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Taobao quarrel leaves consumers in the lurch

By Shi Shusi: 0 Comment(s)Print E-mail China.org.cn, October 19, 2011

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[By Jiao Haiyang/China.org.cn]

A spat between small business owners and bigger sellers operating on Taobao Mall, China's top online retail platform, has plastered headlines this week.

Taobao Mall triggered the clash when it announced it would increase annual vendor fees from 6,000 yuan ($940) to between 30,000 yuan and 60,000 yuan, depending on the type and scale of the business. Mandatory cash deposits will also be increased from 10,000 yuan to a maximum of 150,000 yuan, depending on the category of goods sold.

The price hikes have sent small business owners into fits of rage. They responded to news of the policy changes by launching an online protest against Taobao Mall, buying up goods from bigger stores and then asking for refunds in an attempt to disrupt their business.

Vendors called the site ungrateful, accusing it of robbing from the poor to feed the rich. That's unfair. No matter how committed the site is to social responsibility, it is still a business. In today's China, where even the reputation of government-run welfare institutions has been called into question, it is clearly unrealistic to ask a businessman not to maximize profits.

Several years ago, Taobao beat out foreign competitor eBay with a more locally acceptable strategy. Key to its victory was low fees, which kept products cheap and attracted a small army of vendors. By giving young people a platform to open shops online, it established a harmonious relationship with the online shop owners.

But trouble followed. As customers flocked to the site, the cost of operating Taobao Mall rose quickly. Then came a hot dispute over the ownership of Alibaba. The group's business-to-business sales division saw a credit crisis, and its performance remained poor for some time. Funds were tight at Taobao Mall, and it faced a lot of pressure from management.

Moreover, Taobao Mall had to deal with a complex mix of quality brand goods and cheap knockoffs. Quality problems and complaints about service were perennial. Reports of fraud were commonplace.

China's e-commerce industry has been developing for 11 years. Taobao is now faced with unprecedented threats from 360buy.com, Dangdang.com and other independent business-to-consumer companies. Taobao has decided to transfer its costs to vendors, and its formerly close relationship with retailers has evaporated.

The conflict involves the core interests of Taobao and its vendors. It will not be easy to resolve. Unfortunately, this online battle has no referee, leaving consumers to fend for themselves.

Despite its internet boom, China's internet laws and regulations are generally inadequate and in some cases absent entirely. The Consumer Protection Act of China, now in its 17th year, has no clause regulating online transactions. When a dispute is taken to court, insufficient evidence and unclear legal provisions often leave it unsettled.

Currently, the industry is largely self-regulated, with minimal government supervision. In view of the current cut-throat competition, the current level of outside supervision is unable to protect consumers' legitimate interests. Think back to the battle between Tencent, operator of the popular instant-messaging software QQ, and Qihoo 360, China's biggest antivirus service provider, over alleged unfair business practices. Although the Ministry of Information Technology eventually intervened to stop the dispute, nothing was done about the losses suffered by consumers.

The current dispute between Taobao and its vendors involves hundreds of millions of customers. In the past, Jack Ma served as the referee. But he has failed to find a solution all parties involved can stomach. Tired of playing the hero to China's customers, Ma has shown his true colors as a shrewd businessman. And innocent consumers are disappointed to again find themselves in a position vulnerable to attack.

The author is a frequent commentator in the Chinese media.

(This article was first published in Chinese and translated by Li Huiru.)

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.