more tolerant government which allows the market to play a key role.

SAIC responded by posting a white paper on its website on Jan 28, saying Taobao had failed to clean up its business in five areas, including a flawed rating system for vendors, a low threshold for opening up on-site business, lax scanning of information on goods and allowing merchants to operate without business licenses.

The report shows that the State regulator is committed to its task while trying to give full play to a healthy market.

The method used by SAIC in the August-October quality check, however, has evoked protests from Taobao as well as some netizens, because 51 of the 92 samples chosen for inspection were from Taobao. This means 41 of the samples came from as many as five online retailers.

SAIC's refusal to allow the companies the right to apply for re-examination also has been a source of conflict.

Despite the doubts, the report still sent shockwaves through consumers, especially online shoppers, across the country.

Given that online shopping has become increasingly common among Chinese consumers, the report may dampen many people's enthusiasm in online retail, dealing a heavy blow to the country's prospering yet fledging e-commerce sector.

China's e-business has seen explosive growth in recent years, with its market volume rising from 4.5 trillion yuan (S$976 billion) in 2010 to 8.2 trillion yuan in 2013, an annual growth of more than 25 percent. In the first half of 2014 alone, online transactions topped 5.66 trillion yuan.

E-commerce is attracting an increasing number of consumers, especially youths, because online shopping saves time and valuable costs. But apart from the benefits, the overgrowth of e-commerce has also come with excessive advertising and flow of counterfeit and substandard products, prompting the authorities to take measures to ensure quality.

The new law on the protection of consumers' rights and interests, which took effect on March 15 last year, gives consumers the right to unconditionally cancel a deal within seven days of receiving goods bought online.

But quite a few online shoppers still complain that they face trouble returning goods or getting their dues in case of online disputes.

This, along with other problems associated with e-commerce, calls for SAIC to make greater efforts to strengthen monitoring and improve the online shopping process.

Although e-commerce platforms in other parts of the world are also struggling to prevent substandard and counterfeit goods from entering the online chain, it cannot be used by SAIC and online shopping platforms as an excuse for inaction or lax monitoring.

The booming sector should be encouraged to expand business provided the ever-increasing number of online shoppers are guaranteed delivery of authentic goods.

And it is time Alibaba and SAIC sat down to work out more feasible ways to prevent fake and substandard goods from entering the online selling-and-buying chain instead of engaging in legal battles.