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Print Edition> Business
UPDATED: March 23, 2015 NO. 13 MARCH 26, 2015
Market Watch No. 13, 2015


Stepping Up: E-Commerce Companies Must Work Harder to Combat Fakes

In a move that should come as no surprise, e-commerce attracted great attention during the annual sessions of the National People's Congress and the National Committee of the Chinese People's Political Consultative Conference held in March. However, consumer protection authorities are receiving increasing numbers of complaints about e-commerce websites, nicknamed "distributing centers of fake goods" by consumers. This description, though brutal, may sometimes be honest.

Within just 10-plus years, China's e-commerce industry, based on virtual platforms, has seen astonishing growth. Due to its accessibility, the industry is rapidly rising to meet the demands of ordinary consumers.

In the meantime, e-commerce is still in its infancy compared to traditional commerce. Because the credit system is not fully established in China and supervision of virtual space is difficult, it is natural and inevitable for problems to rise just as fast as e-commerce grows.

There are many reasons for the unchecked spread of fake goods--it is more difficult for authorities to supervise online sales channels than traditional stores, and a self-regulatory system has yet to be established by the e-commerce industry. To some extent, consumers themselves are one of the reasons behind the growth of fake merchandise sales.

According to figures from the China Internet Network Information Center, in 2013, each netizen made 58 online orders on average, but the per-capita consumption value was only 6,480 yuan ($1,040). Among the 302 million netizens, 45.5 percent of them had a monthly salary below 3,000 yuan ($480); among the 144 million mobile shoppers, 66.1 percent of them had a monthly salary below 3,000 yuan ($480). In other words, low-income groups are the main drivers of China's e-commerce market.

With comparatively low incomes, most e-commerce consumers have to make a choice from the cheapest goods, forcing customer-to-customer (C2C) businesses to wage fierce price wars.

Under such a business model, the number of clicks and orders is the biggest core competitiveness for e-commerce companies, and attracting clicks and orders with low prices becomes vital for online stores to compete and succeed. When a low-priced product attracts high sales, various copied goods will soon be found in other e-commerce websites. This can explain why fake Rolex watches of several hundred yuan and pirated Windows system disks costing 5 yuan ($0.8) flood online shops.

The satisfaction that low-income consumers get from buying "famous brands" with low prices may be hard to understand. Most consumers won't complain about fake products if they're cost-effective and functional. Even if buyers return the fake goods, they will lose nonrefundable delivery charges of 10 yuan ($1.6) or more. However, if they complain to the e-commerce website, the process is not as simple as it would be in brick-and-mortar shops. The process of submitting complaints can be quite long and complicated, and most online shops selling fakes will not be closed by the website. Such a procedure is obviously not conducive to combatting the sale of fakes.

I think a few e-commerce websites such as Taobao.com and Yihaodian.com are gaining the majority of market shares. It seems that the more capable these companies are, the more responsible they should be in combating fakes. The mainstream e-commerce websites should be the first authority to guarantee the quality of goods, instead of claiming to be third-party platforms to sidestep this responsibility. It is difficult for online buyers to identify fake goods, and average consumers are not capable of identifying fakes or aware enough to know and protect their rights. Moreover, they may be held back by the process of submitting complaints. Such qualities are exploited by online vendors selling imitation brands. However, if e-commerce websites can be more active in raising the bar for opening online shops, identifying fake merchandise and punishing the sales of such merchandise, the current Internet technology should be sufficient in identifying illegal businesses.

Therefore, various e-commerce websites should step up and claim responsibility. They need to cooperate with industry and commerce authorities as well as quality supervising authorities both online and offline. This is the only way they can protect consumers' rights and create a clean online business environment. These policies in turn will advance the entire e-commerce industry.

In practice, e-commerce websites should establish a product quality tracing system based on the unified organization codes and commodity codes, and all the online shops selling fakes must be thoroughly shut down.

The industry and commerce authorities and the quality supervising authorities must also perform their duties. Because e-commerce is growing so rapidly, legislation needs to at least try and keep up. However, the most urgent need now is to accelerate the facilitation of business registration, so as to incorporate micro and small businesses into the unified business registration system.

This is an edited excerpt of an article by Li Yujia, a research fellow at Shenzhen Real Estate Center, published in National Business Daily



Year-on-year increase of foreign direct investment to the Chinese mainland in the first two months of the year, settling at $22.48 billion


Year-on-year decrease of China's electricity consumption in February

42.2 bln yuan

China's net forex purchase in February

2.81 bln

Number of passenger trips made on railways, roads, airlines and waterways during China's 40-day Spring Festival travel rush(February 4-March 15)


Year-on-year increase of China's fiscal revenue in the first two months


Profit growth of China CSSC Holding Ltd., a leading ship builder, in 2014, due to rebounding market demand

909 mln

Number of online banking users in China in 2014, a surge of 19.7 percent from 2013

668 mln

Number of mobile banking users in China in 2014, jumping 30.5 percent from 2013

Copyedited by Kylee Mclntyre

Comments to yushujun@bjreview.com

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