Taobao Taiwan fined after being identified as Chinese investment

Taipei,  The Investment Commission declared the operator of e-commerce site Taobao Taiwan a Chinese investment on Monday and ordered the company to rectify the issue within six months.

The operator, United Kingdom-registered Claddagh Venture Investment, was also fined NT$410,000 (US$13,780) for breaching Taiwanese law regarding Chinese investment, the commission said in a statement.

The commission began investigating Taobao Taiwan, which was launched in 2019, when a former legislator alleged that it shared the same platform with Taobao, a website owned by Chinese e-commerce giant the Alibaba Group.

The allegation sparked privacy concerns and questions over whether Claddagh Venture Investment was in fact a Chinese investment, even if it was registered in the U.K.

Under Taiwanese law, any company is deemed a Chinese investment if over 30 percent of its shares are held by a Chinese entity or if it is in effect controlled by a Chinese entity.

In its investigation, the commission found that Alibaba held 28.77 percent of Claddagh’s shares, which is under the 30 percent limit set by Taiwanese law, it said in its statement Monday.

But the commission still found the company to be a Chinese investment because it is effectively controlled by Alibaba, based on three factors.

First, Claddagh is unable to hold shareholder meetings or board meetings without the consent of Alibaba because of the stake held by Alibaba, implying that Alibaba can decide whether motions and proposals at Claddagh are passed or not, the commission said.

Second is that Claddagh relies heavily on Alibaba to run Taobao Taiwan, the commission said.

Claddagh pays Alibaba for system maintenance services and technical support for the website, as well as for using the Taobao trademark, the commission said, adding that some of the site’s servers are provided through Taobao Hong Kong Ltd.

Third is that the terms of use agreement and privacy policy that Taobao Taiwan users have to agree to links to Alibaba’s agreements for global users of Taobao, the commission said.

This grants Alibaba access to the information of Taobao Taiwan’s users, which is sent back to Alibaba’s servers in China and thus poses a security threat, the commission said.

Claddagh Venture Investment has two ways it can rectify the issue, according to the commission.

The first is for the company to become a foreign investment within six months, while the other is for it to adhere to rules that apply to Chinese-invested companies, which would mean it could not have advertisements on its site or use third-party payment systems, the commission said.

In response to the ruling, Claddagh said it has yet to receive a formal notice from the government, but that it respected the decision and would adhere to the government’s requirements.

The company will continue to communicate with relevant authorities on the matter, it said, and it did not think the decision would have a major effect on its daily operations.

Its top priority is to protect the rights of Taobao Taiwan’s users, it said.

 

Source: Focus Taiwan News Channel

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