The State Administration of Industry and Commerce’s white paper marks an unusually direct criticism of Alibaba Group Holding, an Internet giant that’s normally seen as a darling of Chinese commerce. The report paints a stark and colorful picture of a whole host of alleged offenses and misdeeds of Alibaba’s managers and the merchants who use its online trading platforms.

Faced with illegal business activity on its platforms, the paper says, Alibaba Group “long did not pay sufficient attention to the issue and did not adopt...