China to probe newly listed Pinduoduo over fake goods

Colin Huang, founder and CEO of Pinduoduo, responded to media questions regarding reported counterfeits on the ecommerce site. / Photo credit: TMTpost

Pinduoduo, the Chinese ecommerce firm known for cheap household products and popular among small-town residents, is facing a regulatory investigation over alleged intellectual property infringements on its platform.

State Administration for Market Regulation (SAMR) has asked regulators in Shanghai, where Pinduoduo is headquartered, to investigate the firm for hosting counterfeit items on its site.

SAMR said it will “seriously deal with” any lawbreakers, whether third-party merchants using the platform, or the platform itself.

Shares in Pinduoduo – which floated on New York’s Nasdaq exchange in a US$1.6 billion IPO last week – tumbled to US$19.66 in trading on Tuesday, down from over US$27 last Friday.

During a press conference on Tuesday, Pinduoduo’s founder and CEO Colin Huang answered fiery questions regarding fakes and sub-par products on its site.

“In terms of sales breakdown, those that can be called fake goods are definitely fewer than what the media imagines,” Huang argued. “A 40 yuan [roughly US$5.87] fake item also carries manufacturing costs.”

Huang said that Pinduoduo has taken measures to fight counterfeits, but is prioritizing categories that could cause greater safety issues to consumers, such as electric scooters.

In a statement issued following the government order, Pinduoduo said its platform does not manufacture counterfeit products, and harsh punishments on pirating sellers have been in place, such as permanently shuttering their accounts.

Pinduoduo claimed that it removed nearly 11 million dubious items last year.

The platform has over 1.7 million active vendors and a nine-digit inventory of items. The three-year startup is China’s third-largest ecommerce player, putting it only behind JD and Alibaba, according to researcher eMarketer.

“It will be very challenging for regulators to inspect every single merchant as there are so many,” say Zhang Chunxia, a Shenzhen-based clothing seller on Alibaba’s Taobao marketplace, which is deemed Pinduoduo’s closest rival. “But they can, for instance, start with the best-selling ones to set an example for smaller vendors.”

Update (August 2, 1:00pm): Added comments from Pinduoduo and ecommerce vendor.