Investors Shrug as China’s State Press Slams Alibaba for Fraud

Key Speakers At Day Three Of The APEC CEO Summit
Billionaire Jack Ma, chairman of Alibaba Group Holding Ltd., speaks at the Asia-Pacific Economic Cooperation (APEC) CEO Summit in Manila, the Philippines, on Wednesday, Nov. 18, 2015. Businesses and people should be free to trade because it's a human right and represents freedom, Ma told the APEC summit. Photographer: SeongJoon Cho/Bloomberg via Getty Images
Photograph by SeongJoon Cho — Bloomberg via Getty Images

Alibaba Group Holdings’ (BABA) investors appear to be getting used to the enormous amount of fraud on its biggest platform.

Earlier this week China’s state-run broadcaster CCTV ran a critical investigation of sales fraud on Taobao, the eBay-like selling bazaar with 8 million-plus sellers, in the form of fake transactions boosting store rankings. When you search for Star Wars, for instance, thousands of stores pop up. The CCTV report was criticizing the method of fraud called “brushing” that is a ploy for sellers to move their stores up into the first listings by paying fake customers to submit orders and then shipping them empty boxes.


The report wasn’t particularly fresh. The Wall Street Journal and other outlets uncovered and investigated the practices last year. But the news was remarkable for two reasons.

The first is that CCTV—and by extension, the Chinese government— is now criticizing domestic companies in the same fashion they’ve targeted international ones. The same CCTV program in previous years was devoted to Apple’s unfair warranty practices in China and Starbucks’ steep prices within the country.

The second is how easily Alibaba’s shareholders seem to have shrugged off the news. Traders no longer appear as sensitive to evidence of fraud on Alibaba’s platforms as they were soon after the company’s initial public offering in 2014. Back then a government regulator released a report detailing the fake goods hosted on Alibaba’s sites. The shares shed $30 billion in value following the news. This time, the stock price was hardly affected. It ended higher on Wednesday following the government-sanctioned report than the end of Monday, before it aired.

For the more conspiracy-minded, there may be a third reason why the CCTV report is interesting. It comes only a week after a newspaper that Alibaba partly owns in China’s Muslim-dominated far northwest printed a letter calling for president Xi Jinping to resign. That amounts to a seditious act in China’s Communist Party-controlled press. It was quickly deleted by censors and so far there’s been no follow-up news on the letter.

Alibaba has not solved the endemic fraud on its sites, but it says it spends hundreds of millions of dollars a year fighting it. That may be enough to assuage the fears of traders for now. But getting in the crosshairs of state media is not something that warrants complacency.

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