As Chinese Demand for Fakes Goes Down, Scams Go Up

A "Michael Kors" bag available on Taobao which the seller claims is a daigou item. It comes as no surprise that China’s online shopping market is rife with fake luxury goods, but it appears that even Chinese consumers trying to avoid counterfeits are falling victim to expensive online scams. The results of a new survey recently released by Chinese tech giant Tencent find that 58.2 percent of Chinese respondents who bought imitation goods online did so because they were scammed by fake online reviews and artificially inflated product ratings. While it seems counterintuitive that it would be hard to spot fake luxury items, many of these purchases are actually made via China’s massive gray market through channels such as Alibaba’s Taobao and Tencent’s WeChat. Thanks to the significantly higher price of luxury goods in China due to tariffs and markups, daigou sales in which sellers smuggle real goods from abroad past customs are prevalent on e-commerce platforms. The illegality and lack of regulation of the practice has naturally led to a growing number of scams in which sellers pass fake items off as daigou purchases bought abroad. This problem is getting worse, according to China’s online shoppers. A total of 53 percent of those surveyed believed that the number of online shopping scams has increased, while 27.1 percent feel it’s stayed the same and only 9.3 percent think it’s decreased. In addition, 49.3 percent of all cases of online shopping dissatisfaction are due to counterfeits, compared to 28.9 percent for inaccurate product descriptions and 23.3 percent for sub-par post-sales service. It should be noted that this survey was published soon after Tencent competitor Alibaba, the owner of China’s biggest e-commerce platforms Taobao and Tmall, came under fire recently for the sites’ rampant counterfeit goods despite its recent public efforts to crack down on fakes. On January 28, China's State Administration for Industry and Commerce (SAIC) published a white paper criticizing Alibaba for allegedly looking the other way with a large number of counterfeit items found on the platforms and even taking bribes from shady merchants. Alibaba denied the claims and appears to have made amends with the agency, which pulled the white paper from its website. This hasn’t stopped an ensuing class-action lawsuit filed against the company in the United States accusing it of misleading investors. Alibaba has gone to great lengths to advertise its fake-fighting efforts in order to build investor confidence for its U.S. IPO. After the most recent controversy, executive chairman Jack Ma announced that the company is launching a 300-person task force to fight counterfeiting on its platforms. He has also stated that the company already had 2,000 full-time and 5,000 part-time workers employed to keep fakes off the platforms, and the company has signed agreements with luxury conglomerates LVMH and Kering, as well as French, UK, and Italian government and commerce organizations pledging to fight counterfeits. The brands seeing the most success at fighting fakes on the platforms so far have been those that have joined Tmall with official shops, such as Burberry. For the time being, Chinese consumers falling victim to the scams are left to fume over being tricked. A total of 40.3 percent of those who end up with fakes don’t bother to report it it—likely because they know how sketchy the dealers are in the first place—while 32.2 percent complain and receive their money back and 16 percent complain and are ignored by unscrupulous sellers.

As Chinese Demand for Fakes Goes Down, Scams Go Up

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Published February 10, 2015

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As Chinese Demand for Fakes Goes Down, Scams Go Up