By Laurie Burkitt
BEIJING-- Alibaba Group Holding Ltd.'s public fight with the
Chinese government over fakes is putting a spotlight on a
little-known but increasingly aggressive regulatory agency that is
seeking greater sway over the country's vast e-commerce market.
The State Administration for Industry and Commerce this week
posted a white paper on its website that accused Alibaba of
allowing the sales of counterfeit goods on its website, as well as
tolerating bribery, the sale of illegal items like weapons and
other violations. The Chinese e-commerce giant has publicly
disputed the claims, in a rare move for a Chinese company.
The white paper and the agency's approach were "so unfair that
we felt compelled to take the extraordinary step of preparing a
formal complaint to the SAIC," Alibaba Executive Vice Chairman
Joseph Tsai told analysts during a conference call on Thursday. In
its other statements it accused an SAIC official who oversees
e-commerce enforcement, Liu Hongliang, of "procedural
misconduct."
On Thursday the SAIC removed the paper from its website, just
one day after posting it, without stating a reason. SAIC officials
didn't respond to requests for comment on Friday. Previously, it
has said publicly it has an obligation to protect the
marketplace.
Legal experts say they are watching to see how the SAIC or other
authorities will react. Their next moves will "indicate the power
of the agency to take retaliatory action against a privately owned
company that challenges enforcement action," said Lester Ross, a
Beijing-based attorney with U.S. law firm WilmerHale.
The SAIC's broadside against Alibaba was its most aggressive
move yet against a major company. It comes as observers say the
agency is trying to increase its profile and protect its turf
against other Chinese agencies. The SAIC is increasingly flexing
its muscles in Chinese e-commerce, a more than $500 billion market
by KPMG's estimate, following complaints by businesses of the
alleged availability of widespread fakes.
"They realized that international online trade is growing and
it's going to hit a critical mass," said Joe Simone, director of
Hong-Kong based intellectual property consulting firm SIPS.
The agency oversees a broad array of matters involving market
order in China. That includes certain business licenses as well as
trademark administration. It also keeps voluminous records on
businesses in China, though it makes only partial data available
outside of official and legal circles.
Last year it raided Microsoft Corp. offices in China as part of
its investigation into how it sells and bundles it software.
Microsoft has said it is cooperating. The SAIC also has probed the
offices of foreign drug makers, though it never publicly levied any
punishments.
The SAIC began working on its Alibaba white paper last year,
after China's State Council, the government's highest
decision-making body, gathered about 30 representatives from
foreign and domestic companies to ask them about doing business
online in China, Mr. Simone said.
Mr. Simone, who attended along with representatives of other
companies, said some told officials that they weren't doing enough
to tackle fakes. Companies recommended that the SAIC police the
biggest offenders, he said. Mr. Simone said he told officials, "we
have an elephant in the room, and I'm going to name them: Ali."
An Alibaba spokesman said it has an aggressive antifake effort
that removed more than 90 million counterfeit items from its
platforms over the past two years.
Experts say that much of the SAIC's recent moves have been
attempts to assert its power and justify its existence. Leaders
have stripped some of its powers away in recent years, including
food safety oversight. It has waged turf wars with China's National
Development and Reform Commission, the country's economic planner,
over antimonopoly law enforcement, according to attorneys. Last
year, the Ministry of Commerce and the NDRC spearheaded probes of
prominent auto makers like Audi, BMW, and Mercedes-Benz parent
Daimler while SAIC officials played only supporting roles.
The SAIC didn't respond to requests for comment and hasn't
publicly spoken on its relationship with other government
agencies.
For years, the SAIC lacked a legal foundation it needed, but
recent changes in the consumer protection and trademark laws have
helped that.
"That said, there is a learning curve that is anticipated as the
SAIC tackles the task of implementing and enforcing the new laws,"
said James Zimmerman, chairman of the American Chamber of Commerce
for China.
Legal and industry experts say that the SAIC tends to be fairly
open with businesses, meeting regularly with corporate heads to
discuss problems and proposed action plans. In December, SAIC chief
Zhang Mao spoke at a reception held by the American Chamber of
Commerce for China, which U.S. Ambassador to China Max Baucus also
attended. "The huge market of China and the capabilities and
advantages of the Unites States in terms of human resources and
technology are bonding us closer together," Mr. Zhang said.
"Harmonious cooperation will benefit both sides."
Mr. Zhang said in an interview with China's state-owned
broadcaster China Central Television that SAIC posted on its
website earlier this month that the agency would be pushing for
better service and consumer protection online, where he says he
also shops. The SAIC accepted 50,000 consumer disputes for online
problems in the first 11 months of last year, Mr. Zhang said in the
interview.
"Originally it was all young people, but now middle-aged and
older people have entered e-commerce," he said, adding that
"problems are not few" for the sector.
Yang Jie contributed to this article.
Write to Laurie Burkitt at laurie.burkitt@wsj.com
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