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Economy

Primed Suspicions

Some high performers on Amazon have seen their accounts suspended and assets frozen in a crackdown on fake reviews, a move questioned as targeting Chinese brands

By NewsChina Updated Oct.1

Zhang Liqing, a partner in an international trade company engaged in textile and chemicals from Suzhou, Jiangsu Province, was preparing to open an e-commerce store on Amazon in the second half of the year. But a sudden ban on some Chinese sellers that started in late April gave him pause. “We saw the impact of the crackdown on [other] domestic sellers, so we decided to wait and see,” Zhang told NewsChina.  

The crackdown on bribing customers for fake reviews with free products has lasted for three months with no signs of abating.  

Big sellers with large annual sales were the first to be affected. Since the middle of July, some smaller sellers started getting warnings too, making people worry the crackdown might expand. Some industry insiders suggested this new clampdown in the name of compliance of Amazon’s anti-manipulation rules is targeting Chinese sellers as Chinese brands are growing rapidly. Others say that Chinese brands need to adapt more quickly to the norms of operating overseas.  
Heavy Blow 
On July 6, Tianze Information, a listed company, revealed that 340 stores run by subsidiary Shenzhen Youkeshu Technology, one of the largest retailers on Amazon, were blocked. In addition, 130 million yuan (US$20m) of its capital was frozen and it had to cut its employee numbers by half to 1,400. Revenue in the first half of 2021 dropped by 40-60 percent year-on-year. It is regarded as the biggest blow from Amazon since May. Youkeshu’s cross-border sales exceeded 2 billion yuan (US$309m) in the first half of 2020.  

Mpow, a major electronics store run by consumer product company Patozon (which boasts 800 items on the Amazon Best Sellers list) and two other gadget brands Aukey and Tomtop out of Shenzhen were among the first to be suspended at the end of April. Since May, Amazon has banned about 50,000 accounts and over 95 percent are operated by Chinese sellers, according to Wang Xin, director of the Shenzhen Cross-border E-commerce Association (SCEA) that has been helping companies address the issue. Shenzhen hosts nearly 40 percent of Chinese sellers on Amazon.  

“One seller, whose yearly sales on Amazon total 2.6 billion yuan (US$402m), had nine stores blocked, involving 1 billion yuan (US$155m). Now the company has cash flow problems,” Wang said.  

She said that Amazon is not just suspending stores and certain products, it is also freezing the assets of the targeted accounts. This involves huge sums for big sellers and can cause capital chain rupture. “The companies may be required to pay back loans ahead of schedule, suppliers push them for payment, and labor disputes rise. Some companies might go bust,” Wang said. 

With Youkeshu’s capital frozen, Tianze Information is planning to sell an office building to repay the loans. According to the SCEA, the loss along the cross-border e-commerce business chain could total hundreds of billions of yuan.  

Review Problem 
Many insiders believe the latest crackdown was provoked by an open ElasticSearch database uncovered by cybersecurity website Safety Detectives in early May that exposed fake reviews on Amazon. More than 13 million records of messages between vendors and reviewers were exposed, showing that customers were “willing to provide fake reviews in exchange for free products,” revealed Safety Detectives.  

Amazon vendors would send reviewers a list of products they could buy on Amazon, and if they left a five-star review, they would be refunded through PayPal, meaning they got a free product. 

“This may have left Amazon no choice but to take action,” said Li Bo (pseudonym), a small seller on Amazon.  

After blocking the accounts of big sellers including Mpow, Amazon responded in a statement published in early May that it will take quick action against behaviors that violate platform rules, such as suspending or terminating the sellers’ Amazon privileges. In midJune, Amazon made another statement after banning Sunvalley, a cross-border electronics retailer due to the fake review issue. Amazon said that they “are relentless in protecting our store and will take action to stop fake reviews regardless of the size or location of those who attempt this abuse.”  

According to Wang, in the course of their investigation into the suspended sellers, most of those they surveyed told the SCEA that Amazon said they had violated the rules of the platform, mainly in terms of reviews. “The most typical practice [among them] is the sellers include small cards along with products asking for positive reviews,” Wang said. She said that compared to previous bans that involved deviations from international trade rules, this crackdown is based on its own rules.  

A person familiar with cross-border e-commerce laws told NewsChina that Amazon’s platform rules are complicated. Some Chinese sellers who fail to read the rules thoroughly could fall foul. For example, Amazon distinguishes two practices of representing gift cards or discount coupons: giving gift cards only or gifting and asking for positive reviews. The former is in line with the rules while the latter is not.  

“Compared with domestic e-commerce platforms, Amazon has obviously higher requirements in compliance, logistics, storage and consumer services. For example, it is common for consumers [in China] to receive a small card along with the products they buy on domestic e-commerce platforms that tells them they will get a ‘refund of 2 yuan (US$0.3) if they give a five-star review.’ But Amazon says this is in violation of their rules,” noted Du Guochen, vice director of the Institute of E-commerce at Chinese Academy of International Trade and Economic Cooperation. He added that the rules have been there for years, but the platform did not treat the problem as seriously before.  

Du believes the ban is directly related to the explosive growth of cross-border e-commerce since 2020. “The proportion of Chinese sellers keeps rising on the platform, so naturally more problems have emerged.”  

Many Chinese firms have come to rely on platforms like Amazon, PayPal, Facebook and Google to facilitate sales abroad.  

An analysis by US-based e-commerce intelligence firm Marketplace Pulse in January shows that about 49 percent of top third-party sellers on Amazon are based in China. This figure was only 11 percent in 2016. Overall sales by Chinese vendors on Amazon ranked second only to US sellers.  

Partial Implementation? 
“Now the crackdown is continuing. I haven’t seen sellers from other countries suffer as big a blow,” Wang said. She feels it proves that the crackdown is targeted at sellers from China.  

Wang admitted that some sellers based in China do have problems following Amazon’s rules. But she insists that some sellers could have been mistakenly suspended, because they did not try to bribe for good reviews. Besides, as the ban is based on the platform’s own rules, she questions whether the rules are clear and fair enough and whether Amazon is partial in implementation, selectively using the rules to crack down on Chinese brands. “Amazon is both referee and competitor after all,” Wang told NewsChina.  

She said that Amazon usually chooses periods around expected shopping sprees such as Black Friday and Christmas to crack down on violators. This current ban started ahead of Prime Day, an annual summer sales event on Amazon. “In such cases, the sellers usually need to wait for one to three months to get their accounts unblocked, so they will miss the peak season,” Wang said.  

Meanwhile, Amazon is pushing products from their in-house brands like electronic toothbrushes and hair dryers that are also bestsellers from Chinese vendors. “The suspended accounts almost all sell big brands, and they likely spent a lot to attract customers beforehand. Now they are suspended, customers have to turn to other brands,” Wang said. Amazon has up to 100 of its own brands, including AmazonBasics and Pinzon. Sales are increasing and these brands are often promoted more heavily on the platform than similar goods from third-party sellers. 
 
In the past, about 60-70 percent of the blocked accounts could get unblocked. But this time it seems more difficult. Some big sellers claimed that only 20 percent of the accounts that apply get unblocked, and some told NewsChina their accounts remain frozen.  

Du believes that as a platform, Amazon is not motivated to deliberately block sellers from China as they contribute a major part of its income. Amazon charges around 15 percent of the sales on its platform as commission, higher than most domestic platforms. It also has been active in getting Chinese sellers, “holding 1,000 promotion fairs every year,” several industry insiders told NewsChina.  

“Some sellers might be hurt mistakenly, but not many. There might be other reasons why they violated the rules,” Li Bo said. He added that compared with domestic e-commerce platforms, Amazon has stricter rules.  

At a press conference held in late July, Li Xingqian, director of the Ministry of Commerce’s foreign trade department, responded that it is a problem arising from the development of new forms of foreign trade, which is probably short-term and is an indication of “growing pains.” Li Xingqian added that the government will help enterprises improve risk-control and learn how to abide by international trade rules and will support them in protecting their own interests via reasonable measures.  

“Cross-border e-commerce requires more cooperation in compliance supervision on a global level, such as in information sharing, data interchange, law enforcement and so on, to tackle problems with burgeoning commercial activities,” Du said.  

The SCEA told NewsChina that it has reported the matter to the Ministry of Commerce and that relevant departments will investigate. Amazon has not made any further comment. 

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