Korea probes AliExpress as Chinese e-commerce threat grows

South Korea’s antitrust body launched a probe into alleged violations of consumer protection regulations by China’s AliExpress, as Chinese e-commerce giants are rapidly expanding their market shares on the peninsula threatening domestic online retailers such as Coupang Inc. and Naver Corp.

The Korea Fair Trade Commission (FTC) last week sent investigators to AliExpress’ Seoul office and secured related materials to check if the e-commerce arm of China’s Alibaba Group has complied with the consumer protection obligations stipulated in the Electronic Commerce Act, according to industry sources on Wednesday.

The act requires e-commerce players operating in South Korea such as AliExpress to provide certain information about the sellers on their platforms, refund conditions, organizations for dispute settlement and other information to buyers.

The FTC plans to step up consumer protection measures as complaints on Chinese e-commerce platforms surged in line with the rapid growth in their users in South Korea.

“We will take stern measures including immediate monitoring once they are suspected of violating laws,” said an official at the regulator.

South Korea is expected to actively take action to cope with the rapid expansion of Chinese e-commerce platforms, industry sources in Seoul said. Last month, South Korea’s Ministry of Trade, Industry and Energy met local retailers to address the growing market shares of Chinese rivals.

RAPID EXPANSION

Users of three major Chinese e-commerce operators - AliExpress, Temu and Shein – in South Korea hit record highs, according to data from app analytics firm Wiseapp·Retail·Goods.

AliExpress’ monthly active users (MAU) more than doubled to 8.2 million in February from 3.6 million a year earlier, the largest since 2016 when the research firm started compiling such data. The Chinese company became the second-largest e-commerce platform by MAU, beating local online retailer 11Street Co., which had an MAU of 7.4 million.

Coupang, South Korea’s top e-commerce platform, logged an MAU of 30.1 million last month, only up 1.9% from a year earlier.

Temu took the No. 4 position with an MAU of 5.8 million from Gmarket Inc. with an MAU of 5.3 million. The popular Chinese discount e-commerce platform landed in South Korea in July 2023.

Shein, a fast fashion e-retailer, ramped up its MAU by nearly five times to 680,000 from 140,000.

Chinese e-commerce platforms made inroads into the South Korean fresh food market. AliExpress started selling fruits and meats earlier this month.

The move is expected to intensify competition in the market if AliExpress improves logistics efficiency with its financial power and increases the number of users to lower purchase prices, industry sources in Seoul said. The Chinese company is scheduled to complete a logistics center in South Korea this year, cutting its delivery times to one or two days.

Such expansions are feared to hurt not only South Korean e-commerce operators but also sellers on their platforms, industry sources said.

ROCK-BOTTOM PRICES, NO REGULATIONS

Chinese e-commerce giants have been rapidly expanding their presence in South Korea by offering products procured by sellers in the mainland at ultra-low prices. Some products sell at tenth prices of similar items offered by South Korean sellers, attracting local consumers.

Their customers often suffer various issues such as counterfeits, personal data breaches and harmful and sensational ads, however. Sellers in China do not need to secure certificates for products from South Korea’s authorities required for local merchandisers.

The number of claims over AliExpress rose by nearly five times to 456 to the Voice for Consumers, South Korea’s private consumer protection body, last year from 93 in 2022.

The FTC suspected the Chinese e-commerce behemoth of violating consumer protection regulations by not operating organizations for dispute settlements despite surges in orders and not providing seller information.

The watchdog said it plans to take measures on counterfeits last year as some South Korean lawmakers pointed out AliExpress’ sales of fake products.

“We will consider probes from the point of view of unfair business practices and mull temporary suspension orders if necessary,” said FTC Chair Han Ki Jeong at that time.

Still, it will be hard for South Korean authorities to regulate those Chinese companies as they are not importers but cross-border e-commerce operators, industry sources in Seoul said.

The FTC focused on AliExpress’ consumer protection practices in the probe rather than products sold by sellers on the platform, given such difficulties, they said.

“We are well aware of their problems, but we are considering how to handle the issues as it is difficult to deal with them under the current laws,” said a government official.

Write to Han-Shin Park, Sul-Gi Lee, Ji-Yoon Yang and Sun A Lee at phs@hankyung.com
 
Jongwoo Cheon edited this article.