Wednesday, November 2nd, 2011...12:01 pm

Taobao under Monopoly Investigation, or Not?

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Taobao, Alibaba Group’s online retail platform that saw over $63 billion worth of transactions in the past year, is caught in several controversies recently. It started in October when Alibaba’s attempt to raise fees met with furious protests from the small vendors on Taobao Mall. It was not until China’s Minister of Commerce stepped in that the protests ended and Taobao rolled back on its fee hike and released its revised fee plan. Digital East Asia summarized the new plan and the changes from the original fee plan:

  1. The current annual “technical service fee” of RMB6,000 (US$945.2) that had applied to all sellers would be split into two new packages — based on the vendor’s category of goods — with costs of RMB30,000 (US$4,726) and RMB 60,000 (US$9,452), a 400% and 900% increase respectively.
  2. Vendors would be eligible to receive a year-end refund of part or all of their technical service fee based on business criteria such as operational scale, service quality and other positive merchant indicators.
  3. Merchants must contribute a “liability deposit” which could be forfeited if they are found to have violated their contract in some way. This requirement arises out of an Alibaba scandal that had some premium merchants taking money for goods they never shipped to customers.
         A. The liability deposit set aside by merchants ranged from RMB 50,000 (US$7,876) to RMB100,000 (US$15,753) to as much as RMB150,000 (US$23,629).
         B. Depending on the extent of a violation , the merchant will incur a one-time deduction of at least RMB10,000 (US$1,575) that can then be used to compensate cheated customers.

This is not the end of Taobao controversy, however. Less than two weeks after the “Occupy Taobao” saga, China Daily (Nov. 1st) reported that the Ministry of Commerce was investigating Taobao for suspected monopoly. Yet one day later (today),  the Ministry refuted the China Daily report, saying Taobao was not under investigation. What’s interesting is that in the Chinese report where the Deputy Commercial Counselor denied the report, he said that on the issue of “whether Taobao is engaged in monopoly, it needs to be communicated with NDRC (National Development and Reform Commission) and SAIC (State Administration for Industry and Commerce).” So is this retraction a result of inter-agency (dis)coordination?

It is hard to believe that China Daily, the country’s designated mouth piece, would “invent” a Ministrial level investigation out of thin air. I’m inclined to think that a secret investigation has been under way, most likely spearheaded by NDRC and SAIC, thus the Ministry is not willing to go public as the one carrying out the investigation, but China Daily jumped the gun on this one.

China’s online shopping market hit 2 trillion RMB ($315 billion) in 2010 and with its rapid growth, the market is expected to reach 12.5 trillion RMB (about $2 trillion) by 2012. This market, however, is largely unregulated. There is little e-commerce legislation to speak of, especially on the retail market. The recent Taobao controversies is but one reminder of the urgency to provide a legal framework for e-commerce.


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