Alibaba’s two biggest online shops recently hit sales milestones, but taxation and monopoly may jeopardize the exploding growth.

The following is an excerpt of a recent article by znet.com/cn claiming that 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 94 percent 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.  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.

Outsell’s William Jan, VP & Practice Leader expressed similar sentiments in his recent Outsell Insights article:  “In short, Taobao and Tmall’s predicament stems from their inability to walk away from bad business.  By turning a blind eye to tax violations among their clients, the e-commerce platforms are essentially looking at a non-sustainable, short-term gain, as it only takes local authorities a moment to “throw down the gauntlet” that could end these platforms’ reign.  After all, the local governments are not gaining any benefits from such growth in e-commerce.  In a way, these platforms are benefiting from their merchants’ unjustified profits, all while counting on the governments’ inability to go after six-million-plus sellers”.

Source:  znet.com/cn and Outsell Inc.

BIIA Editorial Comment: Your editor-in-chief however has a different interpretation of this matter.  Alibaba’s trading practices are tolerated by the authorities to boost its market position vis-à-vis foreign e-commerce giants such as Amazon.com and Yahoo.com.  Once Chinese authorities are eager to collect taxes on e-commerce transactions they will require all e-commerce companies operating in China to comply – without having any impact on market growth or market share.

Taking Yahoo.com in as a major shareholder was a ploy to gain expertise.   Alibaba’s Chinese masters however did not like this and Mr. Ma may have been coerced in off-loading Yahoo’s equity interest and delisting Alibaba.com from the Hong Kong stock exchange as a preventative measure of potential foreign ownership.   Alibaba is China’s e-commerce flagship and a symbol of China’s home-grown e-commerce industry.  It is expanding rapidly internationally, thus Chinese authorities will not entertain any measure which may jeopardize its prospects.