The Morning Risk Report: Chinese Regulators Choose Their Own Time to Strike

Posted by CHUA Sing Nee, Year 3 undergrad at the School of Social Science, Singapore Management University

China’s government accused Alibaba Group Holding Ltd.BABA -0.82% of allowing counterfeiting across its giant online marketplace in a paper made public Wednesday.  But allegations of counterfeiting are nothing new for Alibaba. In Alibaba’s own IPO prospectus, released last May, the e-commerce giant acknowledged the “widespread” perception that counterfeit goods on its platform are “commonplace.” So why is the Chinese government raising the issue now?That question comes up a lot for those who follow Chinese regulators. But often there is no clear answer. Companies may see enforcement on issues like corruption or environmental regulations dormant for years, only to get caught up in a sudden crackdown. For example, corruption in the Chinese pharmaceutical industry has long been seen as widespread, with little action taken to curb drug salesmen who pay kickbacks to doctors. But in a flash, last September, GlaxoSmithKline GSK.LN -0.37% PLC found itself in the dock of a Chinese courtroom on bribery charges. The trial took just one day, leading to the conviction of five of its executives and a nearly $500 million fine. The timing and focus of such crackdowns can feel arbitrary. Jeffrey Li, a specialist in Chinese regulation at McKenna Long & Aldridge LLP said companies entering China need to resist the temptation to see apparent lax enforcement and unlawful behavior by some local companies as an invitation to not follow the rules. “Everyone is thinking that regulation and enforcement in China is loose, but that doesn’t mean they won’t enforce eventually,” Mr. Li said. “They might not touch you for a long while and then they bring the hammer down.”

Multinationals are also sometimes also treated with greater scrutiny than local companies, Mr. Li said. “[Chinese] Regulators see big multinationals with deep pockets and they think ‘they should know better.’”


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