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April, 2018

Chinese counterfeiters exploit cross-border e-commerce

Original article: Sina

Cross-border e-commerce has become a lucrative source of income for Chinese counterfeiters, who have developed sophisticated techniques to deceive shoppers. Counterfeiters have complete supply chains to deliver fake goods made in China that appear to be genuine products from overseas. Cosmetics, branded apparel (including luxury items) and food and beverage are among the most commonly counterfeited products. 

Analysis:

Recent media reports have highlighted a dramatic shift in Chinese consumer preferences towards domestic brands. That's true for certain product categories - like personal electronic devices. It's possible China's top five smartphone brands will be entirely domestic before long. 


But China's demand for imports remains robust across many consumer segments. When it comes to products that we eat, drink or use for personal hygiene or beautification, foreign brands retain an edge in China. Chinese consumers view them as higher quality and safer than domestic brands. 


The easiest way to buy these products is online. After all, China has one of the world's most advanced e-commerce ecosystems. Since Chinese consumers are not easily fooled by counterfeit goods, IP infringers go to great lengths to disguise the fakes. 


In an April report, the Chinese-language Sina News describes a recent police investigation of fake cosmetics. Suzhou investigators could not discern counterfeit lipstick purchased online from the real thing. The counterfeit lipstick was a near flawless replication of the genuine product, from the packaging to smell, color, texture and use effects, the report says. Fake cosmetics are cheap to produce - in the tens of RMB in some cases. But they may sell for hundreds of times their manufacturing cost, depending on the positioning of the counterfeited brands.


Counterfeiters dealing in cross-border e-commerce are prevalent on Alibaba's Taobao platform, China's top C2C marketplace. Yu Fang, secretary-general of the Hunan Provincial Cross-border Electronic Commerce Association, told Sina that IP infringers focus on Taobao's best-selling products. Known as "baokuan" in Chinese (literally "explosive items"), these popular products generate high earnings for counterfeiters, Yu says. 


Fan Ping (a pseudonym), a source familiar with Taobao's Guangdong business, told Sina that some counterfeiters start out as legitimate sellers. As their sales rise and they earn consumers' trust, they begin selling fake goods to boost margins. But they may continue selling small quantities of genuine goods for appearance's sake. 


The documentation that accompanies imported goods, such as invoices, certificates of authenticity and customs declaration forms can be easily replicated. For instance, police in the southern Taiwanese city of Kaohsiung recently seized NT$40 million in counterfeit luxury goods produced in mainland China, according to an April report in the Chinese-language Liberty Times. Investigators found that fake Cartier and Swarovski bracelets seized during the raid had authentic serial numbers. 


Further, IP infringers may collaborate with couriers to alter shipping information. A package containing fake goods made in China then appears to be a parcel of authentic items sent from overseas. "Some couriers are willing to collaborate with counterfeiters when order volumes are large," Fan Ping said. 


Meanwhile, cross-border e-commerce platforms generally are not supportive of customers who try to return fake goods. To qualify for a refund, a buyer must produce "inspection reports" that prove the goods are defective or fake, Fan Ping said, adding that sellers are well aware most buyers don't want to go through that tedious process.  


Still, the Chinese authorities processed more than 680,000 online shopping complaints in 2017, according to Hong Kong's Chinese-language hk01.com news site. 


Yu Fang urges the cross-border e-commerce industry to strengthen compliance. The industry "should accelerate the establishment of a credit system, a statistical monitoring system, a risk prevention and control system, and a traceability system," he said. 

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