INTERNET: US, China Send Conflicting Signals On Piracy
Bottom line: China should work with its major trading partners to send unified signals on issues like piracy to create a transparent business climate and avoid confusion.
In an unusual reversal of roles, Washington officials who regularly criticize China for piracy found themselves defending Alibaba (NYSE: BABA) on the issue last week, just a month after a Beijing regulator blasted the e-commerce leader for allowing rampant fake goods trade on its popular Taobao site. The conflicting messages are at least partly political, since a similar US condemnation would have contradicted Washington’s praise of Alibaba’s piracy-fighting efforts over the last 2 years.
To avoid sending such conflicting messages, China and its major trading partners should consider setting up formal working groups and signing cooperative agreements to send out more unified signals on issues like piracy and other matters with cross-border implications. Washington and Beijing have already made such an effort in securities regulation, producing a landmark information-sharing agreement to facilitate investigations of US-listed Chinese firms.
More such cooperation in other cross-border areas, from patents to taxation and piracy, would provide clearer signals for business about government positions on those matters. Such efforts would also help to create an atmosphere of cooperation on issues of common interest between China and the west, building trust to offset recent tensions over issues like state subsidies and cyber spying.
Alibaba is China’s largest e-commerce company, but is also the most prone to trade in fake goods due to a business model that allows third-party merchants to sell goods on its sites. By comparison, China’s other major e-commerce firms directly operate their own online stores, giving them far more control to guarantee the authenticity of goods sold on their sites.
In a bid to show it was fighting piracy, Alibaba implemented its own systems to identify and remove sellers of fake goods from its sites, and concurrently mounted a campaign to convince critics in Washington of its efforts. That campaign finally bore fruit 2 years ago, when the US removed Alibaba from its annual global list of “notorious markets” for pirated goods.
The US continued to exclude Alibaba from the list, in an implicit nod that the company was continuing its battle against piracy. That nod helped to give Alibaba credibility when it made its blockbuster New York IPO last September, raising a record $25 billion. The company’s shares then continued to surge, making it more valuable than older, more established names like Amazon (Nasdaq: AMZN) and eBay (Nasdaq: EBAY).
But then one of China’s top business regulators, the State Administration for Industry and Commerce (SAIC) conducted its own survey last year and found that nearly two-thirds of goods traded on Taobao were fakes. It informed Alibaba of the findings last summer, but didn’t announce them publicly due to the company’s upcoming IPO. It finally announced the results in January, sparking a sell-off that has seen Alibaba’s shares lose nearly 20 percent of their value since then.
As effects of the high-profile war of words between Alibaba and the SAIC continue to linger, the company got a rare piece of good news late last week when its name was once again excluded from the newest US list of “notorious markets”. (English article) But this time Washington added an important footnote to its latest results, saying it will “continue to monitor” the situation between Alibaba and the SAIC.
The US is far more dependent on third-party information to make its determinations about what happens in China, and thus often relies on reports from victims of counterfeiting and companies like Alibaba to make such decisions. But many of the victims of piracy on Taobao are domestic companies, which are unlikely to complain to Washington. By comparison, the SAIC’s investigation was far more independent and took advantage of its own easy access to Alibaba’s e-commerce services, allowing it to uncover the high rate of piracy.
Such conflicting messages from China and the US are understandable, but can create confusion and undermine confidence among consumers and investors. That kind of confusion could be avoided if relevant government agencies from China and its major trading partners formed cross-border working groups to create a unified voice on issues of common interest like piracy.
The Chinese and US securities regulators formed this kind of partnership 2 years ago, signing a breakthrough information-sharing agreement to assist in investigations of potential wrongdoing by the many New York-listed Chinese firms. Similar agreements and other cross-border working groups could be set up between other related government agencies, giving China and its major trading partners a chance to cooperate and send unified signals on issues where both sides have common goals.
