China's market regulator announced this week that it would tighten regulations towards the uprising community group-buying business. Things like offering excessively low prices will be prohibited.
Community group-buying service has grown in popularity among Chinese bargain seekers. It induces neighboring residents to organize to put orders of grocery and fresh produce in bulk for discounts. To make the offer even worthier, the operator gathers and ships all packages to one location to save the shipping cost.
For example, on Meituan, one of the leading group-buying players, new users can get 1.5 kilograms of apples for as little as 0.01 yuan ($0.0015).
This service quickly spread to Chinese cities of any size. Competition to grab more market share may last for a longer-term, as well-funded internet behemoths will inevitably release large amounts of subsidies.
At present, Freshippo (Alibaba's brick-and-mortar supermarket chain), Meituan (the on-demand delivery giant), Pinduoduo (China's third-largest e-tailer), Chengxinyouxuan (operated by Chinese ride-hailing giant Didi Chuxing), and Xingshengyouxuan (a startup supported by Tencent and JD.com), are the major competitors in the sector.
However, to China's top market regulator, the ongoing price war has squeezed employment and caused other issues. On December 22, the State Administration for Market Regulation (SAMR), along with the Ministry of Commerce, summoned representatives from China's internet giant Alibaba Group, Tencent, JD.Com, Meituan, Pinduoduo, and Didi Chuxing to announce new regulations.
SAMR vows to maintain a fair market competition environment, mandating the community group-buying business to be under strict supervision. Dumping groceries by pricing power is banned. Also, data-driven price discrimination is no longer tolerated.
Offering varied prices for the same product or service based on different consumers is not allowed, the top regulator announced, adding that using big data analysis to price groceries to the disadvantage of existing customers also violated the latest regulations.
In recent months, Beijing is seriously curbing malpractice among China's fast-growing tech firms, citing concerns that they have built market power that stifles competition, misused consumer data, and violated consumer rights.
In November, the market regulator issued a draft guideline that defines anti-competitive behavior among these internet companies for the first time. It's the most wide-sweeping attempt to regulate what the Chinese government sees as monopolistic behavior by the country's tech giants that have grown significantly in the last few years.
SAMR said on Dec.13 that it would fine Alibaba, Tencent-backed e-book China Literature, and Shenzhen Hive Box 500,000 yuan ($76,464) each, the maximum under a 2008 anti-monopoly law, for not reporting past deals properly for antitrust reviews.
"The fines of the three cases are a signal to society that anti-monopoly supervision in the Internet field will be strengthened," the SAMR said even as it acknowledged the penalties were relatively small.
Last week, at the Central Economic Work Conference convened by President Xi Jinping, China's top policymakers also listed anti-monopoly supervision as one of the critical tasks for next year, vowing to prevent disorderly capital expansion.
As online platforms have been criticized for monopoly issues, the authorities said that they would formulate digital economic rules, provide clear definitions of what constitutes a monopoly, and shed light on proper data collection and use.
Laws and regulations concerning the identification of platform monopolies, management of data collection and use, and protection of consumers' rights and interests will be improved, it stressed.
In an interview with Xinhua News Agency, Zhao Ping, vice president of CCPIT (China Council for the Promotion of International Trade), said: "The core of anti-monopoly is to safeguard the market order and prevent competition from being controlled (by giants)."
"Since the internet has penetrated all aspects of life and numerous industries, we have already put antitrust on the policy agenda," he added.
In line with Chinese authorities, Li Xunlei, chief economist of Zhongtai Securities, believes that the disorderly expansion of capital will likely bring risks. "Regulatory authorities need to measure whether the megacorporations bring negative impacts on ordinary people and SMEs since they have formed monopolies on the Internet, big data, and other fields," said the well-known economist.