What you need to know
First prison conviction in China for an e-commerce merchant found guilty of deceptive sales tactics.
When e-commerce seller Dong Zhichao hired a university student to buy 1,500 items from his main competitor on Taobao — internet giant Alibaba’s online marketplace — he probably didn’t expect to end up in jail for a year.
However, the 34-year-old, who runs an e-commerce company that checks academic work for plagiarism, had not counted on the vigilance of his commercial rival.
On Tuesday, a court determined that Dong and accomplice Xie Wenhao were guilty of using unfair sales tactics when they sabotaged an e-commerce store called Paper Pass, which also uses software to check customers’ work for plagiarism.
According to the Nanjing Intermediate People’s Court in eastern China’s Jiangsu province, Dong deliberately attempted to undermine the reputation of his competitor’s store for the purpose of “revenge.”
In China, it’s common practice for e-commerce sellers to pay fake customers to buy products, as the number of successful transactions is factored into the store ranking. However, Dong went one step further and bought items from his competitor’s site in order to rig the system.
Taobao regularly scrutinizes its vendors for sudden surges in sales, which can indicate that scams are taking place. Aware of this practice, Dong instructed Xie to buy 1,500 items from Paper Pass in the hope that China’s largest e-commerce site would take action against his rival.
Sure enough, Taobao lowered Paper Pass’s search ranking on the site as punishment for the apparent fraud — a penalty that typically lasts a month but was shortened to five days after Paper Pass contested the punishment. After further investigation, the increase in sales was traced to Dong and Xie. The estimated financial loss to Paper Pass from the search-ranking penalty was nearly 160,000 yuan (US$23,000), according to court documents.
“This is the first case in China that sentenced people for the crime of sabotage of production,” presiding judge Wang Ruiqiong told Sixth Tone’s sister publication, The Paper.
It’s not hard to hire individuals online who will buy products to improve sellers’ rankings. A quick search on microblog platform Weibo reveals a host of willing recruits, with payments as high as 400 yuan for a single deal.
Li Tingxuan, public relations manager at Alibaba, told Sixth Tone that the fake transactions conducted by “scalpers” have badly damaged the e-commerce environment, and that Alibaba has cooperated with several provincial authorities to investigate more than 10 companies that specialize in these fraudulent sales practices.
“The penalties for their illegal behavior is relatively low compared to their revenue,” Li said. Earlier this month, a professional scalping company was fined around 100,000 yuan, though the company earned more than 2 million yuan that year.
In 2013, Taobao’s internet security department detected more than 8 million fake buyer accounts making purchases totaling more than 10 billion yuan, according to state news agency Xinhua.
During 2016, rogue traders on Taobao made the news multiple times, and in November, China’s top economic planning agency — the National Development and Reform Commission — announced a new regulation that requires e-commerce companies to ensure their merchants sell genuine products, price their goods ethically, and refrain from engaging in shady sales practices.
Additional reporting by Lin Qiqing.
(The News Lens has been authorized to repost this article. The piece was first published on Sixth Tone here. Sixth Tone covers trending topics, in-depth features, and illuminating commentary from the perspectives of those most intimately involved in the issues affecting China today. It belongs to the state-funded Shanghai United Media Group.)
Editor: Olivia Yang