China’s market regulator has summoned Alibaba Group, JD.com, Tencent Holdings, Meituan, Pinduoduo, and Didi Chuxing for a meeting and imposed nine “must nots” on their community group buying services in Beijing’s latest move to tighten its control over Big Tech.
The State Administration for Market Regulation (SAMR) said in a statement that it had conducted a “administrative guidance meeting” on Tuesday with the six e-commerce giants, warning them to strictly toe Beijing’s line and to pay attention to problems of “low price dumping and squeezing jobs”.
The regulatory warning comes at a time when Beijing is undergoing a holistic review of the role of Big Tech in China’s economy and society after the Politburo concluded at a key meeting that China must break up monopolies and prevent the “disorderly expansion of capital”.
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Community group buying is a cost-saving business model that enables residents in one community to purchase groceries and daily essentials in bulk via a community leader. It is gaining popularity in China with Big Tech platforms and among start-ups such as Xingsheng Preference and Nice Tuan, which have flocked to introduce the new service.
The new internet-enabled shopping service also fanned concerns that it may disrupt China’s traditional retail network and throw small shop owners and vendors out of jobs.
China’s market regulator told the internet giants that it was concerned about problems of pricing and competition, according to the statement.
In particular, SAMR laid down nine red lines for platforms involved in community group buying, warning them not to engage in activities from “low price dumping” to “misleading or cheating consumers”.
“It’s strictly prohibited to sell products below cost with the purpose of squeezing out competitors or seeking monopoly positions,” the regulator said.
Under the new requirements, internet firms in the community group buying market are also prohibited from implementing trust agreements in pricing and sales or abusing their market positions. They are required to apply for regulatory approval for mergers and consolidations that may result in monopolies and avoid “misleading and deceitful” marketing.
The regulator also said platforms cannot “illegally collect and use consumer data” and they should not take advantage of data to harm consumers’ legitimate rights and interests.
“It is hoped that internet platform companies will take the initiative to assume greater social responsibilities and take more responsibility for creating new momentum for economic development, promoting scientific and technological innovation, safeguarding public interests, and safeguarding and improving people’s livelihood,” according to the regulator’s statement.
It is unclear how the e-commerce service providers will adjust their business activities in response to the new regulatory requirements. Media inquiries sent to five of the companies mentioned in the statement were not answered, while Tencent declined to comment.
Analysts said the meeting showed that China’s regulatory apparatus is becoming more aggressive in managing risks stemming from Big Tech business activities after Beijing learned from experiences in ride hailing and bike sharing.
Li Chengdong, the chief executive of e-commerce consultancy Dolphin Think Tank, said China’s internet giants have often opted for the strategy of capturing market share through price wars and many are trying to repeat that in the community group buying market.
“But now, in community group buying, the price war has hurt the interests of start-ups and offline merchants, so it needs to be a fair competition market,” Li said. “The government is not saying they do not encourage this. It is just calling for a reasonably competitive environment.”
Leslie Zhang, vice-president and general counsel at United Energy Group, said the regulatory requirements are in line with China’s existing laws on antitrust, unfair competition and consumer rights protection.
“The state is strengthening its regulation regarding the business practises of internet platforms and companies,” Zhang said.
Meanwhile, Li believes platforms may find ways around the ban on price dumping. “They can dump prices in other ways, like giving out red packets or vouchers to consumers,” Li said.
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