China plans to tighten oversight of e-commerce companies like Alibaba Group Holding Ltd. and Pinduoduo Inc., including by holding them accountable for intellectual property violations.

E-commerce platforms will be restricted from online business operations or even have their licenses revoked if they fail to deal with serious violations of IP rights by vendors on their platforms, according to a draft revision of the country’s e-commerce law posted by the State Administration for Market Regulation. The market watchdog is seeking opinions on the draft revision until October 14.

Chinese companies have long struggled with allegations that they allowed pirated or counterfeit goods to be trafficked through their websites. In 2019, the US government added Pinduoduo to its Notorious Markets list for hosting pirated good, joining Alibaba and other Chinese firms under that label.

Pinduoduo and Alibaba’s Taobao were also on the 2020 list, released in January.

Merchants “found Pinduoduo’s takedown system to be sometimes unresponsive and slow to remove the identified goods,” the US Trade Representative’s office said in its report.

Alibaba shares fell as much as 2.3 percent in Hong Kong trading on Wednesday. PDD gained more than 5 percent in New York.

What Bloomberg Intelligence Says:

JD.com, Vipshop and Pinduoduo may face steeper cost hikes than Alibaba as the three companies enlarge their merchandise to compete with the internet giant for shoppers’ wallets in mainland China. All four e-tailers could incur higher expenses to verify the authenticity of products for sale, particularly imported items, and avoid harsher penalties being imposed for violations of intellectual-property rights, such as the suspension of online business licenses, as proposed by Beijing on Aug. 31.

— Catherine Lim and Tiffany Tam, analysts

PDD has also faced IP issues in China. Shanghai court documents show hundreds of legal challenges against the company over copyright infringement or trademark registrations.

Alibaba co-founder Jack Ma once said it was difficult to root out fake goods on the company’s platforms because they were so high quality.

“The problem is that the fake products today, they make better quality, better prices than the real products, the real names,” he said at the time.

By Coco Liu

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