China to probe online bazaar PDD as fake goods complaints rise

Beijing

CHINESE regulators announced an investigation into widespread reports of counterfeits sold through Pinduoduo Inc just a week after the e-commerce operator's high-profile US initial public offering.

On Wednesday, the State Administration for Market Regulation ordered Shanghai authorities to look into the reports and vowed "serious" punishment if it uncovers violations.

Known as PDD, shares of the online bazaar soared 41 per cent on its first day of trading in New York after raising US$1.63 billion in the fourth-largest US IPO this year.

The investigation comes amid a torrent of accusations about trademark infringements on Chinese social media, including on Twitter-like Weibo and messaging giant WeChat. Screenshots of alleged knock-offs mimicking Samsung TVs or Xiaomi phones have prompted brands including Hisense to warn of the potential legal consequences for platforms that infringe on their trademarks. PDD declined to comment on Wednesday.

"Regardless of whether it's a third-party platform or the platform's own operation, so long as there's been a violation of law, it will be treated seriously," the administration said in a statement on its website.

Shanghai-based PDD carved out a slice of the country's massive e-commerce market by popularising a format where people spot deals on products from fruit and clothing to tissues, then recruit friends to buy at a discount.

But the startup has itself pointed out the risks from counterfeits on its site - an endemic problem that's plagued e-commerce operators such as Alibaba Group Holding Ltd, which in 2016 rejoined the US Notorious Markets list.

PDD has been touted as a challenger to the much larger Alibaba and second-ranked JD.com Inc in China's e-commerce market.

Policing knock-offs requires an army of personnel and technology to spot fakes, a burden on a fledgling operation such as PDD's.

While Chinese users have long complained about shoddy goods, posts on social media about PDD have accelerated since its highly publicised IPO. It's also attracted at least one lawsuit, according to Chinese media.

The products available as of Wednesday on PDD, which is now trading at about 19 per cent above its IPO price, include a 350 yuan (S$70) iPhone X - a fraction of its retail price tag - and 849 yuan "Shaasuivg" 4K TVs (the logo resembles Samsung at a quick glance).

"If you open the app on PDD you see all kinds of obvious fake goods with funny names," said Eric Wen, founder of the Blue Lotus Research Institute. "They're so obvious they will have to be removed. I'm not saying this will reduce PDD's valuation to zero but once you remove these goods, it will impact on transactions."

Mr Wen said big-ticket items such as electronics made up a relatively small portion of the site's sales. "But their top categories like food and baby products are even more at risk. If something goes wrong with those categories, the consequences will be catastrophic." BLOOMBERG