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ECONOMICS REPORT - Alibaba Faces Criticism From Regulators

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Workers renovate a building at the Alibaba head office in Hangzhou, east China's Zhejiang province, Sept. 15, 2014.
Workers renovate a building at the Alibaba head office in Hangzhou, east China's Zhejiang province, Sept. 15, 2014.

From VOA Learning English, this is the Economics Report.

Recently, a Chinese regulatory agency said that most of the goods sold on the Chinese website Alibaba are counterfeit. That means the products are not made by the company that is claimed to be the maker.

Alibaba is a website that connects buyers with sellers. The company's chief, Jack Ma, says he has solved the dispute with Chinese officials.

China's Alibaba Group has become a major Internet company in a short amount of time. Last year, the company raised $25 billion in its IPO, or initial public offering. The company offered stock shares to the public for the first time last September on the New York Stock Exchange.

But recently China's State Administration of Industry and Commerce, SAIC, released a report that said the company has not done enough to stop the Internet sales of illegal goods.

Alibaba's Executive Chairman, Jack Ma, said this was not true.

"We don't want; we were misunderstood by the world that we're not transparent. We don't want; (we were) misunderstood by the world that Taobao is a platform for selling fake products. And we want this company, I have always said, not to represent China's Internet, it represent the spirit of Internet of the whole world."

The SAIC report said that Alibaba employees took bribes and permitted merchants to sell illegal wine, handbags and other goods without the required license. It also said an investigation showed that many of the samples on the Taobao retail website were not licensed products.

Alibaba runs Taobao. On January 27th, Taobao rejected the study's findings. The company said the study was unfair.

The next day the SAIC released information about a July meeting between its representatives and Alibaba officials. In the meeting, the SAIC informed Alibaba that counterfeit goods were being sold through the website. The agency also told the company that it had violated marketing rules and had a poor consumer rating system.

Later, however, tensions between regulators and Alibaba appeared to ease. The SAIC and Taobao both removed the materials from their websites.

For many years now, Western companies have accused companies in China of stealing intellectual property and selling illegal products.

In recent years, the government has taken steps to deal with those concerns.

Andrew Batson is with the China research company Gavekal Dragonomics. He says it is unclear whether the SAIC's accusations against Alibaba are related to intellectual property rights.

Chinese officials are also closely watching consumer safety, seeking to stop the sale of fake products after many problems with product safety. A new consumer protection law enacted last March increases possible payments to those who buy damaged or fake goods. The State Administration for Industry and Commerce says $610 million worth of poor-quality goods were sold in China from 2010 to 2012.

However, some experts question if the accusations against Alibaba are connected to China's campaign against fake products. Shaun Rein wrote the book, "The End of Copy Cat China." He says protecting consumers may be one of the reasons for the regulators' actions.

"I think part of it is consumer protectionism, part of it though might be to sort of pull Alibaba down. I think over the last year Jack Ma might have become too powerful according to some areas. He is taking on vested interests in the financial sector, and retail sales, and entertainment, and some might feel he is getting too powerful."

The SAIC said it waited to release its report on Alibaba until this year so it would not damage the company's IPO. However, last week, a U.S. law firm announced it was taking action against Alibaba. The lawyers said the company did not tell the public about its communications with the Chinese regulator before the stock offering.

This week, Jack Ma spoke in Hong Kong. He said that the company will be open in its dealings with the legal action. He said the situation should give western observers a better understanding of Alibaba and China.

And that's the Economics Report from VOA Learning English. I'm Mario Ritter.

Shannon Van Sant reported this story from Hong Kong. Mario Ritter wrote it for VOA Learning English. Caty Weaver was the editor.

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Words in This Story

regulatory –adj. making or concerned with making official rules about what is acceptable in a particular business, activity, etc.

initial –adj. occurring at the beginning of something

briben. something valuable (such as money) that is given in order to get someone to do something

sample n. a small amount of something that gives you information about the thing it was taken from

consumer – n. a person who buys goods or services

intellectual – adj. relating to something (such as an idea, invention, or process) that comes from a person's mind

counterfeit adj. made to look like an exact copy of something in order to trick people

merchants n. people who buy or sell goods

license n. an official document that gives someone official permission to do, use or have something

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