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China tightens ecommerce rules

News, 03 April 2015

BEIJING: China's burgeoning ecommerce sector is coming under increasing scrutiny by regulators, who this week announced new measures to crack down on counterfeit and substandard goods sold over the internet.

With total online spending in the country expected to surge to $1 trillion within the next four years, China's Ministry of Commerce wants to tighten the regulatory environment and put a stop to so-called "brushing" activity on commercial sites.

As reported by the Wall Street Journal, "brushing" is the Chinese expression for a growing practice whereby vendors fake transactions and customer reviews.

Under the terms of a broader draft law, the Chinese government also wants to fine operators up to 500,000 yuan, or $80,000, for failing to report it instances of such misbehaviour.

Analysts and brands say the new rules could be a big step towards reducing the prevalence of counterfeit goods as well as "grey-market" goods, which are legal but sold cheaply, so potentially damaging a brand's image.

Elinor Leung, an analyst at Hong-Kong based investment group CLSA, observed: "You have to go through this process before you have a true consumption market in China. Nobody can avoid it, including Alibaba."

Indeed, the new measures are likely to heap further pressure on Alibaba, the country's largest ecommerce company, which has faced official criticism in the past that it has not done enough to police who sells on its Tmall and Taobao sites.

The company says it supports the government's initiative to "promote the healthy development of China's ecommerce industry" and has taken steps to raise the quality of its online shops.

But Emma Li, a researcher with L2, a US business intelligence firm, thought it unlikely that Alibaba would be able to get rid of all counterfeit and grey-market goods on Tmall simply because there are so many of them.

Data sourced from Wall Street Journal; additional content by Warc staff