China Accuses Alibaba of Allowing Counterfeit Goods

HONG KONG, China — Alibaba Group Holding Ltd. failed to properly oversee merchants and allowed the sale of counterfeit products on its e-commerce platforms, according to a Chinese government report.

Many merchants didn’t apply for a business license and misled consumers during holiday promotions, including the Nov. 11 Singles’ Day, according to a document published by a media outlet run by the State Administration for Industry & Commerce. A meeting was held in July, though the report wasn’t published until now to avoid affecting Alibaba’s initial public offering, it said.

“For a long time, Alibaba hasn’t paid enough attention to the illegal operations on its platforms, and hasn’t effectively addressed the issues,” the report said. “Alibaba not only faces the biggest credibility crisis since its establishment, it also casts a bad influence for other Internet operators trying to operate legally.”

Bob Christie, a spokesman for Alibaba, said the company couldn’t immediately comment. The report comes after a posting on one of Alibaba’s official Weibo accounts Tuesday said government inspectors applied standards inconsistently and didn’t give merchants enough time to respond to accusations.

Tacking Counterfeits

Alibaba has worked to get rid of counterfeits as it expands internationally, with 90 million listings for products that breached intellectual-property rights removed before its record $25 billion IPO in September. The crackdown is part of Alibaba’s plan to build its reputation now that it is Asia’s largest technology company with a market value of $254 billion.

The report from the government cited perceived flaws in its customer feedback system, false advertising and lax controls by Alibaba staff. Alibaba wasn’t stringent enough on merchant screening and there are flaws in its internal credit-scoring system, the report said.

Alibaba founder Jack Ma, China's richest man, said last week that he wants to reach 2 billion customers.

In December, Alibaba said it spent $160.7 million from the beginning of 2013 through November to block counterfeit products and boost consumer protection.

China’s largest e-commerce company, based in Hangzhou, has gained 71 percent since its IPO.

By: Lulu Yilun Chen; editors: Michael Tighe and Robert Fenner.