As reported by China’s Ministry of Commerce, in 2023 total online retail sales amounted to 15.4 trillion yuan ($2.1 trillion), an increase of 11 percent, marking China’s 11th consecutive year as the world’s largest online retail market. Meanwhile, the rapid expansion of e-commerce has facilitated the adoption of various deceptive strategies to target a broader customer base, giving rise to significant concerns.
Deceptive Practices on China’s Online Retail Platforms
The prevalent deceptive practices on China’s online retail platforms mainly fall into two categories: the sale of fake goods and deceptive advertising.
The sale of fake goods entails presenting counterfeits (i.e., unauthorized replicas of genuine products or brands) and knockoffs (i.e., cheap or inferior copies of authentic products or brands). In addition to brand counterfeiting, the online sale of fake goods also includes the substitution of cheap or inferior items for their more expensive or superior counterparts. For example, duck meat was sold as a counterfeit for beef.
Selling fake goods enables online stores to lower their prices while achieving higher search rankings and profit margins. Consequently, inferior goods tend to displace superior ones, leading to a decline in product quality, which reflects the economic concept of “Gresham’s Law.”
Deceptive or false advertising, was called a “malignant tumor” by People’s Daily. In the online marketplace, misleading or false claims have long been used in promotional materials to exaggerate products’ function and/or performance.
“Brushing” (刷单), or amassing fake transactions, is one form of deceptive advertising. To make selections among a large number of varying products, online shoppers rely heavily on existing sale volume and customer reviews. Through sending empty packages, online shops generate fake orders and reviews to boost their sales figures, and hence achieve higher store ranking in consumers’ search results.
During livestreaming sessions, it is common for hosts to hire a “water army” (水军) to click “like,” become followers, place orders, and post favorable feedback. To lure customers, livestreamers also adopt a “deceptive pricing” strategy, offering fake discounts by fabricating the original prices.
For real orders, according to China Daily, a “cash back for positive reviews” scheme has been widely implemented to encourage consumers to leave positive comments by offering small cash returns or discounts on future purchases.
It is also noteworthy that both the sale of fake products and deceptive advertising involve endorsements from celebrities, influencers, and fake experts. For example, influencer Li Jiaqi promoted a non-stick pan despite eggs clearly sticking to it during his livestreaming session. What became dubbed the “rollover incident” has raised doubts among consumers about his credibility. Fake doctors, relying on replicating genuine doctors’ content, can quickly gain popularity and then start selling low-quality or even fake health-related products on those platforms.
Countermeasures on China’s Online Retail Platforms
The Chinese government has implemented multiple measures to combat deceptive practices on e-commerce platforms. In the battle against piracy, counterfeiting, and deceptive advertising, multiple laws and regulations have been developed, refined, and enacted.
For example, the revised Anti-Unfair Competition Law requires e-commerce operators to refrain from falsifying products’ functions, performance, quality, sales volume, or user reviews. The E-commerce Law defines “brushing” as an illegal activity, and also makes retail site operators “directly liable” for fake products sold on their platforms. The Measures for the Supervision and Administration of Online Transactions prohibits online businesses from engaging in deceptive commercial practices.
For law enforcement, in 2022, the State Administration for Market Regulation (SAMR) deployed a nationwide enforcement action against unfair competition, which investigated and handled a total of 9,069 cases, with 739 cases relating to “brushing” and fines amounting to approximately 48.68 million yuan. The 2023 “Iron Fist” action plan also highlighted counterfeiting and deceptive advertising as key focus areas.
In recent years, China Customs have carried out “Dragon Action,” “Clean Net Action,” and “Blue Net Action” to enforce intellectual property right (IPR) protection. In 2023, a total of 62,000 batches of goods suspected of IPR infringement were seized, totaling 82.899 million items for import and export.
Meanwhile, more targeted measures have been adopted by online retail platforms. For example, at the end of 2015, Alibaba established the Platform Governance Department to safeguard a healthy e-commerce ecosystem. In January 2017, the Alibaba Anti-Counterfeiting Alliance (AACA) was established to enhance IPR protection through collaboration among multiple stakeholders. Over the years, Alibaba also continually innovated its IPR protection technology system, incorporating artificial intelligence and blockchain technologies.
According to its latest annual report, by the end of 2022, Alibaba’s intellectual property protection platform had safeguarded over 730,000 global trademarks, assisted public security authorities in solving 2,123 cases, and apprehended 2,737 criminal suspects.
Among the e-commerce platforms, Pinduoduo was the first one to introduce a “refund only” policy in 2021, allowing users to receive a refund without returning items that do not align with sellers’ descriptions. Taobao, JD.com, and Douyin followed with similar refund policies, prioritizing consumer rights over merchant interests.
It is also noteworthy that self-employed professional assessors are also emerging on various platforms, fighting against fake products and deceptive advertising. However, their motivation for exposing merchants’ misconduct might be questionable: Is it driven by a pursuit of justice or by a desire for increased attention and network traffic, which, in the end, could become profit through product promotion? Xin Jifei, known as “China’s most outspoken food influencer,” also started selling products online.
Challenges and Potential Solutions
Despite the efforts made by the government and e-commerce platform operators, these countermeasures still face constraints that limit their effectiveness due to various challenges.
First, the substantial volume and scale of operation make it almost impossible to monitor the description and quality of each product sold online. According to Taobao, the number of products for sale on a single day has exceeded 800 million, with an average of 48,000 items sold every minute. On Pinduoduo, the number of merchants had reached 8.6 million by June 2021.
Second, some sellers are adopting new strategies based on loopholes, and leveraging new technologies and platforms to promote fake goods and conduct fraudulent activities. For example, “brushers” may easily avoid detection by employing different accounts and IP (Internet Protocol) addresses.
Big data and artificial intelligence are increasingly being adopted to create personalized marketing strategies and to generate more appealing content to deceive consumers. New digital economy formats, such as second-hand trading platforms and livestreaming e-commerce, are hotbeds for deceptive practices due to regulatory gaps.
Third, consumers’ awareness of IPR and self-protection needs to be further improved, as their attitude toward fake products and other deceptive practices significantly influences the market. According to the White Paper on Insights into Chinese Consumers’ Attitudes towards Trademark Protection, which was released in August 2022, 80 percent of consumers had a certain understanding of trademarks, whereas only 69 percent of them agreed with the importance of safeguarding trademarks and would ensure their protection when making purchases.
Consumers, especially vulnerable groups such as older adults, minors, and rural consumers, could easily fall victim to purchasing counterfeits and/or inferior products if they lack awareness of preventive strategies and self-protection measures. According to the Annual Report on the Status of Consumer Rights Protection in China (2022), in the context of online promotional activities, consumers exhibited indifference and default acceptance toward behaviors infringing on consumer rights.
Last but not least, some fake goods sold on China’s online retail platforms are produced or distributed overseas. The trading of counterfeit goods has evolved into a global issue, involving multiple countries across production, sales, distribution, and consumption. The disparities in various countries’ regulatory frameworks and enforcement capacities amplify the pressure and complexities confronting China’s customs in protecting IPRs.
To address these issues, the relevant government departments should swiftly address emerging regulatory gaps, expand, and enhance international collaboration, and further strengthen supervision over online retail platforms, livestream hosts, sellers, importers, exporters, and manufacturers by clarifying their responsibilities and conducting more frequent random checks.
Online retail platforms should actively cooperate with government supervision, and further improve their review mechanisms, impose stricter user authentication, closely verify orders and reviews, and rigorously crack down on livestream hosts and sellers engaged in deceptive practices.
To mitigate the monitoring and compliance challenges, the government and platforms should also jointly enhance the legal comprehension of sellers and consumers, strengthen consumer rights protection awareness, deepen their understanding of channels for safeguarding their rights, rebuild their confidence, and provide more proactive assistance to consumers seeking recourse.
Consumers should elevate their vigilance, refrain from blindly trusting promotional materials and existing reviews, enhance awareness of IPR and self-protection, and avoid purchasing infringing products. Victims should actively seek legal recourse, not condone illegal behaviors, and maintain a zero-tolerance attitude toward fraudulent activities.
As stated in the Annual Report on China’s Combating of IPR Infringement and Counterfeiting (2022), “Long as the journey is, we will reach our destination if we stay the course.”
Discussion about this post