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August, 2018

Pinduoduo's fake-goods trouble worsens

Original article: STCN.com

Chinese regulators are investigating upstart e-commerce startup Pinduoduo following reports of fake goods being sold on its platform. Beijing has called for a broad crackdown on counterfeit goods and trademark infringement, warning that any firms involved in the fake and shoddy-goods supply chain will be subject to a probe. 

Analysis:

The probe comes just a week after Pinduoduo's much anticipated listing on the Nasdaq. Pinduoduo's shares fell up to 15% after the announcement last week. 

In hindsight, Pinduoduo didn't pick the best time to go public. Think about it: In the midst of the Sino-U.S. trade dispute, which is largely about control of intellectual property, a Chinese e-commerce platform filled with counterfeit goods lists on a prominent U.S. stock exchange. And the counterfeits on Pinduoduo are not the type that Jack Ma lauded a few years ago in Hangzhou for their superior quality. 


No, these are bottom-of-the-barrel fakes. In an August 1 report, Bloomberg said it had found a fake iPhone X on Pinduoduo selling for RMB 350 (US$51) and knock-off Samsung 4K TVs: "Shaasuivg" is the brand name, and the logo looks a bit like Samsung's. 


Eric Wen, founder of the Lotus Blue Research Institute, told Bloomberg that the fake goods on Pinduoduo "are so obvious that they will have to be removed." Once the fakes are cleared out, there will be "an impact" on the platform's transactions, he added. 


The last thing Beijing wants is another Chinese e-commerce firm telegraphing that China is the counterfeit-goods capital of the world. For years, Alibaba's Taobao projected that undesirable image. Despite Alibaba's efforts to purge fake goods from its platforms, Taobao remains an easy place to buy counterfeit goods. And the sale of fake goods on Tencent's WeChat has surged as the app has become an essential part of daily life in China. 


In a July 30 report about Pinduoduo's counterfeit-goods travails, the Chinese-language STCN commented: "After listing on a stock exchange, a firm becomes public. It should be a model for compliance management, and must not ignore legal risks."


The article suggests that Pinduoduo's focus on extremely low priced goods may have attracted counterfeiters. Selling inexpensive goods to low-income Chinese consumers is reasonable, provided that the goods meet minimum quality standards, the report states. 


Yet cheap legitimate goods and counterfeit goods are not one and the same. Indeed, counterfeit products are illegal and infringe intellectual property rights, the article points out. In a clear reference to Pinduoduo, STCN adds: "If a firm relies on the sale of counterfeit goods to gain benefits and even go public, it will harm innovation in companies and society. If innovation is not protected, who will be able to innovate?" 

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