China's top market regulator on March 3 fined five of the leading community group buying platforms in China for improper pricing behavior.
The State Administration for Market Regulation (SAMR) said it had decided to fine Pinduoduo's Duo Duo Maicai, Meituan Select, Didi's Chengxin Youxuan, and Nicetuan 1.5 million yuan ($230,000) each, and that of Shixianghui 500,000 yuan ($76,615). Nicetuan and Shixianghui respectively count Alibaba and Tencent as investors.
The amount of the fine reaches the maximum under current law. The SAMR said that the improper pricing, often enabled by huge subsidies, has disrupted market order and affected the regular brick-and-mortar groceries. Meanwhile, their economies of scale also magnified the harm that these platforms bring to the society.
"Even though they have reduced subsidies, we have not seen comprehensive rectification," the regulator added. On December 22, 2020, SAMR along with the Ministry of Commerce summoned representatives of those platforms and required them to rectify to meet the regulation.
Abuse of pricing power, jeopardizing fair market competition, and misusing consumer personal information are strictly prohibited in China, though such a severe punishment of the massively popular community group buying industry is a first.
Besides, the regulator accused the platforms of using false or misleading price tactics to trick consumers into buying from them.
Community group buying service has grown in popularity among Chinese bargain seekers. Neighboring residents use these online platforms to purchase groceries and various other common household goods but their orders are grouped up and shipped in bulk to their local group head so they can pick up. In this way the platforms can actually save a lot on shipping cost and transfer that down to customers so they can purchase at relatively cheap price. The platforms also heavily use subsidies to woo new users. For example, on Meituan Select, one of the leading platforms, 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.
However, to China's top market regulator, the ongoing price war has squeezed employment and caused other issues.
The SAMR reportedly launched the investigation into community group buying platforms in late December 2020, according to numerous Chinese media outlets. At the end of 2020, the People's Daily, the official newspaper, issued an editorial stating that these giants are competing for benefits with ordinary people.
In the capital market, the enthusiasm for the community group buying sector kept rising. According to data from Tianyancha, the disclosed financing amount of this sector reached 16.53 billion yuan ($2.53 billion) by 2020, an increase of more than 10 billion yuan over the previous year.
Didi is considering injecting approximately $3 billion into its community group buying arm and also working with advisers to raise about $1 billion from outside investors for the rapidly growing business, Bloomberg reported last month, citing sources familiar with the matter.
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, abused consumer data, and violated consumer rights. Since the release of the Anti-Monopoly Guidelines for Platform Economy last November, notable breakthroughs in regulation and scrutiny have been made.
On December 11, 2020, at the Central Economic Work Conference convened by Chinese President Xi Jinping, top decision-makers listed anti-monopoly supervision as one of their main tasks next year, vowing to prevent the negative effect on the society due to disorderly expansion of capital. Last week at the Two Sessions, the most critical annual meetings of the Communist Party of China and the Chinese government, Premier Li Keqiang also pointed out that anti-monopoly should be strengthened and the unregulated capital expansion should be prevented.
This marks the first time that the Chinese government has signaled in its work report to fight against commercial monopoly to ensure fair market competition.
Local governments are also putting in efforts. The Zhejiang Provincial Government has launched a digital supervision system for platform economy, focusing on monopoly and improper behaviors. More than 20 major platforms have been monitored by the system, according to the provincial government.
The Nanjing Municipal Market Supervision Administration issued a notification prohibiting vicious competition methods such as dumping goods with pricing power to eliminate competitors. Executives in charge of community group buying businesses in Alibaba, Meituan, Didi, etc. have put their signatures on the official document.
When asked about the next step, the top market regulator said that it will actively respond to social concerns, increase enforcement, safeguard the rights and interests of business owners and the people, and create a fair and organized market environment.