Taobao locks horns with regulator

E-commerce giant claims in an open letter it has been treated unfairly, accusing official of abusing power

China's largest consumer-to-consumer platform taobao.com said on Wednesday it will file a complaint against an official at a government watchdog.

It claims the official abused power and ruined the reputation of Taobao's online site as well as that of online vendors in China.

Taobao's decision escalates tension between the platform and the State Administration for Industry and Commerce.

In an open letter on Wednesday, Taobao, which is owned by e-commerce giant Alibaba Group Holding, accused Liu Hongliang, who is in charge of regulating online trade at the administration, of "using a wrong method and reaching a conclusion that is not objective".

A recent quality report released by the administration showed Taobao with the worst performance among six major online shopping sites.

The quality check, carried out between August and October, showed that less than 40 percent of goods from Taobao that were tested were authentic. This compared with 90 percent for JD.com and 85.7 percent for Tmall, an Alibaba business-to-consumer site.

At least 51 of the 92 items chosen for the administration's inspection were sampled from Taobao, according to the platform, while just 10 items were sampled from one of its competitors.

Taobao, which is headquartered in Hangzhou, Zhejiang province, said it had received unfair treatment in the quality check, according to an open letter released to the public on Tuesday.

The administration was not available for comment by press time.

In response to Tuesday's open letter, the watchdog posted a white paper report on Wednesday morning, saying the online shopping site had failed to clean up its business in five areas.

These include having a flawed rating system for vendors, a low threshold for opening up on-site business, and allowing merchants to operate without business licenses, according to the regulator.

The report had been withheld until now to avoid disrupting Alibaba's US stock market debut in September. It was later removed from the main page of the administration's website.

Alibaba said it has made plenty of efforts to crack down on counterfeit goods.

The company said it spent more than 1 billion yuan ($160 million) from January 2013 to November last year on guaranteeing consumers' rights and tackling fake goods.

However, Neil Flynn, head equity analyst at Chineseinvestors.com, said consumer-to-consumer sites such as Taobao have more fake products available than business-to-consumer platforms, simply because of the nature of the business.

Flynn said Taobao had to criticize the report because reputation is very important for online retailers.

But he also said the government needs to put pressure on e-commerce firms to rid the industry of fake products, because the authorities are attracting foreign brands to sell their goods in China.

"When fakes are sold alongside authentic products, it is a legal issue and it will dissuade brands from investing in China," Flynn said.

In a survey conducted by Internet portal Sina, 48.2 percent of respondents voted to support Taobao, saying the quality check conducted by the administration had flaws. However, 40.3 percent backed the administration, saying it is important to crack down on counterfeit and suspect goods. The survey had drawn 13,427 respondents by 6:45 pm on Tuesday.

Alibaba's shares closed at $102.94 on Tuesday, down by 1.01 percent from the previous day.