Alibaba Urges China to Get Real on Fakes

 | Mar 08, 2017 | 9:00 AM EST
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Alibaba Group Holding (BABA) founder Jack Ma has spiced up the pomp and circumstance as Beijing's political elite meet in Beijing by writing an open letter to China's "parliament" suggesting that the nation should fight fakes with the same zeal as it chases down DUIs.

Ma, China's second-richest person, has taken to Sina Weibo blog site with his appeal to the 3,000 delegates now gathering in China's halls of power to introduce "laws on counterfeiting as tough as those on drunk driving." He criticized the scant penalties and appalling success rate of convictions, saying there is "a lot of bark around stopping counterfeits, but no bite."

Sina Weibo is often referred to as the Chinese translation of Twitter. Ma's company, of course, runs Taobao. The online-sales platform itself started as a copy of eBay, but has gone far beyond surpassing its inspiration.

Taobao is China's digital Wild West -- it's definitely "buyer beware." But the sales site has a spin-off sales site (you can call it a knock-off, if you like), Tmall, that sells luxury goods and is better-vetted in terms of genuine merchandise.

Alibaba has been under pressure from Chinese consumers to improve the way it polices itself. And Ma now wants Beijing to lend a hand. That push gained impetus when the United States reinstated Taobao on its blacklist of "notorious markets" for selling fakes.

Ma, a former English teacher that Forbes estimates is now worth $28 billion, wants to see tougher penalties for counterfeiting. "If, for example, we imposed a seven-day prison sentence for every fake product sold, the world would look very different, both in terms of intellectual property enforcement and food and drug safety, as well as our ability to foster innovation."

Alibaba says it handed over 4,495 leads on counterfeiting in 2016 that crossed the threshold of goods worth at least 50,000 yuan ($7,250). Of those, the authorities took on 1,184. That resulted in a scant 33 convictions. Alibaba has launched high-profile efforts, such as a push with the police in the city of Shenzhen and the luxury-goods brand Swarovski to shut down merchants selling fake watches. But some lawyers say those efforts amount to showboating.

China has produced such innovative counterfeits as "fake dumplings" with cardboard filling sold to Beijing construction workers, "fake eggs" sold across the border from me in a Guangdong hotel, with yolks that bounce more than a foot, and "fake" sewage drains that flood every time it rains because they lead to nowhere. A 13-floor apartment building fell over in Shanghai in 2009 because it had fake foundations no more than a few feet deep.

Some blame a culture that has long favored emulation over originality. But just as entrepreneurs like Ma are capturing the Chinese imagination instead, Chinese attitudes to such counterfeits has also shifted. Food safety is a priority, of course, particularly after a scandal surrounding milk powder tainted with the plastic melamine that in 2008 resulted in six deaths and left 296,000 babies with urinary-tract ailments such as kidney stones.

China launched a successful crackdown on drunk driving a few years back. "Without such strict law enforcement, we would surely see many more traffic accidents," Ma continued. On the contrary, the majority of counterfeiters are not held legally responsible for their actions." It's "hard to imagine" how China can fight such a low-risk crime, he said.

Entrepreneurs, celebrities such as movie star Jackie Chan, and sports stars like Yao Ming are drafted in each year as delegates to the dual annual meetings now taking place in Beijing. Ma's letter addressed the delegates attending the "two sessions" of government now taking place.

The National People's Congress is the equivalent of parliament, which in theory throws up new ideas about how the country should be run. Of course, that path is set long in advance by the folks with true power, led by the seven-person Politburo Standing Committee that's the equivalent of the Chinese cabinet.

The main event so far has been China's premier "setting" the growth target for the year at 6.5%, as I outlined yesterday. The alphabet soup continues beyond the NPC, with the Chinese People's Political Consultative Conference, or CPPCC, taking place at the same time over a couple of weeks.

Ma caused a stir last June when he said that fakes are often a better deal, and even more well-made, than the originals. "The problem is the fake products today are of better quality and better price than the real names," he said at an Alibaba investor day at its Hangzhou headquarters. "They are exactly the same factories, exactly the same raw materials, but they do not use the names."

Actually, he's got a point. It's not uncommon for factories making, say, sportswear to run an extra off-the-books shift creating exactly the same products they are paid to make, but to sell without the label's stamp of approval. Some producers of fakes go as far as to source the exact same Italian or French leather and stitching as you might find in a luxury handbag. They spend just as much time perfecting the item. So, in the end, who's to know?

Here's a handy Forbes guide to spotting a fake Louis Vuitton, Chanel, Kate Spade or Coach bag, by the way. But one telling facet of the story is that none of those brands would send a representative to examine a real bag from their brand alongside a convincing fake, and explain how they are different.

China is so good at counterfeiting that my wife and I talk about "real fakes" and "fake fakes." The fourth shift churns out "real fakes" -- as good, or equal to, the original. I have a few such items and are still not sure which are genuine. "Fake fakes" are obviously knockoffs -- like the Spaderman action figure I wrote about way back when for CNN.

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