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Auction site allows use of virtual currency despite government concerns

Taobao, the mainland's largest online auction site, said it would continue to allow trading of QQ coins and other virtual currencies that have raised government concern about an alternative currency developing outside its control.

'We have not changed our policy regarding QQ coins. We allow users to use Taobao in any legal ways,' said Porter Erisman, the vice-president of corporate affairs at Alibaba.com, which owns Taobao.

Last month,  the problem of virtual currencies prompted 14 mainland ministries, including culture, commerce and police, to issue a directive to regulate the trading of virtual items.

Virtual currencies are issued by many online service providers for people to make purchases that have become removed from the coins' original purpose.

The QQ coin is issued by Tencent, whose QQ instant messaging service is the country's largest. The company has about 232.6 million active registered users.

The official mainland internet population is only about 130 million, according to government-backed market research firm China Internet Network Information Centre.

Online games operators such as Shanda, Netease, and The9 also have their own virtual coins, which can be used for buying items such as game weapons. QQs are by far the most popular virtual currency because almost all  internet users access the messaging service while not everyone plays, say, Shanda's games.

The transaction volume of virtual items in the mainland reached US$900 million last year, of which 45 per cent belonged to Tencent,  iResearch estimates.

United States-based eBay, partly following a  government directive and partly following the company's global policy, has banned from its mainland platform auctions related to virtual items such as game characters, currency, weapons and user accounts. In January, it took similar action in the US.

Taobao, more popular than eBay in the mainland, failed to follow suit with a ban on similar auctions in China, owing to pressure from its users.

QQ-issuer Tencent, led by chief executive Pony Ma Huateng, has  implemented security measures to make it more difficult for users to transfer virtual items between each other since the fourth quarter last year, even though such measures hurt its quarterly result.

Tencent's internet value added services which include the sale of  virtual items and online games -  accounting for 61.2 per cent of  revenue - dropped 10.9 per cent in the fourth quarter on the previous three months.

Tencent also sued Taobao in December last year for allowing QQ coins to be bought and sold freely on the auction site.

The popularity of QQ has led to smaller, third-party websites accepting the coins as payment for services, said an executive of one leading mainland online game operator.

'It is easier and cheaper than setting up your own payment system,' he said.

They are  accepted not just for virtual items, such as game points but also real merchandise, such as clothes and flowers, the executive said.

The coins have also  become the medium of exchange for online gambling and money laundering, said an executive of another online game operator.

'Once the money becomes QQ coins, it can be transferred anywhere electronically,' he said.

Before Tencent tightened its policy, users could freely transfer QQ coins  among each other. One click and within minutes virtual money could be anywhere.

There are also the  so-called QQ girls who are willing to chat with customers online in return for some QQ coins, an industry source said.

Hacking of user accounts to gain access to the coins had also become a problem,  said Tencent president Martin Lau.

Last December, Shenzhen police arrested 11 people for hacking  into more than 10,000 QQ  accounts to steal their virtual coins. The police estimated the group made more than 700,000 yuan from the theft.

On March 27, two people were sentenced to 10- and 13-year sentences in Zhejiang province for crimes that took advantage of a service that allows telephone subscribers to buy  QQ coins by dialling a particular number. The money is charged to the caller's phone bill. With numerous fake telephone numbers, the criminals bought two million yuan worth of QQ coins  and later sold the coins at 30 fen,  a 70 per cent discount for  a profit of about 700,000 yuan.

Online auction sites such as Taobao are part  of the  problem as they allow users quick and easy  exchange of QQ coins back to real money.

More than 100,000 auctions of discounted QQ coins happen  on Taobao each day, according to mainland media, with transaction volume reaching an annual 200 million yuan.

In January, a Taobao online poll seeking  opinions about trading virtual items garnered  210,000 responses,  with 70 per cent saying the  owners of the virtual items should decide where and for how much to trade the items.

Eighteen per cent said the operators issuing those items should decide the trading platform and price, while 10 per cent had no opinion.

'Even if Taobao banned the trading of QQ coins, other smaller auction sites would still allow it,' said the industry source. 'There is a real demand for a trading platform of virtual items.'

Coining money

Virtual currencies are issued by many online service providers for people to make purchases

Number of registered users on Taobao's online auction site, in millions: 232.6



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Tencent Holdings

Taobao carries on with QQ coins