July 11, 2013, 9:36 AM

Chinese web giants join forces to fight fraud

Participants include e-commerce leader Alibaba and search engine Baidu.

Lead Photo

E-commerce is booming in China, and so is online fraud. To keep crime from stunting online sales growth, some of China’s largest Internet companies have formed an alliance to fight web fraud.

Twenty-one companies participated late last month in the Online Business Security Summit in Hangzhou, China, home of Alibaba Group Holdings Ltd., China’s dominant e-commerce player and the No. 1 e-retail company in the Internet Retailer 2013 Asia 500. Out of the meeting they formed the Anti-Online Crime Committee to combat online fraud.

Over the next two years, the new organization plans to build a system that will allow participating companies to share information so that if one becomes aware of criminal activity it can alert the others.

“In some business fields, we compete against each other fiercely,” said Shao Xioafeng, chief risk officer at Alibaba, which operates the big Chinese online marketplaces Taobao and Tmall. “But regarding online security we share the same interests. A safe online community is fundamental to the industry’s development. Without the confidence of security, customers will leave us, no matter how advanced the services we provide.”

Online fraud cost Chinese consumers at least 30.8 billion yuan ($4.8 billion), and 63 million online shoppers were victims of fraud, according to the China Electronic Commerce Association. That’s nearly 32% of China’s 194 million web shoppers.

And fraud is growing, Hongmin Deng, deputy chief of the Ministry of Public Security’s web security office, said at the summit. “Since online crime is characterized by low cost, low risks and high profits, China faces a growing threat of illegal activities,” he said.

Alibaba’s Shao said the united effort to deter fraud will send a signal to criminals that the cost of committing fraud will increase.

Besides Alibaba, other companies participating in the conclave were Tencent Holdings Ltd., whose Internet holdings include gaming sites, web portals and the popular QQ instant message service; Baidu, China’s primary search engine; the Chinese subsidiary of Amazon.com Inc., the No. 1 e-retailer in North America and Europe and No. 4 in the Asia 500; Sina Corp., whose holdings include Weibo, China’s equivalent of Twitter, and the Sina.com information and entertainment portal; and Shanda Interactive Entertainment, a leading provider of online games.

Participants said no company is big enough to deter fraud on its own. That includes Alibaba, which says it has a security staff of 2,000.

In a recent survey conducted by Alibaba, 59% of online merchants said they consider trust the largest obstacle to online business growth in China.

In another sign that Chinese authorities are taking online crime seriously, a Hangzhou Shangcheng District court last week convicted 12 individuals of extorting money from online merchants by threatening to post negative or neutral ratings on the Taobao marketplace and other web sites, according to Alibaba’s Alizila blog. The report said that the ringleader, identified only by his family name of Yang, was sentenced to two years in prison and a fine of 5,000 yuan ($830). Others were sentenced to between 10 and 14 months in prison and fines of 2,000 yuan.

The prosecutor alleged that the gang members, who were recruited from online chat rooms, would demand 200 to 300 yuan to not post negative comments, Alizila says.

“Perhaps more than in any other country, Chinese online shoppers rely heavily on buyer ratings and word of mouth to guide their purchase decisions,” the Alizila blog says. “The importance of peer-to-peer recommendations makes online merchants especially vulnerable to malicious feedback, whether from competitors or outside agents.”

Alibaba only allows customers who have made purchases to post reviews, and the e-commerce company says it intercepted 100,000 orders last year that it deemed were being placed to attack merchants. It also penalized 65,000 buyers for participating in such malicious activity. As a result, Alibaba says, complaints about malicious feedback and extortion dropped 90% last year.

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