China to probe e-commerce firm Pinduoduo over reports of fake goods

Chinese regulators are investigating Pinduoduo Inc after media reports of third-party vendors selling counterfeit goods on its group-discounting marketplace, a move analysts said is likely to further batter the firm’s newly listed shares.

The probe comes just days after the Shanghai-based startup raised $1.63 billion in the year’s second-biggest U.S. listing by a Chinese firm, which valued Pinduoduo at $23.8 billion.

The State Administration for Market Regulation said on its website that it will interview staff at the three-year-old firm and deal seriously with any illegal practices, such as the failure to remove listings featuring counterfeit goods.

Pinduoduo, in a statement on online news portal Netease, said it was working hard to crack down on counterfeits. The company did not respond when contacted by Reuters for comment.

“We did a lot of work but are still far from meeting society’s expectations,” Pinduoduo said in the statement.

Beijing-based tech analyst Li Chengdong said the probe would likely impact investor expectations of Pinduoduo, whose shares have fallen roughly 14 percent since their July 27 debut.

“It’s normal to see a fast-growing startup having compliance issues,” Li said. “Essentially, it comes down regulation on quality management.”

“SHANZAI”

Pinduoduo said it has 300 million active buyers and reaches a consumer group living outside China’s megacities. Its massive IPO saw it ranked alongside other Chinese e-commerce giants such as Alibaba Group Holding Ltd and JD.com Inc.

The publicity around the IPO, however, saw the firm become the subject of media reports and butt of online jokes centred on goods on its marketplace resembling products from firms such as Coca-Cola Co, Apple Inc and Samsung Electronics Co Ltd.

Many jokes described such goods using the phrase “shanzai”, a term often used to refer to look-alike products featuring purposely misspelled names of big brands.

On Tuesday, state-backed Beijing News said Pinduoduo removed listings for television brand “Xiaomi New Product”, which is unrelated to Chinese smart gadget maker Xiaomi Corp.

Last week, Chinese TV maker Skyworth Digital Holdings Ltd issued a statement asking Pinduoduo to stop sales of counterfeit Skyworth products on its site.

Fiction writer Zheng Yuanjie said on his microblog account that pirated versions of his books were sold on Pinduoduo.

In the United States, a diaper maker has filed a complaint with a federal court, claiming Pinduoduo knowingly allowed the sale of counterfeit products bearing the company’s name on its site, according to lawyers representing the diaper company.

It was not immediately clear whether Pinduoduo has responded to individual allegations. On Tuesday, Beijing News cited Pinduoduo as saying it was being attacked and that it was unfair to blame the firm for counterfeits.

Alibaba has also been fighting an anti-counterfeit campaign amid criticism from companies and consumer groups that fake products are being sold on its online marketplaces.

In January, the U.S. Trade Representative put Alibaba’s Taobao platform on its blacklist for the second consecutive year over suspected counterfeits, a move the e-commerce firm said did not reflect its efforts to protect intellectual property.