Alibaba VS Chinese government

April 7, 2015 Blog
How self-confident should one be to publicly defy the Chinese government when one has a prospering business there? Alibaba, China'’s internet company that last year had an IPO on a scale unlike any other in the US, demonstrated its confidence and audacity a few months ago. Millions of Chinese people learned that Alibaba, which products have become an integral part of their lives, and their treasured government, which sets it's foot in every corner of their lives, are at clash. It is unique, but by all means dramatic and interesting to watch. Netizens flocked to watch the drama. What was the real reason behind it all? Here is how key events unfolded: Jan 23, the State Administration of Industry and Commerce (SAIC) published its 2014 second-half year quality study of internet shopping. According to the survey's findings, Taobao, the online webstore under Alibaba, was examined and proved to be having more than half of bad-quality or counterfeited products. Short time later on Jan 23, a few hours after the SAIC disclosure, Taobao, in a hardly expected gesture, posted an article on its official social network page, plainly disputing the scientific value and truth of the research and claiming the study to be prejudiced against certain parties. In the letter Zhang Hongliang, SAIC's head, was called a “black whistle” (a Chinese word for prejudiced/unethical judge), and marked that the study only selected 51 items out of Taobao's daily volume of over 1 billion products. Only 37 out of the 51 represented items were in accordance with national guidelines and laws. This made SAIC conclude that more than half of items on Taobao were sham. Another online shopping website only got 1 product selected from a catalogue for analysis, and it is great misfortune that one item turned out to be below the national standards. So SAIC reported a 0% estimation level for that webstore. In the context Taobao indicated that both the study methodology and the closing statements were dubious. The open letter also overtly charged the agency's head with malfeasance in office, which leads to “a loss of trust in the government to maintain a fair playground.” And that’ is just the beginning. The real battle kicked off when on Jan 28, SAIC publicly announced that Alibaba should “stop being arrogant”, and published a full “executive guideline” government report in which there was disclosed the company's negligent failure to deal and put an end to illegal practices by producers and retailers. The report listed 19 issues in 5 large fields for Alibaba: questionable items, dubious aggressive practices towards merchants, corruption of employees, and fraudulent operations. The letter also used some quite harsh language to urge Alibaba to get rid of illusions and plans that it might be excluded from the Chinese "equal for all" judicial system. Some time later, Alibaba released a slightly hostile official letter, expressing recognition of the problem of fakes and frauds on Taobao, while also bringing to the attention of others the complexity of the issue. It confessed to be not almighty to solve China'’s fake product problem on its own. Alibaba communicated readiness to collaborate with SAIC, and actually called for SAIC to visit them in person (official delegation). However, at the end Alibaba still mentioned: “We welcome fair supervision, but oppose questionable regulation or evil regulation.” At the end of the letter it informed that it plans to file an official complaint concerning SAIC head's use of "“inappropriate procedure"” and "“emotional regulation" enforcement”. In a nation where the proverb "don'’t fight with officers”" traces back to thousands of years, Alibaba’'s reaction is in reality an announcement of war with a government service that is responsible for all the trade and corporate actions in the state. The progression of events is stirring and fascinating to watch, particularly during the period when even large international companies like Facebook and Apple are accused of kneeling down to the Chinese government. The simple fact of overtly denouncing a government service error's is winning Alibaba fans among netizens. Many people welcomed with open arms Alibaba'’s audacity to hold firm against the unfair survey's conclusions and question government officials. In a brief poll by Sina Weibo, China’'s one of the most popular social networks, about 67% of the 6000 something internet community members who participated in the Weibo survey said they support Alibaba. Other online surveys by a couple of other websites got similar results: the Chinese people are standing by Alibaba in its battle with the officials. Their arguments are obvious. Plenty of netizens reacted something like that: “"The SAIC has ignored offline counterfeiting issue for a couple of decades, and suddenly it started to accuse Alibaba of the same thing. How absurd!”" They also pointed out that Alibaba, with a similar business model as that of eBay, is simply offering a marketplace where businesses and consumers meet, “Alibaba does not own all the merchants that sell there. Why should it be a scapegoat for fake products. As if China did n’ot have any fake stuff before Alibaba or outside of Alibaba website. "The SAIC is asking Alibaba to do it's job. SAIC is the one that i’s arrogant", - one person said. Some even created a theory that Alibaba was chosen by SAIC as a target because it refused to pay bribes. “"The government gave opportunity and plenty of time to Alibaba to became that big. It’ is time to harvest!”", - one netizen sardonically commented. Another commenter, referring to Jack Ma’s pledge that Alibaba should never marry the Chinese government, said: “"The government seems to want to force Alibaba into a marriage.”" The netizens' backing might be useful for Alibaba in the short term. But in the long perspective, relationships with government remain the biggest factor that will determine the future of Alibaba’.