There are millions of sellers on big Chinese online marketplaces like Taobao and Pinduoduo, and they resell merchandise obtained from a wide variety of sources. A new Chinese law could help cut down on the sale of counterfeit products on Chinese ecommerce sites.

Franklin Chu, managing director, Azoya USA

Franklin Chu, managing director, Azoya International

On April 25th, the U.S. Trade Representative’s Office placed Pinduoduo, China’s third-largest ecommerce platform, on its blacklist of notorious marketplaces that fail to curb the sale of counterfeit products. Alibaba Group’s Taobao platform, which dominates China’s online retail market, has also been on the list for years, having been found to sell counterfeit products such as watches, handbags, and other goods.

This latest blacklisting comes despite China’s recent efforts to crack down on the production of counterfeit goods. Since products made in the USA are in demand in China, this article will explain what U.S. retailers and brands need to know to promote their products in the biggest retail market in the world, including how to protect against fraud on Chinese ecommerce platforms.

It’s Hard for Ecommerce Platforms to Monitor So Many Sellers

Pinduoduo and Taobao are marketplace platforms for third-party sellers. They set rules, regulations, and guidelines; however, it is up to each merchant to run the day-to-day operations of their business.

The platforms will likely punish a few sellers severely, and use them as examples to scare the rest into compliance.

While requirements for sellers have become stricter, it is difficult to monitor all of them due to their sheer number: there are millions of merchants on each platform, each selling goods from all kinds of different distributors, wholesalers, and other channels. To monitor such a complex value chain for fake goods is a near-impossible feat, even for China’s most well-capitalized platforms.

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Pinduoduo had removed over 10 million items from its platform due to counterfeiting concerns. It also blocked over 40 million links to suspected fake goods and has a 150 million RMB ($21.68 million) fund to reimburse customers who purchased fake goods. In the end, none of these efforts were enough to placate the U.S. Trade Representative’s Office.

China Makes Big Bucks from Counterfeit Goods

Additionally, a large percentage of China’s economy depends on revenues generated from fake goods. A report from 2006 estimated that as much as 8% of its GDP was derived from the sale of counterfeit products. In 2016, the trade of counterfeit and pirated goods amounted to an astonishing US$461 billion, which accounts for 2.5% of global trade. Top counterfeit products included footwear, clothing, leather goods, and watches.

When a local government in northeast China announced a crackdown on counterfeit goods in 2012, 90% of store owners shuttered their stores, turning the city into a ghost town. The government officials subsequently backed off and pleaded with the store owners to come back and reopen their businesses.

Some counterfeit experts say that it’s difficult for the platforms to crack down on them for these economic reasons, and that even Alibaba Group founder Jack Ma sympathizes with these small business owners for trying to make a living in smaller, backwater Chinese towns.

What China is Doing to Help Root Out Fake Goods

The Chinese government is taking the issue of counterfeit goods seriously, enacting new legislation this year.
China’s new ecommerce law, effective at the beginning of 2019, cracks down on the sales of fake products by holding internet platforms and sellers more accountable for their actions (or lack thereof). Its provisions include:

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  • Ecommerce platforms, individual and merchant sellers, as well as social media platforms such as WeChat and Douyin, are held legally responsible if fake goods are sold and no measures were taken to prevent transactions. Before, only individuals were only held responsible if they were caught selling counterfeit items.
  • All individual sellers also must register their businesses, obtain a business license, and file and pay taxes. This includes many daigou sellers, who smuggle products into China and resell them at a mark-up.
  • Platform operators also will have to keep at least three years of product and service information records for each merchant.
  • Lastly, the new law also outlines a mechanism structure for notifying parties about fake listings and the process of removing the sales. Platform operators face fines of up to 2 million yuan, or nearly $300,000, for serious cases of intellectual property infringement where they fail to promptly remove listings.

While it’s difficult to track and punish every seller that violates these regulations, the platforms will likely punish a few sellers severely, and use them as examples to scare the rest into compliance.

What U.S. Brands Can Do to Build Trust With Their Customers

On ecommerce platforms, American brands should provide as much information as they can about their products and their ingredients, production processes, supply chain, etc. A typical product listing on Alibaba’s Tmall platform provides more than eight pages of such information and includes copies of the seller’s business license and product registration licenses. Such transparent information-sharing will help to build brand trust and assure consumers of the authenticity of their products.

Anti-counterfeiting features in a ChildLife health supplement listing on Tmall.

Anti-counterfeiting features in a ChildLife health supplement listing on Tmall. Source: Tmall Global

Brands should also focus on educating customers through social media. In China, trust is built based on recommendations from peers, and social media is a primary channel for sharing information on products. Research from McKinsey shows two-thirds of Chinese consumers purchase items based on trusted recommendations from friends.

 

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Lastly, influencer marketing also plays an important role in filling in the divide between brands and consumers. Influencer recommendations help consumers sift through the many choices out there when there aren’t any family or friends to rely on for help. Influencers also provide added entertainment through videos, where they try on products and give a sense as to how they look and feel in real life. These demonstrations are invaluable in the world of ecommerce to earn consumers’ trust.

Key Takeaways

  1. It’s hard to root out fake goods in China ecommerce because of the sheer number of sellers on marketplace platforms such as Taobao and Pinduoduo. It’s also hard because a fair chunk of China’s economy depends on the value fake goods generate.
  2. The Chinese government is making an effort to fight fake goods in ecommerce. The new ecommerce law holds platforms and sellers more accountable. It also requires all sellers to register businesses and file business taxes, forcing smaller individual sellers to reveal more about their businesses.
  3. Brands and retailers selling in China should provide as many details as they can about their products, production processes, and shipping data. They should also engage in social media marketing and influencer marketing to help educate and build trust with their customers.

Azoya assists retailers and brands as they expand into China via ecommerce.

 

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