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Chinese Consumer Complaints Shame One Month After IPO Stardom

BEIJING (TheStreet) -- The media honeymoon may be over for (JD - Get Report), barely a month after the Chinese online shopping sensation drew front-page superlatives for its successful Nasdaq debut.

State media including the Communist Party mouthpiece People's Daily newspaper took JD to task this week for a major sales promotion that drew consumer complaints over pricing and allegedly misleading product descriptions.

Newspapers nationwide and Web sites such as portals Sina (SINA) and Sohu (SOHU) gave prominent play to reports produced by the official Xinhua news agency criticizing JD's "618 Party On" promotion, which ran Tuesday through Friday. The reports included no comments from company officials.

JD is a holding company that runs a business-to-consumer Internet shopping platform. Its website, payment and delivery services support retailers selling a variety of brand names from air conditioners to makeup to zinc supplements. Its biggest sellers are electronics such as smartphones.

JD's chief rival in the Chinese e-marketplace is Tmall, a division of Alibaba. Smaller competitors are Dangdang (DANG), Suning and the China unit of Amazon (AMZN).

Last month, state media rained praise on JD for raising $1.78 billion in the largest IPO ever for a Chinese company on a U.S. exchange. Alibaba could top that soon: It has filed for an IPO in New York that could raise $20 billion. A date has not been set, but Chinese media say it could launch Aug. 8, or 8/8 -- an auspicious date because eight is a lucky number to Chinese. A Dangdang IPO raised $272 million in 2010.

JD's stock market triumph was not mentioned in this week's Xinhua series of reports based on consumer complaints that some Web site sale prices were higher than regular prices in retail stores, and that "many products when clicked were out of stock." For example, the report said, a Lenovo (LNVGY) laptop on sale for 5,199 yuan was available in a Beijing store the same day for 4,999 yuan.

One Xinhua report entitled "Don't Squander Consumer Trust" claimed "many careful consumers" who shopped on the sales campaign's pink-and-gold Web pages found "false advertising (and) shoddy promotional merchandise."

"Some businesses took advantage of the campaign to clear product backlogs," the report claimed. And "most promotional coupons" on the Web site had "a lot of inconveniences and restrictions."

State media functions as a quasi-consumer watchdog in China, which has never had a Ralph Nader movement nor a Consumer Reports-type magazine. Among the country's most popular TV shows -- and most feared by businesses -- are consumer-interest investigation programs aired by state broadcaster CCTV.

Sometimes government agencies follow up on these probes by slapping fines on retailers or ordering products be taken off store shelves. But the shame of a media report is often considered punishment enough.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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