China’s domestic internet sector has developed some dubious business ethics, says Paul French, China editor
China’s internet, that portion of the worldwide web that lives within Beijing’s self-imposed Great Fire Wall, is a very exciting place to be.
Censored? For sure. Heavily controlled and monitored? Definitely. A giant marketplace of goods, services, and increasingly, ideas? Arguably, yes, as the cracks show and Beijing cannot control all the information flow all the time.
And China’s internet can be an ethical minefield. A rash of recent scandals shows just how ethically challenging it can get for Chinese netizens, business folk and even for those of you out there in the free-world web. In previous columns I’ve discussed the problems foreign internet companies such as Google, Twitter, Facebook and YouTube have encountered in China.
But now worthy of serious consideration are the new, and massive, home-grown Chinese internet businesses. These are encountering some pretty serious issues as they grow and reach a tricky adolescence.
Two very different recent cases raise a number of ethical issues.
First off, Alibaba, the country’s largest B2B site matching foreign sourcers to Chinese manufacturers. Alibaba is a significant force in the Chinese manufacturing economy but, in February, a fraud scandal rocked the service and dented its reputation with users.
Alibaba’s chief executive, David Wei, and chief operating officer, Elvis Lee, resigned after an internal investigation found that more than 2,300 sellers on the site committed fraud with the help of Alibaba sales staff.
It’s a complicated tale but here’s the important thing – Alibaba founder Jack Ma didn’t, as might be expected from previous scandals in China, try to cover it up. He admitted the problems, launched an investigation, fired those responsible, accepted the resignations of others and then publicly went on a media campaign to try to restore trust. He said: “We’d rather sacrifice growth than do anything that would jeopardise our customers’ interests.”
Content filter
Story number two concerns Baidu, a very successful Google clone that works closely with Beijing to ensure no “inharmonious” content gets on the net. Even the China Digital Times called Baidu “the most proactive and restrictive online censor”. All this has made its founder Robin Li immensely wealthy.
However, Li is a controversial figure. Baidu (listed on the Nasdaq, so you may well own shares in the firm) has been a persistent and longstanding intellectual property abuser.
It’s not just me saying that – ask the US trade representative’s office, which stuck Baidu at the top of its annual list of “notorious markets” for pirated goods.
Baidu has lost case after case and received fine after fine for copyright abuse – and from Chinese courts at that. Now it seems, after a long period of not cooperating or admitting to anything, Baidu is trying to get its house in order. While this is good, many will ask why the service had to be shamed so publicly into doing the right thing.
Stories like this keep on coming from China’s frankly rather hooligan internet sector. Gaopeng – a partnership between coupon kings Groupon and Tencent, a massive e-commerce player – suffered a scandal when an online lucky draw saw senior staff at the company amazingly win all the prizes. Alert Chinese netizens discovered the embarrassing results and outed the firm, leading to resignations.
Other companies, particularly video-sharing sites, are keen to list on the stock market. An example is Tudou, which wants to launch an IPO. A quick browse around the site shows Dr Who, premiership football and most US TV shows illegally uploaded. Tudou maintains it is cleaning up its act … but it’s a slow process.
Ultimately these scandals and flagrant abuses of IP are good news stories – they are known in China, and Chinese courts have punished companies such as Baidu. This is improvement – chief executives confronting the situation rather than running away from it; a desire to sort it out and move on rather than call in some political contacts and sweep it all under the carpet.
Still, given that many of these companies operate globally and are listed outside China, a little shareholder and regulator pressure wouldn’t hurt. Surely anyone investing in media creation and content companies in the west will be concerned about Chinese sites that upload movies, music and TV? Anyone investing in publishers cannot support those that illegally upload ebooks. Alert investors need to get on top of managers who cheat on commissions or award all the raffle prizes to themselves.
China’s internet may yet prove to be a force for major political change. It is certainly raising issues of corporate transparency and accountability.
Paul French has been based in China for more than 20 years, and is a partner in the research publisher Access Asia.