Law must be revised to root out fake products

Jumei.com CEO Leo Ou Chen, third from right, is joined in applause as he rings the New York Stock Exchange opening bell, marking his company's IPO Friday, May 16, 2014. [Photo / IC]

A third-party vendor, Belle Boutique, was found to have sold China-made knock-offs of luxury goods, such as watches, apparel and bags, through major e-commerce platforms, such as jumei.com, a beauty product seller and jd.com, an e-commerce leader.

The two online companies soon issued statement of apology and vowed to stop business with Belle Boutique, a small dealer based in Hebei province. They also promised to provide unconditional product return services for victimized consumers.

Given the high profile of the two e-commerce giants — both are industrial leaders listed on the US stock market — the scandal is set to batter consumer confidence. Buyers log on to those websites to buy luxury goods not only for the low prices the e-commerce dealers offer, but their belief that as credible industrial leaders, they could not possibly sell fake goods.

After the incident, the disillusioned consumers will become more cautious in visiting those websites.

Those companies, meanwhile, would pay a dear price not only for the expected decreases in visits. They could easily become the target of the shorting capital in the US stock market.

Some US-based investment research companies, such as Muddy Waters LLC, have accused selected Chinese companies of financial cheating and selling fake products, causing precipitating falls in the stock prices of those companies. The Jumei incident has driven the company’s stock price to drop sharply after the revelation of its cheating behavior. If investment research companies stepped in and released unfavorable reports, investors could continue to dump the stock, causing greater losses for the major shareholders of the company.

Consumers should draw lessons from the incident. For international luxury brands, the discounts are generally very small. However, many watches and bags under those famous international brands have been on sale with very low price tags on those e-commerce platforms, according to media reports. It is unusual and rational consumers should have asked why the discounts were so big before they made their decisions.

For many Chinese consumers, even if they found that the products they have purchased were fake, they may not report to the relevant protection agencies so long as the traders agree to let them to return the products and receive a refund. In this way, they have missed the opportunity to let the regulators and other consumers know the cheating behavior of those websites. And for those traders, they can simply continue to cheat.

Such consumers, of course, should not be blamed. As rational individuals, they are entitled to make decisions that they think are the most appropriate.

What we should rethink is the regulatory and legal system that has allowed commercial cheating to go unchecked.