NEW YORK -- Chinese e-commerce platform Pinduoduo was added to the U.S. “notorious markets" list, which flags retailers that facilitate a considerable amount of copyright piracy and trademark counterfeiting, according to a U.S. Trade Representative report released Thursday.
Tencent Holdings-backed Pinduoduo is the third largest e-commerce site in China that offers low-priced products. It was one of 33 online markets and 25 brick-and-mortar markets to make the list.
Pinduoduo is known to sell "shanzhai" products -- counterfeit goods that fool customers into believing they are purchasing the real products, according to USTR's report.
The company said last year that it would work with brands to curb fake goods on its platform after many brands reported the issue, but the effort fell short, the USTR said. Many customers buy the products because of the low prices, even if they are aware that they are counterfeits.
"Accounts of these so-called flagship stores are reportedly not always controlled by the brand owners themselves but often by third parties with only a tenuous or even nonexistent link to the brand owners," the USTR said. "Meanwhile, counterfeit and pirated products, including counterfeit copies of legitimate products sold in the flagship stores, appear to remain widely available on the platform."
The annual report was released as the U.S. and China are in the middle of negotiations to end a trade war. The two sides are scheduled to resume talks in Beijing next week.
Pinduoduo's growth has skyrocketed by amassing users who mainly reside in rural areas and towns outside of China's major cities. Earlier this month, Nikkei reported that Pinduoduo is taking on Alibaba Group Holding and JD.com, which occupy 80% of the market, by offering steep discounts. The new competitor is winning over price-conscious customers in rural areas and China's swelling ranks of seniors.
The platform’s user base is massive. In 2017, 42% of China’s population, or about 580 million people, were living in rural areas, according to the World Bank, and the country's over-65 population is growing. While Alibaba and JD.com focus on the urbanites of the country’s megacities, Pinduoduo had the opportunity to nibble away the two big league players' customer bases. The company went public in the U.S. last July, raising $1.6 billion.
Besides Pinduoduo, Alibaba's Taobao stayed on the USTR's "notorious markets" list. The largest e-commerce platform in China has taken some steps to limit sales of counterfeit products, but large amounts of infringing goods still remain on the platform, according to the USTR report.
Both Pinduoduo and Alibaba did not immediately respond to request for comment.