Alibaba calls Chinese regulatory report unfair, as customer numbers grow

A Chinese regulator has criticized Alibaba for allegedly helping merchants to sell counterfeit goods

Alibaba Group bristled at a Chinese government report critical of its e-commerce business, calling it an "unfair" attack, and defended ongoing efforts to stamp out counterfeit goods from its retail sites.

On Wednesday, China's State Administration for Industry and Commerce (SAIC) issued a scathing report, alleging that Alibaba's e-commerce sites had become rife with counterfeit goods and other illegal activities.

The Chinese regulator claimed Alibaba had been too slow to act, and that the company may have been deliberately overlooking the illegal transactions.

It's not the first time complaints have been leveled against the Chinese company for selling fake products. But the SAIC's action quickly prompted Alibaba to rebut the report, calling it biased and flawed.

"We have been very vocal in protesting and we are prepared to file a complaint," Alibaba executive vice chairman Joe Tsai said Thursday during the company's fourth quarter earnings call.

The SAIC report also alleges that the Chinese regulator held a meeting with the company to discuss the problems in July. But to ensure Alibaba's upcoming IPO in the U.S., which occurred in September, wouldn't be affected, the Chinese regulator kept the meeting out of the public eye.

Alibaba, however, signaled that it had nothing to hide. It said it saw the SAIC report for the first time on Wednesday, and that the July meeting was simply part of routine meetings the company often has with regulators.

During Thursday's earnings call, Tsai also described the company's continued efforts to crack down on counterfeits, and said that the company had just added 300 employees to a task force focused on shutting down the illegal activities.

"Now we have a base of 334 million active buyers," he said. "These people wouldn't come to our website and do purchasing if they are getting bad quality stuff from our site."

The SAIC couldn't be reached for comment. But the regulator has taken down the report from its website.

Any strict regulatory action from China, however, could threaten to stifle some of Alibaba's growth at a time when its e-commerce sites dominate the Chinese market.

The company posted strong revenue growth during the fourth quarter. Revenue was up by 40 percent year over year, reaching 26.2 billion yuan (US$4.2 billion). But the company's profit was down 28 percent to 6 billion yuan due to a share-based compensation expense to employees, financial fees and higher income tax.

Usage of Alibaba e-commerce sites also grew. Annual active buyers rose 45 percent year over year to reach 334 million.

But the big change was in the surge in users making purchases from mobile devices, up 95 percent from a year ago to 265 million.

Alibaba doesn't sell its own products, but instead provides a commerce platform for millions of merchants. To generate revenue, it charges marketing fees from merchants, and takes a commission for products sold.

Alibaba is so popular in China that its two sites, and Taobao Marketplace, control over three-quarters of the country's online retail market, according to Beijing-based research firm Analysys International.

The fourth quarter also coincided with China's online shopping holiday on Nov. 11, when consumers bought $9.3 billion worth of goods from Alibaba sites, a jump from $5.8 billion a year ago.

The Chinese e-commerce giant makes over 80 percent of its revenue from its home market. But it also has sites targeting international buyers, which are growing as well. During the quarter, Alibaba's international retail business increased its revenue by 110 percent from a year ago. This was largely due to Alibaba's expansion of its online shopping promotion on Nov. 11 to its international AliExpress site.

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