Meituan faces a profit squeeze as Chinese regulators order platforms to cut fees to help small businesses. Chinese e-commerce giant Alibaba is exploring rival JD.com’s direct sales model, one that Alibaba’s billionaire founder and former chief executive Jack Ma predicted would become “a tragedy in the future” in 2015. China’s Craiglist, 58.com, came under public scrutiny for recommending fake jobs to a user who was later trafficked to Cambodia as a “blood slave”. Kuaishou planned to block links to Alibaba and JD.com while building its own e-commerce business. Tencent closed social group-buy mini-program Xiao’e Pinpin, while ByteDance pulled the plug on a Shein-like fashion site just three months after its launch.

Meituan faces regulatory headwinds

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News: Chinese on-demand delivery platforms, led by Meituan and Ele.me, are facing regulatory headwinds for monetizing the services they provide. Fourteen Chinese authorities, including the National Development and Reform Commission, issued a new guideline that requires goods delivery platforms to cut fees for restaurants. The guideline involves supporting policies for various service industries from catering and restaurants, to retail, tourist travel, and transportation. It’s designed to lower the operation costs for merchants who have been hit by pandemic prevention measures, according to a statement announced Feb. 18. Shares of Chinese life services app Meituan fell more than 15% on the news.

Insights: Reduced service fees will impact the financial performance of local life services giants like Meituan, for which food delivery accounted for more than half of its revenue in the third quarter of 2021. Chinese food delivery platforms, such as Meituan and Alibaba-backed Ele.me, have been criticized for charging excessive commissions from small merchants over the past few years. In one of the biggest merchant push-backs at the peak of the Covid-19 outbreak in April 2020, the Guangdong Restaurant Association accused Meituan of exploiting merchants by charging excessive commission rates that “most of the restaurants can’t endure.” In China, food delivery platforms charge commissions based on merchants’ size. Some small restaurants have to pay up to 18% to 20%, higher than the 10% to 15% commission rate proposed by the All-China Federation of Industry and Commerce in 2021.

News Link: TechNode

Cat filling in a dog’s shoe

News: Alibaba launched a new e-commerce service called Maoxiang under the direct sales model within its business-to-consumer marketplace Tmall on Feb. 18. The model would give the e-commerce giant more control over product quality, sourcing, and delivery in a manner similar to rival JD.com. The platform, which will be focused on consumer electronics products in the beginning stage, is in discussions with consumer electronics brands, including smartphone maker Realme, to join the platform, local media outlet LatePost reported. An Alibaba executive told local media outlet Guancha that Maoxiang won’t replace Tmall’s branding.

Insights: China’s top two e-commerce sites, Alibaba and JD.com, started with very different business models. Alibaba counts marketing services and commissions from third-party merchants as revenue sources, while JD earns a mark-up by selling products that it holds. The question of which model is better has been a long-running talking point. Alibaba’s “platform” model can yield higher margins than JD’s asset-heavy direct retail approach, which has to cover various extra costs, from warehousing to delivery. However, JD’s direct sales model offers better services with more quality control and strong logistics.

However, the distinction in the business model between the two companies has increasingly blurred. For example, JD expanded to adopt Alibaba’s platform model as early as 2017, while Alibaba runs a grocery store chain called Freshippo, which uses the direct retail model. But this is the first time that Alibaba has added a direct retail business to its core e-commerce marketplace Tmall.

With its model highly reliant on online user traffic, Alibaba is trying out new models to stave off the challenge of short video apps like Douyin, Kuaishou, and social commerce apps like Pinduoduo and Xiaohongshu. Moreover, tapping into a model that offers better products and services aligns with China’s consumption upgrading trend.

The new initiative is a major business shift led by Turdy Dai, the newly-assigned head of Alibaba’s Chinese e-commerce business. Dai reshuffled the back-end operations of Taobao and Tmall to bring the two pillar businesses together. 

News Link: TechNode (story 1, story 2)

58.com under fire amid job scam accusations

News: Chinese web-based classified site 58.com has come under fire after a Chinese national accused the site of hosting fraudulent job advertisements, which led him to fall victim to a human trafficking gang in Cambodia. The victim, surnamed Li, found a nightclub security guard position on 58.com last May. He then traveled to Guangxi province for an interview but was smuggled into Cambodia by a criminal gang and forced to work various telemarketing fraud schemes. Since September, his captors began repeatedly extracting blood from him, putting his life in danger. Police rescued Li with the help of local organizations. 58.com said in a Feb. 17 response that it would cooperate with the police investigation, although it had “not yet established” whether the fraudulent job ad had appeared on its platform.

Insights: As China’s Craiglist counterpart, 58.com provides classified ads for a diverse range of categories, such as recruitment, real estate, and second-hand goods and cars. Once a tech major in China, the company has lost momentum over the past few years after gaining a controversial reputation for being involved in many criminal lawsuits. This current scandal brings 58.com’s business ethics to public attention again. Other Chinese tech companies have also faced criticism for providing space to fraudulent or misleading advertisements, as long as they bring in revenue. In 2017, Li Wenxing, 23, was found drowned months after being recruited online by a pyramid scheme posing as a software company via Boss Zhipin, a direct hiring site. Apart from online recruitment, misleading health and medical information online is another area that has drawn public ire, most prominently in the case of Baidu’s “Wei Zexi Incident”.

News Link: Reuters

Kuaishou to block external links to Taobao and JD

News: On Feb. 22, Chinese short video app Kuaishou announced a plan to block external links to Taobao and JD.com, beginning in March. Taobao product links will be barred from displaying within the video app, while JD links will be blocked from showing in the shopping cart during livestreaming sessions, but will still be accessible through shopping charts in short videos and on information pages. The company has attributed the forthcoming changes to “agreement adjustments” without providing further details. 

Insights: Short video apps and e-commerce platforms have historically worked closely together within the trend of content-driven e-commerce. Video apps boast traffic and content, while e-commerce sites have brands and supply chains. As short video sites, notably Kuaishou and Douyin, build up their own e-commerce businesses, they want to keep users within their own ecosystem instead of sending buyers to other platforms to make purchases. Kuaishou reportedly achieved a gross merchandise value of RMB 680 billion ($108 billion) in 2021 and plans to achieve between RMB 900 billion to RMB 970 billion GMV in 2022.

News Link: TechNode

Business scale-back of tech majors

News: Tencent will shut down its social group-buy mini-program Xiao’e Pinpin, a feature that was expected to rival Pinduoduo when it was launched in 2020. Dmonstudio, a Shein-link fashion shopping website reportedly owned by ByteDance, is set to shut down three months after its launch. The lack of user interest is the most likely reason for the closure, according to local media. Meanwhile, JD Finance, the financial arm of JD, has stopped providing specialized services for college students, while ByteDance sold the operating body of online brokerage service Dolphin Securities to ChinaLin Securities.

Insights: Chinese tech majors are downsizing amid weakening consumer spending, intensified competition, and tightening regulations. China’s six major tech firms, collectively known as BATTMD (Baidu, Alibaba, Tencent, ByteDance, Meituan, and Didi), have closed or scaled back more than 20 projects since 2021, according to a rough count by local media outlet Geek Park. Edtech, fintech, and businesses that affect the benefits of small merchants and the daily life of regular people, such as grocery delivery, are facing business adjustments due to tightened regulations.

News Link: Guancha, TechNode, SCMP

Emma Lee

Emma Lee (Li Xin) was TechNode's e-commerce and new retail reporter until June 2022, when she moved to Sixth Tone to cover technology and consumption. Get in touch with her via lixin@sixthtone.com or Twitter.