The announcement that Tmall, the online retail component of Alibaba Group's Taobao, would be raising membership fees by five times their current level or more depending on the size and scale of the businesses involved, has led to a massive backlash from smaller merchants using the platform.

The response subsequently affected and damaged the operations of larger companies operating on the website, and has also damaged the platform's image in the eyes of many of its traders. The increase in fees are said to be part of Taobao's drive to bring order to e-commerce within China. Facing stiff competition from the likes of 360buy.com, Tmall has experienced rafts of complaints regarding false or counterfeit products, and the move to raise vendor fees is a significant step towards rooting out the problem of counterfeit sellers.

The u-turn came in the face of protests from small enterprises which felt threatened by increases in annual vendor fees and mandatory cash deposits. However, most telling of all is the involvement of the Ministry of Commerce (MOC) in the dispute, which has highlighted the frailty of the legal framework for resolution in such cases, and has highlighted the central government's growing realization of the importance of small and medium sized enterprises in China.

Currently, the fee hike has been postponed following intervention from the Ministry of Commerce. A nine month postponement, and a promise to invest $28 million U.S. dollars to further support registered sellers still shows a commitment from those in charge of Tmall to deliver on their promises of bringing order to e-commerce. But the delay raises obvious questions related to the efficacy of the scheme, and the reason for government involvement.

Little is known about the MOC's actual involvement in the Tmall dispute, aside from the fact that shortly after urging both sides to stop disputing the move in order to stabilise prices and show support for small businesses, Tmall postponed their fee hikes. Daniel Zhang, president of Taobao Mall, said that the revised policy came in accordance with a request put forward by the MOC. Jack Ma, president of Tmall's parent company Alibaba, insisted that they would not be held for ransom by small vendors.

Following a case last year in which Tencent and Qihoo 360 came to blows over issues of fairness in competition, the Ministry of Industry and Information Technology of China (MIIT) released its Interim Measures on the Supervision and Administration of the Internet Information Service Market in January 2011. The Measures came as a direct response of the case involving the software manufacturers, which at the time led to an expansion of MIIT's role and power in resolving business disputes. The Measures urged the internet industry to be self-disciplined, with resolution to be sought through industrial associations where possible. In the Tencent-Qihoo 360 case, MIIT took control of the situation, held internal meetings between the two sides, ordered them to bring an end to their conflict and apologize to consumers. A solution was reached in several days, achieved at the administrative level.

Once again, it seems that the dispute has been resolved at the administrative level, though the major difference in the Tmall dispute is that one party was seen to be squeezing a large collection of smaller businesses, with the possibility of leading to a monopoly of larger online merchants in the future. Admissions were made by Alibaba that the company went about raising fees in the wrong way, but the real message that has emerged from the proceedings is that small businesses are firmly at the top of the government's agenda.

Mike Bastin, a marketing and management researcher at Tsinghua University said in relation to the recent debt crisis in Wenzhou that the ‘the future Chinese economy will depend more and more on the successful growth of small businesses'. SMEs generate 50 percent of annual tax revenues and 60 percent of national GDP at present. As an organized group willing to commit unrest, as was seen last Wednesday when 40,000 people claiming to be Tmall vendors discussed how to disrupt Tmall's services online, it is virtually impossible for the government to ignore SMEs, regardless of whether they operate online or not.

It's unclear as to whether there has been a clear victor in the Tmall disputes. Tmall, as a sales platform, has lost credibility with both merchants and consumers. Larger companies using the platform have had their sales revenues directly affected as a result of the negative ratings incurred from bogus orders made by small business vendors, not to mention the fact that more than 20 stores were taken offline. A number of consumers will no doubt have been affected after making or trying to make purchases online. And the fact still remains, fees for small vendors will rise sometime next year.

Much like the involvement of the MIIT last year, the MOC has proved that it is able to quell agitation quickly and smoothly. However, it is hard to predict what reaction a repeat display of SME defiance in nine months time would provoke from the MOC. It might be unwise for the government to rely on behind-closed-doors solutions at an administrative level, regardless of how important SMEs are to the future economy of China, in the instance of future battles between online SMEs, as such decisions will lack transparency.

Stuart Wiggin is a news editor at China Radio International. He graduated from Oxford University majoring in modern history and politics.

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

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