Days after a surprising exchange with a Chinese regulator unnerved investors, the e-commerce titan Alibaba Group reported a 40% increase in revenue in the last quarter of 2014, which was weaker than expected.
Alibaba said that in the last quarter, its net profit climbed to $2.1 billion, higher than the $1.9 billion predicted by analysts. In early Thursday trading, Alibaba shares were down over 8% as investors became concerned over Alibaba’s run-in with China’s main corporate regulator over the sale of fake goods on its marketplaces, according to The New York Times.
The Chinese regulator, the State Administration For Industry And Commerce (SAIC), accused Alibaba of allowing the sale of fake goods and misleading customers on Taobao.com, its shopping platform. SAIC reported that Alibaba’s consumer-to-consumer platform performed worse for reliability and fake goods than other Chinese sites such as Yihaodian.com and JD.com. The report alleges that Alibaba employees accepted brides from merchants who wanted better search rankings, according to Fortune.
[quote text_size=”small” author=”– SAIC report”]
Alibaba hasn’t paid enough attention to illegal operations on its platform and hasn’t effectively alleviated the situation. Alibaba faces not only the biggest credibility crisis since its founding, but also casts a negative influence for other e-commerce operators.
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While Taobao’s reputation for fake goods is well-known in China, it has not hurt the e-commerce giant because shoppers read comments before making a purchase and skip over sellers who are not reviewed well.
Western companies have come under increasing scrutiny in China, and some foreign business groups have accused Chinese regulators of a spotty record of fairness. Alibaba joined the criticism, saying SAIC’s main investigator, Director Liu Hongliang, unfairly formed the report using a small sample of just 92 batches of products.
The founder of Alibaba Group, billionaire Jack Ma, announced that Alibaba will establish a 300-member “fake-fighting special operations battalion” in the struggle against fake products on Alibaba’s marketplaces.
Alibaba intends to file a formal complaint against SAIC in an unusually public spat in China, where countries usually keep complaints private for fear of upsetting powerful government agencies, according to USA Today.
