Problems plague China's thriving e-commerce empire

In China, Alibaba's two biggest online shops recently hit sales milestones, but taxation and monopoly can jeopardize the exploding growth.
Written by Liu Jiayi, Contributor

The lack of competition and possible tax evasions by China's biggest online stores, Taobao and Tmall, can undermine future expansions, as the stores reached annual sales volume of 1 trillion RMB (US$161 billion) on the last day of November.

The annual sales volume of Taobao.com and Tmall.com, both under e-commerce giant Alibaba Group, reached its 1 trillion RMB milestone, according to the company's chief risk officer, Shao Xiaofeng. The two stores dominated the Chinese e-commerce market by taking 94percent of the C2C and 55 percent of the B2C (business-to-commerce) markets in third-quarter, according to an iResearch report.

Alibaba could go as high as 5th position on the list of the nation's top-spending provinces if it joined the race. It trailed only after Guangdong, Shandong, Jiangsu, and Zhejiang, which were the most populous and developed, and beat the last seven provinces combined in terms of consumers products sales.

But the dominance could be fueled by the possible tax evasions by the stores' millions of small-sizes sellers and the rule-making power that came from the dominance itself.

"Alibaba is not a monopoly yet, but in the e-commerce industry, especially the C2C (commerce-to-commerce) sector, it makes almost all the rules for all players," an anonymous industry expert told a Beijing newspaper. "Those rules could left others with no choices, last year's Taobao Shangcheng Incident was an example." Over 50,000 self-claiming small-sized sellers waged a online war in 2011 by sabotaging the sales of their large counterparts, in protest against Taobao's decision of raising annual membership fees and setting bars for refunding fees.

Taobao was also charged by some as winning an unfair battle by turning a blind eye to its sellers' possible tax problems, while its e-commerce competitors, such as 360buy, Dangdang, and Amazon China, had perfected their taxation system.

However, it claimed that Taobao, as a trading platform, was not responsible for its sellers' taxation obligations. It was the local government, not Taobao, that should supervise whether the sellers were properly taxed. A spokesperson of Beijing tax authorities said the problems of the possible tax evasion of Taobao's 6 million sellers would not be solved unless the company stepped in.

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