Online retail may be getting a facelift in China if legislators have their way.
The government-run China Daily newspaper is reporting this week that the 12th National People's Congress is considering a law that would tackle issues including unfair competitive practices, tax evasion, and the protection of intellectual property rights.
Stateside investors with retailers in their portfolio aren't immune.
Amazon.com (AMZN +3.47%) is a big player in China. It acquired the country's joyo.com, eventually folding it into Amazon.cn. Even Wal-Mart (WMT 1.60%) has some skin in this game after acquiring a majority stake in Chinese e-tailer Yihaodian last year.
Regulations concerning competitive practices, taxes, and intellectual property aren't likely to faze Amazon or Wal-Mart. They're global juggernauts, and they're used to being held to higher standards than hometown darlings. It's never perfect. Wal-Mart has had more than a few hiccups overseas. Even the seemingly steady Amazon had to deal with a worker strike in Germany earlier this week.
However, the companies that will be watching legislative matters closely are the local companies that derive the lion's share of their revenue in China.
Shares of Vipshop (VIPS +0.77%) tumbled 13% on Tuesday. It wasn't necessarily the legislative concerns that knocked the online clothing discounter down. There was a Deutsche Bank downgrade on Monday, and Vipshop also responded to a bearish attack that had used data for traffic tracker Alexa.com to suggest bogus financials.
It was an isolated event. E-Commerce China Dangdang (DANG +0.00%) -- the publicly traded company that most stateside investors associate with e-tail in China -- actually moved higher on Tuesday.
Clearly, investors don't see a problem with legislators getting more serious about online retail. If anything, the bearish attack on Vipshop is proof that restoring investor credibility in the niche is important.
You don't see anyone disputing Amazon's sales metrics based on third-party traffic trackers. This could be a good thing for investors because there's plenty of growth to be had in Chinese e-commerce.
Dangdang moved higher two weeks ago after better-than-expected quarterly results prompted two analysts to upgrade the shares. Earlier this month, Vipshop posted quarterly results that saw revenue more than triple.
The growth is there. Market credibility is the problem. Cleaning things up -- the right way -- will help.
