Why Has the Korean Government Decided to Regulate a Chinese Platform Used by 14 Million People?

The Korean government enforces local laws on Ali, Temu, and Shein to counter their threat to Coupang and Naver as these Chinese platforms also expand into the US market

The Korean government has announced its response to the three major Chinese platforms, AliExpress, Temu, and Shein, which have recently caused controversy due to the sale of counterfeit products.

On the 13th, the government held an emergency economic ministerial meeting at the Government Complex in Seoul, chaired by Deputy Prime Minister and Minister of Strategy and Finance Choi Sang-mok. The government announced the ‘Overseas Online Platform Consumer Protection Measures’ at the meeting.

Recently, Chinese online platforms have been selling various counterfeit goods and distributing harmful media, causing a large amount of damage to Korean consumers. To reduce this, the government departments announced a joint response. The main regulation is to amend the law so that Chinese platforms can be obliged to have a ‘domestic representative’ in charge of consumer protection in Korea. This is to severely punish in the same way as domestic businesses when damage occurs to Korean consumers by Chinese platforms.

The Fair Trade Commission announced that it plans to legislate an amendment to the E-Commerce Act in March, which includes regulations requiring overseas platform companies of a specific size to appoint domestic representatives.

Companies can designate their law firms as agents. However, the Fair Trade Commission intends to enforce the function of resolving consumer grievances and disputes upon designation, effectively mandating the establishment of a Korean corporation or office.

Based on this, the government announced its intention to help consumers of overseas shopping platforms use them safely within the legal system and to apply domestic laws such as the Electronic Commerce Act to enhance the effectiveness of the law. Previously, on the 6th, the Fair Trade Commission investigated Ali for violations of the Electronic Commerce Act, as it has a Korean corporation, but could not investigate Temu, which lacks a Korean entity. This law is expected to protect Korean citizens from overseas shopping platforms actively.

The Overseas Online Platform Consumer Protection Measures are prompted by the rapid infiltration of Chinese e-commerce companies into the domestic market.

Especially the use of shopping applications like Ali and Temu, which promote ‘ultra-low prices,’ has reached an all-time high, reflecting their popularity. The prolonged COVID-19 pandemic and severe economic hardship have made marketing strategies based on ‘ultra-low prices’ successful.

This situation has also put leading e-commerce players in Korea, such as Naver and Coupang, on edge.

Retail analysis services have compiled a ranking of comprehensive mall users among Koreans. According to this, as of February 2024, the encroachment of Chinese shopping apps is noticeable in the rankings of the most used comprehensive malls by Koreans. The Chinese company Ali ranked second, with about 1 million more users than the third-place 11st. Additionally, the Chinese company Temu ranked fourth, with about 2 million more users than Gmarket, TMON, and Wemakeprice.

Lee Ji Eun, a researcher at Daishin Securities, said, “Despite the slowdown in the growth rate of domestic e-commerce in 2023, the transaction volume of Chinese direct purchase platforms showed a rapid increase. This is showing a change in the landscape of e-commerce in Korea.” She also said, “If Chinese companies expand their product range to fresh and processed foods and set up sales strategies, it will significantly impact existing popular platforms such as Coupang and Naver.”

These popular and well-funded Chinese platforms are even encroaching on the U.S. market.

According to Bloomberg, in the second quarter of 2023, US consumers spent 18 minutes a day on the Temu application, defeating Amazon, which had an average daily usage of 10 minutes. Temu, which has only been in the US market for about a year, is competing with Amazon and Walmart, the representative platforms and retailers of the US, which is an unprecedented event.

Amazon, which started in 1994, is a leading e-commerce company in the US. The fact that the newly entered Chinese Temu is competing on par with such a longstanding and capital-rich company shows a surprising change in the US market.

Moreover, Chinese e-commerce is gaining sensational popularity in various markets worldwide. Chinese platforms like Temu and Shein are ranked first and second in application rankings in regions outside the US, including Europe, the Middle East, and Latin America, showing a fierce growth trend. Temu, established in 2022, has seen a rapid download increase since its launch and has become a leading e-commerce platform.

Industry insiders say that rapidly growing Chinese companies may lack systematic service measures. Therefore, discussing the government’s ‘Consumer Protection Strategy for Overseas Online Platforms’ will help protect Korean consumers and create a safe e-commerce market.