China’s e-commerce giants still rely heavily on fake goods, Pinduoduo’s success reveals

By Lei’s Apple

* Legendary rise of China’s third largest e-commerce platform questioned for dealing fake and substandard products.

* Is Pinduoduo’s success story backed by business model innovation or tolerance over fake goods trade?

* Counterfeit goods remain “an unavoidable problem” in China amid the development of online retail market.

 

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Pinduoduo’s phenomenal rise has revealed a sad and pathetic fact that China’s e-commerce giants still rely on trading fake goods as a shortcut to earn the fortune, four decades after the country opened its economy to the international world.

Price war remains a common and the most effective means to squeeze rivalries out of the market, as investors often seek quick returns.

Pinduoduo pioneers a social group-buying model that offers buyers generous discounts if they share in social media the product listing with a friend who also purchases the item.

Within three years after its launch in 2015, Pinduoduo has amassed more than 300 million users. It went public on the Nasdaq Stock Market on Jul 26, with price set at the top of an IPO pricing range.

However, whether its legendary growth could sustain has now become a big question.

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Following a slew of negative media reports, China’s State Administration for Market Regulation said on Aug 2 that it was calling for an investigation into the sale of counterfeit products and items that infringe copyrights on the Pinduoduo platform.

Alibaba and JD.com, China’s two largest e-commerce giants, both share the questions of trading counterfeit products and substandard goods.

Pinduoduo is more popular in lower tier cities, where inhabitants register lower income and total wealth, compared to their first-tier counterparts.

Some even argue Pinduoduo’s legendary rise is backed not by its innovative business model, but outrageous tolerance over fake goods to pursue low prices.

Colin Huang Zheng, the founder and chief executive of company Pinduoduo, has said counterfeit goods remain an unavoidable problem in China amid the steady development of the country’s online retail market.

Pinduoduo claims that it has already taken down over 10 million product listings on its platform, as well as blocked more than 40 million listings deemed to be infringing on copyright.

Pinduoduo’s stock closed at US$22.59 in New York on Tuesday, down over 18 per cent since its peak of US$27.54 on the first day of trading, but still above its US$19 per share IPO price.

In June, China’s parliament reviewed a proposed e-commerce law that would make domestic e-commerce platform operators and merchants on the platforms accountable for selling fake goods online.

Imports of counterfeit and pirated goods were worth nearly half a trillion dollars a year, with more than 60 percent of them originating from China, a report said in 2016.

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The report said most fake goods originate in middle income or emerging countries, with “China appearing as the largest producing economy”.

63.2 percent of all fake products seized in the world between 2011 and 2013 were from China, far ahead of the next biggest producers, Turkey (3.3%), Singapore (1.9.%) and Thailand (1.6%).

Pinduoduo is now China’s third largest e-commerce site, with a 5.2 percent market share, behind Alibaba’s 58.2 percent and JD.com’s 16.3 percent.

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