The call usually comes 12 to 18 months after a brand signs a China distribution agreement. Someone at headquarters has been doing price checks on Taobao and found the brand’s products listed by multiple unauthorized sellers at 30 to 40% below the official price. A consumer on Xiaohongshu has complained that their “authentic imported” purchase smells different from the product they bought in Europe. A customs broker has flagged a parallel import shipment.
At this point, undoing the damage takes longer than the distribution partnership lasted.
Grey market and unauthorized stock problems in China follow predictable patterns. Understanding them before you sign a distribution agreement is the only time you have full control over the outcome.
The four sources of unauthorized stock in China
1. Your authorized distributor selling excess inventory through secondary channels. 2. An authorized distributor’s sub-distributors going direct without your knowledge. 3. Parallel imports through daigou agents buying your product in other markets. 4. Counterfeit products using your brand name, packaging, or trademark.
How Authorized Distributors Create Grey Market Problems
Your authorized Chinese distributor has committed to a minimum order quantity. They have imported that quantity. Three months later, sell-through is slower than projected. They have excess inventory, warehouse costs, and working capital tied up in your product.
What happens next depends on the distributor’s ethics and your contract terms. A less scrupulous distributor will sell excess inventory through secondary channels: Taobao stores they control under different entity names, lower-price WeChat reseller groups, or wholesale to retailers outside their authorized territory. Your product appears on Taobao at 50 RMB when your official Tmall price is 80 RMB. Chinese consumers notice. Your Tmall store’s conversion drops because consumers find the cheaper listing first.
Your contract probably says “no unauthorized channel sales.” Enforcing that clause in China requires identifying which entity is running the unauthorized Taobao store, documenting the unauthorized sales, engaging a Chinese lawyer, and initiating a dispute process that takes months and thousands in legal fees. Most brands absorb the damage rather than pursuing the distributor legally.
Parallel Imports: The Daigou Problem
Daigou (代购) agents buy foreign products in overseas markets and resell them to Chinese consumers, either through direct WeChat sales or through Taobao and Pinduoduo stores. This happens entirely outside your authorized distribution channel.
Daigou activity is driven by price arbitrage. If your product sells for $50 USD in the US and 500 RMB (approximately $70 USD) in China, there is a profitable arbitrage window after daigou agent margin. Chinese consumers trust daigou for some categories (luxury goods, limited-edition products) because they believe the daigou channel provides authentic overseas product. In other categories, daigou undercuts your official price and commoditizes your product.
Reducing daigou activity requires narrowing the price gap between your overseas market price and your China price. This is often a business model discussion, not just a distribution issue: are you pricing your China market correctly given the CBEC duty advantage you have?
How to Protect Your Brand: The Practical Toolkit
Trademark registration: Register your brand trademark in China (Classes 29, 30, 32, 35 as relevant) before you enter any distribution discussion. Without a Chinese trademark, you cannot file complaints on Tmall or JD against unauthorized sellers, you cannot initiate customs recordal to intercept grey imports, and you have limited recourse against counterfeit products. Trademark registration takes 12 to 18 months. Start immediately.
Platform brand protection programs: Tmall, JD, and Taobao all operate brand protection programs (Alibaba’s is called IPP Road, JD’s is JD Brand Protection). Once registered, you can report unauthorized listings and counterfeit products directly through the platform. Takedown timelines for clear trademark infringement are typically 3 to 7 business days on major platforms.
Customs recordal (知识产权海关备案): Register your trademark and copyright with China Customs (GACC). This allows customs officials to flag and hold parallel import shipments of your product that do not come through authorized import channels. Customs recordal does not stop all grey imports, but it is a meaningful deterrent and occasionally catches large-volume parallel importers.
Authorized reseller registry: Publish a list of your authorized distributors and resellers on your official website and on your Tmall brand page. Chinese consumers increasingly check authorization status before purchasing, particularly in health, beauty, and baby categories where authenticity matters most. A visible authorized seller list makes unauthorized sellers’ claims easier to challenge.
Serialization and authentication: Apply unique serial codes, QR codes, or authentication labels to your products. Chinese consumers can verify authenticity by scanning. Counterfeit products cannot replicate authenticated serial codes. This is particularly important in categories where counterfeiting is systematic: baby formula, premium skincare, health supplements.
Why Direct E-Commerce Reduces Grey Market Risk
When you sell directly through Tmall Global or JD Worldwide without a distributor, you control your China supply chain from bonded warehouse to consumer. There are no sub-distributors to go unauthorized. There is no excess inventory sitting with a third party under pressure to liquidate. Your official channel is always visible and price-consistent.
Unauthorized daigou activity still happens around direct CBEC brands, but at lower volumes because your official price is accessible to Chinese consumers without the overseas arbitrage gap that drives high daigou activity.
The brands with the worst grey market problems are invariably those who gave a distributor exclusive China rights, set a high official price, and then watched as daigou and unauthorized resellers filled the gap between consumer demand and accessible supply.
For a broader picture of how to structure China market entry to minimize grey market exposure from the beginning, the CBEC strategy guide from Ecommerce China Agency covers channel control and pricing strategy.
For current data on counterfeit and grey market activity trends in Chinese e-commerce, MyMyPanda’s 2026 China e-commerce report includes brand protection market context.
If you are already dealing with unauthorized stock or grey market problems in China, or want to set up your distribution structure to prevent them, contact Asia Pro. We help brands establish their authorized channel first, before unauthorized channels fill the vacuum.
Jon Wang
Distribution Specialist, Asia Pro
Related reading: China
See also how we find distributors in China.
