Chinese Tech Giant Tencent and Chili Sauce Company Dispute Over Multi-Million Dollar Contract

Tencent allegedly duped by scammers posing as Lao Gan Ma representatives
July 6, 2020 Updated: July 6, 2020

Tencent recently filed a lawsuit against Chinese food brand Lao Gan Ma after the tech giant accused the latter of breaching a contract. Lao Gan Ma allegedly claimed it had not signed an ad deal with Tencent and filed a complaint with the local police, leading to the arrest of three suspects accused of posing as marketing representatives of the chili sauce company.

Tencent Files Lawsuit Against Lao Gan Ma

Tencent, the Chinese internet-based platform and multinational conglomerate holding company, filed a lawsuit against the chili sauce company Lao Gan Ma (“Old Godmother”) for failing to pay advertising fees worth more than tens of millions of yuan under a 2019 contract, according to Chinese media reports.

A court in Shenzhen ruled in favor of Tencent and froze 16.24 million yuan ($2.3 million) in Lao Gan Ma’s bank account on June 29.

Lao Gan Ma is a popular Chinese chili sauce brand, headquartered in Guiyang, southern China. The company sells millions of bottles of its chili sauce annually both at home and abroad. Its sales revenue last year reached 500 million yuan ($70.7 million).

On June 30, Lao Gan Ma reacted to the verdict in a statement, claiming that it had never signed any commercial agreement with Tencent and had reported the matter to the police.

On July 1, the police in Guiyang city noted that three suspects, surnamed Cao Mou (36, male), Liu Mouli (40, female), and Zheng Moujun (37, female), were arrested on the allegation of masquerading as marketing managers for Lao Gan Ma, fabricating the official company stamps, and signing a promotional contract with Tencent, according to Chinese media reports.

In China, official company stamps serve as a seal of approval to formalize and finalize business deals.

The local police said “the purpose was to obtain the online game gift package code provided by Tencent in its promotional activities, and then illegally obtain economic benefits by reselling them online,” according to a report by Chinese media Sixth Tone.

The fake deal included Lao Gan Ma sponsoring a Tencent computer game, with characters appearing in branded outfits and Lao Gan Ma’s products being featured in related gaming events.

Various Chinese media reports said Tencent may have been embarrassed for being duped and released a statement on its official Weibo, saying that it’s hard to explain the situation and encouraged netizens to provide leads or clues to help prevent similar incidents from happening in the future, and offered a reward of 1,000 jars of Lao Gan Ma chili sauce.

Lao Gan Ma’s representative is uncertain if the lawsuit will be dropped.

According to Chinese media Sina News, a legal expert said that the lawsuit by Tencent is reasonable under the assumption that Tencent was not aware of the fake deal. The previous verdict can be overturned after the criminal case is identified.

Lawyer Wang Rongmei, a partner of Jingshi Law Firm, told Chinese media Phoenix that based on the provisions of Article 49 of the Contract Law, the commercial agreement is binding on Lao Gan Ma. As long as the counterpart of the contract has a “reason to believe” that the perpetrator has the right to sign a contract with Tencent on behalf of Lao Gan Ma, then Lao Gan Ma shall be responsible for this agreement, Wang said.

Netizens’ Comments

The topic was popular on Chinese social media. Many netizens questioned the claim that such a large ad deal was merely set up for the online game package code. A netizen said, “Both parties have evidence of each other’s violations of the law, and no one dares to reveal the truth. There should be a large number of bribery kickbacks.”

Another netizen commented, “Clearly, the Lao Gan Ma is ruthless. The three persons were simply sacrificed to save the company. For the sake of protecting the local rich, the Guizhou police have no bottom line.”

Tencent’s businesses in China include the instant messengers Tencent QQ and WeChat. With more than 1.1 billion global users, security experts claim that WeChat has become a cybersecurity risk to its users because it is used as a surveillance tool by the Communist regime.

The Shenzhen Consumer Council released an analysis report on consumer complaints in the third quarter of 2019. According to the report, there were 38,576 complaints against Tencent, the majority of which involved QQ accounts and content related to “fraud, illicit products, pornography, gambling, and drugs.”