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Chinese regulator fines firms in broad crackdown on grocery group-buying sector

Written by Song Jingli Published on     2 mins read

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The grocers were penalized for selling below cost and misleading consumers.

The community group-buying businesses of Meituan, Didi Chuxing, and Pinduoduo, as well as Alibaba-backed Nice Tuan have been fined by the State Administration for Market Regulation (SAMR) with RMB 1.5 million (USD 230,000) for selling groceries below cost and for misleading consumers with non-existing discounts. Tencent-backed firm Shixianghui was penalized with RMB 500,000, the regulator announced on its website on Thursday.

In its decision on Meituan Youxuan from March 3, that was published on Thursday, the regulator detailed cases of illegal pricing. The grocer sold about 500 grams of cucumbers at RMB 1.99, in comparison with the firm’s purchasing cost of RMB 2.15 on December 4 and cheated consumers claiming to sell boxes of 90 eggs RMB 40.1 cheaper on February 19 when there was actually no discount at all.

Misconduct was also detected at Duoduo Maicai, which is owned by Pinduoduo, Didi’s Chengxin Youxuan, and Nice Tuan, as well as Shixianghui. “The illegal activities involved a lot of goods and have been taking place for a long time, even after warnings have been issued by the SAMR,” said the regulator, who demanded the companies to correct their wrongdoings.

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Pricing-related issues are easier to pursue than monopoly issues, said Han Wei, an associate professor at the Chinese Academy of Social Sciences. Han told KrASIA that the government wants big tech to spend their time and effort on developing hard-core technologies that are beneficial for the country’s high-quality growth, and not to exploit the group-buying business monetizing their huge user traffic.

“The fines look small but is a deterrent force, as it is definitely negative for investors,” said Han. The government might lack the legal ground to ban them, but has a range of possibilities and can resort to other laws, including anti-monopoly and e-commerce law.

Liu Xu, a researcher with the National Strategy Institute of the Tsinghua University, believes that the fines are still more of a warning. “The regulator did not punish these companies individually for their illegal transactions, but for the transactions altogether. It did not calculate or confiscate their gains from this and did not encourage the public to report illegal cases,” Liu explained.

“If each misconduct is fined with RMB 10,000, 10,000 illegal deals will result in a RMB 100 million fine,” he said. Only by imposing deal-based fines the government will be able to put an end to this behavior.

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