China's tech and internet giants are facing further tightening of regulations affecting the wide range of business sectors they operate in.
The State Administration for Market Regulation and Ministry of Commerce met representatives from Alibaba Group, Tencent Holdings, JD.Com, Meituan, Pinduoduo and Didi Chuxin, asking these leading e-commerce platforms to comply with nine rules within the community group buying market.
This came after China's State Taxation Administration in early November met with 27 Chinese internet companies including Alibaba, Tencent, JD.com and Meituan to discuss ways to "ensure the healthy growth of the digital economy" and last week SAMR fined Alibaba and Tencent $76,500 each for violating the Anti-monopoly Law.
The nine rules said that behaviors such as low price dumping, price collusion or price gouging, conducting price discrimination based on big data or other technologies, illegally collecting users' information and any kind of monopolistic deals or unfair competitions are prohibited, according to the administration.
Benefiting from the COVID-19, community group buying has gained increasing popularity among domestic consumers, particularly in the so-called sinking markets, towns and lower-tier cities where there is less market penetration than in the first-tier cities of Guangzhou, Shenzhen, Beijing and Shanghai.
In this business approach, an e-commerce platform recruits a community leader who uses social media such as WeChat to post product links for a group of residents living in the same compound. The community leader coordinates orders of groceries and daily essentials, which are usually at lower price than supermarkets, and is responsible for the pickup when the combined order is delivered in bulk to one location next day.
Owing to the advantage in scale, community group buying reduces fulfillment and delivery costs for e-commerce platforms. According to research by Kaiyuan Securities, last-mile delivery costs for community group buying accounts for about 2% of each sale, while the cost is nearly 13% in traditional e-commerce deliveries to individuals.
"The incremental space to grow in the high penetration of e-commerce in first- and second-tier cities is already very limited," Feiqi Luo, research associate at Euromonitor International, told South China Morning Post. "But there are almost 700 million digital users in the sinking markets, showing giant online consumption potential."
Nearly all of China's large internet firms have rushed to this sector in the past few months and scaled-up their efforts to compete.
In August, Pinduoduo launched its online grocery app Duo Duo MaiCai, following its rival Meituan kicking off its own group buying platform Youxuan in July. Additionally, Alibaba-backed Nice Tuan last month raised up to $196 million in what is the company's fourth funding-round this year for expanding its group-buying business. Even the ride-hailing giant Didi Chuxing has added a group-buying feature to its flagship app.
"With internet giants possessing large cash reserves, data resources and advanced digital technology," read an editorial in the state-run People's Daily. "People expect these companies to make innovations in business and do more in shouldering the enterprises' social responsibility in promoting sci-tech innovation."
It sparked a chord for public discussion as the editorial criticized domestic internet giants for "being overly focused on quick success by obsessing over monetizing their large user base."
Goldman Sachs projects that by 2025 the proportion of China's grocery shopping done online will increase to 50%, up from the current 20%. China's online grocery market is forecast to reach $147 billion in three years, according to recent research from CLSA.
