Fighting fakes requires action on multiple fronts

Regulators, businesses and shoppers must unite against counterfeits

Several Chinese e-commerce companies were rocked by scandal recently following reports that a third-party vendor had used their platforms to sell counterfeit products. In the wake of this news, we've seen a swell of discussion centering on the integrity of local e-commerce retailers. Problems with counterfeits are nothing new in China, but as consumers become more discerning and demanding, acceptance of fakes is fading. Ultimately though, stopping the sale of knockoffs will require action not only from platform operators, but from consumers and regulators as well.

According to local media reports, a company named Xiangpeng Hengye had peddled counterfeit luxury watches, bags and clothing items via several local e-commerce platforms, including those operated by JD.com Inc and Jumei International Holding. The fake items in question were said to have been sold as authentic products from upscale brands.

Although Xiangpeng Hengye is a third-party vendor, companies like JD and Jumei must still accept responsibility for the goods sold on their platforms. Of course, both operators seem to realize this fact and both deserve credit for their quick responses to recent reports. JD says it has shut down Xiangpeng Hengye's online shop and promises refunds for customers who bought its products. Jumei, for its part, has come forward with similar offers.

Still, claims of ignorance on the part of both operators concerning the knockoffs allegedly sold by Xiangpeng Hengye seem somewhat dubious. As local reports mentioned, Jumei says it strictly supervises all of its third-party vendors by checking their business licenses, product authorization documents and customs declarations. Meanwhile, JD says it conducts product spot checks several times a week in order to ferret out fakes.

But even with these tight controls, it seems that counterfeit items are still getting through to consumers. E-commerce companies, particularly platform operators which provide a conduit for trade, need to rethink their strategies when it comes to fighting phony items. Failure to take action on this front could cost them the public's trust, which is becoming an increasingly scarce commodity these days. Moreover, for companies like JD and Jumei which trade publicly on exchanges overseas, any incident which diminishes their credibility with shoppers could seriously weaken their market value.

Of course, reports have come to light over recent years suggesting that some e-commerce companies are, by varying degrees, complicit when it comes to the sale of fakes. To wrest market share away from their rivals, China's e-commerce companies continue pushing prices lower in what has become a never-ending race to the bottom. As the market grows and profit margins contract, it's not inconceivable that certain companies choose to look the other way on less-than-respectable activities.

During the first half, e-commerce turnover reportedly totaled roughly 5.66 trillion yuan ($920 billion), up 30.1 percent year-on-year. With so much at stake, regulators urgently need to strengthen their supervision over the industry.

Historically, authorities have struggled to build cases against suspected counterfeiters or vendors who rely on untrue product claims. But even when charges do stick, the mild punishments which typically get meted out to rule breakers hardly serve as deterrents. Joyo, for instance, was only fined 50,000 yuan after it was discovered selling down jackets that did not match descriptions given online.

Commercial regulators have to make it clear that counterfeits will not be tolerated and impose harsh penalties for those caught intentionally selling such items.

Additionally, Chinese consumers should also be made aware of how their own behaviors encourage the sale of fake goods, particularly fake luxury products. While everyone loves a bargain, shoppers who knowingly buy knock-off items are only propping up an industry that hurts legitimate retailers and dampens innovation. Fortunately, as rising income levels make authentic goods more affordable for local shoppers, attitudes are starting to change. Many people are increasingly intolerant of cheap fakes and imitations.

If regulators increase their supervision and customers avoid businesses attached to fake products, vendors will have no choice but to change their ways. With efforts from all levels of the society, it is possible to drive counterfeiters out of business.