First launched in 2010 by China’s e-commerce giant JD, the 618 shopping event has evolved into a major mid-year shopping event that has driven online consumer spending over the decade. However, consumers are becoming more cautious during a pandemic-hit economic downturn and growing tired of more frequent shopping events stimulation over the past decade.

The event was originally created as a competition for the Alibaba-backed Singles’ Day shopping event (on November 11). Both events chose dates carefully. 618 is a nod to JD’s founding date of June 18, while Singles’ Day is an unofficial day that the Chinese internet uses to take jabs at people who are not in a relationship. 

Similar to Singles’ Day, the 618 shopping festival has grown out of its founding platform and become a promotional event across all major Chinese e-commerce platforms. The event is also considered a barometer for consumer spending capacity and new shopping trends in China.

2022 might be the toughest 618 

For those who are taking a close look at the country’s second-largest shopping extravaganza, this year’s edition of 618 might seem like 2020 all over again, yet if anything the situation is even more austere. Lots of local media outlets have dubbed this year’s edition of 618 as the “toughest” in history. 

When the pandemic first spread across China two years ago in early 2020, the 618 festival that year largely delivered, thanks to government stimulus and the country ending large-scale lockdown two months ahead of the event. It achieved much-needed big sales numbers and signaled a gradual return to economic normalcy at the time. However, the circumstances for this year put the success of the shopping bonanza in some doubt.

In both years, China was just coming out of lockdowns which had taken a toll on the country’s faltering economy and led to subdued consumer sentiment. But the timing is different. In 2020, Covid-19 broke out in January and most pandemic-related lockdowns were removed in early April. By the time 618 arrived in June, the state had already stepped in to boost consumption by launching a series of digital subsidy programs over April and May. On top of that, the two-month gap allowed more time for manufacturing and logistics companies to recover from the lockdowns ahead of the shopping festival. 

This year, however, there’s less time for the market – either consumer sentiment, merchants, or logistics companies – to react since the months-long lockdowns to control new Covid-19 outbreaks in cities like Beijing and Shanghai were only lifted on June 1, just as many retailers were gearing up for the 618 shopping festival with pre-promotion and early deals. Moreover, recent trends make it obvious that Chinese consumers will be even more cautious in 2022 than they were near the start of the pandemic.

For example, as a working mom with two primary school kids in Beijing, Liu Chunying didn’t pay much attention to this year’s 618 promotion until later as she was busy living under a partial lockdown. She used to rely on the festival’s deals to stock up on as much as 70% of her purchases. This year, she only started making a shopping list after Beijing lifted most of the lockdowns in June. Liu added that she will only buy necessities and refrain from impulse buys this year. 

In terms of size, the 618 festival achieved a gross merchandise value (GMV) of RMB 578.5 billion ($89.6 billion) across all platforms in the eighteen days from June 1 to June 18 in 2021, according to data from Syntun. The figure is second only to the GMV of Singles’ Day in terms of shopping festivals in China. The 2021 GMV for 618 represented a yearly growth of 26.5%, but also a slowing from the 43.8% surge recorded in 2020 and driven by pent-up post-lockdown consumption.

Although post-Covid consumption proved to be an effective driver for 618 sales in 2020, market watchers aren’t optimistic about a repeat this year. Data and analytics company GlobalData projects that China’s retail channel will lose steam in 2022 after a stellar run in 2020 and 2021. The downward trend will have a spillover effect into 2023 with the home retail category bearing the brunt of consumer fiscal austerity, the firm said.

Covid-19 prevention measures are major headwinds, according to Bobby Verghese, a consumer analyst at GlobalData. “The stringent Omicron lockdowns in Beijing and Shanghai had a debilitating impact on consumer livelihoods and the economy. Bereft of workers, factories and businesses came to a standstill. With people confined to their homes, the customer footfall in physical retail stores waned, while online retailers were unable to make deliveries due to supply chain disruptions,” he said in a press release sent to TechNode.

Promotion deals in the pandemic era

China’s top online sellers such as JD, Alibaba, Pinduoduo, Douyin, and Kuaishou, have launched a series of efforts to revive consumption for 618 since mid-May. The enhanced promotion efforts come as e-commerce giants such as Alibaba, JD, and Pinduoduo have recorded historically-low revenue growth in the first quarter of this year, as the companies have been hit by both Covid lockdowns and tighter reins from regulators since last year.

JD, Alibaba, and Pinduoduo are offering an immediate RMB 50 ($7.50) discount for every purchase of around RMB 300 across their platforms. This is the largest discount in recent years compared with the more standard RMB 20 to RMB 30 discount on RMB 200 orders.

They have also rolled out merchant support plans, from offering immediate payment transfers for merchants joining 618 promotions to ensuring liquidity to cut service fees to lower costs. The moves are also in line with the state’s call for platform companies to assist struggling small- and medium-sized businesses.

Alibaba’s Taobao marketplace has launched a “metaverse mall” for this year’s 618 to create a virtual shopping venue for customers, tapping into the rising metaverse boom.

Are shopping holidays losing their shine?

618 and Singles’ Day are far from the only shopping carnivals in China. To draw customers and drive sales, e-commerce platforms have established a list of festivals that span all year round. Chinese consumers are increasingly overwhelmed by a dazzling array of shopping festivals celebrating nearly every major holiday, from Spring Festival to Children’s Day.

Even Singles’ Day experienced a lackluster year in 2021. Although still recording new highs in GMV, the shopping bonanza posted the slowest growth in its history: just 9%, compared with up to three-digit growth in its heyday. 

After more than a decade of development focused on big promotional activities and skyrocketing sales numbers, the market is adapting to a new definition of “success” for such festivals, focusing on achieving brand awareness and turning those drawn in by short-term promotional campaigns into long-term loyal customers. Against this backdrop, this year’s 618 may see considerably slower growth than usual for reasons other than just disruptive Covid lockdowns.

Ever since China abruptly cut off the bulk of income for most private education companies last summer, the businesses have had to make some difficult decisions. For New Oriental, once the leader of the sector, it meant letting go of most of its tutors for the K-9 grades and setting up a new livestreaming e-commerce unit to make up for some of the lost income. 

Until this month, New Oriental’s new live e-commerce initiative had been lackluster at best. Daily sales hovered around less than RMB 1 million ($150,000) in the past six months, according to data from livestreaming tracking platform Huitun. But suddenly, New Oriental’s fortunes are looking up. It all changed after the firm’s hosts, all former tutors, started to teach English while selling goods over their livestreams. 

On June 10, during a session selling bags of rice, the host pulled out a small whiteboard and asked the audience whether they thought the price of RMB 80 was fair. She then wrote three English phrases — “bargain,” “cost-effective,” and “unforgettable” — on the whiteboard and began teaching an unexpected course on how to use these phrases in real life. This unique style of selling has quickly made New Oriental’s livestreaming sessions a sensation on the Chinese internet. 

Why it matters: China’s blooming livestream e-commerce sector has become increasingly crowded as thousands of Chinese celebrities and online personalities flock to commercialize their followers or cash in on online fame. Only those with relatively unique selling points or characters are able to stand out and attract buyers’ attention.

• New Oriental is among several tutoring companies pivoting to new business ventures after China’s crackdown on the private tutoring industry last July. Edtech giant Zuoyebang has looked into developing a printer business, while tutoring unicorn Yuanfudao tried to invest in an outdoor down jacket business last year.

READ MORE: Edtech will survive China’s crackdown, but it won’t be the same

Details: Livestreaming session and video clips of Oriental Select, New Oriental’s livestream ecommerce arm, went viral across Chinese social platforms over the weekend after hosts started to offer short, free English teaching sessions during the live shopping sessions.

• Oriental Select’s account on Douyin, the platform where the brand livestreams, has gained more than 1.6 million followers in three days since June 10. An 18-hour-long livestream held on June 11 recorded RMB 19.9 million in sales, a jump from the RMB 4.5 million New Oriental’s founder Yu Minhong achieved on his December debut.
• Instead of the hard-sell advertising style used by most Chinese e-commerce livestreamers, hosts at Oriental Select, all former teachers at New Oriental, display a laidback attitude when selling through the livestreams. 
• When promoting a corn product on a livestream session held on Monday, former English teacher Dong Yuhui said he hoped the corn would remind the buyers of their “good-old days” as a child when they were “young and carefree.” He then took out a board and wrote down the expressions in English.
• On Monday, New Oriental’s share price increased by more than 16% in Hong Kong after the company’s livestreams began to take off over the weekend.  

Context: Battered by China’s private tutoring clampdown, the country’s edtech majors such as New Oriental, Gaotu, and TAL all stopped providing after-school tutoring services targeting students up to K-9, a major source of their revenue, in the mainland Chinese market in the second half of 2021. Shares of the three companies plunged roughly 100% since the regulatory measures were announced in July.

TikTok owner ByteDance is looking to re-enter the Indian market through a partnership with local company Hiranandani Group, nearly two years after being banned in one of the world’s fastest-growing economies, Indian media outlet Economic Times reported on Wednesday.

Why it matters: ByteDance’s effort to re-enter India, if successful, could pave the road for other Chinese companies, including major players such as Tencent and Alibaba, to access a market that’s undergoing rapid growth in mobile internet and one where they have already invested tens of billions.

• ByteDance’s effort to gain access to India through a partnership is reminiscent of some of the solutions international companies have sought when faced with blocks in China. The Chinese government requires foreign companies engaged in “restricted” areas, such as chemicals and machinery like engines and cameras, to set up a joint venture with a local Chinese partner to run in the country.
• Even if Chinese tech giants could make a successful comeback, they would still have to catch up with India’s quickly changing market, which has fostered its own alternatives in the absence of Chinese firms.

READ MORE: INSIGHTS | Does India need China tech?

Details: ByteDance is in discussion with Mumbai-based realty major Hiranandani Group in an attempt to re-enter India, the Indian media outlet Economic Times reported.

• Joining forces with a local company is expected to help ByteDance avoid government scrutiny in India, the company’s second-largest market and a country where it had more than 2,000 employees before being banned in 2020.
• Details of the partnership remain elusive since the talks are still at a very early stage. But ByteDance has informed Indian regulators about its intentions, the report said. A senior government official told Economic Times that there’s been no official approach yet, but that they will examine the requirements when the companies seek government approval.
• Hiranandani Group runs data center operations. A partnership would allow ByteDance to store user data within the country, therefore making it compliant with local regulations.
• ByteDance didn’t respond to TechNode’s inquiries on the matter when reached on Thursday morning.

Context: The Indian government banned nearly 200 Chinese apps from June to September 2020 as China and India engaged in a border conflict. Some of the most popular Chinese apps and services, including TikTok, WeChat, Shein, and Alipay, have remained on the blacklist. 

TikTok’s Chinese version Douyin announced on Tuesday that its online sales more than tripled for the year ending in April, an impressive growth rate for the e-commerce upcomer when other majors are slowing down due to an economic downturn in China.

Why it matters: Chinese short video platforms like ByteDance-backed Douyin and Kuaishou are quickly taking away the market shares of e-commerce giants like Alibaba, JD, and Pinduoduo, thanks to their widely popular social content.

• Douyin chose to announce sales numbers and growth plans on the eve of China’s 618 shopping festival to build momentum for the mid-year spending frenzy, a local media outlet in Chengdu reported.

READ MORE: 618 is not just about e-commerce platforms anymore

Details: Douyin’s gross merchandise value (GMV) surged 320% year-on-year in the year ending in April as the company sold more than 10 billion products, president of Douyin E-commerce Wei Wenwen said (in Chinese) at a Douyin e-commerce conference on Tuesday.

• At the online meeting, Douyin rebranded the concept of “interest e-commerce” as “full-field interest e-commerce” after rolling out the idea last April. The company hopes to highlight its ability to attract consumers through multiple channels such as short videos, livestreaming, its search function, and more, said Wei at the conference.
• The firm didn’t give a specific GMV figure, but people with knowledge of the matter told Caixin that Douyin achieved more than RMB 800 billion GMV in 2021 and is expected to bring in between RMB 1 trillion and RMB 1.2 trillion this year. However, the company said the figure is “inaccurate” in response to Caixin. 
• Douyin E-commerce, which became a stand-alone business unit only two years ago, achieved fast growth by tapping into Douyin’s 600 million daily active users. Douyin generates more than 200 million short videos and holds 9 million livestream sessions per month in a bid to convert user attention to sales. 
• Douyin’s Wei said she believes plenty of opportunity remains in the sector and that the platform aims to take more than 50% of the industry’s growth market in the future.

Context: Although still holding the lion’s share of the market, Alibaba, JD, and Pinduoduo are recording decelerated growth as they face macroeconomic headwinds, regulatory challenges, and pandemic control measures.

• Alibaba’s global consumer-facing businesses generated RMB 8.3 trillion in GMV for the year ending in March, remaining relatively flat compared to the RMB 8.1 trillion recorded a year ago. In 2021, Pinduoduo’s GMV increased 46% year-on-year to RMB 2.4 trillion, while JD’s GMV grew 26.2% year-on-year for the same period. Kuaishou’s GMV increased 78.4% year-on-year to RMB 680 billion in 2021.
• Douyin’s e-commerce sales dwarfed its global sibling TikTok, which reportedly achieved nearly RMB 6 billion GMV in 2021.

Dingdong Maicai plans to suspend operations in several lower-tier cities in China, joining a slew of grocery delivery platforms downsizing amid a cooling market.

Why it matters: Dingdong is pivoting from expanding by all means to prioritizing profitability, a trend that has been visible among many of the top players like Meituan and Alibaba.

• Dingdong’s cutback in lower-tier cities comes when China’s top-tier cities, Shanghai and Beijing, see surging demands for groceries, driven mainly by panic buying during lockdowns and uncertain times as the Covid-19 outbreak surged again in the country. 

Details: Dingdong will stop providing delivery services in two cities in the eastern province of Anhui — Xuancheng and Chuzhou — from 6 p.m. Tuesday, according to a May 29 report from Ahwang (in Chinese), a regional media outlet. The firm will also halt operations in the northern city of Tangshan in Hebei province and the southern city of Zhuhai in Guangdong province around the same time.

• Dingdong users’ group chats in these cities will be dissolved, and the company will refund any outstanding balance in users’ prepaid accounts, according to a statement from the company.
• Suspension of services in these cities is part of the “company’s normal business adjustment and optimization,” a Dingdong representative told TechNode on Tuesday.
• The Ahwang report added that the company’s business in Guangdong province’s Zhongshan and Zhuhai is also undergoing adjustments. Meanwhile, services within the Yangtze River Delta area, where the firm expects to achieve profitability soon, remain unaffected.
• TechNode found that Dingdong users in Shanghai still can’t order freely as of Tuesday morning. Instead, they have to compete for limited amounts of order slots, a measure that was introduced amid soaring demand and staffing shortage during the city’s Covid-related lockdown that began in late March. 

Context: Online grocery and food delivery teams at various Chinese tech giants were among the worst-hit units in the country’s ongoing mass tech layoff. Dingdong reportedly launched a series of job cuts in January this year.

• Along with around 150 US-listed Chinese companies, Dingdong has been added to US’s Securities and Exchange Commission’s provisional delisting list targeting foreign companies that have failed to comply with the country’s financial audit rules. 
• In its fourth-quarter earnings of last year, the grocery delivery company said that it achieved profitability in Shanghai for the quarter. 

Shein was among hundreds of thousands of Chinese startups that tapped into the country’s emerging cross-border e-commerce industry when it was founded in 2008 in the eastern city of Nanjing. 

More than a decade later, it’s a Chinese fast fashion decacorn (a private technology company worth more than $10 billion) with a market cap of $100 billion. Only three other tech juggernauts — ByteDance, Alibaba’s Ant Group, and SpaceX — have surpassed that benchmark, according to Crunchbase’s private unicorn list.

Shein is a much lesser-known name than its local peers like Alibaba and JD. Its relative anonymity is largely due to its unusually low profile, typified by the lack of public information on its mysterious founder Xu Yangtian, also known as Chris Xu. However, Shein is a name that is increasingly difficult to ignore, as its extraordinary growth has more people comparing it with big-name rivals like Amazon and Zara.

A list of impressive numbers backs up the hype about Shein. In May 2021, Shein overtook Amazon as the most downloaded shopping app in the US, a position it has largely maintained ever since, according to App Annie. The company’s revenue totaled $16 billion in 2021 after expanding at breakneck three-digit growth rates over the past few years. The rising firm is also a venture capitalist’s darling: Shein has received a combined $2.1 billion in funding from reputable investors, including Tiger Global Management, Sequoia Capital, and IDG Capital, since its establishment.

Such incredible growth (and hype) led internet analyst Matthew Brennan to label Shein the “TikTok for e-commerce.” While the comparison points to how the two Chinese companies are achieving a phenomenal rise globally, it’s also important to understand the underlying lessons of their explosive growth — and how they have combined Chinese and western business models to create a new type of online giant.

Where did Shein come from?

Shein is an online fast-fashion company based in China and sells globally, from clothes to accessories to shoes at super-cheap prices. Started as a platform targeting female shoppers, the site now expanded to offer an increasing selection for kids and men.

Unlike Chinese peers focusing on the domestic market, Shein is engaged only in overseas e-commerce markets, which was a less competitive vertical when it was founded ten years ago. 

Its main operation and manufacturing centers are still based out of China, but the company sells to more than 150 countries in nearly every major market in the world, from Europe and North America to Latin America and Southeast Asia. However, its presence in the Chinese market is nearly zero – out of choice.

Why Shein?

The company’s success could be attributed to a range of factors, from its affordable fashion positioning to viral online marketing strategies on social platforms like Instagram.

Offering a diversity of products to consumers quickly and affordably is a common playbook for fast fashion brands to achieve success. Shein has taken that practice to a whole new level.

• Huge diversity for ultra-cheap prices: Shein’s products are astonishingly cheap, generally below $20, making products from rivals such as Zara, ASOS, H&M, and Boohoo appear relatively expensive. In addition, the platform offers around 600,000 products for sale at any one time. Another area where it outmaneuvered its rivals is with a shorter lead time, from design to shipping, of a typical five to seven days. The firm actually aims for a much shorter three-day turnaround, from design to production, according to a Reuters report. Compare that with around three weeks for a garment from Zara and Shein’s appeal begins to become clear.
• Flexible production: Shein works with more than 6,000 suppliers, many of whom are small businesses that make Shein-branded products in small batches. The company will increase production if the products become popular and cut short other items if they’re less popular based on real-time consumer feedback. The model is not unlike the consumer to manufacturer (C2M) model that’s been picked up by many Chinese e-commerce giants such as Alibaba, Pinduoduo, and JD. It connects manufacturers and consumers to produce tailored products at lower prices through the application of AI-powered data analytics.
• Platform independence: Shein’s rise comes at a time when many Chinese sellers relied on bigger platforms such as Amazon to sell products to overseas users. Being its own platform, Shein is able to use AI algorithms for supply chain and manufacturing upgrades, rather than relying on platform companies like Amazon for customer acquisition, which also gives away control of user data. Recently, Amazon’s year-long removal of Chinese sellers from its platform since early 2021 has also made Shein’s independent model more appealing. 
• KOL marketing: The brand first gained popularity among young customers, especially teenagers, by running online marketing campaigns on social media platforms such as Instagram and TikTok through cooperation with KOLs or influencers. The strategy is similar to TikTok’s approach of matching content creators with users. KOL marketing also lies behind the success of a series of Chinese online-first, or online-only, brands like cosmetics seller Perfect Diary.
• Addictive shopping experience: For Shein consumers, the shopping experience can become super addictive when offered the chance to choose from a vast number of products, especially knowing that one doesn’t have to worry about their budget. The app also boosts engagement with a range of fun features. For example, users who check the Shein app daily receive points, which can be converted into coupons when making purchases. 

Controversies

Shein’s meteoric rise has also attracted scrutiny from the public. Many questioned the ethics of its ultra-low prices, accused the company of lacking transparency, and raised concerns about its treatment of workers, such as low pay, poor safety conditions, and the use of underage workers.

More than 80% of nearly 700 suppliers audited in 2021 had at least one major risk factor, according to a sustainability and social responsibility report the company released in 2021 under public pressure. The report shows that just 12% of the company’s suppliers were able to claim zero violations from a list that included items such as forced labor and serious environmental pollution. The company said that it had threatened violators with closure if the situation was not remedied immediately.

An investigative report conducted by Chinese media outlet Sixth Tone found that staff at one of Shein’s subcontractors often work 15-hour shifts in order to meet deadlines, although the company said it was committed to “upholding high labor standards.”

The firm’s other controversies include selling a pendant necklace with a swastika sign and repeated allegations of copyright infringement (in Chinese).

What’s next?

With deep roots in China, Shein seems to be distancing itself from its home country as geopolitical tensions and regulatory scrutiny over China-related tech companies increase. 

The company has made a Singapore entity its parent firm and is aggressively expanding its presence in the city-state, Reuters reported in February. The story added that Chris Xu, Shein’s founder and CEO, has become a permanent resident of Singapore, although the company’s spokesperson later denied this claim. 

Xu’s reported application for Singaporean residence comes amid talks that the company is preparing for an IPO. This is reminiscent of a similar move by Haidilao founder Zhang Yong, who gained Singaporean citizenship before the hotpot chain went public in 2018. Zhang topped the city state’s rich list in 2019.

Shein is facing a few headwinds. The firm was among the first batch of 59 tech companies, including TikTok and WeChat, to be banned in India, as the relationship between the world’s fastest-growing economies turned sour in 2020 after a border conflict.

The company also sees intensified competition, even as it continues to grow. At least 10 Chinese fast-fashion companies, such as Cider, Urbanic, and ChicV, are chasing global consumers, while tech giants such as Alibaba and ByteDance are also digging into the sector with Shein-like platforms.

The past decade was certainly Shein’s heyday of development. However, the company’s growth has shown signs of slowing as its sales increased 60% year-on-year in 2021, a much slower rate than its 250% jump in 2020. The company is likely to face more challenges as it attempts to sustain its high-speed growth – and live up to its $100 billion valuation.

Chinese online retailer JD posted mixed results for the first quarter of this year on Tuesday. The company beat market expectations on revenue but recorded its slowest revenue growth as a public company as net losses widened for the quarter.

Why it matters: JD, along with rivals including Alibaba, faces several headwinds, from Covid-19 lockdowns in many Chinese cities to sluggish retail consumption to a weak macroeconomic outlook.

• The revenue growth rates of major Chinese e-commerce tech giants have been hitting new lows since late last year. JD rivals Alibaba and Pinduoduo, which have yet to release their first-quarter results, recorded their slowest revenue growth for the fourth quarter of last year.
• These companies are adjusting their operational structures and product lines to adapt to a challenging economic environment.

Details: JD’s total revenue increased 18% year-on-year to RMB 239.7 billion ($37.8 billion) for the first quarter of this year, beating the $35.6 billion high-end estimation compiled by Yahoo Finance. However, this is its slowest growth since JD went public on the US market in 2014.

• In the first quarter, total revenue for the company’s core retail business increased 17% year-on-year to RMB 217.5 billion, while the company’s second-largest business segment, JD Logistics, climbed by 22% to RMB 27.4 billion compared with the same period last year.
• The company’s net loss for the reporting period was RMB 3 billion compared to a net income of RMB 3.6 billion one year ago. These increased costs and expenses related to investment in infrastructure, research and development, as well as order fulfillment and employee benefits, which were hiked up by recent lockdowns in Chinese cities.
• “Since the start of 2022, we have seen many challenges arise in our external environment, including the Covid resurgence, supply chain disruptions, and weak consumer sentiment, among others,” JD’s chief executive officer Xu Lei said in the company’s earnings call, held on Tuesday.
• Recent omicron outbreaks in China have a much more significant impact on the supply chain than in 2021 because of higher contagion rates, Xu pointed out. While the Covid-19 outbreak in 2020 brought “some positive effect” to the internet and e-commerce sectors by accelerating the online migration of users, the ongoing outbreak has “hit both online and offline enterprises heavily.”  

Context: On Tuesday, China’s top political advisory body held a consultation session to promote the digital economy. Vice Premier Liu He emphasized support for the platform economy and the list of digital companies overseas.

• China’s online retail sales increased 6.6% in the first quarter of this year, the slowest growth rate since June 2020, according to data from China’s National Bureau of Statistics. On the bright side, more consumers have chosen to buy goods online over the past two years. The online retail sales for physical goods accounted for 23.8% of total retail consumer goods sales in the four months ending April, up from 18.6% for the same period in 2019.

Alibaba’s workplace collaboration app DingTalk has been at the center of layoff discussions on Chinese social media this week. Some people indicated the platform faces a massive 30% job cut, while others suggested a standard organizational adjustment that affects less than 10% of the staff.

Why it matters: Chinese tech companies have seen rounds of layoffs over the past few months. The downsizing conversation of one of Alibaba’s major business lines is another sign of stress within the Chinese tech community. 

• Alibaba and Tencent currently lead the country’s workplace app market with DingTalk and WeCom.

Details: Talks of DingTalk’s layoff started circulating on Chinese social media on Thursday. The workplace app will reportedly cut less than 10% of its employees this year, according to a widely circulated comment posted on China’s LinkedIn-like platform Maimai. The user, who identified himself as an Alibaba employee, said on the platform that the cut will be 10% of the staff (in Chinese), rather than 30% previously circulated on the platform (in Chinese), which would have been the largest layoff for an individual Alibaba unit this year.

• A 10% cut is considered within the normal range of an organizational adjustment for DingTalk, according to Chinese media outlet 36Kr (in Chinese), citing unnamed DingTalk staff. The 36kr source said DingTalk removes around 4% to 10% of low-performing employees annually. This year’s headcount change is looking to be similar to previous years after DingTalk removed 6% of low-performing employees and some people left voluntarily in 2021, the source added.
• DingTalk announced a series of strategic changes in March as the company prioritizes its transition to a platform-as-a-service (PaaS) business. DingTalk will focus on developing key features in core collaboration and productivity functions, such as file-sharing, project management, and video call. Meanwhile, the platform will leave other tasks to third-party developers and partners, such as hardware and industry applications.
• The company didn’t respond to TechNode’s inquiries on the matter when contacted on Friday morning.

Context: Chinese productivity apps are hoping to commercialize their services after investing heavily into the market’s pandemic-driven boom since 2020.

• DingTalk launched paid versions in March, while ByteDance reportedly aims to accelerate the commercialization of its workplace communication app Lark, aiming for a global revenue goal of RMB 6 billion ($940 million) by 2026.

Chinese tech watchers and venture capitalists are growing increasingly concerned over the long-term market appeal of Chinese tech companies. Industry leaders are sharing and quoting a Chinese financial infographic comparing the changing market capitalization of Apple and top Chinese firms over the past two years to show just how much the value of China’s tech giants has dropped. 

Why it matters: After two decades of enormous growth, the top five Chinese tech giants have lost at least 46% of their combined market cap over the past two years in the face of headwinds from saturating markets, pandemic outbreaks, trade tensions, and rigorous government regulations.

Details: Chinese tech companies are less valuable than they were two years ago. On April 26, Chinese financial media outlet Jin10 Data published an infographic (in Chinese) showing the drastic shrinkage in the valuation of China’s top tech firms. The infographic compared the market cap of US smartphone maker Apple with Chinese tech firms, showing that Apple’s $2.7 trillion valuation was worth more than double the value of China’s top 49 tech firms combined.

• The graphic highlights the stark market cap difference by comparing Apple and Chinese tech firms’ April market cap data with those from two years ago. On April 27, 2020, Apple, valued at $1.2 trillion at the time, roughly equaled the combined valuation of the top five Chinese tech firms — Alibaba (which had a market cap of $548.2 billion), Tencent ($508.7 billion), Meituan ($74.9 billion), JD.com ($66.2 billion), and Pinduoduo ($59.4 billion). Two years later, Apple’s valuation has more than doubled while many Chinese tech firms’ valuation has decreased or stagnated, making the former now worth more than 49 top Chinese tech firms combined. 
• Chinese financial writer Wu Xiaobo cited the infographic in a post titled “What’s wrong with us?” lamenting the loss of the “upbeat spirit” of China’s business world.
• China’s tech clampdown has wiped hundreds of billions off the valuation of Alibaba and Tencent, China’s two largest tech companies, amid the US-China trade war and the country’s antitrust clampdown since April 2020.
• On Monday, the market cap of Tencent, currently the most valuable Chinese tech firm, slumped to $427.6 billion, while Alibaba’s market cap has more than halved to $247.5 billion. Pinduoduo also lost more than $10 billion in valuation.

Context: The change in value of China’s biggest tech firms only reflects listed companies. Some of the country’s biggest tech players that remain private are not included in the comparison, such as ByteDance, Huawei, and Alibaba’s Ant Group.

• China is recording slow growth in the number of unicorns, or startups valued at more than $1 billion and not yet listed on a stock exchange, according to the Global Unicorn Index 2021 released by Hurun Research Institute in December. In 2021, China counted 301 unicorns, or 28% of the 1,058 unicorns worldwide, down from 41% in 2019.

Once focused on Chinese tech companies, venture-capital funds are pouring money into new noodle chain brands that sprung up in the country. Even tech giants like Tencent, the social and gaming behemoth, and an active investor, are doubling their bets on the sector. The capital inflow and media attention on a very specific food and beverage vertical highly resembles China’s coffee craze four years ago – and has many observers referencing the spectacular rise of Luckin Coffee.

Chinese-style noodle chain restaurants first became tech investor darlings in 2021 when the industry faced tightened regulation while the country’s consumers became increasingly willing to spend more on quality products and experiences. There were twelve noodle chain investment deals in the first half of that year, with a combined total of RMB 1 billion injected into the emerging area. The market scale of Chinese noodle restaurants is expected to be worth RMB 346 billion ($52 billion) by 2022, according to Chinese data analytics firm iiMedia Research.

So will China’s noodle chain market see the emergence of the “next Luckin”? Or, more importantly, will the market craze maintain its momentum?

Blurring boundaries between tech and consumption brands

Before its spectacular, highly controversial downfall after a financial fraud scandal, Luckin helped grow the popularity of coffee culture in a majority tea-drinking nation and fostered the growth of a trillion-dollar market in China. 

Coffee chains are not tech businesses, but Luckin borrowed a playbook from tech companies by building its ordering and delivery services around mobile apps while adopting online-first marketing and branding strategies typical of internet companies. It’s perhaps no surprise that Luckin adopted an internet-based approach to the coffee business, given the company shares the same founding team of car-sharing platform CAR, Inc. But it was nevertheless a fresh approach when Luckin first rose to stardom in 2018.

Luckin is still trying to recover from the aftermath of a shocking RMB 2.2 billion accounting fraud scandal. Still, the company’s approach to entering a traditional industry with heavy discounts and an online-first marketing strategy has been picked up by many companies and viewed by numerous investors as a proven business model.

This model has been partially tested in China’s milk tea industry, which has seen the rise of bubble tea giants like HeyTea and Nayuki attracting funds from tech majors. Tencent has invested in HeyTea and Canadian coffee chain Tim Hortons, while ByteDance has backed Shanghai-based coffee chain Manner.

Venture capital attention has since been turned to a slew of verticals in food and beverage. Hotpot brands (for example, Lanxiong Hotpot), Chinese pastry chains (such as Bao Shifu), and packed stewed snacks (including Tencent-backed Shining Taste) are also getting investor attention. But for many investors, noodles, one of China’s favorite staple foods, is the next break-out vertical to win over.

The race to be Luckin for noodles

Luckin’s approach has prevailed in China’s noodle market over the past year. Armed with funding, a host of noodle brands have targeted rapid offline expansion combined with online marketing campaigns to quickly capture market share. Here are a few rising players in China’s new noodle chain brands.

• Hefu Noodles: A top player in the field, this decade-old brand of Beijing-style noodles operates more than 380 stores across China as of February. It has so far secured six funding rounds totaling RMB 1.6 billion. The company’s most recent Series E booked RMB 800 million in July 2021 from investors, including CMC Capital, Tencent, ZWC Partners, and Longfor Capital. With a market valuation of RMB 7 billion, the company is gearing up for an overseas IPO this year.
• Chen Xianggui: This Lanzhou-style noodle chain restaurant has received more than $300 million in funding since its establishment in 2020. Investors include Source Code Capital, an investor in ByteDance and Meituan, and Huaxing Growth Capital, the tech and entertainment-focused venture capital arm of financial institution China Renaissance. The company’s valuation reached nearly RMB 1 billion, with the most recent RMB 200 million funds secured last November.
• Majiyong: Tencent invested in the operating body of Majiyong, an upstart beef noodle brand, in late January. Last May, the Shanghai-based food chain received an angel round from renowned tech investors, including Sequoia Capital, Gaorong Capital, and K2 Venture Capital, at a valuation of RMB 1 billion ($160 million).
• Yujian Noodles: The valuation of the Chongqing-style noodle chain reached RMB 3 billion after receiving RMB 100 million in funding in September last year. Investors include Country Garden Venture Capital, the investment arm of property developer Country Garden, and restaurant chain Xijiade. 

Noodles 2.0: standardize noodle-making 

Chinese have been cooking and eating noodles for thousands of years, creating many varieties and styles of noodle dishes, making the category a rich, busy place for competition. While traditional Chinese noodle joints have shabby storefronts and affordable pricing, the new noodle chains have chic dining settings and are often located in malls and business areas, offering a Chinese-style fast food alternative for urbanites. 

Such stores are usually accessible through various online food delivery platforms and offer streamlined membership services embedded in popular social media apps such as WeChat. The noodle newcomers also charge higher prices with better service and chic settings. For example, a typical bowl of tomato and beef noodles at Hefu Noodle costs RMB 38, much higher than similar items sold at below RMB 20 in traditional shops.

On top of that, the new breed of noodle chains save on operating costs by standardizing and streamlining food production at “central kitchens,” which are back-end facilities that pre-prepare frozen packages of noodle toppings for the restaurants. This model saves chains on the cost of hiring professional chefs for in-store cooking while making better use of storefront spaces for diners.

Will the Luckin recipe work?

For investors, capital flows to where it could make the biggest profit. Tech venture capitalists are shifting attention to new consumer consumption brands when China continues to clamp down on the tech sector. Combining that with a growing base of comfortable Chinese consumers looking for better dining and life experiences, investors see the food industry as a new, safer sector to chase potentially mouthwatering returns. 

There’s no doubt that capital support is an indispensable element in developing an emerging industry, but it’s not the only or even the most important factor for a successful business. Luckin’s ousted founder and chairman Lu Zhengyao (Charles Lu) was among the first to launch a new Chongqing-style noodle shop (called Quxiaomian) last year in an attempt to duplicate Luckin’s success. But the brand received a lukewarm reception from diners and was soon forced to downsize operations.

An excessive inflow of hot money can also harm the long-term development of a market. From subsidy-fueled market grabbing wars to skyrocketing valuations, China’s tech market has seen multiple “bubbles” burst over the past two decades. The latest case was the community group-buy industry, where even top players collapsed after the venture craze ebbed last year.

In addition, the noodle market is facing obstacles before it can really take off. As with any offline business in China at the moment, noodle chains are dealing with dropping foot traffic as China fights a new wave of Covid-19 outbreaks with strict lockdown measures, which seem unlikely to end any time soon. The new noodle chains are not only competing with their peers but also with traditional noodle stores, which better cater to the taste of more price-sensitive users and sometimes hold a rustic charm and human touch that the newcomers can’t replicate. 

However, with the inflow of capital and market attention, the new noodle chains are a sector worth following.

On Tuesday, Meituan suspended the Beijing operations of Meituan Select as the Chinese food delivery and local life service giant joins local peers in scaling back community group buying businesses.

Why it matters: Meituan and Pinduoduo led China’s community group-buy craze that took off two years ago. Meituan Select’s withdrawal from Beijing has raised market speculations about the company’s further retreat from the cooling market. 

• The company halted the service despite a recent surge in consumer demand for grocery products, driven by panic buying in the city after finding new coronavirus outbreaks.
• The news came two weeks after a major layoff in Meituan, which reportedly hit grocery delivery services Meituan Select and Meituan Maicai, as well as enterprise-facing food distribution arm Kuailv, the worst.

READ MORE: The Big Sell | Will Shanghai lockdown change the game for community group buying?

Details: Meituan stopped receiving orders for Meituan Select, a community group buying service that offers next-day grocery pickup services, in Beijing from Tuesday. The company has removed Meituan Select from the homepage of its main app and its WeChat mini program, local media outlet Caixin reported.

• Amid a market downturn, Meituan Select planned to shut down operations in loss-making cities a few months ago, according to Caixin’s report, which cited an unnamed employee at the company. Beijing was one of Meituan Select’s loss-making cities due to high delivery and order fulfillment costs and low margins.
• Although Meituan has taken a step back from the community group buying services, the Beijing-based company has joined grocery peers as it has beefed up its support for on-demand grocery delivery service Meituan Maicai to cope with the recent Covid-19 outbreak in Beijing.
• The company declined to comment on the matter when contacted by TechNode on Wednesday morning.

Context: China’s grocery delivery craze is losing momentum as the industry sees withering investment. After witnessing the collapse of a group of smaller players, deep-pocketed companies like Meituan, Didi, and Alibaba are retreating from the market after struggling to find a commercialization path.

• Meituan recorded a net loss of RMB 23.5 billion ($3.6 billion) in 2021,  compared with a net profit of RMB 4.7 billion in 2020. The company’s operating loss from new initiatives such as Meituan Select expanded to RMB 38.4 billion in 2021 from RMB 10.9 billion in 2020.
• Community group buying teams at various Chinese tech giants are among the worst affected by the ongoing layoffs in Chinese tech companies.

Major Chinese online grocery platforms are increasing their product supplies in Beijing as residents rush to stock up on food and daily supplies after the capital city announced a surge of local Covid cases. 

Beijing health authority said on April 24 that the city found a local Covid outbreak has spread for a week, with more than 40 local cases since April 22, prompting locals to worry about facing lockdowns and supply shortages like Shanghai. 

Why it matters: Having learned from what happened in Shanghai, China’s online grocers respond quickly to a surge in demand in Beijing. However, pressure on operation and supply chains remain as potential omicron outbreaks expand to other cities in the country. 

Details: Chinese online grocers like Meituan, Dingdong Maicai, and JD increased their stock and extended operation times as Beijing residents rushed to online platforms and offline supermarkets to stock up on daily supplies,  such as food and toilet paper.

• On Monday, Meituan’s grocery arm Meituan Maicai will increase product supplies three to five times and raise its sorting workforce by 70%. On top of that, the company said the service would begin receiving and delivering orders around the clock starting April 24.
• Alibaba’s Freshippo and JD’s 7Fresh plan to double or triple their stock, while Dingdong Maicai will increase its stock of staple goods by 150%, local media outlet GeekPark reported.
• On April 24, Dingdong Maicai saw a 50% growth in daily orders in Beijing. The platform said it plans to increase supplies to Beijing by 1.5 times and has set up a dedicated group to ensure deliveries in Beijing. 
• Offline supermarket chains Carrefour and Wumart expect to triple their usual stock.

Context: Beijing has reported a sudden spike in locally confirmed infections since April 22, with 42 Covid-19 cases reported over the past three days.

• Shanghai residents have had difficulties buying food supplies online since ongoing Covid-19 prevention measures immobilized more than 25 million people in the city over the past month.
• Online grocery platforms have served as a lifeline for residents in Shanghai since a city-wide lockdown began in late March. However, surging orders quickly overloaded the city’s online grocery operations.

READ MORE: The Big Sell | Will Shanghai lockdown change the game for community group buying?

Chinese game streaming platforms Huya and Douyu have begun slashing headcounts as China’s mass tech layoff continues, Chinese media outlet Tech Planet reported Friday.

Why it matters: The pair joined China’s large-scale layoffs among tech companies as the country tightens restrictions on the game livestreaming industry.

• Layoffs at Huya and Douyu are another blow for Chinese gaming giant Tencent, a major shareholder in both of the companies. The Chinese State Administration of Market Regulation (SAMR) blocked a merger deal between Huya and Douyu in July 2021 to avoid “further strengthening Tencent’s dominance in the game streaming market.”
• In mid-April, China resumed issuing gaming licenses to Chinese game makers after an eight-month freeze. But the regulator has yet to resume issuing licenses to overseas games. 

READ MORE: INSIGHTS | Chinese tech giants are still slashing headcounts

Details: Huya’s layoff mainly affects its international business department, which has more than 200 employees, or around 10% of the company’s total headcount, according to the report. The company is planning a 70% cut in its international arm, while its domestic business will also face a 20% layoff. Douyu is reportedly planning for a 30% layoff, targeting teams for gaming business development and livestream agent services.

• The international teams at both of the companies will bear the brunt of the layoffs as they operate in a new business area that demands more investment, the report cites an unnamed employee of Huya as saying.  
• Douyu said the layoffs are just part of their “normal human resources optimization,” according to the report.
• Regulatory headwinds and decreasing user bases led to weak financial performances for the two companies during 2021. Huya recorded a net loss of RMB 312.7 million ($49.1 million) for the fourth quarter of 2021 after consistently posting profits since its IPO in 2018. Douyu posted a net loss of RMB 193.2 million for the same period.

Context: Huya and Douyu account for a combined 70% of China’s game livestreaming market, the SAMR said in July 2021. Huya owns a 40% market share and Douyu 30%.

• Earlier this month, Tencent said it will shutter its game streaming platform Egame by June due to a “change in business strategies.”
• China’s gaming industry has felt the layoff chills since the beginning of this year, with many of the key players trimming their headcounts.

Pinduoduo is seeking offline retailers to join its platform as the e-commerce titan tries to expand into on-demand retail businesses, local media outlet Beijing Business Today reported on Monday.

Why it matters: As a latecomer to the game, Pinduoduo enters a crowded sector that already includes established incumbents such as Meituan, Ele.me, and JD Daojia.

• Shanghai’s Covid outbreak since March has prompted companies to rethink the importance of last-mile delivery capabilities, which is a weak point for Pinduoduo and is plaguing many major online grocers to deliver on time during the outbreak. At the usual time, on-demand retailers offer 30-minute or one-hour delivery as a standard service, but such promises became unsustainable during lockdowns.

READ MORE: The Big Sell | Will Shanghai lockdown change the game for community group buying?

Details: Pinduoduo is recruiting local offline retailers, front-end warehouse operators, wholesalers, and couriers in China’s first-tier cities of Shanghai, Beijing, and Shenzhen.

• For starters, the platform will focus on fruits, especially more perishable ones like watermelon and durian, a poster obtained by Beijing Business Daily reads. On-demand retail for more product categories such as gifts, flowers, and cakes is also being tested, the report added.
• Pinduoduo expects potential fruit retail partners to have the delivery capabilities to fulfill intra-city orders they receive through the e-commerce app within 24 hours. The delivery timeline is currently expanded to 48 hours during the pilot period.
• In other words, the platform will not take care of delivery for offline retailers like its rivals Meituan and Ele.me. Pinduoduo will only serve as a central platform for the retailing partners to access users. Pinduoduo claimed to have 868.7 million annual active users in 2021.
• Pinduoduo assured retailers in the poster that the delivery won’t be challenging to handle because they will divide the market into small delivery areas to the level of city districts and counties to make the business feasible for retailers.
• Pinduoduo didn’t respond to TechNode inquiries on the matter when contacted Wednesday afternoon.

Context: Pinduoduo has been adopting an asset-light approach to e-commerce since its establishment in 2015. While pushing to help more farmers access a wider market, the company has gradually moved to invest in logistics, warehouses, and other infrastructure since 2020.

• In February, Pinduoduo tested a pickup service to receive and send parcels on users’ behalf through partnerships with major couriers to expand its delivery capabilities. But the service was soon suspended because the firm hadn’t filed for a license to run a delivery business in China.
• The market scale of China’s on-demand retail market is expected to reach RMB 900 billion ($140 billion) by 2024, data from research agency iResearch shows.
• Nearly all of the major e-commerce companies have tapped into the market. The annual transacting users on Meituan’s on-demand retail service Instashoping reached around 230 million in 2021. Last year, JD launched a one-hour delivery service in partnership with Dada Group, the company behind JD Daojia and backed by JD and Walmart. Alibaba operates a range of services in the sector from Tmall Supermarket to Ele.me and Taoxianda. And in January, ByteDances’s Douyin piloted a logistics service called Yinzunda.

In locked-down Shanghai, Zhang Chen was standing by her community gate, waiting to pick up apples to be delivered to her apartment compound. She reveled in her luck at striking the apple deal because fruit had become a rare treat in the metropolis locked down since late March in response to a new Covid-19 outbreak. The city authorities prioritize delivering essential foods like rice and vegetables to the city’s 25 million residents. 

A neighbor who bought 15 kilograms of apples through a community group’s bulk buy last week was willing to split the order with her, saving Zhang days of waiting in this challenging time. 

Some Shanghainese have been locked in their homes since early March, when the city was only doing partial lockdowns. Shanghai began a two-stage city-wide lockdown on March 28 and promised to reopen by April 5, which never happened. The lockdown has been extended, and as of the time of writing, most of the city is still under lockdown. The unexpected long locking period has left many residents unprepared and scrambling to find food and supplies.  

At 10 in the evening, the little square in front of Zhang’s community gate was crowded with other people like her, either collecting their deliveries or waiting for their food to arrive. Meanwhile, more residents were clinging to their phones at home, waiting for their group buying heads to tip them off the arrival of their purchases. Delivery times have become unpredictable as truck drivers are asked to show negative Covid test results certificates to deliver goods across the city.

Zhang’s phone rang. Her neighbor called to confirm her identity because they were only connected on WeChat and had never met before. It turned out the neighbor was a casually-dressed woman standing right next to her. After collecting a big box of apples, the pair split the apples by counting out half for each because no one had a scale. Neither woman cared about who got slightly more weight in these unprecedented conditions. 

“I already bought some apples last week. But they disappear so quickly because I have a big family to support. My parents are under lockdown with us to take care of the kids,” Zhang said.

For millions stuck in Shanghai like Zhang, purchasing daily necessities has become a hassle over the month as they have been forced to stay home. During the lockdowns, reliable delivery platforms have become lifelines for people living in the financial hub, China’s second-largest city with a 25 million population. 

As other online grocery delivery services struggle to keep up with the city’s spiking online orders, community group buying has revived, thanks to its flexibility. But analysts say that a regional resurgence of the service won’t turn the tide for the cooling sector.

It’s a ‘last-mile’ problem

Shanghai’s current food shortage problem is more about how to deliver food to residents rather than a lack of national food reserves, according to the city authorities. 

Shanghai’s deputy mayor Chen Tong said at an April 7 press conference that the city had sufficient food reserves to feed locked-in residents for the foreseeable future.  Chen pointed out that the current problem lies in the lack of last-mile delivery forces, the couriers who complete the last leg of a delivery process. 

“The battle against the epidemic has affected the quality of life for Shanghai residents. There are cases when food supplies can’t be delivered to residents’ homes. We are trying our best to address the problem,” he said.

As part of the municipality’s pandemic fighting initiative, all major grocery delivery companies, like Meituan, Alibaba’s Freshippo, and Dingdong Maicai, are attempting to keep up with the rocketing online demand across categories from vegetables and rice to fruits. 

Different business models, different solutions

China’s decade-old grocery delivery industry consists of players operating under various business models. For example, self-operated platforms like Dingdong Maicai and huge grocery retailer marketplaces such as JD Daojia and Meituan.

The various business models mean the platforms are confronting locked-down circumstances differently.

The sudden surge in orders soon overloaded nearly all mainstream grocery delivery platforms, including Alibaba’s Freshippo and Ele.me, Meituan, Dingdong Maicai, JD, and MissFresh.

These services usually rely on powerful teams for a promised 30-minute delivery for individual customers, but operations have become strained this time when the labor shortage is a critical issue.

Many users of services like Dingdong set their alarm clocks for early morning to scramble for the limited number of orders couriers can deliver that day. For example, Zhang Menglin, a mother of a six-year-old, tried for a few days only to find the websites and apps repeatedly crashed due to soaring demand. After an experience similar to Zhang’s, TehNode reporter Ward Zhou resorted to using an app that repeatedly clicks the “buy” button, thus upping his chances of placing an order.

Instead of giving away hefty cash donations for disaster alleviation, Chinese tech majors have resorted to a more practical approach to address Shanghai’s delivery labor shortage: providing more hands. 

Grocery platforms and supermarket chains, including Ele.me, JD, Dingdong Maicai, and Yonghui pledged in early April to move more than 6,000 staff to the Shanghai by April 11 while also leveraging autonomous delivery vehicles, according to a rough count by local media outlet Awtmt. 

Of the total, the Alibaba-affiliated services Ele.me, RT-Mart, Freshippo, and Cainiao account for a combined 3,000 workers, mainly filling delivery and sorting positions. 

Meituan launched urgent deliveries and vowed to move at least 1,000 delivery workers to the city after its vice president Mao Fanglie made a rare public appearance at Shanghai’s April 7 government briefing. 

Pinduoduo, WeChat benefit from community group-buying surge 

In normal times, community group-buying platforms operate by selling products in bulk through group heads, typically stay-at-home mothers or local store owners who collect orders from residents in nearby housing compounds. The platform’s couriers drop off products at community stores or the compounds’ gates for consumers to pick up overnight. 

This model has emerged as a more reliable food source for millions of people in Shanghai, compared with the above-mentioned platforms catering to individuals. On the one hand, the models’ bulk sale approach allows grocery apps to make the best use of their available delivery forces. On the other hand, customers are much more tolerant of the less predictable delivery times. 

“I have given up on grocery delivery apps like Dingdong after multiple failed tries and depend solely on community groups buying my food now,” said Wang Jia, a 40-year-old Shanghainese. 

After being locked down for three weeks in Shanghai, the reporter of this article tried to order bread from JD on April 9. Instead of its standard same-day delivery, the retailer’s app showed the bread would arrive in two weeks. In frustration, the reporter turned to her neighborhood’s group buying head, which delivered two loaves of bread in two days. She was thrilled and grateful to get bread for her six-year-old daughter’s breakfast sandwich. 

Besides the veteran group heads already in the business before the outbreak, novices are becoming group-buying leaders, both to meet their own needs and to help neighbors. 

Given that most group heads communicate and promote their products through various WeChat groups, WeChat-based mini-programs gained popularity among group-buying participants.  They are Pinduoduo’s community group buying service Kuaituantuan, Tencent’s e-commerce feature Weidian, and WeChat Jielong.

Platforms like Freshippo and Carrefour have moved to a wholesale model too, requiring a minimum price or number of orders to support delivery. That’s similar to the community group buying model, except that unpaid volunteers, who are locked-down residents themselves,  are functioning in the group heads’ intermediary role. E-commerce platform Pinduoduo also rolled out wholesale services in the city, encouraging individuals to resell the goods to their neighbors.

A comeback for community group buying?

The inflow of venture capital and internet giants plays a bigger role than real consumer demands in driving the rise and fall of the community group-buying industry.

—Zhang Yi, consulting CEO and chief analyst at iiMedia Research

However, looking beyond its current boom in Shanghai, the dust had already settled for China’s grocery community group-buying vertical after a crazy ride in the past two years. High regulatory fines and cash-burning battles put the sector on the brakes. As the market tide ebbs, the once red-hot sector has become an area where tech giants have enacted deep headcount counts amid industry-wide layoffs. 

Covid-driven demand will become an opportunity for the broader online grocery shopping industry, and the trend will live on after this wave of epidemics subsides. But it won’t be a game-changer for the failing community group-buying vertical, according to Echo Gong, a Shanghai-based analyst with global research agency Coresight. 

Data from market intelligence agency Emarket shows that online food and vegetable sales reached an annual growth rate of 61.4% in 2020 when the coronavirus hit China the hardest. The growth rate slowed down to 24.6% in 2021, but the sector nonetheless was still growing. “Shanghai’s epidemic will reinforce the use of online grocery shopping for certain groups, such as the elderly who didn’t use the platforms before,” Gong told TechNode.

But it’s a different case for the community group-buy vertical. “Most of the group leaders who initiated group-buy are motivated to help each other during difficult times. Most of the parties engaged in the group-buys now, either group heads, volunteers, vegetable suppliers, or catering services providers, are not profit-driven. After the pandemic, it will be difficult to keep them motivated without incentives,” she said.

Long-term drivers: VC, tech giants

“The inflow of venture capital and internet giants plays a bigger role than real consumer demands in driving the rise and fall of the community group-buying industry,” said Zhang Yi, consulting CEO and chief analyst at iiMedia Research, echoing Gong’s opinion. 

Shanghai’s Covid outbreak highlighted the importance of last-mile delivery capabilities. Zhang said he’s bullish on companies with mature inter-city delivery forces like Meituan and JD, as well as Freshippo, all of which have strong offline presences.

“At the end of the day, the industry threshold and winning factor for a platform is the ability to ship products to customers in an efficient and timely manner,” said Zhang.

Meituan is in the midst of job cuts that will affect nearly every business unit at the food delivery and life services giant, Chinese local media Caixin reported on April 9. Meanwhile, the company is hiring simultaneously for new positions created by “business adjustment,” the story said.

Why it matters: Meituan becomes the latest Chinese tech major to begin large-scale layoffs. Facing the twin headwinds of a cooling economy and regulatory pressures, Chinese tech giants are replacing higher-income veteran employees with cheaper and less-experienced new hands to lower operation costs.

Details: Meituan’s layoff will affect all sectors, including the company’s core food delivery and hotel booking businesses, the report says. Grocery delivery services Meituan Select and Meituan Maicai and enterprise-facing food distribution arm Kuailv face the deepest cuts of up to 20%, Caixin reported, citing unnamed sources with knowledge of the matter.

• Meituan’s current round of layoffs started on April 8. The company aimed to do it in “low-profile and quick,” Meituan’s employee told the Chinese media outlet. Laid-off workers’ lost access to the company’s internal communication tool within hours of their termination, the report cited an unnamed employee. The layoff is expected to last until the end of this month.
• Meanwhile, the company has posted nearly 700 job openings since April 8, mainly for positions in Meituan Select, Meituan Maicai, Instashopping, and its autonomous vehicle delivery department. Since March, the company has posted more than 2,000 positions, equal to the total number of new positions opened at the firm in the past three years.
• The Cyberspace Administration of China (CAC) recently talked to 12  major tech names, including Tencent, Alibaba, Meituan, Pinduoduo, and JD, about workforce levels in response to recent layoff news. Between July 2021 and mid-March this year, 216,800 workers left the 12 companies, while 295,900 new staff joined, representing a net increase of 79,100, the regulator said. Tech majors told the regulator that their staffing is “generally stable” considering the relatively high employee turnover in the tech sector. 
• Meituan has recorded a net increase of 17,000 employees since July last year and has pledged to recruit more fresh graduates this year, according to the CAC’s statement.

Context: Amid increasing tech layoffs, Chinese internet majors created a euphemism for firing workers. Companies such as JD and Bilibili now congratulate employees on losing their jobs by sharing cheery notes titled “graduation notice” from human resources departments, prompting widespread complaints on Chinese social media platforms. 

• Meituan’s expenditure on staffing increased 61.4% year-on-year to RMB 34.8 billion ($5.5 billion) in 2021, representing the company’s second-highest cost after delivery fleet expenses.

Alibaba is testing Taibang, a new fashion and social shopping app similar to Xiaohongshu, as the Chinese e-commerce titan tries to consolidate its dominance in China’s e-commerce market.

Why it matters: Alibaba joined a slew of local peers such as Meituan and ByteDance in following Xiaohongshu’s zhongcao (meaning sowing grass) strategy, a business model that drives sales through reviews on social media platforms. 

• Competition in China’s e-commerce sector is reaching new heights with the entry of deep-pocketed players like Meituan and ByteDance.

READ MORE: The Big Sell | Meituan expands in e-commerce, rivaling Alibaba and JD

Details: Taibang, a wordplay on “super great attitude” in Chinese, is a fashion and social commerce platform targeting China’s Gen-Z, a more culturally confident generation that was born and raised during China’s economic boom. 

• With the slogan “created in China with attitude,” Taibang brings together a wide range of Chinese designer brands while helping customers to understand their brand stories. In addition, the app encourages users to communicate and share their fashion and life attitudes in an attempt to create a dynamic community.
• The app is available for download on Chinese app stores and is currently being tested by users on an invite-only basis.
• Alibaba also expanded investment into rural e-commerce with the launch of Fengyun and diversified its operation model by rolling out Maoxiang in February.

Context: China’s Gen-Zers, those born between 1996 and 2010, have become the new engine of China’s consumption growth. Alibaba is trying to tap into the young demographic that favors traditional culture and has a need for individual expression. 

• This is not Alibaba’s first experiment with a “sowing grass” model. The company launched a “Zhongcao” marketing campaign on its Taobao marketplace ahead of last year’s “Singles Day” shopping festival.
• ByteDance’s Xiaohongshu clone Lemon8 has reportedly reached one million downloads in Japan after two years of operations.
• Meituan launched its Xiaohongshu-like pilot shopping review feature Guangguang, initially tested as Zhenxiang, in March.

On Wednesday, the US Securities and Exchange Commission (SEC) added five more Chinese companies, including search giant Baidu and video streaming site iQiyi, to a growing list of companies that may face delisting from the US stock market. Market analysts expect the list to grow.

Why it matters: The US regulator’s possible delisting push targeting Chinese companies brings further uncertainty to volatile Chinese tech shares, which have experienced a turbulent year due to regulatory crackdowns in their home country.

• The SEC’s delisting moves may expand. Paul Gillis, an accounting professor at Peking University, wrote in a March 24 tweet that he believes all 271 Chinese companies listed in the US will eventually be added to the delisting list after they file annual reports with an opinion from a Chinese auditor, which is due May 2. Bill Bishop, the author of the China commentary newsletter Sinocism, echoed a similar view in the Thursday newsletter. 
• On March 16, Vice Premier Liu He held a high-level meeting. He signaled China’s willingness to discuss with US authorities to keep the country’s companies investible in the US, saying that a concrete cooperation plan is underway while officials of the two countries are “maintaining good communications.”

Details: In a Wednesday statement, the SEC named five Chinese companies – Baidu, iQiyi, online brokerage platform Futu Holdings, aquaculture equipment provider Nocera, and biopharmaceutical company CASI Pharmaceuticals Inc. – to its provisional list for possible delisting.

• The US regulator gives these companies 15 business days to submit evidence to oppose the commission’s charge, meaning a deadline of April 20.
• On Wednesday, Baidu closed down 2.6% on the Nasdaq market. iQiyi closed up 0.4% but dropped 3.8% in after-market trading. Futu slid 2.9%. 
• Baidu said in a Thursday response that it has been “actively exploring possible solutions.” The company pledged to comply with applicable laws and regulations in China and the US and strive to maintain its listing status on Nasdaq and the Hong Kong stock exchange.
• The market reaction was calmer compared to the SEC’s first round of delisting announcement of Chinese companies on March 10. Share prices of included companies tumbled as much as 25% back then. A more expected move from the SEC and Chinese regulators’ previous proactive stance may help explain the market reaction.

Context: In December 2020, the Holding Foreign Companies Accountability Act (HFCAA) became law in the US. The statute bars the trading of non-US companies on the US stock market if it can’t provide accounting access to US regulators for three consecutive years. Chinese laws have long prohibited foreign regulators from accessing Chinese capital market documents, putting US-listed Chinese companies in the crosshairs of HFCAA. The aforementioned Chinese companies are among the first batches to be identified for being in alleged breach of the act.

• Wednesday’s announcement brought the total number of companies on the SEC’s delisting watchlist to 11 after naming six firms earlier this month. On March 10, the SEC put five Chinese companies on potential delistings for the first time. They are fast-food chain Yum China Holdings, biotech groups BeiGene, HutchMed Limited, Zai Lab Limited, and technology firm ACM Research. It added Weibo to the list on March 23.

The article has been updated with Baidu’s statement. 

TikTok’s Chinese rival Kuaishou posted better-than-expected financials for the fourth quarter of last year, but the company’s shares dropped more than 6% as regulators signaled a tightened scrutiny of livestreaming e-commerce.

Why it matters: Kuaishou’s share drop reflects market concerns over further potential regulatory measures aimed at the livestreaming industry. The Chinese government has already stopped some of the top livestreaming celebrities, such as Viya and Cherie, from livestreaming and removed their public social media profiles due to their tax evasion behaviors.

READ MORE: The Big Sell | Tamed livestreamers and Tencent stake cuts 

Details: Kuaishou’s revenue increased by 35.0% in a year to RMB 24.4 billion ($3.8 billion) in the fourth quarter of 2021, exceeding the high end of forecasts ($3.76 billion) compiled by Yahoo Finance. The company’s total revenues for 2021 grew by 37.9% year on year to RMB 81.1 billion.

• However, the company’s shares dropped 6.24% today on the Hong Kong stock exchange despite opening high this morning after its Tuesday earnings report. A commentary posted by China’s state-backed China Taxation News may have triggered a change in market sentiment, according to local media. The state tax media called for stricter taxation policies for livestreamers.
• Analysts remain bullish on the long-term prospects of the company. Thomas Chong, analyst of investment bank Jefferies, said he expects “market share gains to continue in online marketing and e-commerce GMV with solid user growth trends and rising engagement” in the first quarter of 2022. 
• The company’s annual report also revealed a major change in its revenue structure. Online marketing services overtook livestreaming to become the firm’s largest revenue source in 2021. Kuaishou’s online marketing services recorded RMB 42.7 billion of revenue last year, a 95.2% yearly increase. That’s 52.6% of the company’s total revenue, up from 37.2% a year earlier. Meanwhile, livestreaming revenue decreased by 6.7% in a year to RMB 31 billion in 2021. Its share of the company’s total revenue dropped to 38.2% in 2021 from 56.5% in 2020.
• E-commerce is another revenue driver for the company. Revenue for the company’s other services, mainly e-commerce, doubled to RMB7.4 billion in 2021. The company attributes the growth to “optimizing supply, content, services, technology and user experience.”
• The company’s globalization initiative, a move to compete with ByteDance on the international market, started to show “positive effects” in the fourth quarter after boosting operational efficiency and implementing more disciplined budget plans. The company said it saw increased daily active users, user time spent, and retention rates in the overseas market without further details.
• Kuaishou’s average monthly active users hit 578.0 million in the fourth quarter of 2021, growing 21.5% in a year.

Context: After a high-profile IPO in March 2021, Kuaishou has been fighting an uphill battle amid fierce domestic competition from TikTok sister app Douyin. The Beijing-based company recently underwent massive layoffs alongside other Chinese tech majors downsizing in the economic downturn. 

• Kuaishou made its overseas business a priority in March by creating a new department for international commercialization.

Additional contributions by Ward Zhou

From food delivery to travel booking, Meituan earned itself the title of the “Amazon of services” in China by providing a wide range of services that touch nearly every aspect of Chinese people’s lives. Now, the giant service app is expanding to Amazon-like territory, selling physical goods, a sector that will put it in competition with local retail giants like Alibaba, JD, and Pinduoduo.

Operated under a platform model, Meituan already has a footing in physical goods e-commerce: It’s among the most popular choices for on-demand or next-day delivery of fresh produce and groceries. Yet that is a small fraction of China’s trillion-dollar online retail market. Starting by selling food and beverages, the company now aims to become a comprehensive e-commerce platform, selling not only daily services (food deliveries) and groceries, but also tangible goods like consumer electronics, cosmetics, and clothing.

Alibaba, JD, and Pinduoduo, the three largest e-commerce platforms in China, still dominate China’s online retail market. But the space is no longer a three-horse race after the entry of a slew of rivals such as short-video apps Douyin and Kuaishou. Meituan wants to take a bite of the physical goods e-commerce pie too. 

Meituan, a relative latecomer, has quite ambitious plans, based on some aggressive moves over the past month. In early March, the company rolled out direct sales services for physical goods. Meituan’s pilot shopping review feature, initially tested as Zhenxiang, was rebranded as Guangguang and formally launched this month with additional social and entertainment elements. On top of that, the everything app also dipped its toe into the hot cross-border shopping sector by integrating a global retailing section into the e-commerce channel of its main app. 

Taking a leaf out of rivals’ playbooks

Meituan’s earliest foray into e-commerce dates back to 2013, but it closed that business three years later to focus on food delivery. The company revived efforts in late 2020 by setting up a new marketplace, Tuanhaohuo, and then moved on to update the platform to a full-fledged business unit and rename it Meituan E-commerce (our translation) in 2021.

Facing a sophisticated market, Meituan is taking a leaf out of the playbooks of rivals like Alibaba, JD, and Pinduoduo by adopting market-proven models and features. While discussions on the ethics of copying business models and features continue, it’s still common for Chinese internet firms to “borrow” ideas from each other. 

Meituan is known for beating rivals with better executions. After all, Wang Xing, Meituan’s CEO and the master of “copy to China,” started Meituan in 2011 as a clone of the then high-flying Groupon and beat more than 100 other Groupon copycats, becoming the sector’s leader. 

Meituan vs JD: In mid-March, Meituan rolled out a new e-commerce service under the direct sales model to sell products directly to customers in a model similar to JD.com. Through a Beijing-based subsidiary, Meituan launched many “self-operated stores” on its e-commerce platform, selling beverages and snacks for starters, such as the Chinese energy brand Eastroc Beverage, rice and meat seller CR NG Fung, and snack brand Xiaowanxiong. Under the model, Meituan functions as the main operating body for controlling product quality, sourcing, and delivery. Although Meituan’s popular Instashopping service offers on-demand service for non-food deliveries, it is operated through cooperation with third-party offline merchants. Meituan’s direct sales model previously only applied to its grocery group-buy unit Meituan Maicai. Meituan followed Alibaba to become the second Chinese tech major to embrace the direct sales model for physical product e-commerce this year.

Meituan vs Alibaba: Meituan renamed and relaunched its shopping review feature Zhenxiang as Guangguang (“shopping around” in English) to tap into the content-driven e-commerce trend. It’s no coincidence that the new name is the same as Taobao’s Guangguang, a content channel where merchants, influencers, and consumers publish short blog posts to recommend products. Meituan intentionally made its new feature a namesake of Taobao’s Guangguang in the hopes of picking up some of the clouts of its rival, local media reported. Taobao’s Guangguang now claims more than 200 million monthly active users after launching in 2020. 

All e-commerce giants are trying to emulate the Zhongcao model, a marketing strategy first popularized by Instagram-like Xiaohongshu. The term zhongcao (“planting grass”) refers to the idea that favorable and comprehensive reviews of a product can sow the mental seeds that nudge consumers to buy it. 

Meituan intends to increase traffic and improve conversion and repurchase rates with the new review feature, said Esme Pau, senior director at Tonghai Securities. 

Cross-border e-commerce: Meituan this month unveiled a global shopping channel to tap cross-border commerce, a popular vertical that gained momentum during the coronavirus pandemic. The channel sells items sourced from Australia, Japan, the US, and other countries to Chinese shoppers. The most popular categories are skincare products, baby products, apparel, and vitamins. The state considers such platforms part of its efforts to boost exports and imports. 

Meituan is a serious e-commerce contender

E-commerce is too big a pie for any tech company to ignore in China. Meituan, with its vision as a platform company, won’t stop with just a small fraction of the market.

Meituan’s accelerated e-commerce drive aligns with the strategic shift announced last October, when the company upgraded its strategy from “food plus platform” to “retail plus technology” searching for new growth points. 

Meituan CEO Wang Xing sees the direction of e-commerce moving from an “everything store” to “everything now.” On an earnings call for the Hong Kong-listed company’s third-quarter performance of 2021, Wang said, “retail will be our focus and remain the main area where we will do our fundamental capabilities in the future. So please understand ‘retail’ in a broader sense as to sell goods or services to end customers.” 

Analysts told TechNode that they are quite bullish about Meituan’s e-commerce prospects. The company has the right toolkit to push into retail e-commerce, including its existing on-demand delivery network, platform capabilities, user base, and merchant relationships, according to Michael Norris, research and strategy manager at marketing and sales firm AgencyChina. “Going forward, one of the keys will be to build user habits to shop from Meituan in more contexts,” he said.

It’s not a decision propelled by recent market developments. Meituan’s push into wider e-commerce through Instashopping predates China’s regulatory pressure on things like mandatory lowered fees for core food delivery businesses, Norris added.

Zhuang Shuai, founder of Beijing-based consulting firm Bailian, predicts Meituan’s e-commerce business could achieve an annual gross merchandise volume of around RMB 1 trillion ($160 billion) soon. Norris estimated that the goal would be attainable within the next three years. The estimated volume is around the same size as the e-commerce volume from ByteDance’s Douyin.

Zhuang notes that the company is also leveraging its e-commerce business to attract more delivery orders to best use its logistics capacity. Food delivery alone can’t satisfy Meituan’s delivery capacity because of the low-traffic hours between meals. 

During a March 25 earnings call, Meituan managers stressed that they would prioritize allocating resources to the e-commerce business. “The rationale for expanding retail goods e-commerce was to bring value to retailers and customers while increasing job opportunities for [Meituan’s] delivery couriers,” said Pau.

Bad timing for e-commerce?

Meituan is entering a crowded market where incumbents are reeling from slowing growth. In 2021, Alibaba and Pinduoduo reported the slowest revenue growth since their respective IPOs in 2014 and 2018. JD also posted its weakest revenue growth in six quarters. The sluggish revenue growth for the major players comes against a dip across the overall market. Data from China’s National Bureau of Statistics shows that online spending on physical goods, including food, clothing, and cosmetics grew by just 12% year-on-year in 2021. The slowest pace since recording such data started in 2015.

“We believe the timing is good,” said Tonghai analyst Pau. Meituan, like all other Chinese internet players, will need to diversify its revenue stream to be sustainable long-term, she said, referring to tightened regulatory pressures on its core businesses in food delivery, in-store coupons, hotels, and dining. 

Meituan is thus fighting an uphill battle but is nonetheless making an important strategic move, according to Zhuang, the Bailian founder. “The food delivery market has reached its ceiling, but e-commerce is a much larger market with no foreseeable ceiling,” he said. Despite the slowdown, e-commerce is still growing and companies providing good products and services to customers will always stand out from the crowd, he believes. 

Meituan’s advantage in e-commerce, or any other new endeavor, lies in its ability to aggregate all kinds of services and products into a one-stop super app ecosystem, Zhuang said. The company still relies heavily on its more popular food delivery and travel services to attract users. E-commerce is only a supplement function on the main app, for now.

Chinese online retailer JD is expanding its layoffs, cutting people in nearly every business unit, including its core retail businesses, local media outlet Jiemian reported on March 27.

Why it matters: JD’s layoffs will be worse than the market initially expected. China’s months-long tech layoff, which started late last year, shows no sign of ending. Big-name behemoths like Alibaba and Tencent began broader layoffs earlier this month.

READ MORE: INSIGHTS | Chinese tech giants are still slashing headcounts

Details: In addition to laying off people in its community group-buy unit Jingxi, JD is expanding the recently-launched layoffs to its core businesses, including JD Retail, JD Technology, JD Logistics, and JD’s international business department, Jiemian reported, citing several employees at the company.

• JD plans to cut between 10% to 30% of the jobs, with cut rates varying by the departments, according to a widely-circulated internal spreadsheet revealed by local media. 
• For example, JD Retail will face a 10% to 30% layoff in technology, business development, and platform operation positions, while the firm’s international business unit will be cut by 10% to 15%. 
• The company’s community group buy service Jingxi remains the worst-hit unit. Some of the unit’s regional teams will let go of the entire team, such as the teams in Guangdong, Jiangxi, and Sichuan provinces.
• The Jiemian report said that there are few opportunities for internal transfers since the layoff affects the whole company.
• The company declined to comment on the layoff news when contacted this Monday.

Context: On March 11, JD posted a RMB 5.2 billion ($0.8 billion) net loss for the fourth quarter of last year and reported its weakest revenue growth in six quarters.

• Slowed economic growth, fierce competition, and trade tensions are weighing down the revenue growth of China’s e-commerce giants. Alibaba and Pinduoduo recorded their slowest quarterly revenue growth in the fourth quarter of 2021 since their respective IPOs in 2014 and 2018.
• In December, Tencent weakened its ties to JD by distributing around $16.4 billion worth of shares in the online retailer to its shareholders as interim dividends. Both companies said their partnerships won’t be affected, although Tencent’s shareholding in JD will be reduced from 17% to 2.3%.

Chinese e-commerce titan Alibaba is planning for a major layoff in which key business focuses like food and grocery delivery will bear the brunt of the cuts, Chinese media outlet 36Kr reported on Thursday night.

Why it matters: Alibaba’s layoff comes after the company recorded its slowest revenue growth in 2021 since it went public on the New York exchange in 2014. The company’s financials partly reflect China’s weakened local consumption and intensified regulatory crackdown. 

• Alibaba and Tencent, two of the most powerful tech giants in China, are the latest to join China’s tech job cuts which has hit nearly every major firm.
• Like its peers, Alibaba’s primary target for the layoff is to scale back loss-making teams and downsize areas with high regulatory risks, such as online grocery and food delivery services.

Details: Alibaba is mainly shedding jobs in its location-based customer business unit, which consists of food delivery services such as Ele.me and coupon and deal service Koubei, 36Kr reported, citing unnamed sources with knowledge of the matter. Alibaba is planning layoffs that could cut more than 15% of its workforce, about 39,000 staff, Reuters reported on Wednesday.

• Core business teams, including e-commerce teams in Taobao and related businesses, Alibaba Cloud, and Cainiao Logistics, will not be affected by the cuts.
• Ele.me, which is facing fierce competition from Meituan, had started laying off people in January this year, the report said. The unit aims to cut between 15% to 20% of its workforce, mainly targeting positions in offline business development, regional marketing, and operation. 
• Downsizing efforts are also happening in other local consumer services. For example, since last year, Koubei has downsized its operation to focus on first-and second-tier cities. Mapping service Amap and online travel unit Fliggy also began small-scale layoffs this year, according to the report.
• Alibaba’s local customer service recorded an adjusted loss of RMB 5 billion ($783 million) on RMB 12 billion revenue in the quarter ended December 2021.
• Freshippo, an online and offline grocery business that demands heavy operation, recorded a layoff of around 20% in market operation positions and may consider further salary cuts; the report cited several Freshippo employees. 
• In addition, Alibaba’s grocery group-buy business Taocaicai is also shedding around 20% of headcount as the sector cools off.

Context: Taking notice of the gloomy economic outlook, China’s State Council sent a reassuring signal to the broader market in a Wednesday meeting, promising support for the platform economy, introducing market-friendly policies, and rolling out “predictable” regulations.

• The profitability prospects of food delivery businesses dimmed as Beijing called for major platforms like Meituan and Ele.me to reduce fees for small businesses suffering during the ongoing coronavirus outbreaks.

US-traded shares of major Chinese tech firms soared after the State Council, China’s cabinet, pledges to adopt policies favorable to economic stability in a meeting held by Vice Premier Liu He on Wednesday.  

The Nasdaq Golden Dragon China Index, which tracks stocks of Chinese companies, jumped 33% on Wednesday to 7,230 points. 

Zhihu, known as China’s Quora, led the jump with a 79% increase on Wednesday trading, followed by Kingsoft Cloud’s 72%, online grocer Dingdong Maicai’s 66%, and a 64% jump by housing broker Ke Holdings. Around 160 Chinese companies recorded a 10% share jump or higher, according to a rough count by local media iFeng. Tech majors like Alibaba, JD, Baidu, and Pinduoduo, climbed by around 40%.

Why it matters: The Wednesday meeting is the first major policy adjustment after China’s year-long crackdown on prominent areas across the board, from the capital market to internet companies to real estate. Tech companies, especially those under the platform economy model, were among the worst-hit during the regulatory clampdown. However, the country kept increasing investment in hard and core technologies like semiconductors and smart manufacturing.

• With favorable policies, the State Council sends a reassuring signal to investors after Chinese tech stocks saw intense sell-offs over the past weeks.

Details: China’s Vice Premier Liu He said the Chinese government will “actively introduce market-friendly policies and prudently introduce policies that have a contractionary effect,” according to a briefing of the Wednesday meeting.

• The Chinese government said that it will continue to support companies to seek listings in the overseas markets. The remarks come less than a week after the US Securities and Exchange Commission named five Chinese companies for potential delisting. The meeting added that China and US regulatory bodies have “maintained good communication and made positive progress” in the regulation of US-listed Chinese firms and said a concrete cooperation plan is underway.
• The meeting also clarified China’s regulatory moves on big internet platforms. It said to complete rectification work on these platforms but asked for “steady,” “predictable,” and “transparent” regulations, a notable different tone from last year’s sudden and intense regulatory moves.  

Context: Chinese leadership is under pressure to keep economic growth steady when the country faces challenges from all sides, from slowing consumption to Covid resurgence to international pressure from the Russia-Ukraine war. 

• Premier Li Keqiang, speaking at China’s “two sessions” meeting in early March, said that the Chinese economy should expand by “around 5.5%” this year. It’s the lowest target for the country in 30 years, but still higher than the World Bank’s expectation of 5.1% and the International Monetary Fund’s prediction of 4.8% for 2022.
• China’s 2021 economic growth took a hit in the latter half of the year after regulators launched a series of crackdowns that eliminated industries like private education and crypto mining and slowed growth and enthusiasm in games, overseas IPOs, and other tech-related areas. Averaging out at 8.1%, the country’s 2021 GDP growth fell sharply from 18% in the first quarter to 4% in the fourth quarter. 

READ MORE: INSIGHTS | Chinese tech giants are still slashing headcounts

Livestreaming fraud, forced app downloads, intrusive ads, and privacy violations were among the malicious online practices exposed during this year’s “3.15 Gala” national TV broadcast.

Unlike previous March 15 shows, yesterday’s Consumers Rights Day celebration didn’t single out Apple, Alibaba, Baidu, or any other high-profile companies or brands for reprimands. The offenders this year were little-known small fry. 

This gala’s subdued tone reflects Beijing’s desire to stimulate consumer spending and economic growth, even as the country struggles with a rising wave of COVID-19 outbreaks and geopolitical pressures. 

China’s 2021 GDP growth took a notable hit in the latter half of the year. Averaging out at 8.1%, growth tumbled from 18% in the first quarter to 4% in the fourth quarter. In between, regulators began a broad crackdown that eliminated or crippled internet industries, including crypto mining, private education, and online games.   

READ MORE: INSIGHTS | Making sense of China’s big tech crackdown

Undercover in livestreaming e-commerce 

In its 31st annual outing, the two-hour program spotlighted some obscure companies engaging in a dark side of e-commerce livestreaming, a sector that’s under intensified scrutiny by the state.

One segment showed how undercover CCTV reporters discovered a Guangdong livestreamer’s false claims of owning jade and emerald factories with the aim of grossly inflating prices and selling counterfeit jewelry and Buddha images. The Guangdong agency, Yongdexiang, was shown selling jade Buddha images for RMB 198 ($31) while telling customers the items had been purchased for double that amount. In fact, Yongdexiang had bought them for RMB 88 each. Livestreamers’ selling price could sometimes be as high as five to ten times their original purchase price.

A livestreaming agency in Yunnan province called Shilipai set up a dramatic price bargaining scene between livestreamers and fake jade ornament manufacturers. The purpose was to convince viewers they were being offered the best deal. Other scenes featured artificial backdrops in the livestream that resembled a Myanmar gemstone showroom. Customers thought they were buying jade directly from the Southeast Asian country famed for its high-quality jade. In fact, the livestreams were being staged from studios in office buildings in Kunming.

Smartwatch and smartphone snoops

The gala also showed companies grossly misusing people’s personal information. A Zhengzhou-based company called Lvqian was exposed for building a business around stealing users’ phone numbers and selling them to call centers. The company was able to steal the phone numbers by getting a device’s media access control address, a common network address also known as the MAC number. MAC numbers’ unique identifications are assigned to devices for internet access. 

Some smartwatches made for kids were also revealed to have little privacy protection because they use outdated Android operating systems (OS). As a result, they enable hackers to collect detailed user information without permission. Without timely security patches, an outdated OS can even enable eavesdroppers to surveil users. Devices with an outdated Android OS are common in China since Google services were blocked in China in 2010.  

Malware and Wi-Fi trickery

A few software companies that trick users into downloading malicious software to mobile and desktop devices were also exposed in the TV consumers gala. Malware that displays low-quality ads in forced pop-ups may be a mere annoyance, but some types can steal users’ privacy information or trick users into downloading even more harmful programs. This year’s “3.15 Gala” finally shone light on abuses consumers have been complaining about for the better part of a decade. 

An app called “Free Wi-Fi Unlocker” tricks users looking for ways to access password-protected Wi-Fi systems. Once they download the app, it forcibly installs ads on their devices. Baizhu, a small software company founded in 2012, was exposed for building the so-called speed downloader options on various sites and app stores, tricking people into downloading malicious apps and intrusive ads. 

After the TV exposé, Free Wi-Fi Unlocker is now inaccessible across all app stores. Baizhu emptied its social accounts after the gala and local authorities are reportedly looking into the company. 

Following Consumers Day, China’s Ministry of Industry and Information Technology said in a March 16 statement that the agency will finally start thorough investigations of companies involved in leaking personal information or forcing malicious software onto users’ devices, citing the Personal Information Protection Law, Cybersecurity Law, Telecommunication Regulations, among other regulations. 

Chinese tech giant Tencent is reportedly laying off around 20% of its staff, joining a lengthy list of tech firms that have started to trim their workforces since last year.

Why it matters: Deep-pocketed tech titans such as Tencent and Alibaba, which are generally less vulnerable to small market fluctuations, have largely maintained their headcount until recently. The two giants have not been immune to China’s ongoing economic downturn, regulatory curbs, and international trade tensions.

• Tencent’s rival Alibaba is reportedly slashing around 30% of its employees amid a market downturn.

Details: Tencent began downsizing its team at the end of last year, Chinese media outlet 36kr reported on Tuesday, citing people with knowledge of the matter.

• Tencent is laying off less than 20% of its staff based on business adjustments, according to the report. Other reports said the company plans to cut 30%, targeting employees older than 35-years-old.
• Sources told 36Kr that the firm’s Cloud & Smart Industries Business Group (CSIG) and Platform and Content Group (PCG) were taking the biggest hits. At the same time, the Interactive Entertainment Group (IEG) has a much lower layoff rate which only affects non-core businesses.
• The CSIG will shed more than 20% of its workforce by the end of 2022, a management figure in the group told 36Kr. The unit’s online education business division bore the brunt of the downsizing cuts due to the sweeping private education crackdown, which began last July. The edtech unit will merge with other businesses in the future, the report added.
• The remaining CSIG employees will face more pressure as the company aims for profitability for the Group this year.
• Job cuts in PCG are near 10% now and continue to grow, several PCG employees told the outlet.
• CSIG, PCG, and IEG are the three largest business groups within Tencent, each group employs around 20,000 people. The Corporate Development Group, Technology Engineering Group, and Weixin Group – smaller groups with less than 10,000 employees – remain relatively unscathed amid the workforce adjustment.

Context: Job prospects look grim in the Chinese tech sector as top tech firms ranging from ByteDance to Baidu, iQiyi and Kuaishou have slashed their headcounts since last year. Online education and fintech, two areas under harsh government scrutiny, are the worst-hit areas.

READ MORE: INSIGHTS | Chinese tech giants are still slashing headcounts

JD Logistics, a Hong Kong-listed logistics arm of the e-commerce giant JD, has entered an agreement to buy a 67% stake in courier rival Deppon Logistics Co., Ltd. for RMB 9 billion ($1.4 billion).

Why it matters: After a fierce price war, China’s express and logistics industry is undergoing a market consolidation whereby small players have begun merging with giant competitors. 

• The deal is the latest move by JD in building its logistics infrastructure network, a foundational service for China’s e-commerce market, through external acquisition and investment. The e-commerce titan has backed many other logistics and delivery companies such as China Logistics Property Holdings Co., Kuayue Express, and Dada Nexus.
• Through investments, JD is tapping into different verticals in the logistic and supply chain businesses. Deppon provides “differentiated services” and “the overlap is not much” to JD Logistics’ core business, according to Thomas Chong, analyst at investment bank Jefferies. Deppon focuses on large items, freight transportation, and manufacturing customers. JD Logistic’s other subsidiaries, Kuayue focuses on air freight and enterprise clients, while Dada Nexus focuses on-demand inter-city grocery and parcel delivery to individual consumers.

READ MORE: The Big Sell | Is China’s courier price war reaching a tipping point?

Details: JD Logistics’ investment in Deppon will be achieved through acquiring a 99.99% equity in Ningbo Meishan Baoshui Area Deppon Investment Holding Company Limited, an investment vehicle that holds a 66.5% stake in Shanghai-listed Deppon Logistics, JD Logistics announced in a March 13 filing to the Hong Kong stock exchange.

• Upon the completion of the deal, Deppon’s financial results will be consolidated into JD Logistics’ as a subsidiary business, according to the statement.
• Deppon’s brand will be maintained for independent operation, thus providing a favorable career path for the team, local media Lieyun reported, citing an internal speech made by Yu Rui, CEO of JD Logistics. The comment resolves previous rumors about JD’s plan to merge Deppon’s business and dissolve its team.
• Since Deppon is listed on the Shanghai stock exchange, JD Logistics will make a mandatory general offer for all Deppon shares at a price of RMB 13 per share. The transactions are subject to regulatory approvals and other closing conditions.

Context: JD Logistics’s revenue increased 43% year-on-year to RMB 105 billion in the fourth quarter of last year, according to the company’s 2021 financial results, its first annual earnings released to the public since it went public last May.

• Though still loss-making, JD Logistics’ revenue from non-JD customers exceeded half of the total revenue for the first time in 2021, hitting 56.5%. The logistic company has long hoped to  rely less on business from its parent company.
• Deppon is a logistics company known for its large parcel deliveries. It provides a wide range of solutions, including small and large parcels deliveries, full truck load transportation, and warehousing management in China.

On Thursday, the US-traded shares of major Chinese tech companies saw steep drops as the US Securities and Exchange Commission (SEC) named several Chinese companies that face delisting.

The Nasdaq Golden Dragon China Index, which tracks stocks of Chinese companies listed in the US, plummeted by as much as 10% on Thursday to 6,535 points, the biggest slide since October 2008, Bloomberg reported.

Shares in more than 10 US-listed Chinese tech companies fell more than 10%. For example, iQiyi dropped 21.71%; Pinduoduo fell 17.49%; Bilibili 14.10%; NIO 11.90%; Parkson China 10.94%. Alibaba and Xiaopeng dropped by 7.94% and 9.01%, respectively.

Why it matters: The market sell-off is a sign that investors are taking notice of a tougher stance from the US stock market regulator towards US-listed Chinese companies. 

The SEC said Thursday that five Chinese companies, fast-food chain Yum China Holdings, biotech groups BeiGene, HutchMed Limited, Zai Lab Limited, and technology firm ACM Research, may face delisting for failing to disclose information, according to the Holding Foreign Companies Accountability Act (HFCAA). 

The US passed the act in 2020, but this is the first time that the SEC has threatened companies of an actual delisting. The five named companies can submit evidence disputing the commission’s charges until March 29.

According to the act, Chinese companies and their auditors would have to open their books to US inspections, which companies like Alibaba and Baidu had previously refused to do. 

READ MORE: US-listed Chinese firms are on thin ice

Politics or financials: Responding to the SEC’s delisting warnings, the Chinese government said it welcomes measures to improve companies’ financials but is “against politicizing securities regulations,” according to a Friday response from the China Securities and Regulatory Commission.  

Some analysts think SEC’s move is more about politics than the companies’ financials. “Most things are about politics now, both in China’s own domestic securities regulation, or US-China securities regulation disagreement,” Ren Liqian, director at exchange-traded fund sponsor and index developer WisdomTree Investments, said in a Friday Twitter post. 

She expects the SEC list to grow as more companies report 2021 annual earnings in which the auditor information is used.

Tech companies that released their fourth-quarter earnings from last year took the brunt of the market blow. On Thursday, JD shares sank 16% even though its Q4 earnings beat market expectations. Shares of Ke Holdings slumped 24% after posting a Q4 report, which investment bank Jefferies considered a “turnaround story.”

“Today’s company earnings numbers are also not bad”, Ren noted. “It’s less about this year’s fundamentals, but how much the US wants to tie Chinese companies to Russian sanctions and future impact on fundamentals,” she posted.

Meanwhile, the incident may further boost the Hong Kong stock exchange, a popular alternative to the US market for Chinese tech companies. Since Alibaba launched a dual listing in Hong Kong in 2019, many Chinese tech firms started to look to list closer to home amid the backdrop of escalating tensions between China and the US. This homecoming trend grew stronger after Luckin’s fraud scandal.

The annual meetings of the National People’s Congress (NPC) and the advisory Chinese People’s Political Consultative Conference (CPPCC) being held this week are most important for the windows they provide into the government’s economic targets and policy priorities in the coming year. 

But the so-called “two sessions” meetings also enable some top private enterprise executives who are members of the two bodies to present recommendations for policy directions publicly. This year, airing perspectives from tech industries were founders of Tencent, Baidu, NetEase, Xiaomi, and Geely. Their recommendations perhaps won’t be taken up by government authorities this year but might merit serious official consideration in future years.

READ MORE: China’s Two Sessions 2022: More 5G, rural e-commerce, semiconductors, and other tech priorities

Risky new technologies

In his ninth year as an NPC delegate, Pony Ma, founder and CEO of Tencent, urged more emphasis on the digitalization of pillar industries, standardized processes, and customized support for specialized high-tech enterprises. He also warned about the market risks inherent in the emerging sectors of the metaverse, non-fungible tokens (NFTs), and Web 3.

With regulatory risks remaining a major concern for tech giants, the billionaire’s comments largely aligned with the government’s bigger picture initiatives ranging from digital transformation to the call for large enterprises to fulfill their social responsibilities and work toward carbon neutrality. Ma made no comments about online gaming, a key revenue source for his company and an area in which many other delegates advocated for harsher regulation.

Ma also called for the government to build a social emergency network for sending disaster warnings and coordinating rescue resources by learning from the flood relief experiences in Henan and Shanxi last year. He suggested mobilizing local groups like community volunteers, food and package delivery workers, and ride-hailing drivers to be trained for natural emergencies.

Green transport and cultural IP

Robin Li, founder and CEO of Baidu, focused his remarks on autonomous driving and green computation. He urged the government to give more support so China can take the lead in commercializing fully autonomous driving. Specifically, he suggested government support for companies testing autonomous cars without safety drivers, preparing roads for automated cars, and building smart transportation infrastructure.

Li also proposed the creation of more green AI services as a way to achieve China’s goal of reaching carbon neutrality by 2060. China should optimize AI algorithms to minimize carbon emissions and develop big models that cut energy consumption. He also recommended public data centers set up ways to measure their carbon emissions.

According to NetEase founder and CEO Ding Lei, building a global intellectual property (IP) platform for exchanging cultural IP, digital video, and musical content should be a national priority. It’s an area that NetEase, the parent of popular music and video streamer NetEase Cloud Music, has already tapped this year with the launch of the beat trading platform BeatSoul in January.

Ding also called for more research on sodium-ion batteries as an alternative to the more popular lithium-ion ones to lower the price of batteries. In addition, recycling and rental services for lithium-ion batteries were also proposed as possible measures to address the issue.

Recycling, recharging, swapping 

Lei Jun, co-founder and chairman of Xiaomi, recommended the government improve consumer electronic waste recycling and set unified standards for monitoring carbon emissions of new energy vehicles (NEVs). Not coincidentally, the smartphone maker made plans to build its own electric vehicles last year.   

Lei called to consolidate three core processes (trading of used products, reproducing, and scrap dismantling) into one recycling system. Government should pay more attention to safeguarding former owners’ privacy in the recycling process, Lei said, by setting up third-party organizations to erase personal data found in second-hand devices. 

Lei urged the government to build high-voltage fast-charging stations for NEVs on a large scale. He also suggested the government build a national platform to help different companies jointly develop fast charging and other essential techs.

Li Shufu, founder and chairman of automaker Geely, proposed that battery-swapping stations be built across the country, so more people could adopt NEVs without worrying about finding charging stations. 

Li called for regulators, industry groups, and market players to establish unified and generalized standards for swapping technologies. The government should green light rules to speed up approval for swap stations’ land use and cut red tape involved in getting permits to sell swappable electric vehicles (EVs), Li said. 

Although Tesla CEO Elon Musk views battery swapping as an “unlikely” solution and many others worry about the technology’s scaling problems, Chinese companies are jumping into the market in the hope that the service can work at scale in the world’s biggest EV market. Separation of the battery from the vehicle, along with battery-leasing options offered by carmakers, could also reduce the upfront purchase price of EVs, which could increase competitiveness and boost adoption. Beijing showed its support for the technology by defining swap stations as complementary to charging facilities in its “new infrastructure” investment plan for 2020.

Beijing this year aims to expand 5G infrastructure, set up a national system of data centers, keep a tight regulatory grip on big platforms, and push e-commerce in rural China, according to goals set forth this week at the annual lianghui  (“two sessions”) meeting of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC).

China plans to bolster the tech sector by increasing state funding in key areas such as chip manufacturing and improving the capital market so more tech firms can raise money domestically. Having a growing and self-sustained tech sector is central to the government’s plan to achieve these set targets, according to government reports presented in the meeting.

Given the ongoing surge in the pandemic in China, an economic slowdown, and uncertain global geopolitical pressure, many of the goals for 2022 will be particularly challenging to achieve. The GDP growth target of 5.5% is ambitious, despite being the lowest in a decade (It was 6% last year; no target was set in 2020 due to the pandemic). 

Members of the NPC and CPPCC, the nation’s top legislative bodies, meeting from March 5 to March 11, emphasized the need for a stable growing economy as China prepares to host the all-important 20th Party Congress in autumn. This year is also the second year in China’s 14th Five-Year Plan (2021 to 2025), which is set to make the country wealthier and more equal, growing China’s per capita GDP to the level of moderately developed nations and expanding its middle-class. 

Achieving self-sustainability in semiconductors and strategically important areas such as AI, biotechnology, and advanced manufacturing tools and machines are high on the government’s priorities. The government will fund small startups that possess innovative tech in the manufacturing, fostering what they called “little giants,” according to the Ministry of Finance’s report filed to the meeting and released to the press.

New energy vehicles will continue to be embraced. The government aims to build more green energy power structures to ease its reliance on fossil fuels. In key growth areas like Beijing, Shanghai, and Guangdong, the state will fund national laboratories and tech innovation hubs to attract tech talents. 

Reassuring capital markets

China will “promote the development of venture capital,” Premier Li Keqiang said on March 5 at the opening of the six-day NPC assembly. The remarks sent an assuring signal to worried tech venture capitalists after China’s year-long tech crackdown erased trillions of dollars in market cap from Chinese tech majors like Alibaba, Didi, and Meituan. However, the country will still be mindful of the systematic risks brought by “unregulated and disorderly expansion of capital,” Li said in the government work report.

Despite the fears spawned by last year’s regulatory crackdowns, venture capital investments in China jumped almost 50% from $86.7 billion in 2020 to a new record of $130.6 billion for 2021, data from research firm Preqin shows. However, venture capital pivoted to financing hard tech areas like semiconductors and robots rather than highly-regulated areas like edtech. 

In addition to leveraging venture capital, the country plans to improve the operation of public capital markets by reforming China’s new third board, an over-the-counter share trading platform serving small and medium enterprises (SMEs). China made the first step of reform by launching the Beijing Stock Exchange last November, targeting small tech startups and enhancing the connectivity of the multi-level capital markets.

Infrastructure priorities: 5G, data centers 

Regulatory crackdowns on large internet platforms will likely continue this year, as the Supreme People’s Procuratorate, the state’s prosecutor, said in the NPC that it plans to closely monitor anti-monopoly, anti-competitive behaviors, and guide the capital market to orderly development. 

China plans to construct more 5G stations and further utilize data as a critical national resource to bring more value from its increasingly digitized economy. China’s economic planner, the National Development and Reform Commission (NDRC), said in a report released to the assembly that it will launch several “major infrastructure projects,” building 5G networks, artificial intelligence (AI), and an integrated national system of big data centers.

China elevated data to one of the key economic resources in the 14th Five-Year Plan released last year. In 2021, China laid the groundwork for keeping data secure with a slew of regulations. This year, it will further the work to allow data to be better classified and defined to better share and trade data, said the NDRC report. 

Building countryside e-commerce

As China faces continued weak consumption in 2022, the government hopes to compensate by expanding rural e-commerce. The government work report proposed to strengthen the construction of business ecosystems in county-level communities and to improve rural delivery services. The economic planner’s report shows that express delivery services now cover more than 80% of the country’s administrative villages, which will “further unleash consumption potential in rural areas.”

In 2021, China’s total online retail sales increased 14% year on year to RMB 1.3 trillion ($206 billion), or 30% of China’s overall retail consumption of RMB 4.4 trillion, according to NDRC’s report.

In addition, the economic planner wants to boost cross-border e-commerce as part of its efforts. For example,  China plans to expand the scope of the pilot scheme for cross-border e-commerce retail imports and started planning on building seaports, inland ports, and overseas warehouses.

Smaller manufacturing startups

In 2021, manufacturing accounted for 27.4% of China’s GDP. The country aims to upgrade this key sector by nurturing homegrown startups specializing in robotics, automation, industrial software, and other smart manufacturing tools. 

Since the US-China trade war in 2018, China has rushed to reinforce its manufacturing supply chains and make sure it doesn’t rely too much on foreign supplies in core technologies. China has funded more than 4,700 startups since 2021 and plans to invest in 3,000 more this year.

The government called the state incubation the “little giants” project, setting out to give out RMB 10 billion ($1.58 billion) over the years to fund startups in key manufacturing areas. These areas include high-end machine tools, aerospace equipment, marine engineering equipment, advanced railway equipment, electric power equipment, new materials, biomedicine, and high-end medical equipment. 

Yet more support for semiconductors

China’s semiconductor industry has seen an exponential increase in investments and government support since 2019, as the country’s top chipmakers faced US sanctions. The government vowed to rely less on foreign technology in its chip production, but the complexity of this high-tech industry means China’s pursuit of self-sufficiency will be a long-term effort. 

The government vowed to keep throwing money and support into this effort. China’s Ministry of Finance said in its report to the NPC assembly that it would channel funds to the integrated circuits industry through market measures. It would also give tax cuts to the chip industry, alongside other sectors like industrial mother machines, 5G, biotech, and agricultural equipment. 

The NDRC said it will guide semiconductor makers to gradually expand their production, stabilize supply chains in and outside of China, and will help them connect with suppliers. It also vowed to pay close attention to raw materials prices, helping suppliers and manufacturers secure production resources. 

’Moderating’ clean energy policies and supporting NEVs

Chinese policymakers have faced significant challenges as they tried to meet ambitious carbon reduction goals over the last year, ranging from heavy reliance on coal to a nationwide power crisis.

China will continue its efforts to reduce the use of coal and promote renewable energy sources, according to the government work report. And yet, the moves to reach its emissions peak will be done “in a well-ordered way,” Li said, adding that energy supply will be ensured “in accordance with overall planning,” in addition to efforts to build wind and solar power plants. 

Last year, the central government imposed strict measures by enforcing energy consumption mandates and intensity limits. As a result, at least a dozen Chinese provinces introduced power cut measures in September. This, along with soaring energy prices, forced many factories to reduce or even halt their operations late last year. 

Beijing will also push the country’s EV industry forward to drive consumption and cut carbon emissions. The NDRC, the economic planning agency, said in its report that it will continue to boost purchases of NEVs and build more battery charging and swapping facilities. Meanwhile, the  Ministry of Finance pledged to maintain subsidies and tax exemptions for NEV purchases.

Chinese food delivery giant Meituan has reduced commission fees for merchants to help alleviate the operational pressures they face following the pandemic prevention measures enacted in the past two years.

Why it matters: Meituan, which counts on food delivery as its main source of revenue, made the move less than two weeks after Chinese regulators suggested in a guideline that food delivery platforms cut fees for restaurants suffering from the coronavirus outbreak.

• Meituan’s shares plunged 15% on Feb. 18 when the new guideline was issued. But a commentary from the state media Economic Daily said the market was “overreacting” (in Chinese). The guideline aimed to drive consumption and recovery after Covid rather than crack down on platforms, the commentary said. Investment bank Jefferies maintained its “buy” rating for Meituan after the release of the guidance.
• Meituan’s commission cut may well trigger similar moves from rivals such as Alibaba-backed platform Ele.me.

Details: Meituan rolled out six supportive measures both to lower the costs and increase revenue for merchants operating on its platform, according to a Tuesday statement.

• The company will cut half of its technological commissions, capping them at RMB 1 ($0.16) per order, for restaurant owners from pandemic-hit areas who suffer a daily sales drop of more than 30%. The policy will be effective as soon as a region is placed in full or partial lockdown and will end once the lockdowns are lifted.
• More than one million merchants facing operation difficulties will be eligible for a commission rate of less than 5% by the end of this year, lower than the average 12% commission usually charged. 
• The company added that it aimed to bring more transparency to its commission structure this year. Last May, it changed its previous flat fee policy to a flexible one that’s based on various factors such as order price and delivery distance. 
• In addition, Meituan is offering customized operational services to 100,000 merchants, helping them to improve storefront designs, develop food delivery menus, and launch marketing strategies. It will also provide free hardware, such as order printers and scanners, to merchants facing operational difficulties.

Context: Chinese food delivery platforms, such as Meituan and Ele.me, have been criticized for charging small merchants excessive rates over the past few years.

• Meituan still faces regulatory risks after receiving a $534 million antitrust fine last October.

READ MORE: There are no food delivery winners

Fenbi Education, a Chinese edtech platform catered to adult learners, filed for an initial public offering in Hong Kong on Monday, according to the Chinese media outlet Sina Tech.

Why it matters: Fenbi’s listing is the first IPO from China’s edtech industry since last July, when the once-booming sector was hit by a series of regulatory crackdowns on curriculum tutoring services targeting students up to the 12th grade (K-12).

• Fenbi, which means “chalk” in Chinese, provides online and offline test preparation services for adult professionals, as well as vocational training. It focuses on offering courses for various tests such as the civil officer examinations, teacher qualification certificates, and postgraduate entrance examinations.

READ MORE: Chinese edtech upended by sweeping regulations

Details: Fenbi said it plans to go public in Hong Kong but did not disclose the size of the IPO. Bloomberg reported on Monday that the firm could raise about $300 million. China International Capital Corporation, Citibank, and BofA Securities will serve as co-sponsors for the listing.

• The fund will be used to develop courses, enhance student recruitment, and improve technological capacity and digital infrastructure, according to the company.
• The company’s revenue reached RMB 2.6 billion ($416 million) in the first nine months of 2021, up 80% year-on-year. However, while Fenbi’s revenue expanded, its net loss also widened, almost doubling from RMB 362 million in 2020 to RMB 782 million over the first nine months of 2021.
• Fenbi’s average monthly active users increased by 38% year-on-year from 4.7 million in 2020 to 6.5 million in 2021, slowing from the 62% growth rate for 2020. Since its founding, paid users have reached 45.3 million in December 2021.
• Founded in 2015, the company now operates in 260 cities across 31 provinces, autonomous regions, and municipalities in China.
• Fenbi’s CEO Zhang Xiaolong, who shares the same name as the better-known Tencent vice president and “father of WeChat”, holds a 35% stake in the company. Tencent owns 14% of the company and other shareholders include IDG, Matrix Partners, and Hillhouse Capital.

Context: Fenbi is an early entrepreneurial effort from the team behind the online tutoring app Yuanfudao, before the edtech unicorn decided to focus on the more lucrative K-12 segment.

• In February 2021, the firm raised $390 million in a Series A led by IDG Capital and Trustbridge Partners.

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

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

Chinese tech giant Alibaba is launching a new online platform running a direct sales model, similar to rival JD’s, Chinese local media LatePost reported on Wednesday. The new platform, called Maoxiang (our translation), will first focus on consumer electronics. 

Why it matters: Alibaba is trying out different models to boost business growth amid weakening consumer spending, intensifying competition, and tightening regulations. 

Details: Alibaba plans to rebrand its business-to-consumer (B2C) marketplace Tmall app to Maoxiang, LatePost reported, citing unnamed sources. Alibaba’s B2C retail group led the project and launched it at the end of last year.

• Maoxiang will adopt a direct retail model. The online platform can sell branded merchandise directly to consumers, having more control over sourcing, quality, storage, delivery, and after-sales.
• For starters, the platform will focus on selling consumer electronics products, big-ticket items that JD also focused on during its early days.
• Alibaba is in discussions with several consumer electronics brands, including smartphone maker Realme, to join the platform. 
• SF Express and Danniao Logistics are possible couriers for the service to ensure next-day doorstep delivery, the report added.
• Alibaba didn’t respond to TechNode’s inquiry when contacted on Thursday.

Context: Alibaba and JD, two of the largest e-commerce platforms in China, rose to prominence by adopting different business models. Alibaba operates under a “platform” model, where it derives revenues from online marketing services and commissions from third-party merchants selling on its marketplaces. Meanwhile, JD runs more like an online supermarket and earns mark-up by selling products it holds. 

• JD expanded to adopt Alibaba’s “platform” model as early as 2017 by introducing retailers, small merchants, and individuals to its business.
• In January, Alibaba’s domestic e-commerce business launched a major organizational reshuffle to connect the back-end operations of the company’s two core e-commerce marketplaces Taobao and Tmall.

Only three days after China’s metaverse social app Zheli topped the App Store in China, an impressive feat for a newcomer, the app’s owners pulled the platform from app stores across the country to address various controversies.

Zheli, which means “gel” in English, is a 3D avatar maker that allows users to share their daily lives with friends and shows users’ approximate location and mode (at school, at work, or near a shopping mall). 

The app provides fashionable characters and outfit options to create a customized avatar. It became an instant hit in China after its launch in January. Zheli allows users to add up to 50 friends via the app.

Why it matters: The quick rise of Zheli, less than one month since its launch, is a rare success story in China’s social networking industry, which has been long dominated by Tencent’s super app WeChat. Zheli’s emergence has further fueled the ongoing metaverse frenzy in the country, which has been building momentum since last year.

• On Feb. 11, Zheli replaced WeChat as the most downloaded app in the App Store in China with a record high of 435,000 downloads. It’s the first time an app has taken the top download ranking from WeChat since 2019.
• Chinese tech giants Baidu, Tencent, and ByteDance have been investing and developing metaverse features and services in the wake of the global metaverse craze.
• China’s metaverse social networking companies also includes Soul and ByteDance’s Party Island.

Details: Beijing Yidian Digital Entertainment Co., Ltd, the operator of Zheli, said in a Feb. 13 announcement that it had removed the app from app stores and suspended new user registration voluntarily to improve the experience for existing users.

• The firm cited various stability issues (slow loading time, constant crashes) as the major reason for the removal. But it denied having collected user information without permission when users made friend referrals through third-party messaging tools like WeChat and QQ. Last week, users claimed that the company violated users’ privacy. 
• “I like the app for its designs and youth culture, but there’s still a lot of room for improvement functionality-wise,” Echo Gong, an analyst from research agency Coresight, told TechNode. 
• Users can invite new friends on the app either through phone contact list or WeChat. But it could be a time-consuming experience as WeChat doesn’t support direct link invites and users might have to open browsers to complete the process. 
• Zheli’s communication functions are still limited to photos and microblogging, less diversified compared with mainstream social platforms, which offer formats such as long texts, short videos, and emojis, Gong added.

READ MORE: Metaverse in China: Investors and tech leaders say they are prepared

Chinese tech giant Tencent has launched a major reshuffle in its entertainment and content production business, setting “social responsibilities” as the primary goal for film production arm Tencent Pictures.

Why it matters: Tencent is the latest among China’s tech giants to make changes to their business to stay safe amid wider regulatory crackdowns.

• Tencent, along with Alibaba and Meituan, have taken the brunt of China’s regulatory wrath over the past year.
• Chinese tech companies are scrambling to show their willingness to comply with the country’s broad goal of lessening inequality (reaching “common prosperity”) to stay on the safe side of an intense period of regulatory changes. 

READ MORE: Insights | Why Chinese tech giants are becoming very generous

Details: Tencent has merged Tencent Pictures, a unit under the company’s Platform & Content Group, with its Corporate Development Group, Chinese media outlet Jiemian reported on Thursday. Cheng Wu, vice president of Tencent Group and CEO of e-publisher China Literature, will oversee the business.

• After the adjustment, Tencent Pictures will focus on producing content that promotes Chinese core values to “take more social responsibility,” according to the report.
• Tencent Pictures affiliates such as television and film production company New Classics Media and China Literature’s film production unit will lead the development of the group’s existing commercial IPs.
• An anonymous source told Jiemian that commercialization will no longer be the top priority for Tencent Pictures, which has a new commitment to producing content promoting mainstream values, such as A Lifelong Journey, a TV series now airing on state broadcaster CCTV.
• Tencent could not be reached when contacted by TechNode on Friday.

Context: In 2014, Chinese President Xi Jinping called on local artists to present socialist core values in their works.

• In January, Tencent replaced the dystopian ending of the cult classic movie “Fight Club” with a happy ending and cut all nude scenes in a version streamed on Tencent Video. The company later restored the ending after a global backlash.

Meituan is testing Zhenxiang, a shopping review feature similar to the one used by lifestyle community platform Xiaohongshu, as the Chinese food delivery and local services giant aims to boost its e-commerce business.

Why it matters: Meituan, known as the “Amazon of services” in China, is testing the feature for its physical goods e-commerce service, while fending off competition from rivals like ByteDance and Alipay in the area of local lifestyle business.

READ MORE: ByteDance is trying to take a bite of Meituan’s cake

Details: Zhenxiang, a shopping review community, is being tested among a group of users, most of whom have already used its e-commerce service Tuanhaohuo.

• The feature is now displayed in the most prominent part of Meituan’s e-commerce interface for pilot users. It was launched in December but was initially only accessible through less conspicuous entry points.
• Zhenxiang allows users to post product evaluations and tips in the form of notes, photos, and short videos for other potential buyers’ reference. Users can also rate products with a five star system, from “bad shopping experience” to “highly recommended.”
• A Meituan spokeswoman confirmed that the company is working on the pilot project, adding that it’s just one of its usual range of experiments aimed at testing new features.
• By integrating the product review feature into the app, Meituan could drive its e-commerce sales under the Zhongcao model, a marketing strategy that was first popularized by Xiaohongshu, local media Lu Lu Finance explained.
• The term Zhongcao (“planting grass”) refers to the idea that favorable and comprehensive reviews of a product can sow the seeds of an urge to buy in consumers. The actual action of purchase is referred to as Bacao (“pulling up grass”) in Chinese. 

Context: Content has emerged as the driver of Chinese e-commerce over the past three years. Chinese tech platforms like Taobao, short video apps Douyin and Kuaishou, and China’s Quora-like site Zhihu have also leveraged the Zhongcao model to boost e-commerce growth.

• Meituan has begun testing an expansion into the sale of physical goods online, entering into partnerships with consumer electronics companies, cosmetics brands, garment brands, and physical bookstores in order to diversify the physical product offerings on the platform.

A content moderator at Chinese video streaming site Bilibili died on Feb. 4 while working a Lunar New Year holiday shift. On Monday, the company said that the deceased employee didn’t work excessive hours before his death, but online influencers say otherwise.  

Why it matters: The sudden death of the Bilibili employee has renewed public discussions about the persisting overwork culture of Chinese tech companies. The news has drawn extra attention since it happened during the Lunar New Year holiday, China’s all-important annual public holiday.

• Under mounting public scrutiny, Chinese tech giants such as Alibaba, ByteDance, Meituan, and Kuaishou have tried to improve staff’s working conditions by either introducing shorter working hours or enhancing worker benefits.

READ MORE: Insights | Why ‘996’ just won’t go away 

Details: A Bilibili employee, nicknamed “Twilight Muxin” died of a brain hemorrhage on Feb. 4 after working a holiday shift from home during the seven-day break for the traditional Chinese New Year, according to an internal Bilibili memo shared with TechNode on Tuesday.

• The male employee felt unwell on the afternoon of Feb. 4 and was rushed to the hospital. He was pronounced dead around 8:00 p.m. on the same day after hours of rescue attempts failed to revive him. The employee joined Bilibili in May last year and worked in the company’s content review department.
• Facing heightened scrutiny over its content from Chinese authorities, Bilibili, a Nasdaq-listed streaming site, had a sizable 2,400-member content moderation and auditing team as of 2020, roughly 30% of the company’s headcount at the time.

Conflicting narrative: There are two different narratives regarding the employee’s cause of death. Weibo workplace blogger “Wang Luobei” first broke the news on Monday around noon, blaming the company’s grueling work schedule for the tragedy. Bilibili denied the employee had worked overtime in a Monday memo, stating that he had worked 9:30 a.m. to 6:30 p.m. each day during the Spring Festival, considered “regular working hours.”

• The deceased employee, an AI audit team leader based in Wuhan, had worked five consecutive 12-hour shifts from 9:00 a.m. to 9:00 p.m. during the New Year holiday, according to the blogger’s sources.
• Bilibili says in the memo that it has set up a special team to cooperate with the police and the employee’s family to follow up on the matter.

Context: Chinese labor law dictates that work schedules should not exceed eight hours per day and 44 hours on average per week. Given specific circumstances, workers can put in a maximum of three hours per day and 36 hours per month of overtime. 

• Overtime work culture in Chinese tech firms drew widespread public ire in 2019 after software engineers used Github to protest the so-called 996 work schedule (9 a.m. to 9 p.m., six days a week) of tech giants JD, Xiaomi, and ByteDance.
• E-commerce giant Pinduoduo also faced public ire regarding its alleged overwork culture after two employee deaths in early 2021.

Chinese tech companies are still laying off large numbers of employees in the aftermath of a year of regulatory crackdowns. While annual team adjustments are common in tech industries, investors and market watchers are alarmed by the scale of the recent job cuts and what they indicate about the underlying regulatory upheaval.  

Over the past year, 35 companies scaled back their teams according to a rough count made by one local media outlet. The cuts affect nearly every major vertical, from education and short video, to gaming and e-commerce, with thousands of people losing their jobs. In some cases, whole business departments were dissolved. Deep-pocketed tech titans such as Alibaba, ByteDance, and Baidu, which are generally less vulnerable to small market fluctuations compared to startups, were not immune to these cuts.

The current wave of layoffs, still ongoing in the lead up to the Chinese New Year, stands in stark contrast to the hefty incentives distributed by Chinese tech heavyweights in their heydays around the mid-2010s. At that time, an employee might enjoy a bonus in the form of pay equivalent to 100 months of salary or even a Tesla car. The incentives were intended both to show the tech giants’ muscle and to lure talent.

The most obvious difference in the Chinese tech industry today is a tightened regulatory environment. China offered extensive support to tech innovation and entrepreneurship from the beginning of 2010, with initiatives such as the launch of a state-backed entrepreneurship and innovation program in 2014. In the years after the launch of the program, China witnessed the rise of some of the most prominent tech names in the country such as Didi, Pinduoduo, and Xiaohongshu. Even though regulations, such as those on anti-monopolistic practices, existed back then, the government often failed to enforce them, helping boost the growth of budding companies.

Government attitudes shifted sharply in 2020 when Beijing launched the first industry-wide regulatory crackdowns as the authorities tried to exert greater control over tech companies, particularly those with large platforms. State actors still say they support tech innovation, but the support increasingly only applies to hard tech industries like semiconductors, new energy vehicles, and biotech.

The elimination of practices and services that no longer comply with the raft of new regulations has been a major source of these slashed headcounts, but leaders of tech giants are also being driven to urgently reduce loss-making units and improve operational efficiency.

Job cuts in headlines

News of mass layoffs has dominated China’s tech headlines in recent months.

• TikTok owner ByteDance reportedly laid off more than 1,000 staff from its edtech business in November following the deeper cuts made in the sector in August. The tech titan, known for its sprawling business lines, cut its talent development center and scaled back its Human Resources department in December. The company reportedly dissolved its investment unit in January by laying off 100 employees as authorities stepped up antitrust scrutiny of the country’s tech giants.
• Douyin rival Kuaishou laid off mid-level managers and low-performing employees in December and cut jobs across key units such as e-commerce, globalization, and algorithm recommendation in January. Employee benefits were slashed in December.
• Chinese search giant Baidu has started layoffs at its mobile business arm, which oversees its search and mobile businesses, several Chinese media outlets reported in December.
• IQiyi, a Baidu-backed video streaming affiliate, laid off 20% to 40% of its workforce in December as the Netflix-like firm tries to reduce costs amid increasing losses. That means the layoff could wipe out some 1,500 to 3,000 positions based on the company’s nearly 7,800 headcount in 2020.
• Perfect World, a Chinese game developer, plans to cut up to 1,000 staff, local media reported on January 25.
• Giant tech firms including ByteDance and Alibaba adjusted their organizational structures, while also making business adjustments and job cuts.

Worst-hit sectors

Online education companies targeting after-school tutoring of students up to the ninth grade were among the worst-hit verticals as China’s crackdown on the sector essentially banned companies from offering services related to core curriculum subjects.

All major players in the field, including New Oriental, TAL, and Gaotu, terminated their after-school tutoring services in the wake of the crackdown on the private education sector. In one of the largest edtech layoffs, New Oriental founder Yu Minhong confirmed in his WeChat Moments feed last month that the company dismissed 60,000 workers and saw revenue fall by 80% in 2021.

READ MORE: Edtech will survive China’s crackdown, but it won’t be the same

E-commerce, another highly-regulated area, is also experiencing downsizing. Fresh produce delivery giants that survived a 2021 market consolidation are trimming operations to save costs. Online grocer Dingdong Maicai reportedly planned to cut from 20% to 50% of the workforce at its core business units in January, while Meicai, a Chinese app that supplies farm-to-table produce for restaurants, laid off around 40% of its remaining workforce after halving headcounts in September.

Youzan, one of China’s largest e-commerce service companies, is reportedly planning to lay off 1,500 people, or nearly 30% of its employees in early 2022.

Downshifting for years

Chinese tech companies have been gradually reducing headcounts over the past few years as the country’s economy felt strain long before the pandemic hit. However, a combo of regulatory curbs on everything from technology to education and a renewed virus-induced public health crisis is creating further headwinds for local big tech firms. They are being forced to drastically cut costs to keep themselves afloat as more challenges await in 2022.

This wave of layoffs is the result of multiple events, such as Beijing’s education crackdown and the cyclical economic downturn, Chinese media outlet Leiphone wrote in a Jan. 21 article. Chief among them was Beijing’s draft amendment to its Anti-Monopoly Law, released in October and dropped a hammer on the country’s internet giants. 

With scant regulation and China’s population producing massive numbers of customers, the country’s large tech companies enjoyed supercharged growth rates over the past two decades. Tech giants therefore are used to attracting and retaining large numbers of workers with huge salaries and comprehensive benefits. The result was many redundant positions and overall inefficient use of human resources. Now, the heavyweights are beginning to realize that they must stretch their budgets in an environment where it is no longer so easy to reap huge profits, the Leiphone report said.

By slashing headcounts from loss-making business units or units now facing stringent regulation, tech companies are phasing out less profitable activities  in order to achieve efficiency and bigger profit margins, experts told local media Shenran Caijing in December.

Fearing a looming recession, executives from Chinese big tech firms have vowed to focus on core businesses and value creation. In November, Tencent Chairman Pony Ma said the company will ramp up efforts around its main sources of revenue, such as cloud services and gaming, while Alibaba and Kuaishou have set their sights on the overseas market as a major growth driver. And yet, as companies are taking more steps to reduce costs, the only thing that seems certain is that industry will face slower development, the report said.

“Do I look like a loser?”

Under the weight of repeated COVID-19 outbreaks, a further economic slowdown, and a string of regulatory crackdown across industries, it has become fairly standard for Chinese tech firms to let go of tens of thousands of employees at a time. While mass layoffs like these are usually discussed as an indicator of a company’s struggles and changing strategies, they are also life-changing decisions for a vast number of talented and dedicated individuals who have spent their youth with these companies.

Wu Jing, a former employee at iQiyi, still vividly remembers the moment she lost her job in December. In an interview with Chinese media outlet Jiemian, she said it only took five minutes for her and her supervisor to finish their conversation. When she went back to her cubicle and checked her phone, rumors that the Baidu-backed video platform planned its largest-ever layoff sweep had begun spreading on Chinese social media.

Wu joined iQiyi four years ago when the Chinese Netflix-like firm was thriving. Two of the company’s variety shows, “The Rap of China” and “Idol Producer,” were huge successes and kicked off fierce competition among idol-focused variety shows in the domestic video streaming market. IQiyi went public in March 2018 at $18 a share, but since then, the share price has fallen by more than two-thirds.

Aware of the company’s anemic pace of growth, Wu had made plans to jump ship in 2022, but the layoff was quick and came as a surprise. Haunted by the feeling of abandonment, she now asks herself, “Do I look like a loser?”

Fresh graduates are not immune to these cuts either. Chen Yi, a former engineer at ByteDance’s gaming unit Ohayoo, lost his job late last year, just months after passing a strict selection process, according to a Jan. 25 report by media outlet 21st Century Business Herald. The report said that nearly all of Chen’s peers were let go by ByteDance’s gaming studio, among waves of layoffs as the TikTok owner sought to lower costs as it faced a potential growth bottleneck.

“The layoff just happened so suddenly that I wasn’t prepared,” said Chen.

JD Technology, the financial technology arm of Chinese online retailer JD.com, is preparing an IPO that could raise between $1 billion and $2 billion in Hong Kong this year, IFR reported Monday.

Why it matters: JD Technology’s expected listing is one of a number of long-awaited IPOs from Chinese vertical giants, including bike rental app Hello Inc. and podcast platform Ximalaya. The latter two suspended IPO procedures last year after the Didi cybersecurity review put a halt to the overseas listings of Chinese tech giants.

• JD Technology’s possible IPO comes after the company withdrew from a planned Shanghai STAR Market IPO in April 2021 amid antitrust regulations in China’s fintech sector, which led to the halting of Ant Group’s proposed dual Hong Kong and Shanghai IPO.
• JD Technology’s Hong Kong IPO plans could set an example for other IPO candidates as authorities set up clearer regulations for Chinese companies seeking to go public outside the mainland market.

Details: The JD affiliate is discussing the listing with investment banks including Bank of America, CITIC Securities, and Haitong International, according to financial information provider Hithink Royal Flush Information.

• The company declined to comment on the news when contacted Tuesday morning.
• JD Technology’s revenue grew from RMB 9.1 billion ($1.4 billion) to RMB 18.2 billion between 2017 and 2019, according to the company’s prospectus filed with the Shanghai STAR market in 2020.

Context: In 2013, JD spun off its financial technology services to form an independent fintech unit JD Finance, which operates a series of loan businesses and provides AI and blockchain-based financial services. JD Finance was renamed JD Digits in 2018 and then changed its name again in 2021 to JD Technology, as it diversified its business line to include cloud, artificial intelligence, and IoT offerings. 

• Last year, JD sold JD Cloud and its artificial intelligence business to JD Digits for a combined valuation of $2.4 billion, before the financial unit changed its name.
• In January, the Cyberspace Administration of China required companies that control data of more than 1 million users to undergo a cybersecurity review before they seek overseas listings. It’s currently unclear whether this new requirement applies to Hong Kong listings that are not deemed to be related to issues of national security.

Chinese online retailer JD and Canadian e-commerce platform Shopify have entered a strategic partnership to help global brands sell in the Chinese market and Chinese merchants looking to sell overseas.

Why it matters: Expanding beyond home markets, especially in the competitive e-commerce sector, is a daunting task even for tech majors like JD and Shopify. With lessons learned from Amazon’s withdrawal from China and JD’s own setbacks in overseas expansion, Shopify is teaming up with a local partner, saving costly tasks such as initial user acquisition, infrastructure construction, and providing insights to the local market.

• JD, which already has a solid presence in the Southeast Asian market, is advancing its global expansion. The tie-up with Shopify comes shortly after JD opened its first brick-and-mortar store in Europe last week.
• The deal will compete with other major players in China’s cross-border e-commerce sector, such as Alibaba’s Kaola.

Details: Under the partnership, JD will allow Shopify merchants to list their products on the company’s cross-border e-commerce platform JD Worldwide, giving them access to more than 550 million active buyers in China, according to a Tuesday statement from the company.

• JD will support expedited onboarding and help Shopify merchants sell their products within three to four weeks, a much shorter process than the previous 12-month time frame. The company will achieve this through technical means, including intelligent translation and smart price conversion.
• JD also opened up its end-to-end fulfillment capabilities to Shopify merchants by leveraging the company’s logistic power, including China-US cargo flights, US warehouses, more than 1,300 warehouses, and more than 200,000 couriers in China.
• Additionally, JD will support selected Chinese brands to set up their direct-to-consumer channels through Shopify, helping Chinese brands and merchants reach consumers in Western markets.
• Aaron Brown, Vice President of Shopify, refers to the partnership as “a major step” in solving cross-border commerce for merchants. “The future of commerce is commerce everywhere—and that starts by removing barriers to entry to one of the most important e-commerce markets in the world,” Brown said in the JD announcement.

Context: To spur foreign trade growth, Beijing has been promoting the construction of cross-border e-commerce pilot zones since last year. China’s cross-border e-commerce imports and exports reached RMB 1.98 trillion ($311.7 billion) in 2021, up 15% year on year, according to data from China’s General Administration of Customs.

Chinese short video platform Kuaishou has opened its e-commerce store to local merchants managing online-to-offline services, including everything from food delivery to hospitality.

Why it matters: Continuing its recent focus on e-commerce, the Beijing-based company is expanding into the competitive local services market, which already includes fierce rivals such as Meituan, ByteDance’s Douyin, and Alibaba’s Alipay.

• Kuaishou’s move to extend its homegrown services business comes on the heels of a December partnership with Meituan. Under the deal, Kuaishou users have gained access to Meituan’s services through a Meituan mini-program within the short video app.
• The short video app has begun venturing into e-commerce, along with livestreaming and gaming, to commercialize its user base.

READ MORE: ByteDance is trying to take a bite of Meituan’s cake

Details: In addition to physical products, merchants can now sell various services through Kuaishou’s online store Kwai Shop, according to a Tuesday statement from the company.

• Merchants offering 15 categories of services, including food and drink, hospitality, healthcare, entertainment, film, and transportation ticketing, can apply to set up their own stores on the platform from Jan. 15.
• With their own Kuaishou store, merchants can manage their service listings to drive transactions and potentially convert online customer attention into offline service sales.
• To attract merchants, the platform is offering incentives to business operators. Kuaishou has pledged to encourage new store registrations with a promotion plan that offers individual stores up to RMB 1,000 ($158) and viewership from 50,000 customers.
• American chain KFC, hotpot chain Haidilao, Meituan’s hotel booking service, and healthcare clinic chain iKang are among the earliest brands to launch their stores on the platform.
• “The growth of the traditional in-store group-buying business model is slowing down, and merchants are in urgent need of new service models to attract users and to promote purchasing frequency,” Zhu Yunbo, head of Kuaishou’s local life service unit, said in a statement shared with TechNode on Tuesday. 

Context: Kuaishou, China’s second-largest short video-sharing app, reportedly laid off up to 30% of its workforce in December as Chinese tech giants weather a market downturn.

• Rival ByteDance has been increasing investments in the online services market over the past year with the most recent move being the acquisition of cinema ticketing platform Yingtuobang this week.

Chinese regulators extended the clampdown on top-earning influencers in the past month by tightening scrutiny over e-commerce sales stars such as “livestreaming queen” Viya and “lipstick king” Li Jiaqi, along with “the godmother of WeChat commerce” Zhang Ting. Tencent shed large stakes in both online retailer JD and Singapore’s SEA, owner of Shopee—possibly in response to mounting pressure from antitrust regulators. Job cuts among Chinese tech giants extended from video app Kuaishou and fashion e-commerce site Mogu. Inc., to online grocer Dingdong Maicai and fresh produce service Meicai. Cross-border e-commerce titan Globalegrow and online luxury seller Secoo fell from grace. And Alibaba overhauled its domestic e-commerce business.

1. Viya and other top e-commerce influencers tamed

News: Taxation authorities in Huangzhou municipality in Zhejiang province imposed a RMB 1.34 billion ($210 million) fine on China’s top livestreamer Viya for tax evasion on Dec. 20. Viya’s social media accounts on all mainstream platforms such as Weibo, Douyin, and Taobao Live, where she had more than 120 million fans, were erased from public view overnight. Four days later, Li Jiaqi, another top livestreamer and a sales rival of Viya, was summoned by Zhejiang Consumers Council for questioning over various unregulated practices. Meanwhile, on Dec. 23, the Market Regulation and Monitoring Administration of Yuhua District in northern China’s Shijiazhuang city opened a pyramid scheme investigation into Ting’s Secret, an online cosmetics brand founded by Taiwanese celebrity couple Zhang Ting and Lin Ruiyang.

Insights: The recent fines of and investigations into top celebrities and livestreamers signal that Chinese authorities are expanding their crackdown on the illicit e-commerce practices of individual influencers, who increasingly wield as much power as platforms. Similar to the $2.8 billion fine imposed on Alibaba for antitrust violations last April, punishment of the most prominent figures is regarded as a warning for everyone in related fields to fall into line. In the wake of Viya’s fine, more than 1,000 livestreamers stepped forward to pay back taxes. The crackdown on top influencers may offer growth opportunities to hosts with small and medium-sized followings, given that the demand for brands to sell and consumers to purchase products through livestreaming is still growing. Also, tighter reins on high-income individuals come at a time when Beijing is beefing up its “common prosperity” initiative to redistribute wealth in the country.

News links: CNN, Global Times, TechNode

2. Tencent slashes shares in JD and Shopee-owner SEA

News: Tencent plans to reduce its shareholding in online retailer JD from 17% to 2.3% by selling interim dividends to shareholders, making it no longer JD’s top shareholder. Both Tencent and JD said their business partnerships wouldn’t be affected by the shareholding change. On Jan. 5, Tencent further unloaded 14.5 million shares in Singapore SEA, owner of Southeast Asian online retailer Shopee, for $3 billion. The Chinese tech giant dropped its stake in SEA from 21.3% to 18.7% and plans to further cut its voting stake in the company to less than 10%.

Insights: Tencent’s share sale drummed up expectations that the firm and other tech peers may shed holdings in their portfolio companies as Beijing takes a closer look at the extensive reach they have on China’s internet. Since Tencent has been one of the most active Chinese investors over the past few decades both inside and outside China, its portfolio now includes vertical giants such as JD, Pinduoduo, Bilibili, Meituan, and Didi. A Tencent tie-up has been an invaluable endorsement for startups, bringing them easy accessibility to various services under the Tencent umbrella from the likes of WeChat to hit games. 

So what’s at stake in the share reductions? They raise concerns that existing partnerships will change. Tencent said in its statement about the JD share distribution that it invests in companies to “help fund the development and expansion [of their portfolios]” and exits the investment when the company is “consistently capable of self-financing their future initiatives.” 

In the case of SEA, Tencent may have been merely seeking financial returns, according to sources from Chinese media outlet Caixin. Nonetheless, cutting ties with Tencent would help SEA, long regarded in Southeast Asia as a Tencent agent outside China, to ease regulatory risks it faces in foreign markets, a Caixin source said. 

Tencent might further reduce its shares in other Chinese tech companies, but the shareholding change won’t affect their strategic partnerships, Aron Li, an analyst at Tiger Brokers, told TechNode. Regardless, share prices of JD, Pinduoduo, and Bilibili dipped on the news. Similarly, the resignation of Alibaba CEO Daniel Zhang from the board of Weibo is being interpreted as a signal that Alibaba is cutting its ties with the Twitter-like super app.

News link: TechNode, Reuters 

3. Layoff rumors shake e-commerce unicorns

News: On Dec. 22, Tencent-backed fashion commerce site Mogu Inc., more widely known as Mogujie, was reported to be laying off more than 30% of its staff, mainly from the company’s tech department. This was followed in early January by reports that Kuaishou had launched a new round of layoffs, with 10%-15% of positions in the e-commerce team losing their jobs. Adding to the wave of reported layoffs was news of job cuts in the fresh produce and grocery industry. Last week, Chinese restaurant produce supplier Meicai cut another 40% of its staff after halving its workforce in September last year,while Dongdong Maicai was reportedly planning a sweeping layoff as well. The latter denied the news, saying that any personnel moves were simply a “normal adjustment” within the company.

Insights: Job cuts have mounted in China’s tech sector over the past few months after a tumultuous year in which Chinese regulators rolled out a series of measures to rein in the industry. E-commerce platforms have not been exempt from such scrutiny. Although they sell different product lines, both Mogu and Kuaishou have bet on livestream e-commerce to drive revenue. Regulatory headwinds for live commerce make that a difficult task, especially for smaller players who also face rivalry from incumbents like Alibaba-backed Taobao Live and ByteDance’s Douyin. Layoffs at Dingdong Maicai and Meicai underline the further cooling of China’s online grocery craze which last year witnessed a slew of casualties such as Tongcheng Life and Shixianghui. Even the once deep-pocketed players like US-listed Dingdong and Meicai are feeling the chills of market consolidations.

News Link: TechNode (Story 1, Story 2, Story 3, Story 4) 

4. Collapse of Chinese vertical e-commerce giants Globalegrow and Secoon 

News: Cross-border e-commerce giant Globalegrow is entering clearance procedures after filing for bankruptcy in June 2021. Valued at RMB 40 billion in 2017, the company racked up more than RMB 3.3 billion in debts as of 2020. Separately, Chinese online luxury retailer Secoo filed on Jan. 5 for bankruptcy and restructuring in Beijing No.1 Intermediate Court, data from China’s corporate intelligence site Tianyancha showed. However the company subsequently denied the bankruptcy reports to local media and revoked its bankruptcy application on January 6. Shares of the Nasdaq-listed company are trading at $0.38 per share with a market cap of $27 million. That’s more than 96% from an all-time cap high of $770 million in 2018.

Insight: While some are still struggling to stay afloat, an increasing number of former heavyweights in the e-commerce sector are falling from grace. Both Globalegrow and Secoon are among the early bellwethers. With more than a decade of history, the pair had led the country’s cross-border e-commerce and luxury e-commerce sectors, respectively. Globalegrow’s asset-heavy approach in running cross-border business with substantial product inventory and lots of locations and warehouses collapsed during the pandemic. The company reported around RMB 3 billion in losses in 2020, whereas it recorded an RMB 710 million net profit in 2017. In contrast, Secoo has faced a years-long decline even though it has outlived many of its early-stage competitors. Jing Daily attributes the fallout to over-diversification, an issue that has led to the failure of many former tech giants including Leshi.

News link: Jiemian (in Chinese), NetEase Tech (in Chinese)

5. Alibaba restructures back-end operations of Taobao, Tmall

News: Alibaba announced on Jan. 7 a major organizational reshuffle aiming at connecting the back-end operations of its core retail marketplaces Taobao and Tmall. Led by the company’s head for domestic business Turdy Dai, three operation centers were set up to focus on platform strategies, user expansion, and development for merchants.

Insights: Alibaba is further integrating its C2C online marketplace Taobao and B2C platform Tmall as the company seeks to realign its two cornerstone services to create more synergies. As consumer growth is reaching a ceiling in China, Alibaba is hoping the move will reinforce its commitment to enterprise-facing services. In addition to aiming to improve consumer experience, the change is intended to offer a streamlined path to convert small and medium-sized individual merchants on Taobao into enterprise clients on Tmall. The aim is to assist the development of these smaller sellers while keeping them within the Alibaba ecosystem. Breaking barriers between the two services should also cut costs and improve organizational efficiency within the company. Tmall, formerly known as Taobao Mall, was spun off from Taobao in 2011 to address different user demands.

News link: TechNode

Chinese tech unicorn ByteDance has acquired cinema ticketing platform Yingtuobang and online comics service Yizhikan Comics to further ramp up its push into the entertainment market, Chinese media outlet Tech Planet reported on Monday.

Why it matters: With the new acquisitions, the Beijing-based TikTok developer is further expanding the reach of its entertainment empire, which already consists of short video apps, short and long-form videos, news aggregation, online novels, gaming, music streaming, idol management, and virtual idols.

• Although both acquisitions are focused on early-stage startups, ByteDance’s purchases come as tech peers such as Tencent and Alibaba are distancing themselves from portfolio companies in response to mounting pressure from antitrust regulators. 

Details: ByteDance acquired Yingtuobang — a Shanghai-based ticketing startup that supports online purchases, seat reservations, and coupon redemption in more than 8,000 cinemas and theaters across China — last month, Tech Planet reported today.

• Following the deal, Yingtuobang will maintain its enterprise-focused ticket business. Douyin will help to promote the company’s consumer-facing ticketing services, the report added. Yingtuobang is now marked as a recommended ticket purchasing channel on the short video app, along with Tencent-backed Maoyan and Alibaba’s Taopiaopiao, two of the largest players in the field.
• ByteDance’s acquisition of Yingtuobang is in line with the company’s push toward local lifestyle services, the home turf of Meituan.
• Additionally, ByteDance recently acquired Yizhikan Comics through wholly-owned company Beijing Dingzhen Technology Co., Ltd, Tech Planet reported. Yizhikan is an online marketplace that allows users to buy e-comic books and web cartoon services.
• A ByteDance representative didn’t immediately respond to TechNode’s inquiries on the matter when contacted on Monday.

Context: Both online ticketing and comics are important, expanding verticals in the entertainment field in China.

• China’s e-comics industry has grown at a rate of more than 20% in the past five years, and the market was expected to reach RMB 4.6 billion ($780 million) in 2021, according to a 2020 report from iMedia Research (in Chinese).
• ByteDance’s bet on ticketing platforms comes just ahead of China’s week-long Spring Festival national holiday, which saw a record RMB 7.8 billion in box office revenue last year.  
• ByteDance was once an investor in popular online comics platform Kuaikan but exited in 2019 after Tencent stepped in as a stakeholder.

Chinese tech giant Alibaba announced a major organizational reshuffle on Thursday with the goal of further integrating its core domestic e-commerce businesses.

Why it matters: This is the first organizational reshuffle since Trudy Dai, a founding member of Alibaba, was named last December as head of the tech giant’s China Digital Commerce unit. The unit manages the company’s domestic commerce platforms such as Taobao, Tmall, Alimama, Taocaicai, and Taobao Deals, as well as its B2C retail business.

• The adjustment comes as Alibaba faces headwinds on multiple fronts from increasing competition, a regulatory crackdown, and a slowing economy.

Details: While maintaining the dual-branding strategy for Taobao and Tmall, the company will set up three new business centers to connect the back-end operations of the two e-commerce platforms and related services under the business unit, according to a Thursday internal letter which was made public by local media.

• One center, focused on improving user experience, is to be helmed by Yu Feng (whose internal company nickname is Xuande), the former head of Taobao Live. 
• The second, dedicated to product operations and development, aims to better serve merchants on Taobao and Tmall. This center will be overseen by Yang Guang (nickname: Chuixue), a former member of the management team at Taobao and Tmall. 
• The third is focused on upgrading platform operation mechanics and digitizing merchant operating systems. It will be run by Wang Mingqiang (nickname: Sihan), current president of AliExpress and former head of Taobao search.
• Adjustments are also being made to the company’s content generation business, with new heads named for livestreaming and social shopping services.
• Alibaba Group Chief Technology Officer Cheng Li (nickname: Lusu) and Chief Risk Officer/Chief Customer Officer Zheng Junfang (nickname: Shitai) will fill the same roles for the domestic e-commerce business unit. That unit includes Taobao, Tmall, and Alimama.
• The changes aim to “upgrade user experience, improve client values,” and “encourage innovation,” according to the internal letter. All the new appointments will report directly to Dai.

Context: Alibaba announced in December that it had created two new units: one for its domestic e-commerce businesses and the other for international e-commerce businesses. Trudy Dai will lead the domestic unit, and Jiang Fan will head the global one.

• Alibaba’s retail marketplaces served 953 million annual active consumers in China as of Sept. 30, 2021, according to figures from the company.
• Alibaba experienced a tumultuous year in 2021. The company was hit with a $2.8 billion fine for antitrust violations.

WeChat’s app store-like mini program ecosystem attracted more than 450 million daily active users (DAUs) in 2021, up 12.5% from 400 million DAUs in 2020, according to figures released on Thursday by the Tencent super app.

Why it matters: Mini programs have seen increasing adoption in China and WeChat’s latest figures suggest users have grown used to operating on apps-within-an-app rather than going to multiple standalone platforms. 

• Mini programs allow users to access an array of services without leaving the main app. The system offers merchants a chance to access a vast pool of users by building lightweight apps within WeChat, an ubiquitous app in China, instead of having to develop a separate app and convince users to go there. 

Details: WeChat mini programs have expanded their user base and seen growing usage over the past year, head of Weixin Open Platform Lake Zeng said on Thursday at WeChat Open Class Pro 2022, an annual event for WeChat business partners and developers held in Guangzhou.

• Ahead of the system’s fifth anniversary on January 9, it was revealed that WeChat mini programs topped 450 million DAUs in 2021, with users spending 32% more time on them each day when compared with 2020.
• In 2021, the total number of mini programs increased 41% year-on-year, while mini programs supporting payment transactions grew by 28%. Users who pay through mini programs soared 80% year-on-year. Small- and medium-sized companies drove 90% of the growth, Zeng said. 

The pandemic accelerated mini program adoption: The company said that more than 700 million users have accessed pandemic control services such as Covid-19 tests and vaccination appointments through mini programs on WeChat, cultivating habits of using the embedded app function. 

• Sectors hit the hardest by the pandemic, including catering, tourism, and retail, saw their transaction volumes on mini programs double year-on-year in 2021.
• During the pandemic, the number of active mini programs offered by overseas merchants grew 268% over the past two years, with total transaction volume surging 897% in the same period. 

Context: Launched in 2017, WeChat mini programs have been aped and adopted by a host of Chinese apps, including Tencent’s QQ, JD.com, Baidu, Meituan, Alibaba’s Alipay and Taobao, and ByteDance’s Jinri Toutiao and Douyin. 

• WeChat’s healthy growth for mini programs comes as the total number of native apps in Chinese app stores has slumped more than 40% over the last three years amid regulatory crackdowns and a mature market.

A Chinese market regulator has started a pyramid scheme investigation into Ting’s Secret, an online cosmetics brand founded by Taiwanese celebrity couple Zhang Ting and Lin Ruiyang, continuing China’s crackdown on e-commerce related malpractices.

Why it matters: Zhang and Lin are the latest celebrity influencers to get caught up in the broad crackdown that first targeted e-commerce giants but is now extending to illicit practices of individual influencers, who increasingly wield as much power as platforms.

• China’s recent e-commerce influencer crackdown has affected top livestreamers including Viya, Zhu Chenhui (also known as Cherie), and Lin Shanshan.
• Chinese social e-commerce sites that adopt a decentralized network of members to sell products are under increased scrutiny from Chinese authorities wary of potential pyramid schemes and tax evasion.

Details: The Market Regulation and Monitoring Administration of Yuhua District in Shijiazhuang said that it had launched an investigation in June into Shanghai Dowell Trading, the operator of Ting’s Secret, in a Dec. 23 letter quoted by local media The Economic Observer.

• The regulator has frozen company assets worth RMB 600 million ($94 million). The move was in response to reports (in Chinese) by a non-governmental anti-scam organization on Dowell’s alleged use of pyramid schemes.
• Shanghai Dowell Trading said in a Wednesday response that “it is a legally operating company” and “welcomes authorities to help check their risks.” “The company is operating normally and will cooperate with relevant departments,” the statement said.
• Shanghai Dowell Trading has the three characteristic features of a pyramid scheme, Li Xu, the founder of the anti-scam organization, told The Economic Observer. Li highlighted the multi-layered management structure and that members must pay a fee or purchase products to join and that their income depends upon the number of members they recruit.

Context: Founded by the Taiwanese actor couple in 1996, Shanghai Dowell Trading sells cosmetics and skincare products, mainly through online channels. It promotes its business through social messaging tools like WeChat and livestreaming platforms such as Taobao Live and Douyin.

• Shanghai Dowell Trading was once an acclaimed taxpayer in Shanghai’s Qingpu District, contributing RMB 2.1 billion in 2018 alone. In addition to TV actors Zhang and Lin, the company also has had several celebrity shareholders and endorsers, including actresses Lin Chiling and Tao Hong.
• Over the past few years, Chinese regulators have hit social e-commerce companies with a series of fines, including Peanut Diary and Nasdaq-listed Yunji for their use of pyramid schemes.
• China’s livestreaming boom has drawn in numerous celebrities—such as actors and singers—seeking to monetize their fanbases. The current round of crackdowns is part of Chinese authorities’ push to remind the public that the internet is not outside the law.

YouiBot, a Chinese industrial mobile robot maker, announced Tuesday that it has received more than RMB 300 million ($47 million) in two additional funding rounds of Series B, led by venture capital firm FG Venture and private equity company Xicheng Jinrui respectively.

Why it matters: The investment highlights the funding trend for industrial robotics manufacturers, a crucial ingredient in smart manufacturing, which is regarded as an essential part of China’s initiative to become a global leader in core technologies by 2025.

READ MORE: Robotics is facilitating China’s digital transformation in manufacturing and construction

Details: The deals are follow-up investments for a $15 million Series B the company received in May this year. Other investors of the current funds are IDG, and returning investors, including Pine Venture, SIG, BlueRun Venture, SoftBank, and SOSV’s HAX Accelerator.

• YouiBot said the proceeds will be used for research and development, team building, and market expansion.
• The financing will boost the company’s total fund raised to more than RMB 500 million to date.
• The five-year-old company offers services in 26 provinces and cities in China,  with products exported to more than 30 countries, including Japan, South Korea, Singapore, Spain, and Germany.
• YouiBot claims to be one of the few companies that can realize a high positioning accuracy of ± 2mm for mobile robots. The company’s software-hardware integrated solution has been used by semiconductors, 3C, and electric power manufacturers.

Context: YouiBot was founded by Zhang Zhaohui and Bian Xu, alumni of China’s prestigious Xi’an Jiaotong University, in 2017. The company develops solutions for factory automation and logistics management, as well as inspection and maintenance for various industries.

• The company’s early-stage investors include ZhenFund, C&I Capital, Innoangel Fund, and XJTU 1896.
• To achieve the shift from a low-end manufacturer to a high-end producer, China released the ‘Made in China 2025’ plan in 2015, targeting local robot manufacturers to supply half of the domestic market by 2020 and 70% by 2025.

Short video app Kuaishou and food delivery giant Meituan announced a strategic partnership to connect their platforms on Monday.

Why it matters: With the deal, Kuaishou and Meituan will work closer to fend off their common rival Douyin, the TikTok’s Chinese version, which is accelerating its foray into Meituan’s home turf of local lifestyle services.

• Tencent, which owns a 21.6% stake in Kuaishou, is also a major investor in Meituan.
• Kuaishou has adopted an open attitude towards external partnerships in driving growth, especially towards companies in Tencent’s portfolio. In 2020, the short video app also signed a cooperation deal with Tencent-backed online retailer JD.com.

READ MORE: ByteDance is trying to take a bite of Meituan’s cake

Details: Kuaishou announced the partnership with Meituan at its Ecological Opening Conference held on Monday. The new deal between the two companies allows Kuaishou users to access Meituan’s lifestyle services, such as ordering food, through a newly launched Meituan mini-program without leaving the short video app.

• Meituan’s mini-program on Kuaishou currently only supports its core food delivery features, allowing users to browse restaurant listings, place orders, and access after-sales services. Users can also redeem vouchers and make reservations through the mini-program.
• In a Monday statement (in Chinese), the food delivery giant said that it plans to expand offerings in the mini-program to include more categories such as booking hotels, homestays, travel attractions, and beauty salons.
• In the tie-up, Kuaishou is giving Meituan access to its large user base (573 million monthly active users in China in Q3 this year). In return, it hopes to gain higher user retention by integrating daily services.  
• The short-video company also launched its “one-stop open platform” at the Monday event. The new platform incorporates a series of features such as mini-programs, service accounts, point of interest interfaces, and various tools that help merchants and service providers to manage their branding, marketing, and supply chains.

Context: Kuaishou is China’s second-largest short video platform by daily active users, behind only ByteDance’s Douyin.

• Listed this February in Hong Kong, the company has seen significant stock price volatility over the past few months due to weaker-than-expected earnings guidance and regulatory concerns.
• Kuaishou reportedly began a new round of layoffs in December, one month after co-founder Su Hua stepped down as CEO.

Update: The article is updated with Kuaishou’s Chinese user number. 

TikTok owner ByteDance plans to accelerate the overseas commercialization of its workplace communication app Lark in the coming year, Chinese local media outlet LatePost reported Wednesday. The company aims to achieve a global revenue of RMB 6 billion ($940 million) in the next five years.

Why it matters: Lark, known as Feishu in the Chinese market, is ByteDance’s bet on the enterprise-facing services sector, which has been boosted as remote work apps gain traction globally due to the Covid-19 pandemic.

• ByteDance, long celebrated as an “app factory”, listed Lark as one of its six business units, or strategic focuses, in a November reshuffle.
• Chinese tech peers Alibaba and Tencent currently lead the country’s workplace app market with DingTalk and WeCom.

Detail: ByteDance plans to seek new growth points for the business in the overseas market as Feishu, Lark’s Chinese sister app, faces growth bottlenecks in the domestic market, according to the report.

• The app already operates in countries such as the US, Singapore and India, and plans further expansion in African countries, starting with global companies with China operations.
• Feishu recorded 4.5 million daily active users in November, up from 3 million in March. But the figure still fell far short of its goal of reaching 10 million daily active users in the first half of this year, LatePost reported.
• In comparison, Alibaba-backed DingTalk said (in Chinese) in October that it has 500 million individual users and 19 million enterprise clients. Tencent’s WeCom had more than 130 million daily active users and 5.5 million enterprise clients by the end of 2020.
• The company didn’t respond to TechNode’s inquiries when contacted Thursday morning.

Context: ByteDance first developed Feishu as an internal tool in 2016, began marketing the platform as a business in 2019, and launched the international version Lark in April 2019.

• ByteDance has built a whole line of enterprise collaboration apps including video conferencing app Feishu Meeting and Feishu Jisuban, a lightweight version of the original app.
• Despite Lark’s new international focus, capturing a share of the overseas market is likely to be challenging, with incumbents such as Slack and G Suite currently dominating.

TikTok owner ByteDance is the world’s largest unicorn with a market valuation of $353 billion (RMB 2.25 trillion), according to a Monday unicorn ranking list from the Hurun Research Institute. Alibaba affiliates Ant Group and Cainiao take the second and ninth spots, respectively, with valuations of $150 billion and $34 billion.

Why it matters: ByteDance, one of China’s top tech IPO candidates, has maintained growth, despite China’s tech crackdown and US sanctions this year. The firm’s valuation has more than tripled from $80 billion a year earlier. 

Details: The Hurun Research Institute released on Monday its Global Unicorn Index 2021, a ranking of startups valued at more than $1 billion and not yet listed on a stock exchange. “A unique feature of China’s startup ecosystem is the ability of big tech companies to spin off unicorns, with 49 of the world’s 50 ‘spun-off’ unicorns coming from China, such as Ant Group, spun off from Alibaba in 2014,” said Hurun Report chairman and chief researcher Rupert Hoogewerf. Based in Shanghai and Oxford, England, Hoogewerf is also known by his Chinese name, Hu Run.

• Compared to China’s tech giants, Hoogewerf said that global tech giants like Microsoft, Apple, Amazon, and Alphabet are “not as active” as their China counterparts when it comes to investing in unicorns.
• Other prominent Chinese firms that made the annual annual list include JD Technology, WeBank fintech services, fashion retailer Shein, Instagram-like lifestyle community Xiaohongshu, and drone maker DJI.
• The report listed 1,058 unicorns worldwide, double the number since 2020. Hoogewerf calls 2021 the “most successful year for startups ever.” China now counts 301 unicorns, or 28% of the global total. Most focus on e-commerce, healthcare, or artificial intelligence.
• The total value of these unicorns is $3.7 trillion, or equivalent to the GDP of Germany, according to the report. 
• The report named Sequoia Capital the most successful unicorn investor with investments in 206 unicorns in its portfolio. The US venture capital firm is followed by another US investor, Tiger Fund, and Japanese investor SoftBank. Chinese investors Tencent and Hillhouse occupy the eighth and the tenth positions, respectively, on the list. 

Context: Chinese big tech companies have faced regulatory headwinds since autumn 2020 when Beijing stepped up its crackdowns on market monopolies and cybersecurity lapses.

Livestream e-commerce is proving to be a trend with staying power, rather than a flash-in-the-pan phenomenon driven by pandemic-crazed online consumption.

E-commerce sales achieved through livestreaming represented more than 10% of China’s total online retail sales in 2020, according to data from iResearch. The research agency forecasts that the proportion will reach 24.3% by 2023. 

E-commerce giants, such as Alibaba and JD.com, as well as short video sites, notably Douyin and Kuaishou, have tapped into the livestream boom to boost their online commerce businesses.

For now, e-commerce platforms still rule the livestreaming roost, but Douyin and Kuaishou are catching up quickly as Chinese users’ experience and shopping preferences evolve. Experts we talked to said short video apps pose a threat to Alibaba’s dominance in live e-commerce.

READ MORE: How e-commerce and livestreaming became frenemies

Same service, different operating rationales

From a user’s perspective, e-commerce and short video apps offer very similar livestream shopping experiences. However, the operational models of these two types of platforms mean they approach live e-commerce differently.

Users on e-commerce platforms like Taobao and JD open these apps with clear shopping intentions. Therefore, the livestream sales performance of stores on Alibaba’s Tmall depends on the traffic to the store or brand itself, an employee from a business process outsourcing company in the livestream industry told TechNode. 

“If the store (brand) is well-recognized and has its own user base, the sales will be high, and vice versa,” he explained, asking to stay anonymous because his employer did not give him the permission to speak.

Meanwhile, the primary goal of livestreaming on Douyin is always to drive sales—not platform branding or customer relations—said the same source. “Most Douyin users haven’t established the habit of shopping on the short video platform. It’s highly probable that they are diverted to the livestreaming session for potential impulse buys while browsing some funny video clips.” 

It’s thus not surprising that Taobao’s traffic is more stable while traffic from Douyin and Kuaishou tends to be sporadic and unpredictable. The difference in platforms leads to different demands on livestreamers and support teams. Tmall store livestreamers tend to adopt a lean approach. One livestreamer can run a session after becoming familiar with prices and basic product information.

In contrast, Douyin’s livestreamers, whose primary goal is to retain audience attention and convert that attention into sales, usually need about three support staff to run a session. The extra staff perform tasks such as uploading the product links and changing prices, he explained.

Douyin versus Kuaishou

As for the livestream battle within the short video arena, Douyin has the upper hand over Kuaishou so far. Douyin aims to reach RMB 1 trillion ($160 billion) in gross merchandise value (GMV) on its platform this year. Meanwhile, Kuaishou expects to achieve a GMV of RMB 650 billion this year. That’s a downsized adjustment from the beginning of the year, when it set a GMV target of between RMB 750 billion and RMB 800 billion. 

“Kuaishou’s commercialization started earlier by building e-commerce based on social trust and connecting directly to the starting point of the supply chain,” said Xin Youzhi, a top livestreamer widely known as Xin Ba. He has 95.6 million followers on Kuaishou. 

To compare Kuaishou and Douyin, the livestreamer sales star explained that Kuaishou has a strong bond with users, who have dubbed themselves lao tie, or “buddies” in English, a term of endearment for the fans of livestream hosts. First gaining popularity among users in China’s lower-tier cities, the Tencent-backed firm is often described as the less sophisticated rival of ByteDance-owned Douyin. 

Merchants on Kuaishou were among the first to adopt the C2M (consumer-to-manufacturer) model, under which they directly give user feedback to upstream supply chain manufacturers. They thus can significantly reduce the marginal and intermediate costs and enable customers to buy more affordable products.

Meanwhile, Douyin has more social media features than Kuaishou. But the two video platforms are learning from each other to strengthen their e-commerce ecosystems, said Xin.

Short video as e-commerce challengers

E-commerce platforms are still far ahead in livestream e-commerce revenues. Taobao Live achieved a GMV of more than RMB 500 billion in the 2021 fiscal year ended March 2021. Douyin’s livestream GMV was RMB 100 million in 2020, according to a comparable fiscal calculation standard adopted by Alibaba. Douyin boasted a livestream GMV of RMB 500 billion in 2020, of which RMB 100 million was achieved through Douyin stores, according to a report by Forward Research Institute.

Compared with e-commerce platforms, short video platforms have advantages in terms of customer traffic and livestreaming scenarios, according to Xin Youzhi.

“Livestream e-commerce” for now puts the emphasis on e-commerce, not livestream. “Users on e-commerce platforms like Taobao and JD will buy, with or without livestreams,” said Sandy Shen, VP analyst with the digital commerce team at research and advisory company Gartner.

“As people spend more time on short video platforms, the apps could become super apps like WeChat, which cover every aspect of our daily lives, including e-commerce,” said Shen. 

Young shoppers lead the way

The trend is already apparent among Chinese youth. “Millennials, the core user group of short video apps, could be easily converted to consumers on these platforms,” said Shen. 

She added that short video apps are becoming an important entertainment and information channel for people from lower-tier parts of the country, where e-commerce platforms like Alibaba and JD have lower penetration. For this group, it’s natural for them to buy through a platform they are familiar with, according to Shen.

User attention is only the first step on the way to winning the e-commerce market, however.

“In the early stage, the live commerce industry relied on customer traffic, KOLs and livestreamers, but the core of live commerce is still e-commerce. That means e-commerce is always driven by products rather than by people. Customer traffic is not a panacea,” said Xin, who also runs his own retailer and livestream company Xinxuan Group.

In the meantime, the industry is also getting to the point where it has to face and adapt to a new developmental stage. The industry needs to push its limits with respect to people, goods and business models, according to Xin.

The short video apps still need time to improve behind-the-scenes capabilities from supply chain and logistics to KOL talent training and regulation compliance, Xin added.

China’s audio-visual content regulator on Wednesday banned short video creators from unauthorized editing and spreading of content taken from other platforms’ long-form TV dramas. 

Why it matters: The development gives legal backing to the claims of Chinese video streaming platforms, including Tencent Video and iQiyi. Both have accused short video platforms of copyright infringement and unfair competition by copying video clips from their hit long-form TV dramas. 

Details: China Netcasting Services Association (CNSA), a government-affiliated association with regulatory power, updated a comprehensive set of guidelines (in Chinese) for short video content on Wednesday.  

• The updated rules are intended to “remove vulgar and pandering content” and “counter the spread of illegal and pirated content,” according to the statement.

New rules: Under the new regulations, industry players are required to ban a wide range of content on their platforms, including:

• Content edited or adapted from films, TV dramas, or online TV series without authorization from the original producers.
• Films, TV dramas, online TV series, and foreign content that is banned or hasn’t been approved by state broadcasting authorities.
• Content that encourages users to participate in cryptocurrency mining and trading.
• Content that harms the growth of minors, such as drinking, violence, and drugs.

Context: The CNSA, which has more than 600 industry members, first released short video guidelines in 2019 to regulate the rapid growth of the short video industry. The association includes state-owned broadcasters such as CCTV and internet media companies from Alibaba and Tencent. 

• More than 70 TV and film institutions and 500 actors signed a joint statement in May, calling on short video and social media apps including Douyin, Kuaishou, and Weibo to respect copyright and stop re-editing and spreading pirated content.
• Short video apps, which have a heated rivalry with the longer video platforms, also screen their own homegrown content, especially short dramas. 

China’s Ministry of Education on Monday suspended the filing and review process for homework search apps that allow students to upload pictures of exam questions and search for related answers.

Why it matters: The move signals an extension of China’s sweeping edtech crackdown that began in July with the online after-school tutoring sector targeting K-12 students, once the most lucrative sector of China’s private tutoring market.

• Chinese edtech giants, including ByteDance, Yuanfudao and Zuoyebang, have already made deep headcount cuts in the wake of the crackdown.

READ MORE: Chinese edtech upended by sweeping regulations

Details: The education ministry said in the Monday statement (in Chinese) that it will suspend the filing and review process for all homework apps targeting primary and middle school curriculum courses, pausing approvals for related edtech apps. Those apps already listed on its filing platform must be taken down.

• The review process and relisting of homework apps will resume once developers get approval from local educational authorities.
• Online tutoring apps that could be affected include Yuanfudao’s Xiaoyuan Souti and Zuoyebang, although both of the apps have recently shifted their focus and labeling themselves as tools for parents and teachers.
• Zuoyebang has started the re-application process, a representative told TechNode. The company added that use of the app in the meantime won’t be affected and that the app is still available on app stores despite its removal from the ministry’s filing platform.
• The ministry cited negative impacts on students as the reason for the suspension, saying that the apps may make students “lazy,” affect independent thinking, and result in lousy learning habits by violating the rules of education and teaching.

Context: “Snap and search questions” is a popular feature in Chinese homework apps; it enables users to search for answers by taking screenshots of homework questions, thereby avoiding the difficulties of inputting hard-to-recognize characters, mathematical symbols, and equations.

• Despite its popularity, the feature sparked controversy this June when a student from China’s Hubei province was caught searching for answers with Xiaoyuan Souti (a homework search app) while taking the college entrance exam. The app’s maker said it reported the case to relevant authorities and didn’t answer the student.
• Edtech platforms such as Tipaipai and Afanti said in August that they would no longer offer homework search features.

China’s youth-focused video site Bilibili may launch a shopping cart feature in its livestream pages in the coming weeks, Chinese media 36kr reported on Tuesday.

Why it matters: Bilibili is getting serious about livestream e-commerce, hoping to diversify its revenue sources. The firm has previously made a few tentative steps in the area.

• Compared with market incumbents like Alibaba and Douyin, Bilibili is late to the livestream commerce game, which has seen rapid growth due to the pandemic. The Shanghai-based firm tries to differentiate itself from other platforms by selling products relating to its core content of anime, comics, and games (ACG). 

Details: The video site, listed on both the Nasdaq and Hong Kong exchanges, is talking with several content creators about introducing a shopping cart feature for livestream shopping, 36kr reported, citing people with knowledge of the matter.

• Similar to the shopping experience offered on Taobao Live and Douyin, users will be able to click into a shopping cart embedded in the livestream interface to browse product listings and place orders.
• Bilibili will support the livestreamers by allocating more traffic to them. The feature is already in a small-scale test stage, a second source told 36kr. 
• The feature would offer Bilibili’s content creators a new way to make money from their popularity.
• In its fourth-anniversary celebration event held in September, Bilibili introduced four content creators selling ACG products such as art toys and costumes during a four-hour livestream. It was viewed as an attempt to try out livestream commerce.
• Bilibili did not respond to TechNode’s request for comment on Wednesday morning.

Context: Bilibili’s third-quarter revenue was RMB734.0 million ($113.9 million), representing an increase of 78% from the same period in 2020. E-commerce accounted for 14% of the company’s revenue. 

• In November, Bilibili obtained a payment license, moving one step closer to launching its own online payment service, an important step for tech companies looking to build a closed-loop shopping experience for users. 

“Robots will replace human labor for indoor delivery in the future with higher efficiency and lower costs,” Yao Jincheng, founder and CEO of robot maker 3S Robotics, predicted at Beyond Expo on Saturday. 

Now widely used in shopping malls, office buildings, hotels and residential areas, robots are especially apt for solving the “last-100-meter-delivery problem,” or the final stop step of delivering products to a customer, according to Yao.

Yao’s comments come against the backdrop of a rising industry. The global market for indoor delivery robots was valued at $6.1 billion in 2020 and is expected to grow at a compound annual growth rate of 17% to reach $158 billion by 2027, showed a report by research agency Astute Analytica.

In addition to making deliveries, service robots are also undertaking a number of other roles, such as giving directions, taking care of the elderly or the disabled, assisting medical diagnosis and treatment, education, and entertainment.

Di Min, chairman of service robot maker Nanjing University Electronics, said he believed that technology and market resources are helping propel the sector. The company, which is mainly engaged in developing service robots for banks and financial institutions, says its robots have been deployed in more than 220,000 bank branches in China. 

Zhu Hanqi, CEO and founder of Enhanced Robotics, added that the industrialization and upgrading of the supply chain is providing another boost for the scaled application of robots. “Thanks to the rise of DJI, the price of drone motors dropped as the supply chain matured,” he said. 

“In contrast with internet companies, the service robot industry needs support from manufacturers along the industrial chain. That’s why the manufacturing centers in China, like the Greater Bay area and areas around Jiangsu province, are more advanced in the sector,” said Zhu, whose company develops AI-enabled consumer exoskeletons for fitness and hiking.

The commercial application of robots at scale still faces a number of challenges however. Beyond simply developing the best hardware, companies in the sector must take into consideration the regulations surrounding use of indoor delivery robots in commercial spaces as well as how they can be adapted to existing infrastructure, according to Yao, who cited the case of providing service robots for the Beyond Expo as an example. 

“To prepare for the event, we spent more than one month testing our delivery and temperature-taking robots in six hotels that accommodate Beyond Expo participants under the guidance of Macau travel agencies and hygiene authorities,” he explained.

“Logistics robots will become standardized parts like motors, ready to be used in various industries in the next five years,” said Xia Huiling, founder and CEO of intelligent sorting robot developer Libiao Robotics, at the Beyond Expo tech conference held in Macau on Friday.

In agreement was Zhu Junda, CEO of smart warehouse systems and equipment developer HC Robotics, when asked to predict the five-year outlook for the industry. “Warehouse and logistic robots should be widely-used tools with low thresholds for adoption,” he said. 

The panel was co-organized by GLP, a global investor and business operator in logistics, real estate, and infrastructure.

The robotics industry always looks to the future, but the panelists adopted a very practical approach in judging the present success of a company: whether its products will create value for clients, in very concrete and quantitative ways. 

“The pursuit for efficiency is our foremost principle in making all decisions when developing a product,” said Xia. 

She explained her points with the case of Uniqlo. After adopting sorting robots developed by Libiao Robotics in a warehouse with daily shipment capacity of more than 400,000 parcels per day, the Japanese garment retailer shortened the time from receiving an order online to delivering it from warehouses from eight hours to three hours. The number of staff was reduced by 75% and all the new warehouse employees only need one day of training before starting to work. 

“Value creation is only meaningful through these figures,” she said.

“The robotics industry may have a fancy aura surrounding it. But in essence, it’s still a business about moving things around. The core problem we are addressing now is how to move goods from one place to another at higher efficiency and lower costs, and to store more goods within fixed space,” said Zhu of HC Robotics. The company develops automated and modular storage shelves and warehouse management system solutions.

He Wenzhong, new energy special assistant to CEO at GLP, said the key for future success in logistics robots will be building a decentralized logistics network in order to remove the repetitive work resulting from a system that relies on big and centralized distribution hubs. 

Zhao Yue, chairman of smart logistics solution provider Seer Group, said the key for success is to build an ecosystem that connects every link along the industrial chain to create synergistic effects. Zhao’s company develops software solutions including controllers, logistics digitalization, and visual AI. Zhao referred to Seer’s products as the “smart brains” for logistics robots. Seer’s software solutions are used by more than 600 automatic hardware companies worldwide, said Zhao.

Beyond Expo has been underway at the Venetian Convention and Exhibition Center in Macau since Thursday. The three-day offline tech summit and exhibition has attracted more than 300 exhibitors promoting everything from artificial intelligence and biotech to smart cities. Giant firms such as Tencent, China Telecom, Alibaba, and Huawei joined with upcoming vertical unicorns to showcase their latest technological developments and products.

Here are some highlights in case you missed out.

Innovations from giant firms

At Tencent’s booth, the company demonstrated 15 ways its technologies are applied in smart cities, industrial chains, and healthcare, mainly concentrating on commercial applications in the Greater Bay Area, which consists of nine cities in the southern Guangdong province, Hong Kong and Macao.

One example was Tencent’s cooperation with the Macao Water Supply Company. Tencent’s productivity app, WeCom, has greatly improved the working efficiency of his company, according to Hu Jianchao, head of the water firm’s pipeline management department.

Before adopting the app, the company relied on phone calls to learn about water pipeline emergencies. Lack of real-time updates often led to miscommunications. WeCom has streamlined the emergency treatment process by digitizing case details such as the location of the emergency, onsite pictures, and the staff in charge of the case, Hu explained.

Telecom carrier China Telecom has developed a smart city transportation platform for Macao by integrating technologies including IoT, artificial intelligence, cloud computing, and big data. The app, which claims more than 100,000 daily active users in the city, supports major features like route management and bus stop reporting.

The company’s 5G-enabled robot dog drew a large crowd at the event. The dog can be useful in various scenarios such as accompanying and guiding visually-impaired people in emergency rescues, said Chen Zhanhong, a representative from the Macao subsidiary of China Telecom. 

Robots at work

Service robots are well on track for commercial applications as traditional sectors turn to automation to increase efficiency and slash labor costs. The trend got a strong boost from the pandemic, which gave rise to the new concept of “non-contact delivery.”

Now, service robots are giving directions at malls, supermarkets, museums, and hotels, as well as delivering food in restaurants, taking care of the elderly, and assisting with medical treatments.

Cars take to the air

As electric vehicles and autonomous driving become more familiar concepts to Chinese consumers, entrepreneurs are exploring the future of daily transportation.

Developed by Chinese drone maker EHang, EHang 216 is a dual-seat passenger grade autonomous aerial vehicle designed for short- to medium-range air transportation. The passenger drone can travel at a maximum speed of 130 km/h. It can fly for 21 minutes with a full-load capacity of 220 kilograms.

Xpeng Huitian, an autonomous aviation unit of electric vehicle maker Xpeng Motors, showcased its “flying car” prototype Voyager X2 at the event. With eight propellers on four axes, the passenger drone could carry two adults. It has a maximum load of 200 kilograms. The electric drone can travel 35 minutes at between 80 and100 kilometers per hour on one charge.

Discussion around a high-profile spat between French cosmetics giant L’Oréal and China’s top livestreamers Li Jiaqi and Viya filled Chinese social media last week. 

In a rare public dispute for the retail industry, the duo accused the cosmetics brand of failing to deliver on its promises in giving them the lowest price for a face mask product as part of pre-sale promotions for this year’s Singles Day shopping festival, the Chinese equivalent of Black Friday in the US.

Furious users, who made purchases through the pair’s livestreams only to discover the product was available for cheaper days later on a separate L’Oréal’s livestream, voiced their discontent with the cosmetics company after it was publicly called out by the star livestreamers, and demanded the brand refund the difference.

With the popularity of live commerce, brands have become increasingly reliant on popular livestreamers as a sales channel to drive their revenue. The incident shed light on the hidden machinations between livestreamer KOLs and brands, who were once inanimate partners looking to capitalize on the live sales trend but have seen such relationships grow increasingly complex.

In recent years, China’s e-commerce environment has shifted to favor sustainable growth and profitability, not a win-at-all-costs pursuit of gross merchandise value (GMV). But that doesn’t mean that brands have abandoned steep discounts as a sales tactic – far from it, many are using such promotions to lure in customers who they then hope to build long-term relationships with. The dispute shows how much power – and sometimes how little agency – KOL livestreamers have as part of such collaborations.

A brief timeline

• Oct. 20: Several top livestreamers, including Li Jiaqi and Viya, promote L’Oréal’s Revitalift Filler mask in their livestream sessions on the first day of Alibaba’s pre-sales for Singles Day 2021. Fifty masks are sold for RMB 429 ($67), a deal that’s promoted as the lowest price all year. Li Jiaqi and Viya sell more than 800,000 units of the product, raking in around RMB 350 million.
• Nov. 1: Consumers find that the same product package is being sold more than a third cheaper at only RMB 257 on a livestream held by L’Oréal’s Tmall store. Angry buyers who placed orders via the pair’s livestreams ask the brand to refund the difference. The livestreamers redirect users to complete purchases on the brand’s Tmall stores.
• Nov. 17: Li Jiaqi and Viya explain in seperate statements that L’Oréal’s RMB 200 discount to users who spent more than RMB 999 is the cause of the price difference. “This is unfair for consumers who watched their clock to tune in to our show on October 20,” both streamers declare. The livestreamers suspended their collaboration with L’Oréal, giving the company 24 hours to come up with a solution. In a recognition of how damaging this could be to their personal brands, both stars pledge to compensate users out of their own pockets if the cosmetics company fails to make amends.
• Nov. 18: L’Oréal apologizes for the confusing promotion mechanism and explains that some consumers were able to purchase its products at a lower price in its online store because they used multiple discounts offered by the store and e-commerce platforms. After this fails to quell the backlash, the skincare giant says in a second statement that it will offer shopping vouchers to affected customers to settle the dispute.

Even this announcement fails to satisfy some users, however. “Why do I need the voucher? You expect me to buy your products again?” asked Weibo user “Wuyuemeirendemengda”.The sentiment is shared by many. A hashtag on the microblogging platform, “Why do I need the vouchers”, attracted 110 million views.

The condemnation was joined by state-backed media outlet People’s Daily, which criticized the company in a post from its Weibo account, saying the cosmetics brand’s blaming of complicated promotion mechanisms fails to address the more serious accusations of false advertising.

Others argued there was no “significant wrongdoing” on the part of the company because the promotion on its own store covered various products, while the promotion by the livestream KOLs only covered a single product. Regardless, the incident demonstrated the pitfalls of livestream strategies and resulted in several days of heated debate – not to mention some awkward headlines for the French brand.

A new way to shop the sales

Whereas Singles Day was once about hopping from store to store in search of a deal, the emergence of livestream e-commerce has seen hundreds of millions of buyers swarm to these virtual sales rooms to trust in livestream stars to guide them to the best bargains.

Fans of the “lipstick king” and the “livestream queen”, nicknames for Li Jiaqi and Viya, have spent lavishly and fearlessly because they believe the livestream figureheads will bring them the best deals. Consumers expect the products they recommend to be of high quality and to be sold at a low price that can’t be beaten anywhere else on the internet – thus, trust is crucial. 

This idea is so important to the presenters’ personal brands and income, that Li Jiaqi even starred in a hit variety show ahead of this year’s Singles Day which showed him bargaining with some of the biggest cosmetics firms in the world. Entitled Offers to Every Girl, the eight-episode show saw Li argue with firms including LVMH and Perfect Diary, bringing sales heads to their knees to gain extra-low prices.

The marketing worked. Buyers spent a combined RMB 18.9 billion during Li and Ziya’s livestream sessions on Oct. 20, the first day of Taobao’s Singles Day 2021 pre-sales.. 

Such numbers are only possible because the top KOLs have mostly delivered on their promises, yet this year things are beginning to change as brands shift their focus to store streaming or corporate streaming, a channel that addresses their new strategic focus of long-term growth.

Rise of the store-specific livestream

While the livestream model that Li Jiaqi and Viya have made their names with still retains enormous popularity, store-specific livestreaming, where brands or merchants promote their products through their own flagship stores either on Tmall or other platforms, is on the rise.

In its early stages, the live e-commerce industry relied on KOLs and livestreamers to bring them the traffic, but now an increasing number of mature brands are launching their own livestream sessions rather than relying on KOLs to promote their products, according to Echo Gong, an analyst at research agency Coresight. The trend is especially clear among companies that have already built a strong brand awareness and therefore feel increasingly emboldened to attract their own audiences. 

In addition to saving on the hefty commission fees star livestreamers now command, merchants also believe that they can direct user attention to their own marketing channels for long-term operations, thus building user loyalty. This trend was on full display during this year’s Singles Day shopping festival, where numerous merchants focused on long-term benchmarks such as customer retention, operating profit, and customer lifetime value, rather than judging themselves purely on sales numbers, according to a report research institute Bain released before Singles Day.

READ MORE: Singles Day 2021: Slower growth, more sense

During last year’s Singles Day promotional period, more than 60% of Taobao Live’s revenue came from corporate livestreams. According to data from iResearch in 2020, the sales of store-specific livestream accounted for 32.1% of the total live e-commerce industry in 2020, and it is expected to reach nearly 50% by 2023.

Xin Youzhi, also known as Xinba, a top livestreamer KOL with 95.6 million followers on video app Kuaishou, says he’s optimistic about store-specific livestreaming in the future. “The core of live commerce is still e-commerce,” he told TechNode “That means e-commerce is always driven by products rather than by people. Customer traffic is not a panacea.”

Conclusion: There’s no getting away from the fact that discounts will still be the most effective means to attract users for the foreseeable future given Chinese buyers’ long-ingrained taste for deals.

But promotions come at a cost. Instead of spending a huge chunk of their budgets on celebrity livestreamers, brands are increasingly looking to spend more tactically with the goal of attracting users to their own stores.

Disputes like the one between L’Oréal and its star livestreamers appear to damage everyone without a clear winner emerging. This specific incident tarnished the French brand’s image, while Li Ziqi and Viya were suspected in some quarters of monopolistic behavior.

The price bargaining power of livestreamers is “scary”, Weibo user Zeicha declared in a post on the microblogging platform in the wake of the public spat. “Similar to e-commerce marketplaces like Taobao, top KOL personalities like Li and Viya are platforms themselves. Instead of distributing customer traffic among the merchants, they hold onto the traffic on their own.”

Brands seem to have woken up to this too, meaning we could now be set for a whole new phase of livestreaming e-commerce.

ByteDance is laying off more than 1,000 staff from its edtech businesses following the deep cuts it made in the sector in August. The newer round is concentrated in the K-9 education units, a person with knowledge of the matter told TechNode. The person declined to be identified.

Why it matters: TikTok owner ByteDance is the latest Chinese tech giant to retreat from online tutoring services targeting students up to grade nine, or K-9. All are responding to China’s crackdown on private tutoring services in late July.

• The current layoff comes only three months afters job cuts in August.

Details: The layoffs will affect more than 1,000 employees. The source said ByteDance is mainly cutting in business units that offer after-school tutoring services for primary and middle school curriculum courses. This once lucrative sector is now fast downsizing.

• ByteDance’s after-school tutoring services for K-9 students include pre-K education platform Guagua Long and online course livestream apps Qingbei and Xuelang.
• Local media LatePost (in Chinese) reported Wednesday that this round of layoffs also affects core teams in product development, operations, and research and development. In contrast, in August, ByteDance laid off edtech workers mostly in supporting teams such as sales and tutoring.
• ByteDance staff on English tutoring platform Kaiyan, education hardware teams, and school collaboration teams were also affected in this round of job cuts, LatePost reported.
• The company’s edtech business has cut roughly a third of its headcount from 15,000 at the beginning of this year to fewer than 10,000 now, according to Late Post.

Context: Over the past two months, China’s top private education companies TAL, Gaotu Techedu, and Koolearn Tech have announced plans to stop offering curriculum tutoring services to students in K-9 grades in response to China’s broad ban on private tutoring services in late July.

Box.Game, a China-based coding platform for youth, has closed a $5 million angel round to help build a 3D virtual world where young users can create, play, and socialize.

Why it matters: The funding is a sign of how hot the metaverse concept or its buzzword value has become globally. The company claims it is the first youth-focused metaverse project in China to attract new funds this year.

• Coding is taught in STEM courses, which are considered “quality education” in China. Compared with online tutoring for compulsory curriculum subjects, they have been less affected by China’s sweeping crackdown earlier this year on private schooling targeting K-12 students.

Details: Box.Game said in a Nov. 18 press release shared with TechNode that the round was led by Atypical Ventures, a venture firm founded by former DCM partner and Kuaishou angel investor Ruby Lu. The project was incubated by Codemao, a leading coding and AI education company.

• The proceeds will be used to support the development of “a metaverse for teenagers and youths” to create an interconnected virtual world of their own. 
• With the round, the company plans to expand its existing 50-member team and to launch content creator incentive plans.
• Sun Yue, the Codemao founder who also leads Box.Game, said the Web-based multiplayer content creation platform would rely on organic growth rather than large-scale marketing for short-term growth.
• The company emerged as a youth-focused platform but Sun expects it to expand to other age groups. “Box.Game aims to be a metaverse for creators of all ages,” he told TechNode.
• Amid tightening regulation of online education and gaming in China, Sun said coding training is among the few subjects the state encourages for extracurricular education. “Content creation can take multiple forms, and gaming is just one of them. We provide the platforms, and it’s up to the creators to decide what content they will take,” Sun said. He added that the company will comply with local regulations while facing a global market.
• “We have seen the creativity of Chinese children on the Box.Game platform and were impressed by those young users,” said an Atypical Ventures representative.

Context: Parent company CodeMao is a top edtech firm. It has received total of more than $360 million in funding from investors such as Hillhouse Capital and the investment arm of smartphone maker OPPO. In addition to the domestic Chinese market, the Shenzhen-based firm plans to expand to other Asian countries and Europe.

• With its self-developed Box 3D Engine, creators can build various content, from games to art items, on the platform.
• Starting from an incubated project within Codemao in 2018, Box.Game was launched in June this year. As of September, the platform has reached 1 million monthly active users, about 8% of whom are game developers.

Chinese tech giant Tencent announced Thursday it was ending its content creator incentive plan called “Project Dawn” after prompting wide backlash from content creators.

Why it matters: The competition among tech giants for quality content is reaching a fever pitch in China, but creators are pushing back against what they see as attempts to devalue their work.

Details: Tencent’s open content platform said in a Thursday statement (in Chinese) that it has terminated its content creator incentive program “Project Dawn,” which aimed to lure original content creators with monetary rewards for their work. On top of that, the company apologized to creators that were affected by the program.

• Tencent launched the project in July, pledging to give RMB 10 million ($1.5 million) in subsidies to empower and attract more video content creators to its platform. The project aimed at creators from various popular platforms such as Bilibili, Xiaohongshu, and video apps like Kuaishou, promising to help the creators promote their content across platforms and increase their revenue. 
• Several creators on the Chinese video platform Bilibili began to voice their discontent (video, in Chinese) last week, claiming Tencent tricked them into joining the program, which failed to deliver its promises. 
• The creators claimed that Tencent ran the program through a number of multi-channel networks (MCNs), which would take as much as 90% of the one-off incentive fee of RMB 200 promised to each creator by the platform.
• Bilibili creators who gave their ID information to MCNs after joining the program found their videos, which had already been uploaded on Bilibili, were copied to the Tencent platform and labeled as exclusive content there. As a result, their accounts were subsequently blocked on other sites for alleged piracy. Tencent refuted these claims in its statement, saying that it has never labelled content exclusive, “nor has it tried to obstruct creators’ profile on other platforms.”
• Tencent said content creators that want to leave their platform can cancel their account, an option that only became available on Nov. 9. Those who want to stay will now get the promised income from Tencent directly, instead of through MCNs, the company said.

Context: This is not the first time Tencent has faced a content creator backlash. The company’s online reading arm China Literature was subject to an author revolt due to what they saw as exploitative rules in 2020.

READ MORE: INSIGHTS | Who owns ‘internet literature’?

Update: The story has been updated with Tencent’s statement on exclusive content complaints.

Alibaba’s community group-buy arm Taocaicai suspended operations in southwestern China’s Guizhou province on Tuesday. Chinese media attributed the suspension to its accessibility issues within the WeChat ecosystem.

Why it matters: Despite Chinese regulators ordering tech giants to tear down walls between the services, blocking moves to fend off competition still persist.  

• The road to success in China’s community group-buy market, even for e-commerce giants the size of Alibaba, remains bumpy. Since mid-2021, market consolidation has wiped out some of the top rivals in the industry.

READ MORE: China’s grocery delivery fever is cooling down

Details: Taocaicai said in a Tuesday statement that it will stop operations in Guizhou. The firm stated that it will update the digital system for the region to “avoid the service barriers incurred by connectivity issues,” insinuating its lack of access to Tencent’s superapp WeChat is to blame. The company didn’t mention a timeline for resuming services in the region.

• Although the statement refers to the reason for the suspension in vague terms, an employee of Taocaicai told Chinese media Tech Planet (in Chinese) that the move is largely the result of the application experiencing delayed software updates on WeChat’s mini-program system (an app-store-like ecosystem within the app). The delay leads to inferior user experiences, the source added. 
• Taocaicai failed to get its WeChat mini-program updates approved for more than seven months despite continuous efforts to communicate with the platform, says Antonio Liu Neng, who identified himself as a programmer at Taocaicai in a post published on professional networking platform Maimai. By comparison, Tencent-related community group-buy platforms such as Meituan Select and Duoduo Maicai update weekly.
• WeChat mini-programs are a vital channel for community group-buy services to reach customers, especially in lower-tier cities where people rely on WeChat more for daily tasks and transactions. 
• Delayed updates to WeChat mini-programs harm Taocaicai’s ability to attract and retain users with sophisticated social functions such as lucky draws and coupons, said the Tech Planet report.
• However, the suspension won’t affect much of Alibaba’s community group-buy business, since Guizhou represents only a small portion of the company’s activity, said the report. The platform recorded more than 13 million daily orders in November, trailing only Meituan Select and Pinduoduo’s Duoduo Maicai in volume, thanks to growth in provinces such as Guangdong, Jiangsu, Hubei, Anhui, Shandong, and Henan.

Context: Alibaba, which has placed big bets on community group-buy services, is aiming to take over the market share left after rivals like Tongcheng Life and Shixianghui exited in recent months.

• In September, Alibaba rebranded its community group-buy services to Taocaicai by incorporating two existing community grocery services, Freshippo Market and Taobao Maicai.
• Authorities have made it clear that companies must stop blocking links to rivals’ services on their apps.
• Alibaba and Tencent have begun to heed Beijing’s orders over the past few months by partially opening their services to each other.

Deng Shuang, a Shanghai mother of a six-year-old, stayed up past midnight Nov. 10 just so she could snag an RMB 90 ($14.11) discount limited to customers who paid before 1:00 am on Nov. 11. But there were many fewer impulse buys for her on this Singles Day. “This year, I only buy stuff that’s useful,” she said.

Ding Zhe, a Shanghainese engineer, said he’s never been caught up in the Singles Day shopping frenzy. But he almost doubled his budget to RMB 1,800 this year. “My increased spending is not due to rising spending enthusiasm, but a result of real consumption demand,” he explained.

Singles Day is still a big deal, but people were less obsessed with the shopping event this year, at least as indicated by sales trends. Total sales still grew, but the growth rate was much slower, back to the tempered trajectory before the 2020 surge fueled by the pandemic.  

Also known as Double 11, the Singles Day holiday was started by college students as a cheeky meme to mock their singlehood. Alibaba turned the day into an online shopping festival in 2009. More than a decade later, it’s China’s largest shopping extravaganza and stretches over 11 days. Alibaba alone booked RMB 498.2 billion ($74.1 billion) gross merchandise value (GMV) during its Singles Day promotion last year, dwarfing Black Friday’s $9 billion GMV take in the US for the same year.

Skyrocketing sales were almost the only thing e-commerce platforms cared about for most of the history of Singles Day. But this year, they have more important matters at stake. 

Chinese e-commerce giants are seeking to prioritize broader and longer-term goals toward common prosperity and sustainability, themes that align with Beijing’s drive to reshape China’s economy. On top of that, retailers are also looking sideways for sustainable growth and profitability instead of winning top-line growth during the shopping season at all costs.

Alibaba’s chief marketing officer, Chris Tung, described the shift as a “coming-of-age moment” for the festival to take more “social responsibilities.”

All the changes point to a quieter 2021, but what’s more important is how the e-commerce titan will keep the retail ball rolling in the face of regulatory headwinds, fierce competition from rivals, and waning enthusiasm from retailers and buyers alike.

Alibaba’s slowest GMV growth ever

It was a lackluster year for Alibaba’s Singles Day event in terms of sales growth. The creator of the shopping event generated RMB 540.3 billion ($84.5 billion) in GMV during the 11-day promotion that started Nov. 1. That figure represents 8% growth from the RMB 498.2 billion GMV last year—a steep fall from the 26% year-on-year growth recorded in 2020. It is the first time in the past decade that Alibaba has recorded single-digit growth for Singles Day. Yet that figure wasn’t surprising, since it is basically consistent with the slower 13% year-on-year GMV growth rate for the financial year ended in March this year. 

Alibaba Vice President Yang Guang emphasized the “social responsibilities” of the festival in a Friday statement, calling this year’s festival a “meaningful milestone” as part of the company’s commitment towards building a sustainable future.

JD.com, however, reported a faster growth rate in Singles Day GMV than Alibaba. The online retailer recorded RMB 349.1 billion in GMV during the event, an increase of 28% on the company’s 2020 figure for the period, compared with 33% year-on-year growth in last year. 

As usual, Pinduoduo didn’t release any Singles Day sales figures. According to Douyin, livestream sessions on the platform attracted 39.5 billion viewers, and a total of 577 merchants achieved more than RMB 10 million GMV during its 16-day promotion from Oct. 27 to Nov. 11.

Nov. 11, the date which was the source of the festival, has become less important in generating sales ever since Alibaba, the largest player in the game, extended shopping windows last year.

China’s overall e-commerce sales across platforms for Nov. 11 dropped for the second year in a row to RMB 314.6 billion. That’s 6% down from RMB 332.87 billion recorded last year, according to data from China-based data services company Syntun.

Alibaba’s Tmall accounted for 57% of the total GMV on the day, followed by JD’s 27.6%, and Pinduoduo’s 6.4%, the report shows. 

Competing for fickle customers

Competition among platforms remains fierce and customer loyalty continues to decline. Over half of consumers surveyed by Bain & Company this year said they would buy from three or more platforms during Singles’ Day.

Tech companies encouraged spending with bigger discounts, quicker delivery, and more social services this year. 

• Alibaba buyers get a RMB 30 discount for every RMB 200 spent at all its stores, compared with RMB 40 discount for every RMB 300 spent last year. 
• Alibaba and JD kicked off this year’s Singles Day promotion at 8:00 pm Nov. 10, four hours earlier than the traditional launch time. 
• Alibaba introduced a shopping cart sharing function, which allows users to check what their friends are buying during the event, thus adding more social elements to the shoppertainment experience. 
• JD.com rolled out the on-demand “Nearby” channel, offering fast one-hour delivery services of high-quality products from nearby stores.
• This is the first Singles Day for JD to support payment with China central bank’s digital currency, which was released in December last year. More than 100,000 consumers made 240,000 purchases on the platform during the 11-day festival, says the company.

National goals in retail language

From hefty fines to stricter market guidelines, tech giants have learned some hard lessons in the past year as Beijing abandoned its laissez-faire attitude in favor of tightened regulation of the sprawling growth of Chinese tech companies. 

It’s no secret that Chinese tech firms are scrambling to heed Beijing’s call for broader goals like common prosperity and sustainable growth by committing hundreds of billions RMB to charitable efforts. 

In the wake of changes in macro environments, e-commerce titans, especially Alibaba, are bearing the brunt of regulator wrath. So it made sense that Alibaba would use Singles Day, its most efficient marketing tool, to translate Beijing’s policy changes into retail language relevant to the mass consumers.

READ MORE: Insights | Why Chinese tech giants are becoming very generous

Singles Day promotion priorities reflected every major regulatory push from the state:

• Promoting green lifestyles: During this Singles Day, Alibaba’s Tmall featured a dedicated vertical to showcase energy-efficient and low-impact products, as well as issuing RMB100 million worth of “green” vouchers to incentivize shopping decisions that contribute to an environmentally-friendly lifestyle.
• Reducing carbon emissions during delivery: Alibaba’s logistics arm Cainiao Network introduced package recycling to reduce the carbon footprint. Similarly, JD also pledged to reduce packaging wastes, adding that the 2021 Singles day promotion will be the largest ever where renewable energy is being used. Last year, President Xi Jinping announced that China aims to achieve carbon neutrality by 2060.
• Supporting vulnerable populations: Alibaba’s Taobao app introduced an option for “senior mode” for senior citizens, answering the state’s call to bring the elderly online. Alibaba will make a RMB 1 donation for every successful social media share of its “Goods for Good” program, which enables merchants to make donations to senior citizens or left-behind children in remote areas.

Although the state is promoting the common prosperity concept and tech giants are spreading the word, experts expect the impacts of the common prosperity initiative will be long term. There will be a “very limited effect” on consumption in the short term, according to Liu Jing, professor of accounting and finance and associate dean at Cheung Kong Graduate School of Business (CKGSB) in Beijing. 

“My guess is that it will only hit the luxury sector if the overall economy stalls or if the government actively tries to tamp down luxury consumption. The demand for luxury goods is a natural sign of economic prosperity,” he said.

The question of what can replace GMV as the most direct indicator of e-commerce festival success has become more acute. “There are no intuitive replacements,” said Michael Norris, head of research and strategy at Agency China. 

“If I were an e-commerce platform, I’d direct analysts’ attention towards growth in average user spend during e-commerce festivals,” he said.

Merchants look at user fidelity

Along with a shift in focus by e-commerce platforms, merchants and brands are also seeking a new definition of Singles Day success—one that’s centered around long-term growth rather than big figures for one event.

Despite extended promotions, the magic of Singles Day is “fading away,” according to Sharry Wu, EY Greater China’s consulting business transformation leader. 

“Mid-to-small ‘new retail brands’ are at a disadvantage in resource competition, and Chinese consumers are also contemplating purchase decisions during 11.11 due to the concern of mendacious price drops and product service quality,” she said.

Brands are less attracted by major platforms like Taobao Tmall and JD due to the intense battle in volume prices, according to Wu. To compete for sales, e-commerce platforms and retailers should learn about their customers through data,” she added.

In addition to GMV and monthly active users, James Yang, a Bain & Company partner in the Greater China retail practice, suggests brands judge themselves against benchmarks such as net promoter scores (an index measures the willingness of customers to recommend a company’s products or services to others), customer retention, operating profit, and customer lifetime value. 

“Retailers should think beyond just Singles Day to invest in winning during a broader spread of events across the year,” he said.

Consumer enthusiasm wanes

Consumers are losing their appetites with the proliferation of shopping festivals and abstruse discount methods. They will become more rational in spending, observed Echo Gong, an analyst with research agency Coresight. “More and more consumers will do their own research before placing the orders, and only buy big-ticket items at the biggest discounts.”

The China Consumers Association, a state-backed advocacy group, warned consumers on Nov. 4 of misleading prices during Double 11. 

Lower-tier cities are the main driver of new user growth, although consumers from higher-tier cities will still be the major shoppers. A report from Bain & Company expects more first-time Singles Day shoppers from lower-tier cities than from first and second-tier cities.

They may not be first-time online shoppers, however, given that platforms like Pingduoduo have reached many consumers in lower-tier cities. It’s therefore possible that shoppers from smaller cities will take part on Taobao’s platforms during such a big sales day, according to Zhang Gang, assistant professor of economics at CKGSB.

Conclusion: After more than a decade of development, e-commerce platforms and brands should understand that Singles Day is not their guaranteed sales booster.

Singles Day is good news for consumers looking to buy products at a lower price. But whether the event is sufficient to stimulate economic recovery hinges on how effectively new brands emerge to create new demand and how widely Singles Day penetrates across the country, according to CKGSB’s Zhang Gang.

China’s top market regulator introduced Friday a draft rating system for Chinese internet companies in an attempt to define their services and corresponding responsibilities. 

Why it matters: China is continuing to beef up efforts to regulate the internet by establishing an oversight framework for its technology sector; the proposed rating system follows numerous penalties this year for offenses ranging from monopolistic practices to data breaches.

READ MORE: China’s tech giants aren’t ‘immune’ to antitrust anymore

Details: The State Administration for Market Regulation (SAMR) on Oct. 29 issued for public comment draft guidelines for a rating system for Chinese internet platforms that includes platforms’ future responsibilities. 

• The Chinese market watchdog will classify internet platforms into six categories according to industry, namely online sales, life service, social entertainment, information, financial services, and computational applications.
• The platforms are further classified into super, large, and medium-and-small based on their user scale, business type, and capacity.
• The regulator defines super platforms as those having more than 500 million annual active users, a wide range of business types, and a market value of more than RMB 1 trillion ($156 billion). The description applies to tech giants such as Alibaba, Tencent, ByteDance, and Meituan.
• Large platforms are defined as having more than RMB 50 million annual active users and a market valuation of more than RMB 100 billion. The draft doesn’t give specific benchmarks for medium and small platforms, only referring vaguely to them as having “certain” users and market caps, among other criteria.
• Super platforms are expected to uphold more responsibilities by playing a leading role in promoting fairness in competition, opening up their ecosystems, securing data, developing risk management, and fostering innovation.
• The concept of a “super platform” will be “conducive to deepening the understanding of antitrust issues and addressing the balanced development of platforms,” according to SAMR.
• The public comment period runs until Nov. 8. SAMR gave no indication when the rules would go into effect.

Context: The total value of Chinese internet platforms with a market cap greater than $1 billion increased from $770.2 billion in 2015 to $3.5 trillion in 2020, with an average annual compound growth rate of 35.4%, according to data from the China Academy of Information and Communications Technology.

• China’s antitrust crackdowns this year have punished such super platforms as Tencent, Alibaba, and Meituan.

Chinese food delivery giant Meituan has begun to carry out a new business strategy, focusing more on growing its retail business. The company made a few top-down organizational changes to support its new strategy, pivoting from “food plus platform” to “retail plus technology,” Chinese media LatePost reported on Wednesday. 

Why it matters: The Tencent-backed firm is seeking new growth points amid intensifying regulatory pressure. 

Details: Meituan founder and Chief Executive Officer Wang Xing announced in an internal meeting on Wednesday that the company is going to set up a special team to oversee the operation of its retail business, the new business priority for the company, LatePost reported.

• The team includes five members, including CEO Wang Xing, Wang Puzhong and Chen Liang. The latter two are senior vice presidents overseeing the company’s home delivery and grocery delivery arms, respectively. The other two members are Guo Wanhui, the head of restaurant produce delivery platform Kuailv, and the head of Meituan app Li Shubin.
• The company has integrated the business of Meituan Youxuan, a community grocery unit and Kuailv to increase efficiency. Chen will lead the integrated team with assistance from Guo.
• With the move, Meituan is taking a leaf out of Amazon’s book, which created a similar D-team in 2008, a critical transitional phase for the e-commerce giant to shift to a digital giant.
• Guo Qing, a member of the company’s senior executive team called S-team and manager of its transportation unit, is going to leave the company to work on his own startup, according to LatePost. Home delivery president Zhang Chuan reportedly will replace Guo.
• Meituan declined to comment on the story when contacted by TechNode Friday morning.

Context: Meituan and several other Chinese tech giants have been under growing scrutiny from regulators as well as the public. Meituan was fined RMB 3.4 billion ($534 million) for anti-competitive practices earlier this month. 

• Meituan has suffered a brain drain over the past years, with at least eight executives leaving since 2019. Senior vice president and co-founder Wang Huiwen left the company at the end of 2020.

For this year’s Singles Day shopping festival, there will be more first-time shoppers from lower-tier cities than from first and second-tier cities, according to a report published Wednesday by management consulting firm Bain & Company.

Why it matters: The change highlights a symbolic shift for e-commerce growth in tier-three cities and below, cities often projected as the new growth engine for e-commerce in China.

READ MORE: Singles Day 2020—bigger, longer, and more live

Details: Chinese consumers remain passionate about the annual fall event, China’s largest online shopping festival. Started as a one-day event by e-commerce giant Alibaba thirteen years ago on Nov. 11, it has grown to a month-long shopping spree with participation by scores of platforms. Overall, 95% of the 3,000 netizens who joined the survey hoped to make purchases, according to the Bain report.  

• About half of those surveyed said they plan to spend more than last year; only 8% plan to reduce the spending. The average expected expenditure per customer was RMB 2,104 ($329). Female buyers are expected to spend more than males.
• China’s e-commerce market remains fragmented, with more than 50% of the consumers intending to shop on at least three platforms, the report shows.
• “Retail in China is approaching a point where there can be no growth strategy without a loyalty strategy,” said James Yang, a co-author of the report. 
• Over the past decade, Chinese customers grew used to deep discounts and aggressive competition between platforms as both platforms and brands focused on getting large GMV (Gross Merchandise Value) figures. Platforms are placing less emphasis on GMV these days. 
• The report points out that retailers and platforms are paying more attention to new benchmarks, like customer lifetime value and consumer retention; these measures can help them to win “during a broader spread of events across the year,” the report said.
• E-commerce giants like Alibaba and JD are already cultivating loyalty with membership programs offering more values, better customer support, and faster deliveries.

Context: The first platform to launch Singles Day this year, Alibaba began events on Oct. 20, emphasizing sustainability and inclusiveness. 

• Alibaba’s Taobao online marketplace crashed and stayed down for 17 minutes on opening day due to a traffic spike generated by a sudden inflow of “over enthusiastic” customers, the company explained in a Weibo post.
• Top KOLs like Austin Li and Viya achieved total sales of RMB 18.9 billion during their livestreaming sessions on Oct. 20.
• JD launched its month-long promotion for Singles Day on Oct. 17, by adding to its campaign a new on-demand delivery feature together with its grocery delivery affiliate Dada Nexus Group.

Less than six months after Ayayi first popped up on the Twitter-like social network Weibo in May, she had attracted more than 512,000 followers, many of them millennial female office workers. A hashtag of her name has pulled more than 5.5 million views on lifestyle platform Xiaohongshu. A fashion-forward, white-blonde 20-something with flawless skin, Ayayi is still relatable.

She posts about mundane matters like commuting on the Beijing subway or watching grandpas play chess on the sidewalks. Soon a powerful influencer, she snagged deals to promote upscale brands like Louis Vuitton and Givenchy. Somehow, she even has time to work as the digital manager of Alibaba’s Tmall Super Brand.

But then, Ayayi is not human. She is a virtual idol developed by Shanghai-based Ranmai Technology. She is one of over 20 virtual characters trending on Xiaohongshu, receiving lots of attention from fashion names searching for new channels to engage with consumers. With multiple job titles from NFT artist to fashion brand manager, Ayayi has worked with brands such as Sandro, Bose, and Fila. Ranmai Technology, a startup that develops digital human images and storylines, reportedly has a net worth of RMB 600 million (around $93.9 million).

Xiaohongshu, often referred to as China’s Instagram, already embraced an active KOL (key opinion leader) community as an efficient marketing vehicle for brands to promote their products on the social commerce platform. The company is now taking a virtual turn for its KOL strategies.

Xiaohongshu is among a slew of Chinese tech firms scrambling to capitalize on China’s virtual idols boom of the past two years. Early on, virtual idols caught the attention of tech giants like Alibaba and ByteDance.

But will the current buzz prove to be a high watermark for the industry? Or are the virtual idols here to stay?

Bottom line: Virtual idols remain a niche market targeting only a small group of ACGN (animation, comic, game, and novel) fans, although Chinese companies have been developing digital characters for the past decade. The sector is on the upswing this year thanks to technological developments, the coming-of-age of teenage ACGN fans as independent consumers, and China’s recent crackdown on the fan economy due to scandals involving human idols.

“Because China’s digital landscape is rapidly changing, it’s difficult to predict whether virtual KOLs born in the current ecosystems will be able to keep up with the way the digital ecosystem will evolve. But one thing is certain: major Chinese tech companies are all jumping on the virtual KOL bandwagon.”

— Pablo Mauron, partner and managing director of Digital Luxury Group

What are virtual idols?

Virtual idols are computer-generated animated images. Developers use advanced animation and rendering technologies to produce characters with finely detailed facial expressions and body movements. 

While they resemble real human beings to varying degrees, the virtual figures in the “metaverse” may boast even greater diversity. Different forms fulfill different roles. In addition to hiring virtual idols from the West like the fashionista influencer Noonoouri (created by German designer Joerg Zuber) and the freckled “musical artist” Lil Miquela (the brainchild of little-known Los Angeles media startup Brud), China is creating plenty of its own popular and profitable virtual personas.

• Virtual idols have various personas such as singers, bands, KOLs/influencers, and broadcasters. Some are derivatives from existing IPs, virtual counterparts of human idols (e.g., pop star Jackson Yee with his virtual counterpart Qianmiao), or avatars of consumer brands.
• Virtual singer Luo Tianyi is one of China’s most famous virtual idols. The 9-year-old singer with elongated anime-style limbs has more than 5 million followers on Weibo. She has represented such companies as Chang’an Automobile, Huawei, and Shanghai Pudong Development Bank.
• Ling is a persona that combines classical Chinese beauty with contemporary style. She has 422,000 followers on Weibo, and has promoted brands such as Tesla, Vogue, and hip tea chain Nayuki.
• A-Soul, a virtual pop girl group, became an instant hit on Chinese video-sharing site Bilibili after its launch in late 2020. The group, developed by Chinese celeb agency Yuehua Entertainment and Bytedance, has more than 3 million fans across platforms, mostly China’s young anime fans.
• With the development of technology, computer-generated figures have acquired  increasing resemblance to human beings over the years, evolving from 2D animated figures like Luo Tianyi to 3D virtual figures such as Lil Miquela. 
• The trend got another boost due to the growing global interest in the metaverse, an online world where people exist and communicate in shared virtual spaces. (Stay tuned for TechNode’s metaverse feature next week).

Virtual idols as a business

Virtual idols are deployed for various lines of business such as brand endorsements, live broadcasts, and even offline marketing campaigns.

Reggie Ba-Pe is the co-founder of Club Media, an entertainment agency that created virtual punk artist Ruby 9100 and a few months ago launched Shanghai-based virtual persona Maie. Ba-Pe reckoned that virtual humans are expensive, production heavy, and time-intensive.

Virtual idols as a marketing tool: As members of China’s Gen Z grow into independent consumers, they are bringing their tastes and wallets with them. And it’s no surprise that the brands are adapting the latest fads to tap consumers.

• Tie-ups with brands are a main revenue source for virtual idols. The fact of the matter is that brands need to be where their audiences are and audiences are flocking to virtual spaces, said Ba-Pe, speaking from the experience of cooperating with Adidas for a co-branded sneaker “designed” by Club Media’s digital artist and stylist Ruby 9100m. 
• “Younger audiences are shying away from traditional social media and gravitating towards video games and virtual spaces. These virtual spaces will need content, culture, and entertainment just like physical spaces and that’s why we are seeing a global migration into what is being coined “the metaverse,” he explained.
• For the entrepreneur and music producer, virtual humans and idols are a “critical portal” for brands to enter and navigate the metaverse and will be “more important to brands than the other way around.”

A rising industry in figures:

China’s Gen Zers, the country’s digital natives who show a great appetite for  ACGN content, are the major force driving this boom.

• The market size of China’s virtual idol industry increased 70.3% year on year to RMB 3.46 billion in 2020, according to a report from iiMedia Research. The consulting agency expects the market to be worth RMB 6.22 billion by 2021.
• Meanwhile, the scale of virtual idol-related markets, including AR and VR, will reach RMB 107.5 billion in 2021, up from 64.7 billion in 2020, the report says.
• Around 80% of the more than 2,000 netizens who joined the survey have the habit of following celebrities or idols from time to time, and 63.6% of them support and pay attention to the related developments of virtual idols. 
• A dozen virtual idol startups, like Yunbo AI, DeepScience, and Wanxiang Culture, have received fundings this year. Most of the companies are still in early stages, either angel or A round, with investments in tens of millions RMB (about $2 million to $5 million).

Tech giants jump on the bandwagon

Tech giants are among the most avid advocates of the virtual idol trend, together with companies along related lines such as entertainment companies, brands, and media startups. By building virtual idol IPs or cooperation with existing idols, the tech giants try to enrich their existing e-commerce, gaming, and short video businesses with more interesting content.

• Tencent, which already made big bets in the metaverse, launched a virtual idol men’s group based on their game Honor of Kings.
• Bilibili, the acclaimed “spiritual home” of Chinese ACGN fans, is the controlling shareholder of startup Shanghai Henian Information Technology,  developer and operator of Luo Tianyi. Bilibili is also one of the earliest platforms in China to broadcast virtual idol concerts.
• ByteDance got rights to singing girl group A-Soul after entering an alliance with Beijing-based celeb agency Yuehua Entertainment through a strategic investment. A-Soul is the first virtual addition to ByteDance’s pool of celebrity marketers that includes famous singer Wang Yibo. With advanced interactive capabilities, A-Soul has been employed for livestreaming e-commerce duties. 
• Along with ByteDance, Alibaba invested in Yuehua. Alibaba also rolled out virtual livestreamers such as Xiao Dangjia to boost its booming live e-commerce business. The e-commerce giant named virtual influencer Ayayi as “digital manager” of Tmall Super Brand. She launched an NFT digital mooncake with Alibaba for this year’s Mid-Autumn Festival.
• IQiyi is the owner of Dimension Nova, a virtual idol variety show, and Rich Boom, a virtual idol group featuring trendy culture and pop music.

A better choice than human celebrities for brands?

Human celebrities and virtual idols do not cannibalize each other, according to Mauron. Ba-Pe of Club Media agrees: “Virtual idols are about as much a threat to human KOLs as Coke Zero is to Diet Coke … Virtual idols are not threats to human ones at all.” 

Still, virtual idols as influencers have pros and cons for marketers.

Pros:

For brands, a less risky choice than real idols:  The volatility of working with humans has been on full display this year after several celebs fell from grace due to scandals ranging from alleged tax evasion and sexual assault to sharing opinions out of step with ruling Party ideology. This leaves virtual idols as less risky choices. 

Full tailoring: The content to be broadcast can be tailored to meet the needs of brands on every level. Idols can achieve things that real people cannot, and their images can be wholly controlled.

Extensive application scenario: The application scenarios for virtual idols are more extensive. Virtual figures are more accessible to fans for one-on-one interaction, usually of the chatbot level of complexity. Moreover, they can be present 24/7 on multiple sites.

Cons:

Legality for business endorsement: Virtual idols’ partnerships with brands work under cooperation agreements similar to endorsements. However, China’s Advertising Law bans endorsers, legal persons or organizations, from endorsing goods or services they have not used or received. 

• There are still questions about whether virtual KOLs can be classified as endorsers, or whether brand-virtual KOL collaborations fall within the scope of advertising.
• “There’s still room for interpretation when it comes to the legality of the matter,” said Mauron. 

Relatability: While virtual KOLs sound good on paper, DLG’s Mauron notes that digital personas may not have the same kind of personalities and color as human KOLs, making it harder for consumers to relate to them. “Without that element of relatability, it might also be more difficult to generate conversions with these virtual KOLs,” he said.

The virtual world is not immune to real-world problems. The data-faking issue that’s prevalent in human celebs’ metrics is also applicable to virtual idols. A Deloitte report reminds all organizations that wish to deploy avatars of the need to pay great attention to privacy and ethics issues.

Conclusion

It’s still too early to say whether virtual people will be marketing mainstays or passing fad.  But given the digitization of almost every cultural touchpoint, experts we talked to expect it is here to stay in some form. 

“Clearly, we are moving towards an increasingly digital future, rich with entertainment in these digital worlds. Regardless, if you’re an idol or a fan, the only way to engage with these new digital realms will be via an avatar.” said Ba-Pe.

On Thursday, troubled Chinese beverage chain Luckin Coffee released its unaudited financial report for the first half of 2021, posting doubled revenue and narrowed losses.

Why it matters: This is Luckin’s first normalized financial report after the company admitted to reporting fraudulent sales numbers of $310 million in April 2020. The company filed bankruptcy in the US in February but managed to remain relevant in China’s competitive beverage market. 

READ MORE: The Big Sell | Luckin is not dead

Details: The company recorded RMB 3.2 billion ($492.9 million) revenue in the first half of 2021, leaping 106% year on year from RMB 1.5 billion in the same period of 2020.

• The company warned that its performance in the first half of 2020 was “materially adversely affected” by the Covid-19 pandemic and advised investors to consider these factors when evaluating the growth metrics.
• Chairman and CEO Guo Jinyi attributed the revenue growth to revenue increase from self-operated stores, increased order frequency, higher prices, and improved cost structure.
• Revenue from core business product sales jumped 89% year on year to RMB 2.7 billion. Net loss fell 86.4% to RMB 211.4 million in the reporting period.
• The company operates 5,259 stores as of June, including 4,018 self-operated stores and 1,241 franchised “partnership stores.”
• Luckin is shifting to an asset-light model by growing more franchised stores. Luckin takes up to 40% of a franchised store’s profits once it reaches an agreed earnings threshold, depending on the size of the store.
• The number of self-operated stores decreased by 5.8%, and partnership stores increased by 50.6% in the period. Self-operated stores achieved an operating profit margin of 16.3%. 
• Revenue from partnership stores surged 357.8% year on year to RMB 441.2 million. 
• Partnership store revenue accounted for 13.9% of Luckin’s total revenue in the first half, up from 6.2% in the same period last year.
• The company’s average monthly transacting customers increased 35.1% year on year, from 7.8 million to 10.5 million, in the first half of 2020.

Context:  Luckin is attempting a comeback over the past year by settling the financial fraud. 

• The firm agreed to pay a $180 million penalty to the US Securities and Exchange Commission to settle charges of sales fabrication in December 2020.
• In September, Luckin settled a US class-action lawsuit, resolving some US investors’ claims against the company. Settlement amounts will be calculated based on a global settlement of $187.5 million.

Chinese social e-commerce app Xiaohongshu apologized for “deceitful” reviews of tourist attractions on the platform over the weekend to address mounting customer complaints. 

Why it matters: Xiaohongshu first emerged as a trusted review platform for China’s young middle-class consumers. But over the past few years, the company has struggled to maintain users’ trust due to misleading and fraudulent reviews.

• Travel and tourism spot recommendation is an increasingly popular category on Xiaohongshu in addition to reviews of consumer products from cosmetics to garments.

READ MORE: Xiaohongshu battles to regain user trust amid KOL purge

Details: Xiaohongshu, also known as Little Red Book or RED, issued a statement on Sunday to offer their “sincere apologies” for failing to provide trustworthy reviews.

• The app came under fire in the past few weeks. Users found some travel reviews from the app exaggerated the scenery by showing pictures with heavy beautifying filters.
• A Weibo hashtag titled “Drastic contrast of filtered pics on Xiaohongshu” had attracted 400 million views as of Monday morning.
• Xiaohongshu said in the statement that they will give more exposure to reviews that could help users to avoid such “traps.”
• The app said it already required users and KOLs to avoid using too many beauty filters, especially when giving recommendations for cosmetics, fashion, and stores. The company reminds users that their reviews could be used to influence buying decisions before they post to the platform.

Context: Once an internet darling, Xiaohongshu has struggled in recent years to balance a scalable monetization model while maintaining its community feel. It has previously battled user trust issues and is facing fierce competition from other platforms. 

• Xiaohongshu has received investments from Alibaba and Tencent. It is rare for two Chinese tech rivals to invest in the same company.
• The company is reportedly mulling a Hong Kong stock market debut as soon as this year after suspending a proposed New York IPO plan this July due to Beijing’s stricter reins on overseas listings.

LinkedIn said Thursday it will shut down the localized version of its services in China later this year. The professional social network cited “a more challenging operating environment” and “greater compliance requirements” as reasons for the move.

The Microsoft-owned firm plans to launch InJobs, a new standalone job app in China, later this year. The new app won’t include social feeds or post sharing. It only serves as a job listing and application portal. 

China is LinkedIn’s third-largest market, with 54 million users and behind the US and India, according to LinkedIn’s official statistics. LinkedIn’s withdrawal marks another significant retreat of US tech giants from China due to regulatory reasons and fierce local competition. Google left China more than a decade ago. Amazon ceased support for third-party merchants on its China site in 2019 after losing its market share to local competitors.

LinkedIn had previously tried to tap the Chinese market with fully localized service but to no avail. In 2015, the company rolled out a business social networking app called Chitu. The app failed to compete with local rivals like Maimai. LinkedIn shut down Chitu in 2019.

LinkedIn entered the Chinese market in 2014. Microsoft acquired the company in 2016.

Chinese life services app Meituan has come under fire for data privacy issues ranging from intensive location tracking to account safety loopholes.

Why it matters: Data privacy complaints are yet another blow to the Chinese “super app” Meituan, which was recently fined $534 million for antitrust violations.

Details: A Chinese gadget review vlogger named Xuanningxuan Sir criticized the app for tracking his location even when he’s not using it.

• The Meituan app was reportedly tracking the vlogger’s location every five minutes around the clock on Oct. 8, according to a two-minute screen-shot video he shared in a Weibo post on Sunday. “This is creepy. What on earth do they want to do?” he asked in the post.
• Xuanningxuan’s concerns are shared by many. On microblogging platform Weibo, the hashtag “Meituan app tracks user location all day around” had attracted 100 million views as of Monday morning.  
• Separately, Wang Sicong, the son of China’s one-time richest man Wang Jianlin and a serial tech investor, reported his account on Meituan’s restaurant review app Dianping was stolen. The news also made local headlines on Monday.
• Wang, known for being vocal online, reported the incident in a Sunday Weibo post. Xuanningxuan suggested on Weibo that an account security loophole could be the reason for Wang’s situation. Dianping only requires a phone number and birthdate for users to change the bound phone number of an account, potentially leaving accounts vulnerable to hackers.
• Dianping responded to local media and said they had frozen Wang’s account to prevent further data leakage.

Context: Data privacy issues have drawn increasing attention in China, both from individuals and regulators. In August, the country approved one of the world’s strictest data privacy laws, aiming to curb data collection by technology companies.

• Meituan is not the only company that faces such concerns. WeChat was criticized last week for regularly accessing users’ photo albums even when the app is not used. A statement from parent company Tencent promised to end the practice.

China’s top antitrust regulator on Friday imposed a RMB 3.4 billion ($534 million) fine on Chinese food delivery giant Meituan for antitrust practices. 

Why it matters: The hefty penalty on Meituan is yet another anti-competitive strike from Chinese regulators. In April, regulators slapped a record $2.8 billion fine on Chinese e-commerce giant Alibaba for similar offenses.

READ MORE: Big Sell | Antitrust comes for Meituan

Details: The State Administration for Market Regulation (SAMR), China’s top market watchdog, said in a Friday statement (in Chinese) that it had issued a $534 million fine on Meituan six months after launching an investigation of the food delivery giant. 

• Regulators said the investigation found that Meituan had forced restaurants and other merchants to list exclusively on its platform, a practice commonly known as “forced exclusivity.” 
• Meituan punished merchants who refused to comply by charging higher commission rates, giving them less exposure on the app, and imposing other unfair practices.
• The penalty is equivalent to 3% of Meituan’s RMB 114.7 billion revenue generated in the calendar year of 2020 in China. For comparison, Alibaba’s April fine was about 4% of its annual revenue.
• The regulator also required Meituan to refund exclusive partnership deposits to merchants on the platform, amounting to RMB 1.3 billion.
• The regulator ordered the company to revamp its operations and file self-examination compliance reports to SAMR for the next three years.
• The company said in a Friday response (in Chinese) that it has “accepted the penalty with sincerity and will ensure our compliance with determination.”

Context: China’s antitrust crackdowns this year have punished some of the country’s best-known tech companies, including Tencent and Alibaba.

JD.com and Baidu have jointly invested $400 million in elevator advertising firm Xinchao Media Group.

Why it matters: The two Chinese tech giants are returning investors in the Chengdu-based media company. The deal is a major external investment for JD following a management reshuffle. In May, Hu Zhengwei, the former executive board of investment firm Warburg Pincus, became JD’s investment unit head, replacing JD’s vice president Hu Ningfeng. 

Details: The deal makes JD the largest shareholder of Xinchao, according to a report by China STAR Market. Xu Lei, president of JD, is now a board member of Xinchao.

• JD confirmed the investment with TechNode but declined to disclose the specific amount it invested.
• Xinchao’s corporate website says the company is valued at more than $2 billion. 

Context: Xinchao operates more than 650,000 digital advertising panels in elevators across 105 Chinese cities, reaching 200 million middle-class consumers and serving more than 23,000 clients, according to the company website.

• JD led a RMB 1 billion investment in Xinchao in 2019, while Baidu led a RMB 2.1 billion fund in the elevator-ad company in November 2018. Other investors include home furnishing chain store Red Star Macalline, classified ad site 58.com, and edtech platform TAL Education.
• The company plans to invest RMB 10 billion in the next five years, aiming to operate 2 million digital ad panels and reach 300 million to 500 million middle-class Chinese residents.
• JD.com’s e-commerce rival Alibaba has made similar investment moves, holding a 6.6% stake in Focus Media, another elevator ad company, after investing $15 billion in July 2018.

Over the past two years, the vicious price war among Chinese delivery companies has taken a toll on an industry that’s often referred to as the “backbone” of the country’s e-commerce boom. Recently, signs have emerged that the grueling battle may finally be reaching a breaking point.

Beginning in September, six delivery services started to charge an extra RMB 0.1 ($0.02) per parcel, a major change in pricing strategy, given that courier companies have charged less than delivery costs for years in pursuit of capturing market share. 

The companies that joined the price increase are some of the biggest in the sector: ZTO Express, YTO Express, STO Express, Yunda Express, Best Express, and J&T Express. All pledged to use the extra money to boost delivery worker incomes and protect their rights. 

The change is mainly a response to intensifying regulatory pressure to improve conditions for delivery workers. But there are other, perhaps more pressing motivations for Chinese courier companies to use this shift to mark the beginning of the end for a price war that has had an impact on the long-term and sustainable development of the industry.

“The price war shows signs of easing, but there’s still a long way for the whole industry to get back on track to healthy development,” Lei Zhongnan, CEO of logistics tracking platform Kuaidi 100, told Chinese media recently.

Express delivery is no longer a lucrative business: Data from China’s National Post Bureau (NPB) shows that the volume of parcels delivered in China surged 40.1% year on year to 67.3 billion in the first eight months of this year. That’s already 81% of last year’s volume of 83 billion units. 

• However, the expansion in volume comes on top of a much slower revenue growth. Revenue generated from the sector climbed 23.4% year on year to RMB 650.9 billion over the first eight months, or 74% of 2020’s RMB 875 billion total revenue, NPB data shows.
  
• China’s express delivery market is a highly concentrated one that’s dominated by a few top players including SF Express, Alibaba-backed Best Express, and a number of couriers collectively known as “Tongda Operators” — ZTO Express, YTO Express, STO Express, and Yunda Express. The six operators represented more than 80% of China’s express delivery market in 2020, according to data from market intelligence platform askci.com.
  
• In a crowded market, the companies, mostly offering the same services, had been relying more and more on lowering prices to gain market share. Per parcel delivery price dropped 13.1% year on year to RMB 9.8 ($1.5) in the first half of this year.

The negative impact of the price war is explicit in the gloomy financial reports of the major players, as courier companies see their revenue skyrocket while profits sink. Six out of the seven listed courier businesses achieved double-digit revenue growth in the first half of this year; YTO and ZTO lead the group with an over 30% year-on-year revenue jump. But net profits slumped across the board, with STO suffering the steepest plunge of more than 300%. STO and BEST Express are recording losses.

• Delivery companies are less willing to bleed for market share. In August, per parcel delivery price of YTO Express increased 5.45% month on month, or a 0.95% increase compared with a year ago. 
  
• Similarly, SF Express and Yunda Express increased per parcel price by less than one percent month on month, although the figures still represent year on year drops. 

How the war began: Despite competitive tensions, there was a delicate balance among major courier companies before 2019. But that balance was disrupted by the entrance of Southeast Asian delivery upstart J&T in 2020. Founded by a Chinese entrepreneur in Indonesia, J&T Express expanded to China later after becoming a quick success in the Southeast Asian market in 2015.

• The company expanded rapidly, reaching the 20 million parcel per day milestone within 10 months of entering China, a feat that took rivals like STO, YTO, ZTO, and Yunda Express more than a decade to achieve. Its most effective weapon is, of course, price cuts.
• In one of its fiercest campaigns, which took place in March last year, J&T offered nationwide delivery for just RMB 0.80 per parcel for users in Yiwu, China’s eastern commodity center, compared with the RMB 1.2 to RMB 1.3 per parcel offered by rivals.
• Similar to “Tongda” couriers’ early boom being driven by orders from Alibaba marketplaces, J&T’s initial boom in China has mainly been driven by delivery for e-commerce upstart Pinduoduo, which accounts for around 80% of its orders. 

Price wars in the China tech arena are generally fueled by venture capital and express delivery is no exception. J&T has received multiple hefty rounds of investment over the past two years at sky-rocketing valuations.

• J&T Express completed a $1.8 billion financing round at a valuation of $7.8 billion in April, higher than market cap for STO Express, Yunda Express, and YTO Express at the time.
• The company closed a $250 million strategic investment deal in August.
• J&T Express reportedly plans to raise over $1 billion from a U.S. initial public offering (IPO) as soon as the fourth quarter, at a $5 billion valuation.

Delivery workers are working more for less: Price wars have also led to lower incomes for delivery drivers who earn on per package delivery fees. As delivery drivers shift to other industries for better pay, the delivery worker shortage has become a serious problem for courier companies. 

• China had more than 4 million express delivery workers in 2020. But as a result of deteriorating working conditions and lower pay, the voluntary turnover rate of express logistics personnel climbed to 33.1%, the highest across all industries.
• Increased pay and better working conditions could solve the labor shortage, but for courier companies, higher pay for workers means increased costs, making their low-price model economically inefficient.

Regulators have recently stepped in to protect the rights of express and food delivery drivers as part of the state’s efforts to help lower-income workers amid the authorities’ declared aim of creating “common prosperity.” Local and central government agencies have rolled out rules trying to end unreasonable low-price deliveries.

• April 9: The municipal postal authority in Yiwu cracked down on delivery services J&T Express and Best Express for price-dumping, partially closing their distribution centers in the county-level city.
• April 22: Zhejiang provincial government issued a guideline forbidding courier companies from taking parcel orders at lower than the cost of delivery. E-commerce platform operators were also warned against using technological means to interfere with merchants’ choice of couriers.
• July 8: Seven central government regulators, including the Ministry of Transport, the State Post Bureau and the National Development and Reform Commission, issued guidelines to protect the rights of express delivery workers, including measures aimed at ensuring more reasonable salaries, having companies buy them social insurance, and clarifying the companies’ responsibilities to protect workers’ rights.

What’s next?

• Increased pay and improved welfare may alleviate the delivery force shortage to a certain extent. An experienced courier can handle 200 to 300 parcels per day, an anonymous delivery worker told local media. That means the RMB 0.1 per parcel increase would boost their average monthly income by about RMB500.
• Instead of providing similar services, the couriers are trying to expand their product lines. “Tongda” couriers have expanded into the high-end express delivery market, and SF Express has upped its investment in cold chain delivery and delivery installment services.  
• Some companies are ditching price wars altogether. Lan Haisong, CEO of ZTO Express, said it’s “irrational and unsustainable” to compete for market share with “unnecessary” price cuts. ZTO Express topped the seven major courier businesses with RMB 180 million net profit in Q1 this year.

Conclusion: Price wars have been a successful weapon for market entry for many delivery companies such as J&T. But such tactics are not likely to last. The state is tightening its regulation on irregular pricing, while there is renewed focus on the rights of delivery workers and the impact on the user experience. Increasing costs also mean that a number of major courier companies are now turning their backs on the delivery price wars. 

Also in the news

Investors bet on robot delivery: Increasing labor costs have propelled the growth of robotic delivery technologies recently. This month, investment has flocked to a bunch of business-faced startups ready to apply robotic delivery tech in various fields, from warehouse management to the service industry.

• Chinese service robot maker PuduTech announced a RMB 500 million ($78 million) investment on Sept. 14.
• Keenon Robotics made public the next day the completion of a $200 million Series D funding led by returning investor SoftBank.
• Hai Robotics, a Chinese warehouse robotics startup, announced on Sept. 22 two financing rounds totaling more than $200 million.

Alibaba expands community group-buy push amid rival startup fallout: Consolidation in China’s community group-buy market continues. As startup casualties increase, Alibaba is pushing further to fill the market gap left by the collapse of smaller rivals.

• Alibaba-backed online grocer Nice Tuan is reportedly downsizing its operations in August.
• Meicai, a Chinese app that supplies farm-to-table produce for restaurants, has been reducing its operations and laying off employees this month.
• Chengxin Youxuan, the community group-buy unit of Chinese ride-hailing giant Didi Global, shut down operations in 22 provinces, accounting for more than 60% of its service locations.

Alibaba rebranded its community group-buy unit to “Taocaicai” on Sept. 16 as some rivals have lost momentum after rounds of market consolidation. The new brand will incorporate Freshippo Market and Taobao Maicai, Alibaba’s two existing community grocery services.

Luckin Coffee has settled a US class action lawsuit, resolving some US investors’ claims against the company, which admitted in April 2020 to fabricating $310 million in sales. Settlement amounts will be calculated based on a global settlement of $187.5 million, according to a company statement issued Sept. 19. 

Why it matters: The bankrupt company, striving for a business turnaround, is moving a step further to repair its image after the fraud scandal. 

READ MORE: The Big Sell | Luckin is not dead

Details: The settlement plan is still subject to approval from courts in the US and Cayman Islands, according to a Tuesday statement from the company, which is registered in the Cayman Islands.

• Luckin’s chairman and chief executive, Guo Jinyi, said this settlement will resolve a “significant contingent liability” for the company, allowing it to “move forward with a greater focus on operations and execution of strategic plans.”
• The company also reported Tuesday in its annual report that revenue increased 33.3% year on year to RMB4.0 billion ($618.1 million) in 2020, despite being hit by the pandemic. The revenue growth was primarily driven by price increases, said the company.
• Luckin operated 3,929 self-operated stores as of 2020, a drop of around 15% year on year from 4,507 stores in 2019. As a result of the ongoing restructuring, the number of the company’s partnership stores nearly tripled to 874 in 2020 compared to 2019. 
• Shares of the company, still available on the OTC market after delisting in July, climbed nearly 40% to $15 per share so far this year on business turnaround prospects. That is well below its historic peak of $50 per share reached in January 2020 when it was listed on the Nasdaq.

Context: The fraud perpetrated by the once high-flying coffee chain has made regulators and investors more wary of Chinese tech companies.

• Luckin agreed in December to pay a $180 million penalty to the US Securities and Exchange Commission to settle charges of sales fabrication.
• China’s State Administration for Market Regulation imposed an RMB 61 million fine on Luckin and a group of affiliated companies last September for creating unfair competition by stating fraudulent sales figures.
• Lu Zhengyao, the ousted founder of Luckin, is trying to make a retail comeback with his noodle chain restaurant Qu Xiaomian.

Listening to market demands is a key component for innovation, a process that, by definition, turns ideas into solutions to add value for customers. Kapil Kane, director of innovation at Intel China, learned this lesson on the field as the head of the company’s corporate startup accelerator GrowthX.

Kane recalled that the six-year-old accelerator was focused on developing projects involving robots or drones in the first few years. These things “seemed very cool” but they are “difficult to bring to the market in a timely fashion,” he said, addressing a half-full audience attending TechNode’s Emerge 2021 conference in Beijing on Friday.

Through talks with such Chinese clients as Alibaba and Tencent, the US chipmaker gradually learned what kind of innovations are necessary from the users’ perspective. In some cases, changes made in response to customer demands would open a completely new market for the clients, he added.

Instead of going for the moon-shooting ideas, Kane and his team shifted their innovative approaches in pursuit of something they call “adjacent innovations.” “We don’t try to change or build a new thing. We try to use what we have and create new applications on top of that, which bring value to our customers in the industry,” he said.

Some believe big names like Intel have the edge in advancing innovations with abundant resources, financially or otherwise. Another cohort, led by Amazon’s billionaire founder Jeff Bezos, trusts that the nimbleness and flexibility in small teams are true propellers to unlock innovations.

An organization’s size doesn’t matter for Kane, however. Companies that aspire to encourage internal innovation should forge a platform or mechanism to facilitate idea flow and growth. “The key is to take that first step to get moving. And also to get some small wins step by step,” he said.

Co-working, as a relatively new working mode, has been linked with startups and entrepreneurship for allowing extensive cost savings and better opportunities for networking.

Sean Lim, general manager at real estate and co-working space operator TianRun Asset Management, takes a similar customer-concentric approach for running shared spaces, or modern hubs for startup and innovation culture. As space operators, it’s important to understand what are the challenges and requirements the startups face so as to support their development by creating an ecosystem that incorporates crucial factors, like funding opportunities, government support, and occasions to connect with similar-minded peers. 

Covid-19 has drastically changed the coworking industry, along with a series of businesses that are offline in nature. “It’s all about offline before the pandemic when everyone had a workstation”, said Lim. After the pandemic, companies are adopting a safer approach to utilizing space.

Since sales teams spend so much time outside the office anyway, many companies are thinking about moving them away from the office permanently to reduce staff density due to social distancing concerns. Some also are thinking about moving their R&D teams to more decentralized locations because of cost concerns. Others adopt a more hybrid approach, he explained.

XTransfer, a Chinese cross-border financial and risk management services provider, announced Friday that it raised $138 million in Series D. The round lifts the fintech firm to unicorn status. A unicorn is an unlisted startup valued at $1 billion or more.

Why it matters: The capital signals investor confidence in services supporting small and medium-sized enterprises (SMEs).

• The funding round came as China’s cross-border trade bounces back in the post-pandemic period. China’s import and export volume surged 23.7% year on year in the first eight months of this year, according to data from China’s General Administration of Customs. 

Details: US investment firm D1 Capital Partners led the current round with participation from existing investors.

• The proceeds will be used to upgrade XTransfer’s products, invest in big data and artificial intelligence, bolster the anti-money laundering (AML) risk management system, and recruit talent for overseas expansion, according to the company’s statement.
• “Cross-border e-commerce is growing by leaps and bounds due to policy support,” said Bill Deng, founder and chief executive of XTransfer. 
• “For exporters, the latest round of overseas expansion has been a lot different from a few years earlier, marked by diverse sales channels and fragmented orders. Digitization is a major trend amid cut-throat market competition,”  he added.

Context: Founded in 2017, Xtransfer specializes in business-to-business (B2B) cross-border financial services. It serves a client base of approximately 150,000 SMEs, mostly in China.

• XTransfer generates revenue by collecting foreign exchange service fees from clients.
• The Shanghai-headquartered company didn’t disclose total funding but had raised $30 million at the time of the B round in 2019. That was followed by two undisclosed batches in the C round.
• Investors in previous rounds include Yunqi Partners, Gaorong Capital, 01 Capital, eWTP Capital, Telstra Ventures, MindWorks Capital, and Lavender Hill Capital Partners.

Chinese server robot maker Keenon Robotics announced Wednesday that it received $200 million in Series D funding led by returning investor SoftBank. Keenon says it is the largest funding ever in the service robot sector. 

Keenon’s funding news comes just one day after rival PuduTech announced a RMB 500 million ($78 million) investment.

Why it matters: The two hefty deals this week highlight rising investor attention to the robot delivery market, an emerging sector ready for commercialization and on the rise thanks to the booming non-contact economy in the post-epidemic era. 

• SoftBank Vision Fund, a venture capital fund of Japan’s SoftBank Group conglomerate, steps further into the robot delivery industry, adding to its bets on semi-humanoid robot Pepper and industrial robot maker Youibot.
• By the end of this year, the global robot market is expected to be worth $33.6 billion, according to a report (in Chinese) released during the World Robot Conference this week. The Chinese robot market accounts for around RMB 83.9 billion, or 39% of the global market, the report shows.
• The market for service robots, which Keenon and PuduTech are engaged in, is forecast to be worth RMB 30.3 billion by 2021. The segment will be worth RMB 60 billion by 2023, thanks to growth in visual guided robots and accompanying robots.

Detail: The company didn’t disclose the size of SoftBank’s investment. Other investors in the round include CICC ALPHA and Prosperity7 Ventures, a diversified growth fund of Aramco Ventures. China Renaissance is the exclusive financial advisor for this financing.

• The proceeds will be used by Keenon to “drive innovation through its in-house R&D to provide new, efficient, and cost-saving applications” and for “scaling its current robot platform through the expansion in new markets and identifying new prospects to promote growth and boost revenue”, according to company founder Tony Li. 
• “We believe robotic solutions can have a profound impact across the services industry by assisting with repetitive, tedious workflows,” said Kentaro Matsui, managing director of SoftBank Group, in the statement.
• Keenon currently has more than 10,000 clients in over 60 countries located in Asia, Europe, and North America.

Context: Founded in 2010, the Shanghai-based company offers commercial service robots and intelligent delivery solutions for industries such as real estate, healthcare, and hospitality. Starting with a server robot in restaurants, Keenon gradually expanded its application to hotels, karaoke lounges, hospitals, and other scenarios.

• SoftBank Ventures Asia led a nine-digit yuan series C round in Keenon in December last year. Investors from earlier rounds include Source Code Capital and Yunqi Partners.

Philanthropy is shifting from a “nice to have” initiative to a “must have” commitment for Chinese tech giants.

Chinese internet firms ramped up their donations for the public good over the past few months, giving away billions of dollars to causes ranging from technology innovation to bridging income inequality. The move is widely viewed as an effort to placate a state that lately seems to be scrutinizing their every move.

Bottom line: Under intensifying regulatory pressure, Chinese tech companies are scrambling to show their willingness to operate and invest in compliance with the state’s broad goal of “common prosperity.” The change forced these tech titans, many already suffering selloff pressure due to tighter state reins, to seek a balance between shareholder interests and the higher operating costs due to huge donations.

Brief timeline: Tech giants such as Alibaba and Tencent are already active donors through their corporate funds. The companies’ billionaire founders are also writing large checks for charity from their personal foundations. Alibaba’s Jack Ma topped Forbes annual China charity list with nearly $500 million in donations in 2020. Tencent’s Pony Ma came in third with about $402 million, and ByteDance’s Zhang Yiming was fifth with $189 million. Pinduoduo’s Colin Huan topped the Hurun China Philanthropy List 2021 with donations totaling $1.9 billion.

Unlike previous donations that tended to be sporadic initiatives by individual companies, there’s a newfound generosity from nearly every major tech company over the past few months. 

• Tencent invested RMB 50 billion ($7.7 billion) in “sustainable societal innovation” projects in April. The gaming titan later doubled the sum, giving an additional RMB 50 billion to the company’s “common prosperity fund” in August.
• Alibaba announced in August an investment of RMB 100 billion across ten key initiatives to promote common prosperity in China. The company will establish the Alibaba Group Common Prosperity Advancement Working Committee, chaired by chief executive Daniel Zhang, as a permanent mechanism dedicated to delivering on the key initiatives by 2025. The committee will focus on technology innovation, economic development, high-quality employment creation, care for vulnerable groups, and the establishment of a common prosperity development fund.
• Pinduoduo rolled out in mid-August a RMB 10 billion agriculture initiative to address critical needs in the agricultural sector and rural areas such as food security and agricultural technology. In March, Pinduoduo founder Colin Huang stepped down as chairman after giving away 2.37% of his shares, worth $1.85 billion, to charity last year.
• Meituan’s founder and CEO Wang Xing in June donated $2.3 billion worth of Meituan shares; his company is still undergoing an antitrust probe by regulators following his controversial comments hinting of discontent with the government, wiped tens of billions of dollars off Meituan’s market value.
• Xiaomi founder and CEO Lei Jun transferred $2.2 billion worth of shares in the company to the corporate Xiaomi Foundation and the personal Lei Jun Foundation in July. This is in addition to the nearly $1 billion that Lei announced in April he would donate to charity.
• Zhang Yiming, founder of TikTok developer ByteDance, is giving RMB 500 million of his own money to establish an education fund. 

Compared with previous donations, tech firms’ burst of generosity over the past months was mainly directed towards the goal of public welfare and reducing inequality, a goal made explicit in the company’s five-year plan released this March.

The donations are mainly directed to fields like technology innovation, poverty alleviation, welfare of low-income groups, agricultural/rural development, education, basic science/research, healthcare, and small- and medium-sized enterprise (SME) support.

READ MORE: INSIGHTS | Tech in the five-year plan

A change in priorities for economic growth

When former Chinese leader Deng Xiaoping ended the country’s planned economy and embraced a free market in the 1980s, he said allowing some people and regions to get rich first would speed up economic growth and achieve the ultimate goal of common prosperity. Now, the priority seems to be shifting to the latter.

• On Aug. 17, Chinese President Xi Jinping called for the nation to achieve “common prosperity” in a speech, asking to rationally “adjust” excessive incomes and for wealthy individuals and companies to return more to society.
• Xi’s call came as Chinese authorities stepped up regulation of tech companies in multiple areas, including antitrust, data security, and privacy, ending the country’s long-standing laissez-faire regulatory approach towards the tech sector.

The changes also came as income inequality becomes an increasingly pressing problem in Chinese society.

• China’s top 1% own nearly 31% of the nation’s wealth, according to a study by Credit Suisse.
• Chinese Premier Li Keqiang said in May 2020 that 600 million people, or roughly 42.9% of China’s population, have a monthly income of RMB 1,000.
• China received a score of 0.465 on the Gini index of the World Bank, which measures economic inequality. The score ranges from zero to one, with one meaning complete income inequality. A score of 0.4 or above is considered at a “warning level.”
• “Alibaba is a beneficiary of the strong social and economic progress in China over the past 22 years. We firmly believe that if society is doing well and the economy is doing well, then Alibaba will do well,” said Daniel Zhang, chairman and chief executive of Alibaba Group, in a company statement on Sept. 3.
• Resentment toward tech companies is growing in China. Whether restaurant owners on food delivery platforms or startups in crowded verticals, small businesses feel they are squeezed by the digital behemoths.

Investor sentiments

While donating tens of billions of dollars for social initiatives out of their profits, the Chinese tech companies, mostly listed, face the double pressure of convincing investors that they are making the right decision to sacrifice short-term profits for long-term growth prospects.

• Chinese tech stocks have experienced a stunning sell-off since the beginning of this year as Beijing widened its crackdown. Intensified regulations over monopolistic behaviors, overseas listings, and data security, coupled with massive fines, wiped out hundreds of billions of dollars in market value of Chinese tech companies.
• “As platforms grapple with increased regulatory scrutiny inside and outside of China, investors will need to come to grips with the impact of regulatory burden and compliance costs on EPS (earnings per share) and ROIC (return on invested capital),” said Michael Norris, head of research and strategy at AgencyChina.

How effective philanthropic displays will be? 

But the efforts raise other questions: Will these philanthropic displays be enough to ease the wrath of regulators? Norris thinks there’s little chance internet platforms can avoid regulation through their social impact investments. 

• “However, these investments can signal internet platforms are responsible market participants. This hits the right notes with regulators who’ve been tasked with curbing exploitative practices and market irregularities,” Norris said. 
• “Think of it as stakeholder capitalism, with Chinese characteristics,” he added.

New opportunities under the disguise of donation?

The government’s attention to areas like tech innovation, agriculture, education, and basic science means opportunity for tech companies. By entering these strategic areas, they could expect returns from those donations, or investments, if they have aligned their business with the broader strategic goals properly. But the time for such returns may be long.

• Started as a social ecommerce platform, Pinduoduo has become laser-focused on “digitizing agriculture”, an initiative that aligns with the government’s drive to modernize agriculture and boost development for rural areas.
• Pinduoduo said in a statement that the company will be able to “get back” because the users “have placed their trust” in the platform.
• “I observed that both Tencent and Alibaba pledged to support SMEs. This might mean that some of the investment is applied to existing subsidies or retains discounted take rates,” said Norris. 

A lasting change?

China has lagged when it comes to charitable efforts, partly due to China’s tradition of passing fortunes through a family line. Back in 2010 when Microsoft co-founder Bill Gates and billionaire investor Warren Buffett invited Chinese moguls to a dinner to discuss philanthropy, lots of them turned down the invitation for fear of being asked to make a donation.

However, there’s been a significant change in charitable giving, especially since 2008, when donations struck a chord with larger groups due to the Sichuan earthquake. Donations for fighting the COVID-19 outbreak and helping victims of the recent flood in Henan peaked as tech firms tried to fulfill their social responsibilities, a concept specified in the country’s corporate law.

Chinese tech billionaires still have a long way to go to be on track with philanthropic models comparable to western counterparts like Gates.

Meicai, a Chinese app that supplies farm-to-table produce for restaurants, has been reducing its operations and laying off employees, Chinese media Jiemian reported on Friday.

Why it matters: Cutbacks came after Meicai failed to expand its online grocery delivery business and in July shelved a US IPO plan.

• The company experimented with a grocery community-group buy model to compete with Pinduoduo and Meituan last year. It halted those operations early this year to refocus on servicing restaurants.

Details: Meicai has closed its research and development center in Chengdu, Chinese media Jiemian reported. The company also plans to cut at least half of its employees in several teams in its Beijing headquarters, including product development, sales, and finance.

• The layoffs started two weeks ago and are expected to end in mid-September;  they will affect new employees and mid-level managers. 
• Meicai partially confirmed the downsizing in a Saturday statement, saying the company is conducting “organizational optimization.” The statement said all branches are running as usual.

Context: Founded in 2014, Meicai largely focuses on supplying farmers’ produce directly to restaurant owners. 

• Meicai is competing with Meituan’s enterprise-facing food distribution arm Kuailv in the business-to-business produce market. Kuailv also cut back its services in late August. 
• The company has received investments from renowned investors, including Tiger Global Management, Hillhouse Capital, and GGV Capital. The firm raised $800 million in its most recent round in 2018.

Online grocery Dingdong Maicai posted mixed results for the second quarter ended June in its first-ever quarterly report published on Monday.

Why it matters: After a downsized IPO, the Chinese online grocer faces souring market sentiment. Investor enthusiasm toward the online grocery delivery industry has cooled as the sector grows more competitive and attracts regulatory scrutiny. 

READ MORE: ​​The Big Sell | China’s grocery delivery fever is cooling down

Details: Dingdong Maicai recorded second quarter revenue of RMB 4.6 billion ($719.6 million), climbing 77.9% year-on-year.

• The company’s gross merchandise volume for the reporting period reached RMB 5.4 billion, increasing 80.8% year-over-year from RMB 2.9 billion in the same quarter of 2020.
• However, Dingdong’s net loss more than doubled to RMB 1.7 billion, compared with RMB 714.5 million a year ago.
• The number of average monthly users on the delivery platform reached 8.4 million, up 39.1% from a year ago.
• Dingdong Maicai manages its own warehouses in residential neighborhoods for quick delivery. The company operated 1,136 such facilities as of June, more than double the 625 warehouses of rival MissFresh.
• “Geographically speaking, we achieved 49.8% year-over-year growth in our GMV from our most mature markets in the Yangtze Delta region,” said Liang Changlin, founder and chief executive officer of Dingdong, in an emailed statement, referring to the area along Yangtze River in eastern China which includes Shanghai, as well provinces of Jiangsu, Zhejiang, and Anhui. 
• Growth was mainly driven by a rise in customers and an increase in purchase frequency from existing users.
• In the third quarter, the company expects a 100% year-on-year revenue increase and improved gross margin. Dingdong also expects its net losses to narrow over the next two quarters. 
• Shares in Dingdong closed  at $21.31 in overnight trading in the US on Monday.  The company’s offering price was $23.5 apiece.

Context: Dingdong Maicai raised $95.7 million after making its New York debut in late June. The company downsized its IPO by more than 74% from its initial $357 million target set earlier in the month. MissFresh, which filed for a US IPO on the same day as Dingdong, raised $273 million in a Nasdaq IPO on June 26.

Chinese edtech giants including Zuoyebang and Yuanfudao have reportedly cut tens of thousands of jobs amid a sweeping crackdown on the country’s private education industry.

Why it matters: Edtech majors are downsizing their operations after regional education authorities rolled out localized plans to impose the country’s sweeping regulations aimed at reining in private education services. 

Details: Edtech giants have shed tens of thousands of jobs either through layoffs or voluntary departures, local media Late Post reported on Wednesday. Based on the report, TechNode calculated that the edtech sector lost at least 48,000 jobs in recent months. Yuanfudao, Zuoyebang, and TAL Group have shut down some of their regional support centers, which are often used as offline locations for teachers and sales teams. 

• Edtech unicorn Yuanfudao’s staff dropped from around 50,000 this spring to 37,000, according to the Late Post report. Rival Zuoyebang’s headcount reportedly dropped from 35,000 to 20,000, while peer TAL Group’s fell from over 70,000 to around 50,000 in the same period. The losses are a result of job cuts and employees leaving due to uncertainty brought about by the government’s new regulations.
• Yuanfudao has been downsizing its regional offices since August. The firm closed one service center in the southern Chinese city of Nanchang, a source told TechNode. The source, who requested anonymity due to the sensitivity of the matter, added that the company had stopped offering one of its online courses, Xiaoyuan AI, and either laid off or reassigned related staff.
• Zuoyebang has closed three of its 14 regional support centers. Four of the remaining centers have cut teams supporting primary school courses. The Alibaba-backed company didn’t respond to TechNode’s inquiries when contacted Thursday morning.
• TAL’s online education unit plans to shut down eight out of its 13 regional centers. The change will affect more than 10,000 employees, Late Post reported.
• Yuanfudao declined to comment and Zuoyebang didn’t respond when TechNode contacted them Thursday morning.

Context: In July, senior party and government officials banned all private tutoring companies that teach public school curriculum, including edtech companies, from earning profit, raising capital, or going public. The move is an extension of China’s curb on unruly development in the private education sector,

• Chinese edtech platforms are shifting their offerings for K-12 students away from curriculum training to art, music, programming, or other courses. 
• ByteDance reportedly laid off half its in-house pre-kindergarten tutors in August due to the regulation. The Chinese AI giant once invested heavily in the online education industry.

Alibaba-backed online grocer Nice Tuan is reportedly downsizing its operations, according to an internal letter (in Chinese) made public on Saturday and in various Chinese media reports. 

Why it matters: Nice Tuan is the latest grocery startup to scale back its operations amid consolidation in China’s highly competitive community group buy market.

• The market shakeup has already affected several top players, including Tongcheng Life, Tencent-backed Shixianghui, and Didi’s Chengxin Youxuan.

READ MORE: The Big Sell | China’s grocery delivery fever is cooling down

Details: Chinese media reported that the Nice Tuan laid off staff at short notice with no severance pay, prompting many workers to complain on various social media. In the internal letter, Nice Tuan didn’t mention those that had been laid off but said it would launch “major” reforms in some low-profit areas. 

• TechNode found that Shanghai users couldn’t place orders through the company’s WeChat mini program as of Monday morning.
• Chinese media QQ News reported that Nice Tuan had stopped operating in several cities, including Changchun, Harbin, Jinan, Zhangzhou, Fuzhou. 
• The company will prioritize markets in central China’s Hunan and Hubei provinces, as well as southeastern China’s Jiangxi province, a company representative told Chinese media 36Kr, adding that operations in some highly loss-making areas will be shut down.
• The company said in the letter that it plans to integrate some of its regional operations into Alibaba’s grocery retail business unit (including Fresh Hippo and other community group buy services). The company will share Alibaba’s operational resources, supply chain, and partners, Nice Tuan founder Chen Ying said in the letter.
• The company’s page on Weibo is filled with employee complaints, accusing it of forcing workers to quit without severance pay and violating the country’s labor law. 
• A Weibo user with the handle of Yansideyulalala said more than 100 workers in the company’s Chengdu office were laid off on Saturday without any advanced notice or severance pay. TechNode couldn’t verify the user’s identity. 
• The company didn’t respond to TechNode’s Monday requests for comments. 

Context: Nice Tuan has received more than $1.2 billion in funding since it was founded in 2018. The firm received its most recent investment, a $750 million Series D, in March from Alibaba, DST Global, GGV Capital, and others.

• Since last year, Chinese tech giants such as Pinduoduo and Meituan have entered the competitive community group-buy market, squeezing out smaller players by offering customers generous discounts to gain market share. 

Chinese video streaming site Bilibili on Thursday posted better-than-expected financial results for the quarter ending in June, but the company’s shares dropped as regulatory concerns linger.

Why it matters: Bilibili’s share drop reflects investors’ concerns about the loss-making company amid China’s regulatory crackdowns on the tech sector. 

READ MORE: CHINA VOICES | ‘Bilibili is becoming Chinese Youtube’

Details: Bilibili’s revenue jumped 72% year-on-year to RMB 4.49 billion ($696.2 million) in the second quarter of this year, topping the high end of the forecasts (RMB 4.25 billion to RMB 4.35 billion) compiled by Yahoo Finance. The company’s share dropped 6% on Thursday on the Nasdaq.

• Bilibili’s stock hit a low in 2021 earlier this week as China’s tech crackdown continued to trigger sell-offs affecting a wide range of listed Chinese tech majors, including Alibaba and Tencent.
• Bilibili keeps attracting more users who are spending more time on the platform. The firm’s monthly active users jumped 38% year on year to 237 million in the second quarter. Users spend, on average, 81 minutes on the platform every day, a record high.
• The company’s net loss widened 96% from RMB 570.9 million to RMB 1.12 billion due to rising marketing, administration, and research and development spending.
• Sam Fan, Bilibili’s chief financial officer, attributed the company’s revenue growth to the rapid rise of its advertising business, which grew more than 200% since the same period in 2020 and represented 23% of Bilibili’s total net revenues, according to the earnings report. 
• The company expects its net revenues for the third quarter of 2021 to be between RMB 5.1 billion and RMB 5.2 billion.
• CEO Chen Rui said he feels “optimistic” about China’s regulatory moves in the video content and gaming content industry. “We believe our industry is experiencing fast growth, certain regulation is actually beneficial for this industry’s long-term and healthy growth,” Chen said during a Thursday earnings call. 

Context: Bilibili hit a record of more than 65 million daily active users in early August, making it China’s third-largest long-form video site, following iQiyi and Tencent Video.

• Bilibili started in 2012 as a content hub for Chinese fans of animation, comics, and games. The company has in recent years evolved into a mainstream video site offering a variety of content. 

If you have been looking at China’s grocery delivery market over the past two years, you’ve had a pretty wild ride. It’s been crazy out there. Before the pandemic, it was a startup fad—but once people across China locked down, tech giants and venture capitalists pumped billions into the field.

The turnover of China’s community group-buy market surged by 120% year on year to reach RMB 75 billion ($12 billion) in 2020, according to data from research agency 100EC. The figure is expected to increase 38% year on year to RMB 104 billion in 2021. Despite the growth, the market is getting tougher for the smaller players.

While sales are rising, the investment fervor surrounding China’s grocery delivery market is quickly cooling down. A new round of consolidation is wiping out all but the largest players. 

Collapse of startups: In July, two major online grocery startups withdrew from the market. Both are regional market leaders that have received multiple funding rounds from tech giants and renowned VCs.

• July 8: Tongcheng Life, a Chinese grocery delivery startup, announced that it has filed for bankruptcy. The company reportedly owed a combined RMB 200 million ($31 million) debt to over 1,000 suppliers. As one of the earliest entrants to the market, the firm was once valued at more than $1 billion, after receiving more than $306 million financing since its establishment in 2018.
• July 28: Tencent-backed Shixianghui ended its community group-buy service amid fierce competition in the market and regulatory pressure. The service’s website and mini-app are no longer functioning. 
• Aug. 13: Baoneng Shengxian, a grocery delivery startup in Western China’s Xi’an city, was reported to be facing insolvency issues amid layoffs, storefront shutdowns, and rumored delays to salary payments.

All three of these companies use the “community group buy” model, which relies on once a day deliveries to central locations to offer ultra-low prices. In the more high-end on-demand delivery market, two non-giants Dingdong and MissFresh made it to IPO in late June.

Venture capital continues to flow into community group-buy, but it’s been winner-takes-all for the top platforms. In the first five months of this year, Tencent-backed community group-buy platform Xingsheng Youxuan received $3.1 billion in funding, and Alibaba-backed Nice Tuan secured $750 million. Their combined fundraise represents over 95% of funding for the market during the period, a report from corporate intelligence database Qichacha shows.

Profits in view for grocery delivery leaders?

Chinese tech giants only began to make direct plays in the grocery delivery businesses during the most recent boom, starting in 2019. Before then, China’s biggest tech companies tapped the sector only through investments in startup leaders, a lean approach that sought to stay abreast with the latest tech trends without expanding heavily.

Tech titans including Alibaba, Pinduoduo, Meituan entered the grocery market about two years ago, intensifying competition in the already crowded sector. Rivalry in the area turned into a cash-burning subsidy war that not even the deepest-pocketed players could sustain. Tech giants, now operating their homegrown business, not only compete with each other, but also startups they previously invested in.

Chaotic, cash-fueled expansion prompted regulators to issue a list of restrictions on group-buy businesses, forbidding predatory pricing to beat out competition, as well as cracking down on falsely advertising discounted prices and posting misleading product information.

Under this financial and regulatory pressure, tech giants started to pivot their grocery business strategy from loss-making expansion, to monetizing existing businesses. The biggest players in the field are seeing results.

• Duoduo Maicai expected to record positive gross profits from July. Meituan Youxuan expects to record gross profit in some regions, local media reported.
• Ride-hailing giant Didi scaled back a community group-buy grocery unit Chengxin Youxuan. The unit laid off about a third of its staff, began an all-staff pay cut, and relocated its head office from Chengdu to Beijing and Hangzhou. 

Report: nearly 45% of beauty brand sales take place during two shopping festivals

China’s two major online shopping festivals—Singles Day in November and 618 in June—account for nearly 45% of total annual cosmetics sales, according to data from thirty beauty brands on Alibaba’s marketplace Tmall. Digital agency DLG surveyed the brands in July for a report on shopping festivals.

While sales figures on the platform throughout the rest of the year are somewhat consistent, months with a local celebration or festival, including Chinese New Year and Chinese Valentine’s Day, also known as Qixi, account for a slightly higher percentage of sales, according to the report.

Luxury brands may not have to give major discounts to win shopping festival traffic, DLG wrote. Brands have also taken advantage of the consumption deluge by launching new collections and limited editions at full price during shopping festivals, and boosted sales through buy now, pay later schemes like installment plans.

“Unlike discount driven holidays in the West, these festivals are critical occasions for brands to launch new products, introduce innovative shopping experiences and create touchpoints with loyal and new customers alike,” said James Lin, head of Fashion and Luxury for North America Alibaba Group, in the report.

Also in the news: 

China helps merchants after Amazon bans: Since May, Amazon has blocked up to 50,000 Chinese sellers on its platform, citing “improper use of the review function” as the reason.

• Shenzhen, China’s cross-border e-commerce hub, is offering RMB 2 million subsidies to cross-border sellers for each “independent store” or website they build to diversify online sales channels.
• Li Xingqian, director of China’s Foreign Trade Department at the Ministry of Commerce, said in July that the state would help companies to comply with international standards while protecting their “legitimate rights and interests.” Li called the problems “growing pains” in China’s cross-border e-commerce industry.

Tech investors set sights on consumer retail: Chinese venture capitalists, typically backers behind technology startups, are chasing after nascent consumer brands selling everything from foods and beverages to cosmetics. It normally takes decades to build brand awareness, but some emerging brands are scaling at tech-like speeds by leveraging logistics, social media, and e-commerce.

• Charles Lu, the Luckin founder who fell from grace after the 2020 financial fraud scandal, is back in the retail game with noodle restaurant Qu Xiaomian. TechNode visited one of its first locations in Beijing and had a very ordinary bowl of noodles.
• Nayuki, the Luckin-like bubble tea chain that raised $656 million in its Hong Kong debut this June, came under scrutiny Aug. 2 after state news agency Xinhua reported on hygiene issues in two Beijing stores. The news sent the company’s share down 10%. A later statement from the company said inspectors found no evidence of food safety violations.

Beidian, a Chinese social retail startup, is reportedly in arrears with their payments to thousands of merchants. According to several Chinese media news reports, the company may owe at least RMB 130 million ($20 million) to about 1,300 merchants. 

Why it matters: Beidian may become another small Chinese social e-commerce platform facing a cash shortage, as it reportedly utilizes the controversial sales strategy of multi-level marketing, also known as pyramid selling. 

• In 2017, China fined NASDAQ-listed social commerce company Yunji RMB 9.6 million for pyramid selling, the country’s first penalty against such practice. A court in Hunan province froze RMB 30 million of online seller Zebra Prime in 2020. Online retailer Peanut Diary fined RMB 9 million for pyramid selling in February. 

Details: Beidian announced on Monday that it plans to change its business model from a direct-sale online retailing platform to a shopping guide site, which redirects shoppers to other e-commerce platforms like Alibaba’s Taobao. The announcement, made public on Tuesday, prompted merchants to travel to Beidian’s head office in the eastern city of Hangzhou, asking for money back. 

• On Monday, more than 60 merchants and suppliers gathered at the headquarters of Beibei, the parent company of Beidian, demanding the company to return their owed payments and deposits, Chinese media 21 Tech reported. However, the crowd found the company had moved out and emptied its head office in Hangzhou.
• A merchant surnamed Sun told (in Chinese) media site Lanjinger that Beidian stopped paying her in May. Sun started selling on Beidian in late 2018.
• Beidian merchants sell a wide range of products, including fresh groceries, food, baby products, skin care products, toys, and cosmetics. Normally, Beidian takes a 25% commission and pays merchants a month after sales close. Merchants told Chinese media that many of them are owed several months’ worth of payouts. The highest overdue payment is about RMB 5 million. It’s still unclear what triggered Beidian to withhold merchants’ payments. 
• Beibei Group, Beidian’s parent company, reportedly cut around 500 or half of its headcounts in April.
• Beidian could not be reached for comments on Friday.

Context: Beidian was founded by Alibaba alumni Allen Zhang in August 2017 as a subsidiary of Beibei Group, a maternal and children’s product e-commerce platform. Apart from its social e-commerce business, the firm drew controversies for adopting a multi-level revenue-sharing model that’s similar to some pyramid schemes. It encourages existing store owners to recruit more members with cash incentives. Members get paid in commission based on the referrals they attract. 

• Beidian closed a $126 million financing round in 2019 from Hillhouse Capital, Sequoia Capital, Sinovation Ventures, and others.
• Beidian’s parent company Beibei Group is a major player in China’s baby product market. The group operates maternal and infant product marketplace Beibei.com and Ximei, an invite-only e-commerce app for premium brands. The company has received a total of over $224 million in four funding rounds from investors like IDG Capital and Sequoia Capital China.

Wang Chengwen, a former Alibaba employee who has been the focus of a #MeToo event after a female subordinate accused him of sexual assault, was applying for a job at ByteDance, according to various media reports Monday. 

Why it matters: Alibaba is facing intense public backlash over its handling of the employee sexual assault case. The company initially refused to fire Wang after the female employee reported the case, according to her recounts. 

READ MORE: Alibaba faces public outrage for alleged employee sexual assault case

Details: ByteDance confirmed the news with TechNode on Tuesday, saying they had the interview without knowledge of the sexual assault case and had stopped the interview process. 

Wang was evidently trying to switch jobs before the case became public over the weekend. He had passed the first round interview for a position at ByteDance, the company confirmed.

ByteDance said they will not hire employees with moral issues, adding that they will strengthen talent background checks.

Alibaba faces public outrage after a female employee accused her supervisor and a client of molestation and sexual assault in an internal post made public over the weekend. Her name was not revealed. She also accused the company, which refused to fire the supervisor because it wanted to “protect her reputation.” Alibaba has fired the alleged perpetrator and several of his managers after the news sparked public outrage on Saturday.

Why it matters: The case rekindled a public discussion on the difficulties and danger Chinese women often face at work. Once viewed as open, progressive, and lucrative alternatives to other employers, China’s internet giants are now facing a reckoning.

READ MORE: INSIGHTS | Founders behaving badly

Details: In a lengthy internal post, a female employee at Alibaba’s grocery unit Taoxianda accused her supervisor Wang Chengwen and a client of sexually assaulting her during a work trip in the eastern city of Jinan on the night of July 27. The post was leaked and made public over the weekend, quickly going viral on Chinese social media platforms. On Monday, it remains as one of the most discussed topics on Chinese social platforms such as Weibo and WeChat.

• According to the woman’s post, several of the company’s department heads tried to silence her after she reported the incident to the unit’s management. Senior managers told her they had decided not to fire Wang to “protect the accuser’s reputation.”
• In the post, the woman said she became intoxicated and lost consciousness after being forced to drink at a work dinner. She later learned through surveillance footage that she was “kissed,” “touched,” and “brought into an empty room” by a client.
• The woman said she woke up the following day in a hotel room naked, vaguely recalling being coerced into sexual acts by Wang. Through surveillance videos, she learned Wang had entered her hotel room four times during the night. 
• The woman called the police on July 28, and reported the incident to Alibaba on Aug. 2. 
• On Aug. 8, local police in Jinan said they are investigating the case in a Weibo statement.

Alibaba’s reaction: On Aug. 7, when the case first became public, Alibaba told media outlets that the company had suspended Wang, and wouldn’t tolerate behaviors like molestation and sexual assault. In a report after investigating the incident, Alibaba said that related managers and its human resources department “lacked empathy and made major judgment mistakes,” according to Caixin.

• Alibaba CEO Daniel Zhang said in the statement that the company had fired Wang, who confessed to performing “intimate acts with [her] while she was inebriated.” Two executives of its neighborhood retail business, Li Yonghe and Xu Kun, have resigned for “not making timely decisions or taking appropriate action.”
• Alibaba Group has a “zero-tolerance policy” against sexual misconduct and ensuring a safe workplace is a “top priority,” an Alibaba spokesperson wrote in a response to TechNode’s queries on Monday.

Anger on Weibo: A Weibo hashtag titled “Alibaba female staff was sexually assaulted”, had attracted 740 million views as of Monday morning. Some Chinese netizens are unhappy with the company’s responses. 

• A Weibo user with the handle of Nüde (meaning woman’s ethic in Chinese) wrote, “It took so long for the company to finally fire Wang. That’s because they made the move under social pressure rather than considering his behavior punishable.”
• “If what the female worker describes is true, this is not Alibaba, it’s the 40 thieves”, said a commentary posted by a WeChat account run by People’s Daily, referring to the Arabian folktale “Ali Baba and the Forty Thieves.“ 

Context: Alibaba has previously prompted public outcry for sexual incidents and its company culture. 

• Jiang Fan, then president of Alibaba’s Taobao and Tmall, was removed from the company’s partners committee after an alleged affair with a social media influencer in 2020. Jiang was widely seen as a potential successor to Daniel Zhang, the current CEO of Alibaba Group.
• Alibaba’s billionaire founder Jack Ma faced criticism for an off-color joke encouraging married employees to have more sex in 2019.

ByteDance is scaling back its online education businesses and laying off half of its in-house Pre-K tutors, according to a report by Late Post (in Chinese) on Thursday. 

Why it matters: ByteDance is grappling with the fallout from recent regulations that impose strict limits on edtech companies’ business operations and financial activities, and completely ban online tutoring for pre-school children. The company is scaling back its Pre-K focused-businesses and focusing more on other sectors such as vocational education.

• The new rules are seen as an attempt to ease pressures on school children, who have suffered from China’s highly-competitive education system, and boost birth rates by reducing living costs for families in the country’s major cities. 

Details: The layoffs affect employees of Dali Education, ByteDance’s standalone edtech brand that runs the short video giant’s education products, including Pre-K education platform Guagua Long and one-on-one English tutoring app GoGoKid, Late Post reported. 

• Guagua Long will suspend sales of all its online trial courses by mid-August and lay off  half of in-house tutors by the end of August, according to the report..  
• GoGoKid, the company’s English tutoring app targeting kids up to 12 years old, had been removed from app stores in China on, TechNode found on Thursday. ByteDance will shut down the platform completely, according to Late Post.
• TechNode was unable to independently verify the report. A ByteDance spokeswoman declined to comment on the matter when contacted by TechNode on Thursday.
• Discussions around ByteDance’s layoffs have also circulated this week on professional networking platform Maimai. Maimai user Kunlun Dizi, who identified himself as an employee of Dali Education, said he had been laid off.

Context: In an internal meeting held in June, Chen Lin, CEO of Dali Education, said that the company management is “very confident and patient” about its education business and will continue to invest without any layoffs, according to Chinese media outlet Pingwest.

• Chinese edtech giants including Zuoyebang and Yuanfudao are also rumored to be laying off staff, as Chinese officials tighten regulation governing the private tutoring market.
• In October 2020, ByteDance launched edtech brand Dali Education to host all its education businesses. The unit had 10,000 employees after launch.

China’s ride-hailing giant Didi reportedly scaled back a community group-buy grocery unit, Chengxin Youxuan, Chinese media Late Post reported on Wednesday. The unit is pivoting its business strategy from loss-making expansion to earning money.

Why it matters: Cutbacks at Chengxin Youxuan come as two community group-buy rivals, Tongcheng Life and Tencent-backed Shixianghui, abandon the market after years of costly cash-fueled expansion. 

• Didi is still under a state cybersecurity review that began in early July.

Details: Chengxin Youxuan began to scale back its business in June, according to Late Post‘s report. The unit laid off about a third of its staff, began an all-staff pay cut, and relocated its head office from Chengdu to Beijing and Hangzhou. 

• Chengxin Youxuan has reportedly laid off around 30% of its employees since July. Most laid-off staff were in city management, business development, operations, and logistics and located in central Hunan and Hubei province, the report said.
• Chengxin Youxuan canceled bonuses in August, meaning a 20% pay cut for all workers. The unit also reduced travel subsidies. 
• Didi moved Chengxin Youxuan’s main office from Chengdu to Beijing and Hangzhou, closing the Chengdu office.
• The unit will relocate some staff back to Beijing and Hangzhou to focus on product research and development and data analytics, while sending more staff to front-line operational positions, Late Post writes, citing employees at the company.
• Didi didn’t respond to TechNode’s inquiries, made Thursday morning.

Context: In May, The Information reported that Didi planned a separate listing for the grocery unit as early as next year, hoping to bring a new revenue source to maintain growth as its core ride-hailing business slowed down. 

• In March, China’s top market regulator fined five community group-buy platforms a total of RMB 6.5 million (around $1 million) for price dumping. Targets included Chengxin Youxuan and rival platforms backed by Pinduoduo, Meituan, and Alibaba.

At 9 a.m. on a recent Thursday, Sheng Li got out of a Didi ride at his office in downtown Shanghai. The ride-hailing company has had a rough ride recently, but for users like Sheng, Didi is still the first choice when hailing a car.

The 28-year-old office worker says he’s been experimenting with other apps lately. He’s noticed longer wait times as Didi struggles amid a “cybersecurity investigation,” temporary removal from Chinese app stores, and lawsuits from angry US investors.

Sheng told TechNode he doesn’t worry about the privacy and security issues the regulators are investigating. “That’s a matter for the state, not us,” he said. For him, it all comes down to price, service, and wait times.

Still, a Shanghai taxi driver surnamed Wu told TechNode that he has shifted his driving time to other platforms including aggregator Amap (Gaode Ditu in China), as there are now “much fewer orders” from Didi (our translation). Some former Didi users even deleted the app from their phones in a show of patriotism, the Shanghai-based driver added.

Founded in 2012 as Didi Dache, Didi has long been dominant in China’s ride-hailing market. It fended off an early challenge from Uber, buying out the US company’s Chinese operations when it left the market in 2016. The most recent estimates put its share at 90% of the Chinese market.

Now, challengers are racing to take advantage of Didi’s troubles. Like Sheng, millions of Chinese users are trying out other ride-hailing platforms. The rivals have begun a price war, offering steep discounts and subsidies to win over users and drivers.

Default Didi

Didi remains the default for most users TechNode met during rush hour interviews in Shanghai. Although Didi apps are no longer available for download on Chinese app stores, those already on users’ smartphones still work.

Chris Sun, a Shanghai-based video producer did not hesitate when choosing Didi to hail a ride to the city’s railway station for a business trip last week. Speaking to TechNode on July 22, Sun said he had no plans to try other services, adding that he “has got used to” Didi, despite some technical flaws such as inaccurate pin locations from drivers (our translation).

Chen Jie, a recent graduate, is also sticking with Didi. The 23-year-old tried Alibaba-backed Amap last year, but immediately switched back to Didi, frustrated by long waits at peak times.

Springing into action

Shopping and delivery titan Meituan, a longtime rival of Didi, relaunched its standalone ride-hailing aggregator app Meituan Dache on July 13, followed by a WeChat mini-app with the same name last week.

Meituan has offered ride-hailing services since February 2017, but shut down its standalone app in 2019 to cut expansion costs. Since then, it’s been available only as a mini-program within Meituan’s main app.

The company has boosted its subsidies to attract users after the long absence. Using a RMB 10 ($1.54) coupon, TechNode paid RMB 23.4 for a nine-kilometer trip on Meituan Dache on July 16 in Shanghai. A ride on Didi for the same route cost RMB 35 on July 2.

Upstart T3, a joint venture of state-owned automakers FAW, Dongfeng, and Changan, is among the most ambitious contenders. From its base of 21 cities and 15 million users in 2020, the two-year-old ride hailer has set goals to enter 15 new cities and add an average daily order of 1 million rides by the end of July, Chinese media reported, citing a company memo. 

Daily downloads of the T3 app on iOS peaked at 60,000 million on July 2, later stabilizing to around 40,000. In June, T3’s app was downloaded just 10,000 times a day, according to data from app-tracking service Qimai. Chinese media report that T3 staff have been working long overtime hours as the Nanjing-based company rushes to expand.

Alibaba-owned aggregator and mapping service Amap, launched in 2018, is also offering massive subsidies to both riders and drivers, including RMB 100 coupons for rides and a one-week zero-commission period to new drivers. Amap downloads on iOS have more than doubled since July.

Meanwhile, Tencent and GAC-backed Ontime is offering 50% off coupons plus a RMB 25 incentive to those who invite a friend to use the platform and take their first trip. Not everyone is joining the price war.

Chinese media reported that management at Caocao Chuxing have decided not to drive down prices,, but the company has adopted the infamous 996 work schedule following Beijing’s investigation into Didi.

Future landscape

Didi could be back on app stores later this month. Regulations specify that cybersecurity reviews should take no more than 45 days, and 45 days after Didi’s review began will be Aug. 16. However, the same regulations authorize regulators to extend the review if they find that the matter is especially complex or serious.

Some observers believe that Didi could face significant threats from smaller ride-hailers that are expanding their presence in China’s growing inland cities.

“Didi is mature in tier-one cities but not in second or lower-tier cities. There is still an opportunity for online ride-hailing in China, and Didi will not have a 90% share in China forever,” Tu Le, founder and managing director of business intelligence firm Sino Auto Insights, said during an online interview on July 6.

Didi controlled more than 90% of China’s ride-hailing market share before the government’s investigation into the company. There might be “double-digit” market share redistribution if the subsidy war meaningfully deteriorates the Didi app or mini-program core experience, according to Michael Norris, head of research and strategy at AgencyChina.

The supply of drivers, who are sensitive to subsidy and platform policy changes, will be key to winning the battle. “Didi’s competitors need to poach drivers to the point Didi’s app becomes unreliable to hail a ride,” he said.

“The competitive landscape depends on how hard Meituan pushes. Recall that Meituan, with one eye on its balance sheet, backed away from self-operated ride-hailing in late 2018. Meituan’s foray into community group-buy, including associated financing activities, have primed investors for big moves.” Norris said.

Meituan declined to comment on the story.

Still, at least one ride-hailer has decided to advance at its own pace. Rather than spending lavish sums for a victory likely to be temporary, Shouqi, operated by the namesake automaker, has publicly stated its goal is high-quality development, focusing on passenger and driver safety along with data security. With a footprint in over 170 Chinese cities, the state-backed company is now the country’s sixth biggest ride-hailer but lags far behind Didi in monthly active users, according to figures published by app tracking firm Aurora Mobile in May.

“China’s ride-hailing market has always been strictly regulated. Looking ahead, compliant, healthy, and sustainable development will be the major path for all the players,” a Shouqi spokesperson told TechNode on July 20 (our translation).

Read more: How did Didi get in trouble with data regulators?

Chinese online grocer Shixianghui appears to have ended its community group-buy service amid fierce competition in the market and regulatory pressure. The service’s web site and mini-app are no longer functioning. Meanwhile, the company is raising funds for a new snack store business.

Why it matters: The Tencent-backed firm is the latest company to exit the highly crowded community group-buy market, which relies on part-time distributors using WeChat groups to sell groceries to their neighbors. Recent exit signals that the market is going through a new round of consolidation.

• Shixianghui’s retreat from community group-buy comes only three weeks after rival Tongcheng Life went bankrupt.

Details: Shixianghui’s official website and its WeChat mini-program are no longer accessible since last week. On Monday, local media found the company had moved out and emptied its head office in Wuhan. Once valued at $500 million, Shixianghui showed multiple signs of a possible shutdown in recent weeks.

• Both the website and the mini-program do not load as of Friday afternoon, with the mini-program displaying an endless loading wheel.
• Several senior managers left the company this month. Dai Shanhui, founder and chairman of Shixianghui, exited the platform’s operating body on June 30. Senior partner Du Fei announced his departure in a Weibo post on Monday.
• However, Dai denied bankruptcy rumors. He still owns more than 80% of the company, according to information from corporate intelligence database Tianyancha. In an interview with local media, he said that the firm is undergoing a business transition rather than going bankrupt.
• The company’s new community snack chain store Ailingshi is reportedly completing a funding round of up to $30 million.

Context: An early player, Shixianghui was once making profits before tech majors such as Alibaba, Didi, and Pingduoduo entered and competed with heavy subsidies.

• Dai claimed in a January interview that the company earned profits in all its locations in 2020, about 50 cities across China. The company brought in around RMB 200 million to RMB 300 million per month in sales.
• In March, Shixianghui was among the five community group buy companies fined for irregular pricing by China’s market regulator, the State Administration of Market Regulation. The other four companies were Didi’s Chengxin Youxuan, Pinduoduo’s Duoduo Maicai, Meituan’s Meituan Youxuan, and Alibaba-backed Nicetuan.

Hello Inc., a Chinese bike rental app backed by Ant Group, canceled plans for a New York IPO amid tightening regulatory scrutiny on overseas IPOs. 

Why it matters: Formerly known as Hellobike, Hello Inc. is the latest Chinese tech company to backtrack on overseas IPO plans since Chinese regulators tightened review processes on overseas listings in early July. 

• As a bike-sharing and transportation app, Hello’s possession of users’ traveling and mapping data, alongside its overseas funding plan, could attract attention from China’s cyberspace authority, which banned ride-hailing giant Didi from app stores shortly after it listed in New York. 

READ MORE: How did Didi get in trouble with data regulators?

Details: The Shanghai-based company is applying to withdraw an IPO plan filed in April, according to a Tuesday filing to the US Securities and Exchange Committee. 

• A Hello spokesperson told TechNode that the company made the decision with “careful consideration by the company’s management.”
• “We will advance the IPO procedure in accordance with national regulatory requirements and the capital market environment in the future,” the person added.
• Hello may now seek to list in markets like Hong Kong or Shanghai Stock Exchange’s Nasdaq-style STAR Market, according to people from the company familiar with the matter. The company has been operating on losses in the past three years, according to its prospectus.

Context: Since July, a slew of Chinese tech firms, including social commerce app Xiaohongshu and fitness app Keep, have suspended overseas IPO plans. 

• China’s cybersecurity authority is revising regulations to require companies that control data of more than one million users to seek regulatory permission before filing for overseas IPOs.
• Hello is one of the main players in China’s bike-sharing market, competing with Didi’s Qingju, and Meituan Bike. The company is a survivor of China’s bike rental craze that began around 2017. 
• In addition to Ant Group, Hello is backed by top investors, including Fosun Group, GGV Capital, and Shenzhen Venture Capital.

READ EVEN MORE: INSIGHTS | The bike rental boom is dead. Long live bike rental

Beijing unveiled new rules on Saturday on the country’s private education sector, barring after-school tutoring companies, including edtech companies, from earning profits, raising capital, or going public and imposing new limits on extracurricular study.

Why it matters: The new rules will end IPO hopes for online education startups like Yuanfudao and Zuoyebang, and limit fundraising for the already listed. Companies that cannot comply with new rules could be forced out of business.

Details: Top-level party and government bodies released on Saturday a directive (in Chinese) to “reduce the burden of students enrolled in compulsory education.” The directive requires private tutoring companies to re-register as non-profit organizations, bars local authorities from approving any new companies, and orders local authorities to re-examine previously registered online education companies. 

• The directive was jointly issued by the General Office of the Central Committee, the administrative branch for the party’s top leading groups, and the General Office of the State Council, the Chinese cabinet.
• Shares of US-listed tutoring companies TAL Education, Gaotu Techedu, and New Oriental Education lost at least half of their value Friday as the document began to be widely shared.
• The new rules forbids after-school tutoring companies teaching school subjects to pursue IPOs or accept foreign investment. Listed education companies will not be allowed to issue new equities and raise money in stock markets.
• The new rule bans companies from teaching school subjects on weekends and holidays. 
• The rules also forbid companies to provide online courses to children three to six years old. Chinese children typically start primary school at the age of seven.
• Chinese authorities will also re-evaluate existing online education companies and cancel business licenses for companies that fail to meet the new requirements. 
• China’s after-school education industry has been “severely hijacked by capital,” said a Monday op-ed (in Chinese) from the state-owned newspaper China Education Daily, republished by the Ministry of Education. 

‘Worst case’ for investors: Rumors of a crackdown on after-school education had been around for months, said Ted Mo Chen, a Shanghai-based edtech entrepreneur and TechNode contributor. But the new policy is “the worst-case scenario expected by the market,” he told TechNode.

• Investors who haven’t cashed out from recently listed or would-be public edtech companies “will not get a fruitful exit,” Chen said.
• Chen advised companies to take out classes focusing on school subjects. “If they can, switch to professional or skills training, or non-test subject education such as arts, sports, and character-building,” he added.

Relief for parents? Ding Zhe, a father of a five-year-old in Shanghai, said he expects the new rule to ease financial pressures for parents. Ding pays a combined RMB 40,000 ($6,175) per year after-school courses for his daughter, including English, math, and painting. Ding said he will continue to pay for some after-school courses, but he will worry less because other children won’t be studying extracurricular programs.

Context: Investors have rushed into the online education sector since 2016, and many doubled down last year as the sector boomed during the Covid-19 outbreak. 

• In 2020, Chinese edtech companies raised a combined RMB 53.93 billion, equivalent to the total funding received over the past four years, a report from data intelligence service 100EC shows.
• Tencent-backed Spark Education, which provides online education for K-12 students, filed for a Nasdaq IPO in June. Yuanfudao and Zuoyebang, two of the country’s most valuable edtech startups, were also rumored to be planning for IPO after receiving a combined $5.9 billion funding in 2020.
• The new regulation comes two months after Beijing imposed the maximum penalty on Zuoyebang and Yuanfudao for unfair competition.

READ MORE: The Chinese gaming startup outperforming Tencent overseas

On a sweltering overcast Monday in Shanghai, thousands of hip, young Chinese people arrive at an exhibition hall in the far-west of the city. They’re there to check out the Taobao Maker Festival.

Currently in its sixth year, the festival is organized by e-commerce giant Alibaba. Every summer, the company turns Taobao, its popular online shopping platform, into a bustling real-life market, inviting young tech entrepreneurs to showcase new prototypes and products. The e-commerce leader is hoping to continue to capture young consumers’ attention.

The average age of festival merchants is 30 years old, with the youngest just 21 years old, said Chris Tung, Alibaba’s chief marketing officer, at a press briefing held on July 16. The event itself is not specifically tech-focused. The online retailer defines a maker broadly as any entrepreneur who creates a new concept or a product. 

Tung called Taobao Maker Festival “a window into the young people of China”. “What it is today for young people is what it will be tomorrow for commerce,” he said.

Products and services showcased at the festival cover almost everything: futuristic tech gadgets, unique Chinese-style handicrafts, new escape room concepts, plant-based meat, and more.

As always, we focused on tech-related makers’ stories at the festival, hoping to get a preview of the future trends.

Flying cars

As electric vehicles and autonomous driving become more familiar concepts to Chinese consumers, entrepreneurs are exploring the future of daily transportation.

Xpeng Huitian, an autonomous aviation unit at electric vehicle maker Xpeng Motors, showcased a recently revealed “flying car” prototype at the event. With eight propellers on four axes, the passenger drone could carry two adults. It has a maximum load of 200 kilograms (441 pounds). Voyager X2, the electric drone, can travel 35 minutes at between 80-100 km per hour on one charge. The flying car completed its first crewed test flight in June.

“X2 supports autonomous capabilities and could be used for air patrols, search and rescue, and medical transportation,” Xpeng Huitian representative Zhang Yongjiu told TechNode.

Also in transportation, Soco Xray is a triphibian electric vehicle that can travel in the air, on land (including snow and ice), and on water. Super Soco, a Nanjing-based electric scooter company, developed the prototype of the vehicle. 

The scooter maker sells its vehicles through Alibaba’s e-commerce platforms and more than 2,000 brick-and-mortar stores worldwide. The company sells scooters to over 73 countries.

Shenzhen-based electric skateboard manufacturer Exway offers skateboards that can travel 30-60 kilometers on one charge. Charging can take up to two hours. More than 70% of the company’s products are sold to overseas markets, a company employee said. 

Low calories and low fat

Young Chinese are embracing healthier and greener food trends. Since 2019, plant-based meat has been in vogue. This year, low-calorie and low-fat food are leading the scene. 

Boohee, a Chinese health management app that claims to have more than 120 million users, introduced crispy meat, a healthy potato chip-style snack that is made of protein and low in calories and fat. 

Baoji Dujiaoshou, which means muscular unicorn, launched a low-calorie burger with a transparent patty that contains only 4.18 calories. 

By Nice, a brand that produces low sugar and fat desserts, launched broccoli and melon ice cream, which contains fewer calories than a banana.

NFT real estate

Chinese artist Huang Heshan showed off a virtual real estate art project in non-fungible tokens (NFTs). Huang has partnered with NEAR Protocol and blockchain gaming firm Web3Games for the NFT project. 

Called TooRich City, or Butu Garden in Chinese, the project includes more than 300 villas and high-end units. Butu means “not going bald” in Chinese, expressing the artist’s hope that people won’t lose their hair over skyrocketing property prices in China. 

Huang created a fictional virtual character named Fulitu for the virtual real estate project. Fulitu is a bald, wealthy, and undereducated real estate developer. But in contrast to some real-life Chinese developers, Fulitu cares about regular Chinese people and develops housing for the poor.

READ MORE: CHINA VOICES | What China thinks of NFTs

Three months after a sweeping crackdown on “forced exclusivity,” Chinese regulators are moving to take more control over Chinese e-commerce companies’ pricing. The latest target of Chinese market watchdogs is price discrimination.

China’s State Administration for Market Regulation (SAMR) indicated that it would take a tougher stance on price discrimination when it proposed regulations on consumer pricing practices on July 2. Price discrimination is a kind of personalized pricing, where companies charge customers different prices for the same product or service by analyzing purchasing habits.

An online travel agency might hike up the price of an airline ticket for a user who is a regular big spender or has a history of last-minute purchases. Platforms even appear to charge their most loyal customers higher prices, who they think would be willing to pay more.

Meituan came under fire in late December after a viral WeChat post accused the food delivery giant of charging its paid members higher delivery fees than its free users. The writer of the post said that he was charged RMB 4 ($0.6) more for a delivery fee than a free user, even though he ordered from a member account for which he paid RMB 6 to RMB 15 per month. Meituan said the extra charge was made in error. TechNode could not independently verify the writer’s claims. 

Research conducted by Fudan University shows that ride-hailing apps charge an “Apple tax” to iPhone users, a group that is generally considered as premium in China. The report shows that iPhone users are more likely to get the pricier “chauffeured rides” and receive less of a subsidy compared with Android users. 

The new regulations would also punish price fixing, price dumping, and price fraud. Included in the 12 pages of proposed rules is a section on the pricing strategies of China’s tech economies, or companies using “new business models,” to use the regulator’s term.

SAMR is seeking public comment on the draft rules through Aug. 2.  

Companies operating under these “new business models” would be subject to a fine equivalent to 0.1% to 0.5% of their sales if they are found to charge different prices for the same product or services by leveraging big data and other technological means to predict users’ willingness to pay. The draft also forbids businesses from dumping products at low prices to create a monopoly. 

Illegal gains would be confiscated and companies could be required to suspend their business operations during a  rectification process. For serious violations, they could even lose their business licenses. 

Under Chinese law, price discrimination is already illegal. But Chinese regulators have largely tolerated these practices for the past two decades. 

Chinese consumers grapple with discrimination 

Amazon first experimented with price discrimination back in 2000, when the global e-commerce titan charged different prices to individual customers for the same DVDs. The company stopped in response to swift consumer backlash and still avoids the practice two decades later.  

But Chinese online businesses are widely believed to employ the revenue-boosting tactic. Platforms deny that they charge different prices to different customers—but few consumers believe it.

User complaints about the practice flood social networks and mass media. As of the end of June, there were over 1,300 submissions about price discrimination on Sina’s Black Cat consumer platform alone. The complaints concern nearly all major tech names in China, from e-commerce giants Alibaba, JD, and Pinduoduo, to food delivery apps Meituan and Dianping, to online travel platforms Ctrip, Qunar, and Alibaba’s Fliggy, to ride-hailing apps like Didi.

While price discrimination exists across industries, it is more prevalent in areas that offer services than those that sell physical and standardized products. “Sectors like online travel and ride hailing are more vulnerable to the practice compared with e-commerce and food delivery, which offer standardized physical products at steady costs,” said Zhang Yi, consulting CEO and chief analyst at iiMedia Research.

Denials from companies haven’t boosted user trust. Most consumers still believe price discrmination is ubiquitous in China. Results from a consumer report conducted in 2019 show that an overwhelming 88% of those surveyed believed online platforms leverage user data for personalized pricing to make users pay as much as possible. Meanwhile, nearly 60% said they have experienced the phenomenon.

Ctrip and Alibaba declined to comment when reached by TechNode.

A woman surnamed  Hu, a membership user of Ctrip, sued the online travel platform for price discrimination last year. She had reserved a hotel room for RMB 2,889 a night in July 2020 but, on checking out, she discovered the price of the room was only  RMB 1,377. A court in Zhejiang province ruled in favor of Hu, requiring Ctrip to pay RMB 4,777 in compensation.

A tricky concept

Although many users believe they face price discrimination, it’s difficult to prove—and its been going on for centuries.

In some ways, companies are bringing back an old way of pricing. People haggled over prices for most of our commercial history until the Quakers invented the “fixed” retail price tag in the mid-19th century. If people pay different prices for the same products, it’s difficult to tell whether it’s a discount or an overcharge.

Users believe that a variety of user data such as birthdate, educational background, occupation, geographic location, past purchases, web visits, and social media “likes” are used to feed the pricing strategies. The fact that personal data is freely traded on Chinese black markets for tiny sums has made the problem worse.

“As a matter of economics, there are both scenarios where price discrimination benefits certain categories of consumers and promotes overall consumer welfare and efficiency and also scenarios where it does not,” Nathan Bush, a partner with multinational law firm DLA Piper, explained to TechNode. 

A platform generally applies the practice to charge higher prices to customers who it concludes will be willing to pay more, mainly targeting premium members. These companies charge their lowest prices to users about whom they have the least data, raising prices once they see evidence of loyalty. 

From a seller’s point of view, the goal is to charge each customer the highest price he or she is willing to pay. Regulators and consumers see it as an unruly, unfair practice that does not benefit consumers. 

The Chinese term for the concept, “shashu,” literally translates as “killing someone you know,” underlining the fraudulent aspect of the practice by which platforms take advantage of the customers who use or trust them the most.

Crackdown on price discrimination

While there are laws forbiding price discrimination on the books, Chinese regulators rarely examined e-commerce platforms’ pricing strategies before 2020. Things started to change late last year as regulators waged a war on anti-competitive practices in the online world.

The 1997 Price Law (in Chinese) says merchants should price their products and services based on “production and operation costs and market supply and demand conditions.” It forbids merchants from “implementing price discrimination” when providing “the same products or services.”

The country’s 2008 Anti-Monopoly Law (in Chinese) also forbids practices such as “implementing differentiated treatment in transaction conditions such as the price” for the same goods. The clause, however, only applies to companies with a “market-dominant position,” or companies that enjoy more than 50% of a “relevant market.”

“Whereas the Anti-Monopoly Law treats price discrimination and predatory pricing as potential ‘abuses’ by dominant firms, the older Price Law contains much broader rules against price discrimination and predatory pricing that are not limited to dominant firms,” said Bush.

“Perfect” price discrimination—when a business charges a different price on every sale in an effort to get the highest possible price every time—is rare in conventional markets, but e-commerce makes it possible for companies to try, Wu Weiming, senior partner at Shanghai-based Allbright Law Firm, wrote in a note (in Chinese).

“On the internet, differentiated pricing for different consumers becomes possible. It is difficult for consumers to notice from their own web pages or mobile terminals even if their prices are different from other consumers,” Wu wrote. 

Not only market-dominant players

In November, SAMR proposed a set of antitrust guidelines targeting internet platforms. The guidelines for the first time pointed out that pricing products or services differently according to customer purchasing power, consumption history, or user preference is considered monopolistic behavior.

The guidelines, formalized in February, call for stricter regulation of unfair pricing practices. But the supplement to the Anti-Monopoly Law once again only applies to companies with dominant market positions. So far, SAMR has only deemed Alibaba a dominant player in China’s e-commerce market, fining the e-commerce giant $2.8 billion for “forced exclusivity” in April.

However, SAMR’s July 2 draft provision on illegal pricing activities is a major step closer to cracking down on price discrimination by all online marketplaces, because it also applies to non-dominant marketplaces like JD.com and Pinduoduo.

More hurdles to overcome

Even though the state is issuing tough regulations to crack down on price discrimination practices, there are more hurdles to overcome when it comes to execution. 

The unpredictability and uncertainty in pricing as a result of peak or low seasons and hours, among other factors, may lead to big price fluctuations. Therefore, it’s difficult to collect evidence to prove that the companies have boosted prices based on an individual customer’s characteristics.On top of that, regulating the practice will need the companies to share, at least with monitoring authorities, their recommendation and pricing algorithms, Chen Wenming, a lawyer with Zhejiang Xiaode Law Firm, told local media. This is a prime obstacle to regulating the practice, since most companies will be reluctant to offer this critical information, Chen said.

YCloset, a fashion rental startup, is shuttering its operations after five years. The company took its last orders on Tuesday.

Why it matters: YCloset’s collapse comes as investor sentiment sours toward the once-popular fashion rental market, which has proven to be capital intensive. As YCloset scaled, it struggled to keep up with high expenses in shipping, dry cleaning, and staying abreast of the latest fashion trends. 

• The fashion rental market boomed in China in 2017 as the country embraced the “shared economy,” an umbrella term meaning businesses exchanging services on a pooled resource. The term applies to tech firms such as ride-hailing giant Didi. Bike rental firm Ofo and car rental app Togo were two notable failures.

Details: YCloset stopped taking orders from users on Tuesday. The firm plans to discontinue support for sales and online channels by August 15, including services on its main app, WeChat mini program, and its website, according to a July 9 letter from the company addressed to customers.

• YCloset claimed it once reached 20 million users. The company said it is “deeply sorry” for the inconvenience caused by its decision to shut its doors and thanked its customers for their five years of support. The firm didn’t provide a reasons for the closure.
• Pablo Mauron, Partner & Managing Director China at Digital Luxury Group, told TechNode that the YCloset consumers “could not opt for one-time rentals, and brands in the subscription pool were not that inaccessible in terms of price either.”
• “I would not say that the clothing renting model is unsustainable in China. With the right positioning and options for consumers, it can potentially work,” Mauron added.
• YCloset is also known as Yi23. Yi means clothing in Chinese.

Context: Founded in 2015, YCloset operated a business model similar to US counterparts Stitch Fix and Rent the Runway. The company targeted female users and allowed subscribers to rent branded apparel and accessories. 

• The Beijing-based company charged a monthly subscription fee of RMB499 ($70) for unlimited rentals. Three to five pieces of clothing could be rented at one time. 
• The firm also helped brands promote their products by encouraging users to buy the rentals. 
• The company raised a combined $70 million in six rounds of financing from prestigious investors like Alibaba, SoftBank, IDG Capital, and Sequoia Capital, according to intelligence database Crunchbase. 
• YCloset’s most recent investment was received in 2018 from Alibaba, a backer of American fashion rental platform Rent the Runway.

UPDATE: The story has been updated with a new quote.

Tubatu, a Chinese home furnishing platform, filed for an initial public offering on the Shenzhen Stock Exchange’s tech-focused Growth Enterprise Market (GEM) late last month.

Why it matters: Tubatu runs an online marketplace to connect customers, decoration companies, designers, and construction material providers. China’s domestic stock market is gaining traction among tech companies in China amid stricter scrutiny of US listings. 

• Tech-focused markets, including Shenzhen’s GEM board and Shanghai Stock Exchange Science and Technology Innovation Board, are popular listing destinations for medium-sized tech firms, often leaders in smaller vertical markets.

Details: Tubatu plans to raise RMB 700 million ($108 million) by offering up to 60 million shares, according to its prospectus filed on June 30. The filing came three years after a failed attempt to go public in Hong Kong.

• Tubatu said the raised funds will be used for improving technological capability, upgrading information systems, and expanding regional coverage, among others.
• The firm’s revenue increased from RMB 583 million to RMB 680 million in 2018 to 2019, but that figure dropped to RMB 615 million in 2020 due to the negative impact of the COVID-19 pandemic.
• The company’s net profit more than doubled between 2018 and 2020 to reach RMB 86.6 million.
• Tubatu claims to serve about 114,000 renovation companies and 9,000 material suppliers currently.
• Based on its IPO size, Chinese media expect the company’s market valuation to be around RMB 3 billion, much lower than the RMB 10 billion valuation cited in Hurun’s 2020 Global Unicorn Index.
• Tubatu’s low market valuation comes from an over-reliance on online service revenues, such as matching landowners with decoration companies. Revenue from online services represented 99.94% of the company’s total revenue in 2020, up from 96.34% in 2019 after the company scrapped a low-profit home decoration service.

Context: Home furnishings is a big market in China, where apartments often come without finishes like paint, cupboards, or flooring. China’s online home decoration market reached RMB 400 billion ($61 billion) in 2020, according to data from research agency iiMedia.

• The company also offers construction supervision services and Zhuangxiubao, a payment app that ensures customers only pay after satisfying renovations.
• Founded in 2008, Tubatu has raised a combined $216.5 million in three rounds of financing, according to intelligence database Crunchbase. Its last round was in 2015 when it raised $200 million from Sequoia Capital, Matrix China, and 58.com in its Series C.
• Qeeka Home, a rival of Tubatu, has seen its share price more than halved since it debuted in Hong Kong in 2018.

Chinese chain store Luckin Coffee released an amended 2019 financial statement on Wednesday, its first financial reports since it admitted to fabricating sales in April 2020.

Luckin’s stock price jumped up more than 20% on the news. The company was delisted from Nasdaq in June 2019 and now trades through the over-the-counter market or pink sheets.

Why it matters: The filing revealed that the company spent almost twice what it earned in 2019, suggesting that giving away free coffee may not be a sustainable business model. It reported a loss of $454 million for the year, compared to $434.5 million in revenue. The statement also confirmed how the size of the fraud, and gave the amount of fictional costs for the first time.

READ MORE: The Big Sell | Luckin is not dead

Details: Luckin released restatements of unaudited results of the second and the third quarter of 2019, as well as an unaudited result of the fourth quarter of 2019. The fourth-quarter result, released for the first time to the public, was postponed due to the fraud scandal.

• Luckin disclosed in the update that the company inflated its 2019 revenue by nearly RMB 2.12 billion ($328.3 million), slightly less than the RMB 2.2 billion previously estimated. The company’s fabrication grew more than four times over the quarters of 2019, from RMB 250 million in the second quarter to RMB 1.17 billion in the fourth quarter.
• According to the new figures, net revenue in the second and third quarters of 2019 reached RMB 653.4 million and RMB 843.2 million, respectively, restated from RMB 870.0 million and RMB 1.5 billion in earlier, false filings.
• Luckin reported losses of RMB 1.13 billion on RMB 1.05 billion in revenue for the fourth quarter of 2019. The losses doubled from the same period last year, while revenue went up 125.6%. 
• Total operating expenses in the fourth quarter of 2019 were RMB 2.19 billion, representing an increase of 97.2% from the same period a year ago. The company says this growth was driven by business expansion. 
• The company attributes the growth in revenue in the fourth quarter to attracting new customers and repeat customers by issuing coupons, discounts, and adding non-coffee drinks. 
• Luckin said on Wednesday in a separate statement (in Chinese) that as of June, it operates more than 5,200 stores in China. The statement, if verified, could mean the company has again overtaken Starbucks as the largest coffee chain store in China. Starbucks runs 5,000 stores in the country, according to its website.

Context: Luckin admitted accounting fraud in April 2020. Several employees, including its COO, had fabricated transactions for much of 2019, amounting to an estimated RMB 2.2 billion in falsified sales.

Chinese on-demand grocer Dingdong Maicai raised $95.7 million in a US IPO on Tuesday after pricing its shares at the lower end of the range. 

Why it matters: Dingdong Maicai’s debut received a lukewarm reception, even after cutting its original IPO target by 74% a day before the debut. Coming days after its rival MissFresh’s disappointing Nasdaq debut, it reflects declining market sentiment for Chinese online grocers. 

Details: Dingdong Maicai went public on the New York Stock Exchange on Tuesday, just four days after its rival MissFresh debuted to a disappointing result on Nasdaq. 

• Shares of Dingdong Maicai inched up 0.09% on the first trading day, and rose 5.23% in after-hours trading.
• The company raised only a quarter of its original target of $357 million. It reduced the target 74% to $94.4 million a day before. 
• Dingdong Maicai’s founder and CEO Liang Changlin told local media that the company has “sufficient cash” after raising a combined $1.03 billion in two funding rounds finalized in April and May this year.
• Liang added that those private investments had allowed Dingdong to be flexible in the IPO. “Fundraising is not the primary goal for this IPO,” Liang told local media. 

Context: MissFresh closed at $8.65 on Wednesday, after falling more than 30% from its $13 offering price.

Online grocer Dingdong Maicai slashed the target for its US initial public offering by nearly 74% on Monday, just three days after the company’s rival MissFresh debuted to disappointing results on the Nasdaq. 

Why it matters: Dingdong’s downsizing signals a cooling appetite for Chinese online grocers as the sector grows more competitive and attracts regulatory attention. 

• Dingdong’s rival MissFresh saw its shares drop by more than 30% following its Nasdaq debut on June 25. 

READ MORE: MissFresh shares sink on IPO as grocery faces bumpy ride

Details: In a Monday filing, Dingdong Maicai said it plans to raise $94.4 million in its US IPO, down by more than 70% from its original target of $357 million. Chinese media reported that Dingdong plans to go public on June 29 on the New York Stock Exchange.

• The Shanghai-based company plans to offer fewer shares, reducing its offering from 14 million shares to 3.7 million.
• Dingdong set a price range of $23.5 and $25.5 per share.

Context: Founded in 2017, Dingdong Maicai offers fresh produce and grocery deliveries through a mobile app. The platform’s most popular categories are vegetables, fruit, and seafood. 

• The company saw its orders more than triple between 2019 and 2020, thanks to a surge in demand for grocery delivery services during the coronavirus pandemic. 
• The company secured more than $1 billion in investment in April and May. Investors include some of the most prestigious global funds, such as SoftBank Vision Fund, Tiger Global Management, and Sequoia Capital China.
• Dingdong Maicai and MissFresh are operating on losses and burning cash to fend off fierce competition from tech giants, such as Alibaba, Pinduoduo, and Meituan.
• China’s market regulator has kept a close watch on the online grocery sector. In March, regulators fined five platforms totaling RMB 6.5 million (about $1 million) for irregular pricing. The companies included Pinduoduo’s Duoduo Maicai and Didi’s Chengxin Youxuan. Dingdong wasn’t fined, but the company has been punished by regulators for food safety complaints at least 19 times, Chinese news reported.

Chinese online grocery delivery startup MissFresh (Meiri Youxian) met a cool reception in US markets Friday. It raised $273 million in a Nasdaq IPO after pricing its shares at $13, the lower end of the expected range. The Tencent-backed company’s shares plunged 26% to close at $9.6.

It’s the latest sign of investor concerns about China’s competitive grocery delivery market.

The rise of “community group buy” has attracted a stampede of players backed by deep-pocketed tech giants like Pinduoduo and Alibaba, triggering a costly price war at the discount end of the market. Stricter regulatory control also casts a shadow. MissFresh, which offers on-demand delivery in more upscale markets, is not a community group buy platform.

MissFresh’s on-demand rival Dingdong Maicai reportedly also trimmed the price of its offering in the face of negative market sentiments. It doesn’t help that both MissFresh and Dingdong are still in the red. 

MissFresh CEO Xu Zheng told TechNode that the company has plans to defend its turf and expand into the “sinking market” in an exclusive interview after the company’s US stock debut.

China’s neighborhood retail market is “massive,” with market value forecast to reach nearly RMB 15.7 trillion by 2025, Xu said. “The market of this size is big enough to accommodate diversified user demands and different business models,” he said.

Watching costs

MissFresh is cutting back on delivery infrastructure in a bid to achieve profits. The company’s core grocery delivery businesses is built on “distributed mini warehouses” (DMW), which the firm claims to have invented.

Grocery delivery operated under the DWM model will continue to be the company’s main source of revenue, Xu said, but it will focus on what Xu describes as “high-quality” growth. 

The DWM model, in which products are picked from warehouses placed in residential neighborhood for quick delivery, delivers quick order fulfillment and lower attrition rate, but it’s expensive. Pre-pandemic, these costs threatened to sink the industry.

The DMW model saw a resurgence in 2020, when China’s online grocery delivery market received an unexpected boost from the pandemic, as locked-down consumers went online.

READ MORE: Covid-19, an opportunity for e-commerce

The model is used by many companies including MissFresh, Dingdong Maicai, and Meituan Maicai. But the market boom created an increasingly competitive field that offers few opportunities other than cash-fueled growth.

While its rivals have poured money into aggressive expansion plans, MissFresh has gradually downsized its physical operations over the past two years. The company’s prospectus showed that it was operating only 631 mini-warehouses in 16 cities as of March, less than half its 2019 count of over 1,500.

The company has focused on high-yield buyers: Xu said he’s targeting young mothers, aged between 26 to 45. The company booked a high per order sales of RMB 94.6 (about $14.5) for its on-demand retail business in 2020, the highest among its peers, according to iResearch.

The strategy has paid off with a narrowed net loss. MissFresh’s net loss dropped to RMB 1.7 billion in 2020, from RMB 2.9 billion one year before. By contrast, Dingdong’s net loss widened to RMB 3.2 billion in 2020 from RMB 1.9 billion in 2019 as the company pushed harder for expansion.

But there’s also downsides. Cutbacks in operations have meant slowed growth. The company booked RMB 6.1 billion revenue in 2020, slightly higher than its RMB 6.0 billion in 2019. Meanwhile, Dingdong Maicai recorded RMB 11.3 billion in revenue in 2020.

Cheaper community group buy services, which bundle deliveries for a whole neighborhood into a once-a-day drop-off, have done better in lower-tier markets.”

Digitizing the wet market

Facing intensified competition in its core business, Xu said MissFresh is poised to break into lower-tier markets with an approach that works together with the wet markets that currently rule the roost.

“Fresh markets remain the go-to place for fresh produce shopping. In big cities, offline wet markets represent 30% to 40% of fresh produce shopping, and they represent 70% to 80% of the shoppings in small cities or towns,” said Xu (our translation).

MissFresh plans to use its IPO proceeds to fund efforts to digitize China’s offline wet markets and enhance AI-driven retail cloud services. The company plans to invest a combined 40% of funds raised in the two initiatives, on par with the 50% proceeds budgeted for sales, marketing, and technology for the on-demand retail business. The rest will be used for general corporate purposes, according to the company’s prospectus.

Both of the new businesses are quite young. The company launched its intelligent fresh market business in the second half of 2020. It promises to help wet markets to optimize their merchant mix, while providing electronic payments, online marketing, and customer management tools. The company’s retail cloud business initiative, launched in 2021, offers AI-based smart supply chain, smart logistics, and smart marketing solutions to enhance automation level and efficiency.

The two businesses are targeting emerging markets in lower tier cities, where upcoming community group-buy rivals like Pinduoduo’s Duoduo Maicai and Xingsheng Youxuan first took off.

Xu sums up the team’s innovation philosophy as “respecting the underlying market laws and breaking the rules”. “While respecting the underlying laws of different market, we should be prepared to break outdated rules,” said Xu.

China’s second largest annual shopping festival, 618, has traditionally been a key battleground for the country’s e-commerce companies. But this year, the stakes are higher. E-commerce platforms not only have to contend with each other, but with an ambitious group of short-video and grocery delivery apps looking to grab a piece of the pie. 

Since online retailer JD.com launched the shopping festival in 2010 to mark its anniversary on June 18, the event has grown into a mid-year shopping extravaganza. The festival is second only to Singles’ Day, created by Alibaba in 2009 and held annually on Nov. 11. 

This year, e-commerce sales across platforms grew by a quarter year on year to reach RMB 578.5 billion ($89.6 billion) during the festival, data from China-based data services company Syntun shows. 

E-commerce platforms still hold the home-court advantage, but are defending multiple fronts. New rivals like short video platforms Douyin and Kuaishou offer enticing interactive and social content at a time when e-commerce companies are grappling with the increasingly diverse demands of users.

Upcomers

The decade-old 618 shopping extravaganza is no longer a three-horse race. Gone are the days when Alibaba, JD.com, and Pinduoduo were the only players going head to head. Now, nearly all major Chinese apps are looking to capitalize on the event. 

While it’s not the first time that short video apps Douyin and Kuaishou have taken part in 618, the two companies appear to be getting serious about the event. Neither have released their sales figures for the shopping festival, but both companies are making significant inroads. 

• Douyin went all-in on 618 promotions this year by hosting  a slew of promotions. The company started its pre-sales campaign as early as May 25. The company also rolled out a game called “The Interaction City” to engage users, and provided commissions to entice merchants. 
• Douyin didn’t reveal sales figures, but said merchants on the platform nearly tripled their revenue compared with last year.
• Instead of 618, Kuaishou celebrated its own shopping festival, dubbed 616, on June 16th. Held just two days earlier than 618, the festival is able to capitalize on the shopping season but is unique enough for Kuaishou to brand the festival as its own. Like 618, 616 is a month-long event that spans from May 18 to June 16. The company didn’t release overall figures, but said its sales in May more than doubled compared with a year earlier. 

Varied approaches

While short video apps have large user bases with extended user retention, they have relatively underdeveloped e-commerce ecosystems. 

To make up for this, the apps have taken different approaches to expand their e-commerce businesses, either by integrating online shopping into their platforms to convert awareness into purchases, or by leveraging established advantages in content to expand market share and deepen cooperation with brands, Chris Mulliken, consulting partner at EY, told TechNode.

“Others continue to expand sales conversions but through external links to other platforms,” said Mulliken. Short video apps have also partnered with e-commerce platforms—as long as the retailers only play the role of supplier or logistics service provider.

In the lead up to 618 last year, Kuaishou reached a deal with JD, allowing Kuaishou users to  purchase the e-commerce giant’s self-run products without leaving the short video app. This allowed Kauishou to lock users into its app, while leveraging JD’s stock and delivery capabilities. Douyin struck a similar deal with Suning in 2020.

Grocery delivery

Short video apps aren’t the only one with their sights set on 618, grocery and fresh produce delivery platforms are also upping the ante. Overall sales through on-demand grocery delivery apps, such as JD Daojia and Meituan Shangou, reached RMB 17.8 billion during this year’s 618, Syntun data shows. The Syntun report shows JD Daojia topped the category, followed by Alibaba’s fresh produce delivery service Taoxianda and Meituan’s Shangou.  

• JD-backed on-demand retail platform JD Daojia doubled sales from June 1 to June 18 compared with the same period last year. On June 18, the peak of the festival, the company set a new sales record of more than RMB 300 million, the most it had ever made in a 24-hour period.
• Meanwhile, Meituan’s grocery delivery business Meituan Shangou rolled out 618 promotions for the first time, targeting the grocery category.

“In the post-pandemic era, O2O platforms are seizing more opportunities brought by change in consumer behavior and economic recovery”, EY’s Mulliken said.

“We see a future wherein all of these future trends converge—social media, online video, livestreaming, e-commerce—into integrated platforms that provide a premier customer engagement experience which then can conclude with the consumers making a purchase,” he added.

E-commerce giant still rules, for now

This years’ 618 saw new sales records, but growth is slowing. 

As China’s mobile internet population reaches its ceiling, there are fewer first-time online users to acquire, forcing the companies to go after the existing internet users. This group tends to maintain a loose connection with a particular app and use multiple apps at the same time.

“It is the ‘relationships’ and ‘content’ that triggers online purchases, rather than promotion activities,” according to Zhuang Shuai, the founder of Beijing-based consulting firm Bailian. Nevertheless, e-commerce companies are still coming out on top.

China’s overall e-commerce sales across platforms for the 18 days from June 1 to 18 reached RMB 578.5 billion ($89.6 billion), according data from Syntun. Sales grew 26.5% year on year, but slowed from a growth rate of 43.8% in 2020. Growth during last year’s  618 was mainly driven by recovered consumption demand and government support to drum up China’s post-Covid recovery. It’s a big increase from 11.8% year on year growth in 2019.

Syntun’s report shows that livestream e-commerce has gained traction. During this year’s festival, sales through livestreaming reached RMB 64.5 billion, or 11% of the total value of all goods sold. 

Alibaba still leads the pack in terms of total 618 sales. The company is followed by JD and Pinduoduo, according to Syntun. JD was the only company to release sales figures, while all other companies described growth in vague terms. 

• Alibaba published overall sales data last year but did not release figures for this year. The company recorded RMB 698.2 billion in gross merchandise volume last year. Tmall, the company’s business-to-consumer marketplace, more than doubled the number of brands it offers on the platform, reaching 250,000 this year. 
• Huge discounts are still a major selling point for Tmall, which served up RMB 10 billion in consumer coupons and subsidies for this year’s festival. 
• Livestreaming was another highlight for Alibaba. All three of China’s top livestreaming celebrities—lipstick king Li Jiaqi, Viya, and Cherie— aired on Taobao Live during the festival. 
• This year’s 618 was a big deal for Alibaba. It was the first shopping festival since the company’s record antitrust fine. 

JD did release sales numbers. The company racked up a record RMB 343.8 billion between June 1 to June 18, up from RMB 269.2 billion last year. 

• The figure represents a growth rate of  27.7%, lower than last year’s  33.6%. 
• JD’s 618 marketing campaigns ran between May 24 and  June 20, during which more than 90% of the core brands on its platform participated in the event, the company said. 
• Around 90% of consumers received their orders either on the same day or with next day delivery during the festival.

Pinduoduo also did not publish its overall sales figures. The company said it offers value-for-money products throughout the year, so its users don’t need to wait for shopping festivals to get good deals. 

• The company emphasized celebrating the two year anniversary of the RMB 10 billion subsidy program in late May, rather than 618.

Suning booked a 117% year-on-year increase in sales volume of imported beauty products and a 106% year-on-year jump for imported wellness products, the company said, without providing concrete figures. Suning said it saw a “significant increase” in sales of imported products during its 618 shopping festival, according to the company. 

Free from forced exclusivity

With stricter regulation on monopolistic practices, this year’s 618 was China’s first forced exclusivity-free shopping festival of the past decade. 

Forced exclusivity, which forced merchants to sell exclusively on one platform, was widely adopted by e-commerce companies as they sought merchant resources. This was especially true during shopping festivals, when every merchant is scrambling to fill orders. 

Massive orders during a few peak days may result in over-subscription from buyers. As a result, platforms signed exclusivity agreements with merchants to ensure sufficient stock to fill orders.

One of the most notable forced exclusivity incidents occurred during 618 in 2019. Home electronics manufacturer Galanz accused Tmall of hiding its products from search results after the company rejected Tmall’s plea to remove its listings from rival platform Pinduoduo.

Without forced exclusivity, brands can list on as many platforms as they want in order to access customers, resulting in a situation when every e-commerce platform offers a similar lineup of brands and products. Under these circumstances, providing users with unique shopping experiences, through livestream and short video for example, could be key to the success of platforms in the future. 

However, the over-subscription issue could persist, leading to more pressure to fulfill orders and increase delivery efficiency during the festival. 

For e-commerce latecomers like Douyin, removing forced exclusivity levels the playing field, allowing short video apps that aspire to expand into the e-commerce market to avoid the harsh battles Pinduoduo faced when challenging Alibaba a few years ago.

Out of all the Icarus stories in China tech, Luckin Coffee’s is one of the most spectacular. Founded in 2017, in under two years the delivery-focused company was the country’s second-biggest coffee chain, raising half a billion dollars in a US IPO. By the end of 2019, it had more stores in China than Starbucks—and had the larger chain beat on prices.

It didn’t last. In April 2020, Luckin Coffee admitted to fabricating $310 million in sales, the most spectacular fraud admission we had seen in a while in China tech. As shares of the company plunged by as much as 75% in a single day of trading, the Chinese internet wrote it off with a snarky epitaph: “Hey Wall Street, thanks for the free coffee!” By May 22, 2020 shares hit $1.39, from a January high of $50.02.

The disgraced company faced multiple class action lawsuits from shareholders and was delisted from Nasdaq on June 29, 2020. Chairman Lu Zhengyao defaulted on a $518 million loan. In February this year, the company filed for bankruptcy.

But Luckin is still very much alive: despite some closures, its stores are still a ubiquitous presence in Chinese office districts, and this summer it even launched a new range of fruit drinks. On the over the counter markets—the largely unregulated home for stocks that can’t make into a traditional exchange, its stock has recovered to around $9 per share. It’s even reporting higher revenue despite cutting stores.

Is Luckin a comeback story?

It’s hard to say. 

With high-profile marketing campaigns and steep discounts, Luckin changed habits for millions of Chinese consumers. It helped get office workers hooked on reasonably priced coffee, and it still dwarfs its closest competitors in size. But with hipper, low-priced beverage chains nipping at its heels, it’s not clear if Luckin will be the beneficiary of the coffee culture it built.

Luckin seeks profit

Luckin went into bankruptcy with a huge asset: a vast network of busy stores. With its meteoric rise ended, the company has promised to stop burning cash for growth, and raised prices in an effort to turn a profit with the business it has. Bankruptcy administrators Alvarez & Marsal have told the court they are “optimistic” the firm will survive and resume growth.

Price increase & less coupons: For consumers, the most obvious change is increased prices and fewer coupons. Luckin told Chinese media in May that store heads could apply to raise prices up to RMB 3 for each drink, amounting to a RMB 1 or RMB 2 rise considering discounts. Meanwhile, the company stopped giving free drink coupons to first-time buyers. Its current coupons offer around 50% discount, compared with the more aggressive 80% or 90% discounts at the peak of its marketing campaign before the scandal.

Wang Jia, a 38-year-old avid coffee drinker from Shanghai, told TechNode she still orders regularly from Luckin, but receives fewer coupons compared with one year ago.

TechNode staff in Beijing and Shanghai were able to order a black coffee with delivery for RMB 14 ($2.17), discounted from a notional standard price of RMB 26. In China, the most basic drink is an Americano, usually priced at RMB 20.  

Fewer stores: To cut costs, Luckin also closed down about 609 of its self-operated stores, bringing the total from 4,507 to 3,898 at the end of November 2020. The chain is no longer bigger than Starbucks, but it remains a clear second. No other coffee chain has 1,000 stores.

“Luckin has made a decision to turn away from an expansion-at-all-costs approach and prune its network of coffee chains. From outward appearances and occasional company updates, this decision has reduced the number of under-performing stores.” Michael Norris, research and strategy head at institute AgencyChina. 

Existing stores are operated thinly to manage staffing costs. A 40-square-meter Luckin store TechNode visited in downtown Shanghai depends on only one staff member to handle more than 700 orders per day, an employee told TechNode.

Franchise model: Luckin, which previously insisted on running its own stores, launched a franchise model in January. The company does not collect franchise fees from its partners, but becoming a Luckin franchisee requires an upfront investment of between RMB 35,000 to RMB 37,000 for storefront decoration, equipment, and a deposit. Luckin then takes up to 40% of the store’s profits once it reaches an agreed earnings threshold, depending on the size of the store.

Double down on existing users: Instead of spending heavily to acquire new users, Luckin focuses on getting value from regular customers, encouraging repurchasing by funneling them to a private user pool on social network tools such as WeChat Work. After scanning a QR code in a Luckin store at the request of a staff member, TechNode joined a WeChat group where the company sends discounts and coupons to nearly 100 customers. The tactic, commonly known as “private traffic,” is a popular marketing tool in China for increased user intimacy with brands and improved consumer retention rate.

Is it working?

Since delisting, Luckin has not published financial reports, so it’s hard to say whether the company is making headway on profits. In April, Luckin said it will publish corrected 2019 and 2020 earnings “as soon as possible.” But some figures have come out through the bankruptcy process.

When last seen, the company’s bottom line was in the red: in Luckin’s last financial statement, it claimed a loss attributable to shareholders of $324 million for the nine months ending September 2019. Of course, without the fake sales it would probably have looked worse.

Luckin appointed Alvarez & Marsal (A&M), a Cayman Islands-based consultancy which oversaw the liquidation of Lehman Brothers, to oversee its restructuring. The coffee chain owes millions to investors who bought into its January 2020 bond offering. The liquidators most recently released revenue information for 2020, reporting increased revenue despite a steep cut in store numbers. 

Luckin scored revenue growth in 2020, A&M said. The auditor estimated the net revenue for 2020 to be between RMB 3.8 billion and RMB 4.2 billion, compared with RMB 3.0 billion net revenue for 2019. That’s a 27% to 40% year-on-year increase. Nothing significant compared with three-digit growth before, but healthy enough for a tumultuous year. 

“It’s a reach to make predictions about the company’s current operating status based on last year’s data because there have been lots of developments in the market since then. But consumers and the market reckon that the company’s operations are getting better. The beverage industry is highly profitable. Avoiding large-scale store closures during the most difficult times in last year’s pandemic is obvious evidence that the company is doing well,” Mark Zhang, analyst from Tiger Brokers told TechNode (our translation).

Some of its stores managed to break even for the first time in August 2020, and in September 2020, 60% of Luckin’s self-operated stores were profitable on the store level, the liquidators reported. The company claimed $710.3 million in cash and cash equivalents as of Nov. 30, 2020.

New business focuses start to pay off

• As of Nov. 30, 2020, Luckin has 894 franchised “partnership stores.”. This line of business was loss-making as of June 2020, but by November, 70% had reached the profit threshold required to share profits with the company. These thresholds vary between stores.
• A&M claim that “increased number of our transacting customers, purchasing  frequency per customer, higher effective selling prices of freshly-brewed products and our increased efforts in enriching our product portfolio” drove higher returns.

The company still faces debt trouble

• $467 million from 0.75% convertible senior notes are due 2025. One group of investors that holds 84% of said bonds has sued Luckin in the Cayman islands.
• Luckin entered into a restructuring agreement with a group controlling 59% of aggregate principal of the shares on March 16, which will give them back 91%-96% of the value.
• Ordinary shareholders also have claims based on the fact that the company misrepresented its financials. In a statement, the company said it is negotiating non-disclosure agreements with these plaintiffs.
• Luckin paid a $180 million penalty to settle accounting fraud charges brought by the US Securities and Exchange Commission.

Raising money: The company received new investments from Centurium Capital and Joy Capital on April 15. Centurium Capital put in $240 million and Joy Capital invested an additional $10 million in senior convertible shares. Both of the funders were early-stage investors of the company and sat on the original board of Luckin. 

“The company’s original investors, a motley crew with ties to Lu Zhengyao, haven’t given up on the concept. Query, however, whether they believe in the company’s strategy and competitive position or whether they are clinging onto the prospect of a lucrative exit,” Norris said. Norris previously criticized the company’s reliance on the personal networks of its founder in a 2019 TechNode article.

Vending machines: In January 2020, Luckin announced $865 million in post-IPO fundraising to fund growth and “unmanned” vending machine strategy. Due the the turmoil caused by its fraud admission, the firm suspended all expansion of the vending machines business in May 2020.

• Luckin started recruiting partners for its coffee vending machine program, Luckin Express, in March this year. As of December 2020, the company operated 150 vending machines for the program, which is loss making, according to the A&M report.
• The company has nothing about snack vending initiative Luckin Pop Mini, so local media supposes they have dropped the latter.
• A short report that rocked Luckin’s shares in January 2020 focused on vending machines, alleging that the company overpaid for the machines in a related party transaction.

Fool me once…? 

Luckin admitted to bad corporate governance and simply inventing sales figures out of whole cloth. Has it changed enough to be trusted?

• Luckin’s board of directors has undergone a slew of changes since its fraud admission, including the ousting of Charles Lu and Sean Shao in July, and reinstating of Sean Shao at Centurium Capital’s request in September.
• Transparency about the company’s financial status remains limited, with auditors being replaced twice. Auditor EY was replaced by Marcum Bernstein & Pinchuk LLP in December 2020. The latter was subsequently replaced by Centurion ZD in April 2021. Marcum says it “believes that it has not gathered sufficient independent third-party data or conducted sufficient audit procedures to complete the audit.”
• Only two out of the eight directors on the board had no personal ties with the company as of June 2020. The majority of directors must be independent to list on Nasdaq, where Luckin shares were traded before being delisted last year.

The Luckin legacy

Luckin is alive, and so is the model it started. But the world is different now—in part because of Luckin’s success. Coffee shops and beverage chains mushroomed in China over the past year. 

“Previously, Luckin was fighting to take shares from Starbucks. Now, Luckin is trying to complete the same objective, while grappling with Luckin-imitator coffee chains, such as Manner Coffee. It’s unclear whether the company has what it takes to fight a two-front war for coffee-drinkers’ wallets,” said AgencyChina’s Norris.

Local rivals like Manner Coffee (in Chinese) and Coffee Box have become new investor darlings in the coffee segment. Manner, which operates more than 100 mostly Shanghai-based stores, eschews discounts and deliveries, offering app-based pick up at a consistent price (RMB 15 for an Americano, with few to no discounts). Coffee Box, which started as a delivery service for Starbucks and Costa before setting up its own brand in 2014, shut down almost all of its brick-and-mortar stores to focus on online channels after setting up a joint venture in June last year with China’s largest gas station chain Sinopec. The joint venture plans to sell coffee in Sinopec’s Yijie convenience stores as “Yijie Coffee,” and targets 3,000 locations in gas stations and beyond by 2023.

Milk tea and fruity drinks chains also pose a challenge as the boundary between the coffee and tea fads is blurring. That means coffee chains also face competition from IPO candidates like Naixue’s Tea and Heytea, both of which now serve coffee. HeyTea operates more than 700 stores as of December, up from 390 one year ago, while Naixue’s Tea has nearly 500 stores as of 2020.

And, of course, Luckin faces international competitors. Starbucks is becoming more localized and online through a partnership with Alibaba. Fast food chains KFC and McDonald are increasing their coffee forays. Canadian coffee chain Tim Hortons is expanding its China operations after an investment from Tencent in February. 

“There are too many beverage brands to choose from in big cities like Shanghai. Instead of constantly purchasing from one single brand, I buy from several brands, and will choose whichever brands that are most accessible or most affordable at the time,” said Wang Jia.

UPDATE: An interview has been rephrased to remove the implication that Seesaw is a Luckin imitator.

Additional contributions by Julia Lu and Louis Hinnant

Alibaba Cloud on Tuesday unveiled a new service to help global online merchants set up their livestreaming platforms. The e-commerce giant was one of the first to popularize livestream shopping.

Why it matters: China is leading the trend in livestream shopping. Alibaba, a leader in the sector, wants to capitalize on its expertise as the model gains popularity outside of China.

• Livestream shopping took off in China in 2019. By the end of 2020, the model quickly attracted 388 million shoppers, more than a third of China’s 989 million internet users.

READ MORE: Insight: How e-commerce and livestreaming became frenemies

Details: Alibaba Cloud now offers a paid service to global merchants hoping to build livestream shopping platforms of their own, the company announced at the virtual Alibaba Cloud Summit 2021 on Tuesday.

• The company said it plans to leverage its livestreaming technologies, including “distributed real-time video processing technology” and “uninterrupted signal transfer,” to help customers cut down delay time during virtual sales sessions, it said in a statement emailed to TechNode.
• The service also offers replays of livestreams, livestreaming applications and user interfaces, real time subtitle translation for cross-border livestream, among others.
• In a separate press release, the company said it will invest $1 billion to support startups and train new technical talents in the Asia-Pacific region over the next three years.

Context: Alibaba’s cloud computing subsidiary is supporting the new service. Alibaba Cloud, once a reliable growth engine for the company, needs new growth areas. The unit’s revenue for the March quarter increased 37% year on year, the slowest pace since 2014. The loss of a major “top-class customer,” reportedly Tiktok, is the main reason for slowed growth in the quarter.

• The Chinese e-commerce giant is trying to export its success in livestream commerce to other parts of the world.
• 388 million Chinese shoppers bought products through livestreams as of December 2020, a report by state-backed research agency CNNIC shows. The figure represents 39% of China’s 989 million netizens.
• According to a report by China Consumers Association, Alibaba’s Taobao Live takes the lion’s share of the market, representing 69% of all livestreaming shoppers in China.
• Outside of China, other retail giants are starting to invest in livestream shopping. Walmart partnered with TikTok last December to have the first pilot test of livestream shopping experience in the US on the video platform.
• In 2019, Amazon launched its live platform, which allows influencers to promote items and chat with potential customers.

Chinese tech giants like Alibaba and Tencent have long had the reputation of being some of the most active investors in China. They are behind a host of unicorns, from ride-hailing giant Didi to edtech platform Yuanfudao.

Now, they’re looking inwards, pledging to reinvest the money they make into new ventures ranging from supply chain digitization and grocery delivery, even if it means hammering their profits.

Alibaba CEO Daniel Zhang said in an earnings call in May that the company will invest all its incremental profits into core strategic areas. These funds include the difference between the company’s current year profits and those of the previous year. 

Tencent has made a similar pledge, aiming to sharply increase investments this year. Meanwhile, Pinduoduo said it will boost investments in logistics infrastructure and agricultural science.

In some cases, these pledges represent up to 15% of these companies’ annual incomes, according to analysts.

“While we don’t expect to see significant [returns] in the short term, we believe these investments will create sustainable long term profit growth for investors,” Esme Pau, analyst at China Tonghai Securities, told TechNode. 

Bottom line: Chinese tech majors Alibaba, Tencent, and Pinduoduo have all promised to up their investments as their users change behavior in the wake of the pandemic and stricter regulations weigh on tech firms’ businesses.

Tech investment hikes

Alibaba will invest all of its “incremental profits” in 2022, after a hefty $2.8 billion antitrust fine triggered its first quarterly loss in nine years. The company didn’t specify an amount, but Bloomberg has estimated that the total amount could reach RMB 25.8 billion this year, or 15% of the company’s RMB 172 billion non-GAAP net income for 2021 fiscal year.

• Non-GAAP figures usually exclude irregular or non-cash expenses to smooth out high earnings volatility. In Alibaba’s case, this figure excludes the $2.8 billion fine, which is reflected in the company’s RMB 142.3 billion net income for 2021.
• Alibaba has promised that its investments will be “highly targeted and disciplined,” given the potential size of its spending spree.
• The company’s investment priorities include technology innovation, support programs for merchants to lower their operating costs, improving user acquisition and user experience, upgrading merchandising and supply chain capabilities, and new business initiatives, according to CEO Daniel Zhang.

Focused spending: A source with knowledge of the matter told TechNode that livestreaming, Alibaba’s Pinduoduo competitor Taobao Deal, and Cainiao Logistics will be the focus areas of these investments.

• Funding for Alibaba’s livestreaming business will be focused on training livestreamers, helping more merchants use its livestreaming services, and improving livestreaming technology, the source added.
• Livestream is an important segment for the company. Alibaba’s Taobao Live, China’s largest player (in Chinese) in e-commerce livestreaming, recorded a gross merchandise volume of RMB 500 billion in fiscal year 2021.
• Taobao Deal, which offers value-for-money products for price-conscious consumers, is working to integrate suppliers from its wholesale e-commerce platform 1688.com to boost Taobao Deal offerings.
• Investments in Alibaba’s logistics arm Cainiao will be used to improve the company’s cross-border delivery capabilities by building and upgrading its global logistics infrastructure, the source said.

Tencent will plow a larger portion of its incremental profits this year into investments, as China’s internet industry undergoes “a heavy investment phase,” the company said in its first-quarter earnings report. 

• The social media and gaming giant also announced a RMB 50 billion fund that will invest in areas such as basic science, education innovation, carbon neutrality, and food provision, the company said.
• In an earnings call with analysts in April, Tencent President Martin Lau said the company would invest up to 20% of its incremental profits. 
• It’s unclear how much Tencent’s incremental profit will be this year. The company’s profit for 2020 was RMB 127 billion, with an incremental profit of RMB 29.4 billion. That would amount to around RMB 5.9 billion in investment.
• Tencent said it would channel the funds into enterprise services, gaming, and short-form video apps, largely in line with the company’s past investment strategy.
• As of the end of May, gaming made up around 17% of Tencent’s past investments while business services totaled 13.3%, according to Itjuzi (in Chinese), which tracks China’s venture capital market.

Pinduoduo, which claims to have a larger user base than Alibaba, plans to increase spending in areas along the agriculture industrial chain, where typically digitalization remains low. At the same time, the company is narrowing in on logistics, an area requiring massive, long-term investments. 

• The company has not specified the amount it intends to invest.
• Nevertheless, Pinduoduo plans to boost spending on logistics infrastructure ranging from cold-chain transport to warehousing and delivery. 
• For a company like Pinduoduo, logistics is even more critical given its increasing focus on perishable agricultural products. 
• While continuing to fund its grocery pick-up business Duo Duo Maicai, Pinduoduo will “invest heavily” in logistics infrastructure technology, said Tony Ma, vice president of finance and the company’s de facto chief financial officer. 
• Pinduoduo recorded RMB 2.9 billion in net losses during the March quarter. The company had RMB 83.4 billion in cash, cash equivalents, and short-term investments as of March.

What about the others?

We haven’t seen the other tech majors making such a fuss about investment, but here’s what we know.

Meituan: In March, Meituan warned about losses due to heavy investment in its community group buy service Meituan Select, which CEO Wang Xing called the company’s “best opportunity in five years.” 

• Retail, especially the community group buy business, continued to be Meituan’s largest investment area, the company said after reporting a RMB 3.9 billion net loss in the first quarter of this year.

JD: The company didn’t say much in its recent filings or in response to TechNode’s queries. JD continues to invest in new opportunities in cooperation with suppliers and brands, Chief Financial Officer Sidney Huang said in the company’s first-quarter earnings call. 

The effects

Hit to profits: Huge investment promises will mean less short-term profits.

• After Alibaba announced its investment plan on May 13, Bloomberg revised its estimate for Alibaba’s non-GAAP net income growth rate to 15% from 19% year on year for the 2022 fiscal. 
• Alibaba’s Chief Financial officer Maggie Wu said it would be “stupid” to promise short-term profit to long-term investors because “there are so many competitors who are investing large amounts to gain a foothold in the market.”

Long-term vision: The investments imply that these tech giants see big post-pandemic opportunities.

“This focus on reinvestment comes as China’s leading internet companies double down on capital-intensive growth opportunities,” said Michael Norris, senior analyst at AgencyChina. 

“Whether it’s reimagining retail, facilitating same-day or next-day delivery, or building out cloud computing infrastructure, it’s not cheap,” he added.

Tightened regulation is also likely a factor, as companies align their businesses with current government priorities, such as basic science, rural revitalization, food/energy/water provision, carbon neutrality, and technology for senior citizens.

READ MORE: INSIGHTS | Tech in the five-year plan

“Tightened regulation is likely to create a healthier ecosystem and a more competitive market, which might reduce the moat of these giants and slow down their growth,” said Pau from China Tonghai Securities.

These investments reflect a change in how digital giants see their role in the economy, Norris said.

“When they first burst onto the scene, China’s digital giants tended to be a thin, interfacing layer between consumers, products, services, and attention. Now, as China’s digital giants work on digitally transforming entire industries, that layer becomes thicker and more capital intensive,” he added.

Subject to crackdowns? Tech firms’ vast investment plans may meet with regulatory roadblocks as Beijing tightens antitrust grips on their anti-competitive practices, especially with unreported mergers and acquisitions (M&A) coming under scrutiny.

• While tech majors’ investments may be focused internally, venture capital investment and acquisitions are also likely to be part of the plan.
• Before the State Administration for Market Regulation (SAMR) fined Alibaba a record RMB 18.2 billion in April, most antitrust fines imposed on tech companies were related to a clause in China’s antitrust law that requires firms to report M&A deals that could create a monopoly.
• An overhaul of the law, which is expected to take effect this year, will allow regulators to issue fines up to 10% of the company’s annual revenue over unreported deals.
• The changing regulatory climate means tech giants now have to report their investment deals that could create “dominant players” in a market to the authorities. Antitrust regulators like the powerful SAMR would have a say in those deals.

China is also cracking down on the so-called disorderly expansion of capital, vowing to prevent firms from growing their businesses into every sector of the economy and forming monopolies. 

For those tech giants seeking to grow even bigger via investment, this could be a warning sign.

READ MORE: INSIGHTS | Antitrust push in China tech

Tencent-backed edtech company Yuanfudao attempted to withdraw or defer job offers to more than 2,000 new university graduates as regulators barred a key service. It is the latest Chinese online tutor to move to downsize operations in response to increased regulatory scrutiny.

Why it matters: Beijing is stepping up its scrutiny on the country’s online education sector, which boasts eight of the fifteen edtech unicorns as of early 2020.

• A new revision in China’s Minors Protection Law, which took effect on June 1, bans kindergarten and private tutoring institutions from teaching elementary-school courses to pre-school students. 
• The law affects most major Chinese edtech giants, such as Yuanfudao, Zuoyebang, GSX Techedu, Vipkid, and ByteDance, which also has a major presence in online education.
• Investment sentiment, both from venture capitalists and individual investors, could turn cold on the sector due to uncertainties brought by regulation, putting an end to capital enthusiasm triggered by online tutoring after the pandemic.

Details: Yuanfudao, the Chinese unicorn valued at $15.5 billion, withdrew or delayed job offers to new hires, most of them were fresh graduates, in pre-school tutoring, local media Phoenix Weekly’s business section reported on Monday.

• Zhang Yun (pseudonym), a university graduate, told Phoenix Weekly’s business section that Yuanfudao asked her to choose to either defer the offer till September or lose it right away. She had given up other options to accept the offer. Zhang said she had already rented a place in a new city to prepare for job. Other Chinese media outlets have reported similar cases. 
• A Yuanfudao spokesman told TechNode that the job offer change affected about 2,000 people, whose offers were either canceled or deferred. But the company has since set up a special unit to help graduates who face “real difficulties” in finances, such as those who have signed housing contracts or rejected other offers. He added that the company had also walked back some cancellations and allowed some new hires to start work as planned. 
• US-listed rival GSX Techedu reportedly trimmed a third of its headcount starting in late May as the company shut its pre-school education business for children aged between three to eight.

Context: Over the past few years, regulators have issued various rules on the online education sector to curb what they view as chaotic growth.

• Chinese regulators have imposed the maximum penalty on Zuoyebang and Yuanfudao in May, two of the country’s most valuable edtech startups, for unfair competition.
• Four major edtech platforms—TAL Education-backed Xueerxi, GSX Techedu, Koolearn Technology, and Gaosi Education—were fined for deceptive pricing practices in April.
• Since July 2019, Beijing has required all foreign teachers to hold valid teaching credentials and required companies to make public all related information, such as certificates and work experience details.

Aihuishou, a Chinese electronics resale platform backed by e-commerce giant JD.com, applied to an initial public offering (IPO) on the New York stock exchange on Friday. 

Why it matters: The Shanghai-based company is one of China’s largest second-hand goods platforms. Unlike its larger peers, Alibaba’s Xianyu and 58.com’s Zhuanzhuan, it focuses on electronics. JD.com is Aihuishou’s biggest investor, owning 34% of its ordinary shares before the offering. 

• Expect to see a new wave of Chinese technology companies from lesser-known sectors file for IPOs as more Chinese unicorns are maturing. 

Details: Aihuishou is operating at a loss, but it is narrowing the gap.  

• The company listed a placeholder amount of $100 million in its Friday IPO filing to the US Securities and Exchange Commission (SEC) with no price range for the shares.
• In the first quarter of this year, the company’s net revenue increased by 118.8% yearly to RMB 1.5 billion. From 2019 to 2020, revenue increased 24% from RMB 3.9 billion to RMB 4.9 billion in 2020. 
• From 2019 to 2020, the company narrowed its operational loss by 37% from RMB 731.8 million to RMB 458.8 million. It booked an operational loss of RMB 111.4 million in the first quarter of this year.
• Kerry Chen, the company’s CEO, said in a Friday investor letter that the company was long “misunderstood” as “a company that simply dismantles smartphones and re-purposes metals,” but it has since “set new industry standards” by standardizing a previously chaotic market. 
• The proceeds raised from the offering will be used to develop technology, diversify service offerings, and the company’s online marketplace’s sales channels.  

Context: The company was founded in 2011 as an online platform buying and reselling second-hand phones and other consumer electronics.

• In June 2019, Aihuishou acquired Paipai from JD.com. Paipai is an online retail platform that allows businesses to sell pre-owned products directly to consumers. 
• The company entered into a partnership in May with the popular short-video app Kuaishou to reach the video-streaming platform’s massive user base.
• China’s second-hand electronics market is lucrative. In 2020, Chinese people bought and sold 189 million used devices, generating RMB 252 billion in gross merchandise volume, according to a report cited in the company’s IPO filing document.

JD Logistics, the newly-listed logistics and supply chain spin-off of JD.com, is counting on customers outside the JD ecosystem to power growth, its CEO told an online press conference today after the company’s Hong Kong stock debut.

“We have maintained great trajectory in external user growth since opening in-house delivery capacity to external users in 2017. Integrated supply chain solutions will continue to be our business priority in serving external users,” CEO Yu Rui said.

The company’s core business is broader than delivery—it offers warehouse management and inventory forecasting services as a one-stop shop for logistics.

The company’s prospectus reported RMB 73.4 billion ($11.5 billion) in revenue in 2020. Of the total, revenue from external clients represents RMB 34 billion or 46.2% of the revenue. JD Group and other affiliated parties accounted for the remaining 53.8%.

READ MORE: INSIGHTS | The only rundown you’ll need on JD Logistics’ IPO

Shares surge on IPO: Shares soared on 18% in early trading this Friday as the company debuted on the Hong Kong Stock Exchange. The shares are still trading 4% up as of Friday afternoon.

• The company raised $3.2 billion in the IPO after pricing its shares at HK$40.3, at the lower end of the expected range.
• The proceeds raised will be invested in technology development and expanding the company’s logistics network to global and lower-tier markets, according to Yu.

Going global: The company also expects growth in international e-commerce, an area that saw an extraordinary surge during the pandemic as China brands made more overseas sales and Chinese consumers made more direct purchases from overseas. It’s something “JD Logistics could not afford to miss,” said Yu.

• The company plans to build more logistics infrastructure overseas, focusing on North America and Europe.
• JD Logistics will also looks at Southeast Asia and South America, following trends among Chinese brands.

Price war: Meanwhile, China’s logistics market is witnesses a brutal price war among major couriers in the market, driven partly by the rise of new entrants like J&T Express. But Yu said impacts on JD Logistics will be “limited.”

• Addressing the competition from rivals, Yu says JD Logistics’ core strength is “integrated supply chain” services
• Yu said the delivery services’ role is to acquire clients for the supply chain business as well as generating revenue.

Context: In March this year, JD.com invested $800 million in Dada Nexus, JD’s US-listed on-demand delivery joint venture, which a complementary business to JD Logistics’ overnight shipments.

Chinese e-commerce giant Pinduoduo posted better-than-expected results for the first quarter of this year, readying for more investments in agriculture research and logistics.

Why it matters: Facing intensified competition in China’s e-commerce market, the Shanghai-based company has become laser-focused on “digitizing agriculture” and the grocery sector.

• Investment into agriculture aligns with the government’s drive to modernize agriculture. It’s also a priority for rivals like Alibaba and JD.

Revenue beat: Pinduoduo posted first quarter revenue of RMB 22.2 billion ($3.4 billion), climbing 239% year-on-year from RMB 6.5 billion in the same quarter of 2020. The increase was primarily driven by revenue increase from online marketing services and merchandise sales. 

• Revenue beat the average analyst estimate of $3.2 billion compiled by Yahoo Finance.
• Pinduoduo’s annual active buyers rose 31% year on year to 823.8 million as of March, slightly higher than Alibaba’s 811 million.
• But the company’s budget sensitive users continue to spend less than Alibaba’s. Based on its latest GMV figures Pinduoduo, had per-user spending of RMB 2,115 in 2020, compared to Alibaba’s RMB 9,200 in Q1 2021.  
• The company’s net loss attributable to shareholders narrowed to RMB 2.9 billion from RMB 4.1 billion in the same quarter of last year, though the figure is significantly wider compared with an RMB 1.4 billion net loss in the previous quarter.
• Despite the revenue beat, shares of Pinduoduo dropped 5.5% on Wednesday amid regulatory concerns and lingering impact of departure of founder Colin Huang in March.
• The company’s shares have sunk by about 40% from a historic high in February this year.

Focus on ag: The discount e-commerce platform is doubling down on a pivot to agriculture, now describing itself in investor materials as “the largest agriculture platform in China.”

• Pinduoduo announced a plan to boost investment in logistics infrastructure, the e-commerce backbone that is even more critical for perishable agricultural products. 
• “In building China’s first agri-focused infrastructure, our priority remains partnering existing third-party service providers first and foremost on everything from cold-chain logistics, warehousing, sorting, and delivery,” said Chen Lei, Pinduoduo chairman and chief executive officer, during the Wednesday earnings call.
• The firm also announced a partnership with the Singapore Institute of Food and Biotechnology Innovation (SIFBI) for studies on nutritional impact from replacing traditional animal proteins with plant-based proteins.

Context: China has imposed fines totaling RMB 6.5 million on five community group-buy platforms in March, including Pinduoduo’s Duoduo Maicai, for irregular pricing.

• The ongoing regulatory crackdown on Chinese internet firms casts shadows on the e-commerce company. The Shanghai Consumer Council ordered Pinduoduo to address consumer rights issues this May.

A new commission system for Meituan food delivery has lowered the platform’s cut of short-distance orders, but raised fees for long-distance, merchants told the leading food delivery platform.

Why it matters: Meituan has been criticized for charging excessive commissions to small merchants. The company is trying to ease public frustration and bring more transparency to the company’s operations amid a wider regulatory crackdown on Chinese tech firms.

• Since May, Meituan has moved away from a fixed commission fee to one that charges restaurants different rates based on factors including store exposure, IT services, delivery distance, order price, and delivery time.
• Meituan came under the spotlight of China’s antitrust crackdown in April, shortly after Alibaba was hit with a record-breaking $2.8 billion fine.

Details: Under the new system, merchants say, fees for orders within a three-kilometer delivery distance are lowered, but that they are paying more on longer-distance orders, according to a notice (in Chinese) published by the company after a meeting with merchants held May 20.

• Many merchants asked during the meeting why they have adapt to a new and complicated system rather than take a flat cut on commission rates, according to the notice.
• Meituan argued that the thins margins of food delivery would make lower commissions across the board unsustainable. “Structural adjustments for the fee system can help the entire food delivery ecosystem to develop in a more profitable and healthier direction,” the company wrote.
• Delivery costs represent around 83.1% of commission revenues, and Meituan records a profit of just RMB 0.28 ($0.04) per order, according to data from the company’s 2020 annual financial results.
• The company also wrote that it plans to expand its food delivery business development team by around 30% this year in order to better address the demand of merchants.

Context: In an open letter published April last year, the Guangdong Restaurant Association accused Meituan of exploiting merchants by charging excessive commission rates that “most restaurants can’t endure.”

READ MORE: There are no food delivery winners

Xiao Yu, the owner of a Nanjing sandwich restaurant has a bittersweet feeling about food delivery services, an industry that feeds or creates jobs for millions of Chinese. The longer he uses delivery platforms like Meituan and Eleme, the more bitter his sentiment becomes. 

Yu, who asked to be identified by his nickname, understood that cheap, quick food—sandwiches with chicken, pork, omelets, or salad—would rely mostly on delivery orders, at lower margins than dine-in. But even so, he was surprised how hard it’s been to make ends meet. “The number of food delivery orders is generally three or four times that of dine-in orders, but the profit margin is far lower,” he told TechNode.

As merchants’ dependence on food delivery increases along with the popularity of the service, it has become more and more difficult for vendors like Yu to make a living, despite the ever-increasing number of orders.

A commission fee of around 20% per order, plus logistics fees and other marketing expenses charged by food delivery giants eat up an increasingly large share of the merchant’s profits.

The delivery platforms are drawing complaints from the drivers too. The stressful working conditions endured by two-wheeled food delivery drivers drew public ire after a Beijing official exposed issues involving low wages and impossible delivery deadlines. Wang Lin, a deputy director at Beijing’s Bureau of Human Resources and Social Security, earned merely RMB 41 ($6) on a 12-hour undercover shift last month.

For the past few years, frustration with the platforms has been building among small merchants and delivery drivers, two integral parties involved in the booming industry that brings them relatively little benefits. 

With an announcement from China’s national watchdog last month, we learned that the biggest delivery platform of them all is finally being investigated for monopolistic practices. If the Alibaba investigation is any model, Meituan could end up paying a penalty of billions of dollars. The company’s stock closed Thursday at HK$ 273 ($35) when the Hong Kong market closed, down nearly 40% from its peak.

Meituan under antitrust probe

An offer you can refuse: One focus of the Meituan antitrust probe by China’s State Administration for Market Regulation (SAMR) will be the issue of “choose one of two,” also known as forced exclusivity. The term describes practices that attempt to get merchants like Yu to sign exclusively with one platform. 

The Meituan probe comes shortly after Alibaba was given a record RMB 18.2 billion fine for practices including forced exclusivity. Analysts are looking for parallels between the companies’ competitive practices.

In the case of food delivery, exclusivity is more incentivized than forced. Yu lists his restaurant on both Meituan and Ele.me, which has meant that each app deducted 20% of an order price as a commission fee, with a minimum of RMB 4.5. The commission rate would be 15% if he agreed to list on only a single platform. Representatives of both platforms call Yu and pay visits to his store “all the time,” he said, asking him to drop the other platform. However, with an average order size of RMB 16, he’d still be paying almost a quarter of each order owing to the minimum charge.

In an unscientific survey, TechNode staff checked 30 restaurants they had ordered from recently and found that 27 were listed on both apps. 

READ MORE: What is ‘forced exclusivity’? And why did it get Alibaba fined $2.8 billion?

Monopoly or duopoly? A key factor in any antitrust investigation is to determine who has a monopoly. Chinese law defines any company with more than 50% of a “relevant market” to be a dominant player, subject to more stringent oversight.

Meituan easily meets that definition. Its share of the delivery (in Chinese) market increased to 65.8% in the third quarter of 2019, up from 60.1% during the same period of 2018, according to a report by local research agency TrustData released in February. Over the same period, the share held by rival Ele.me declined from 29.3% to 27%.

As a non-dominant player, Ele.me is unlikely to be fined for forced exclusivity under the anti-monopoly law. However, the practice may also be forbidden under other laws, such as the e-commerce law and price law. We’ve also seen regulators get creative with market definitions to bring smaller companies under the law.

Penalty size: Meituan could face a penalty ranging from RMB 4 billion to RMB 12 billion, according to a report by investment bank Bank of Communication International. Alibaba was fined RMB 18.2 billion, or 4% of its domestic revenue in 2019, although the maximum fine allowable for antitrust violations is up to 10% of domestic revenues. Meituan reported revenue of RMB 114.8 billion in 2020. Bloomberg analysts predict that Meituan will get a smaller fine in keeping with its size. Four percent of the company’s 2020 revenue would be RMB 4.6 billion.

Share movement: Like Alibaba, Meituan’s shares rose slightly after the announcement of the probe, probably because it eliminated a major source of uncertainty for the company. Meituan shares had plunged more than 40% from record highs in February as China’s sweeping antitrust campaign gathered steam and investors anticipated losses from investment in new businesses.

The antitrust probe ultimately will have only a temporary impact on Meituan shares, although the fine could amount to billions of RMB, according to Mark Meng, an analyst from Tiger Brokers. “The goal for the investigation is to strengthen monitoring of the tech market and improve fair competition, rather than shake or dismantle a business,” he said.

Why forced exclusivity?

History of fines: Meituan has already been fined at a local level for forced exclusivity on multiple occasions.

• June 2017: Jinhua city’s market watchdog, in eastern China’s Zhejiang province,  issues RMB 526,000 fine to Meituan for unfair competition.
• February 2021: The Intermediate People’s Court of Jinhua, Zhejiang province, rules (in Chinese) that Meituan should pay Ele.me RMB 1 million for asking merchants to list exclusively on its platform.
• April 2021: Ele.me ordered to pay Meituan RMB 80,000 for unfair competition by a court in Wenzhou, Zhejiang province.
• April 2021: Intermediate People’s Court in Huai’an, Jiangsu province, orders Meituan to pay RMB 352,000 in compensation to Ele.me for forcing vendors to shut their outlets on its Alibaba-backed rival.

“I don’t think these platforms thought too much about regulatory scrutiny before,” a market analyst told TechNode, asking to stay anonymous because the matter is sensitive. “The fines were too small to worry about, and by the time the regulator does anything, you’ve already screwed over a key competitor,” the source said.

Compared with e-commerce, forced exclusivity matters more in food delivery, “as a narrow range of food options can lead users to abandon a particular app,” he said.

Spilled milk? There’s not much competition to protect in food delivery, with 93% of the market taken by Meituan and rival Ele.me, according to TrustData.

There’s little space for small, specialized platforms to find a niche in food delivery, which is a much smaller market compared with e-commerce. There are e-commerce platforms focusing on cross-border business, maternity, fashion, but it’s hard to imagine a food delivery platform that serves only one cuisine.

Michael Norris, research and strategy manager of Agency China, argued that the implications for consumer choice and platform competitiveness are higher for food delivery than e-commerce. “The impact is amplified when you exclusively sign up whole restaurant chains across the country.”

However, Norris says, “I do wonder whether the multiplicity of forced exclusivity fines at a local level will lead to a higher penalty level.”

“Fair competition in food delivery will benefit the consumers and incentivize enthusiasm in merchants. It will also prevent platforms from overdraft their management resources, credibility and values for the society,” said Zhang Yi, consulting CEO and chief analyst at iMedia Research.

Will anything change?

With little competition, an end to forced exclusivity won’t necessarily bring much relief to merchants like Yu. The two dominant platforms face little pressure to lower commissions for restaurants that have no choice but to rely on delivery.

Meituan made a change (in Chinese) to its commission system this month. Instead of a set percentage of order value, it now charges vendors according to distance, order price, and delivery time. Merchants also say there has been less pressure from both Meituan and Ele.me to sign exclusive deals.

“Meituan will separate these fees out. This also helps regulators understand how Meituan charges merchants, and the extent to which those respective fees are increasing,” said Norris.

Meituan CEO Wang Xing argued in the company’s Q4 2020 earnings call that these details will show that the company’s high take rate is “reasonable,” rejecting comparisons to the much lower portion of sales collected by e-commerce platforms like Taobao. “That’s an unfair comparison because we are providing merchants a market-based transaction service. Also, we are fulfilling the actual physical delivery,” Wang said.

Under the new system, the commission rate for Yu’s restaurant orders dropped slightly, but still represents a substantial portion of his sales. 

“We still haven’t seen changes that could bring material benefits to the industry or merchants. The only benefit is that agents of the platforms no longer bug us to sign an exclusive deal. It seems that merchants are the only ones who care about this,” Yu said.

Shanghai’s market watchdog has imposed an RMB 500,000 ($77,000) fine on Alibaba-backed operator of food delivery app Ele.me for misleading consumers on prices and food safety, according to an announcement Monday.

Why it matters: This fine is the latest move in a broader crackdown on the country’s biggest internet companies, across sectors and for different violations.

• The amount is trivial for the company, but it’s likely to take it as a warning.
• The fine on the Alibaba-backed company comes as its rival Meituan is still under antitrust investigation.

Check out TechNode’s Techlash Tracker for an overview of the crackdown.

Details: Shanghai’s market regulator announced Monday April 30 fines totaling RMB 500,000, for giving misleading pricing about its services and hosting non-qualified merchants.

• From July to August last year, Ele.me promoted within its app special deal zones offering up to 90% discounts to lure customers. An investigation found that not all the deals listed in the promotional zones offered the low discounts the app promoted.
• The regulator imposed an RMB 300,000 fine under China’s Price Law.
• At the same time, the company was penalized for listing 62 unlicensed restaurants in Tianjin.
• For failing to fulfill its responsibility to monitoring merchant qualifications, Ele.me received another RMB 200,000 million fine for violating China’s Food Safety Law.
• Regulators said the Shanghai-based firm did not request a hearing after receiving the notice on April 26.
• Ele.me could not be reached immediately for comment.

Context: The fine comes amid a wave of penalties for large and small platform companies.

• China’s top antitrust regulator recently issued a record RMB 18.2 billion ($2.8 billion) fine on e-commerce giant Alibaba for antitrust practices.
• Sherpa, a Shanghai-based English-language food delivery app, was fined RMB 1.2 million in April for abusing a monopoly position in English-language food delivery.

Chinese online retail conglomerate Alibaba posted mixed results for the quarter ended March 31, reporting better-than-expected revenue and net losses for the first time since going public as a result of its record-setting $2.8 billion antitrust penalty.

Why it matters: Regulation was a major uncertainty for Alibaba following a probe of the company launched late last year. With the penalty issued in April, the e-commerce giant is now seeking to move forward and focus on business such as long-term rivalries from competitors like JD.com and Pinduoduo, which recently overtook Alibaba in user numbers.

Details: Alibaba is planning to invest all of incremental profits in the coming year into core strategic areas, the company’s management said in a call held Thursday with analysts.

• The company reported an operational loss of RMB 7.7 billion after accounting for a $2.8 billion fine levied by Chinese market watchdog in April. The net losses attributable to ordinary shareholders was RMB 5.48 billion.
• Alibaba posted RMB 187.4 billion ($28.6 billion) revenue for the quarter ended March, a 64% year-over-year increase compared with RMB 114.3 billion in the same quarter a year ago. Revenue beat the high end of analyst estimates compiled by Yahoo Finance.  
• Revenue for fiscal year ended March jumped 41% year on year to RMB 717.29 billion, driven by growth in the core commerce businesses as well as Alibaba Cloud, Wu said in a statement.
• Sun Art, the supermarket chain Alibaba acquired for $3.6 billion in October, was a major contributor to revenue growth, contributing RMB 42.9 billion or around 6% of the total annual revenue.
• Priorities include technology innovation, merchant solutions, user acquisition and experience enhancement, supply chain, and infrastructure, company executives said without specifying the expected investment sum.
• Chief financial officer Maggie Wu encouraged investors to look at the long-term profit when responding to concern about profits in the coming year. The company promised that its investments will be “highly targeted and disciplined.”
• Tiger Brokers analyst Mark Meng said that for Alibaba to deal with the impact from the regulators all in one quarter was positive. “There’s no need to be pessimistic given Alibaba’s business growth is still robust and the penalty, though hefty, is one-time and small in proportion to Alibaba’s overall quarterly revenue” (our translation).
• Growth in Alibaba Cloud, once a reliable engine for the company, is losing momentum. Revenue of Alibaba’s cloud business increased only 37% year-on-year, slowest pace since 2014. Wu attributed the drop to the loss of a “top-class customer in the internet industry” without naming the firm.
• Meng said that the former client was TikTok, which was forced to end its partnership with Alibaba when it began facing scrutiny from the US.
• Alibaba forecasted that revenue for the year ending March 2022 will rise at least 30% year on year to exceed RMB 930 billion.
• Alibaba shares fell 6% in New York trading on Thursday, while its Hong Kong shares dipped 5% Friday morning.

Context: China’s top antitrust regulator issued a RMB 18.2 billion ($2.8 billion) fine to e-commerce giant Alibaba on April 10 for anti-competitive practices including forced exclusivity. 

READ MORE: What is ‘forced exclusivity’? And why did it get Alibaba fined $2.8 billion?

Dingdong Maicai has raised an additional $330 million in a funding spree that has totaled more than $1 billion for the grocery app so far this year.

Details: Dingdong Maicai, a Chinese fresh produce and grocery e-commerce platform, has raised $330 million in a D Plus round led by the SoftBank Vision Fund, according to an announcement (in Chinese) from its advisor Cygnus Equity.

• The round follows less a month after the company received in April a hefty $700 million D Round led by DST Global and Coatue Management for business expansion, supply chain investment, and team building.
• Cygnus Equity declined to offer further detail including the company’s latest valuation based on the round when reached by TechNode Wednesday morning. The Shanghai-based investment bank was also the advisor for and an investor in the company’s D Series in April.
• Dingdong Maicai could not immediately be reached for comment.

READ MORE: The Chinese startup leading the pack in grocery delivery

Context: The four-year-old company operates more than 1,000 warehouses across 29 cities in China as of April.

• Along with grocery delivery services offered by JD Daojia and Meituan, the pandemic boosted Dingdong Maicai’s business last year.
• China’s online grocery boom has drawn in more investors as well as competition from tech majors such as Alibaba and Pinduoduo.

Chinese regulators have imposed the maximum penalty on Zuoyebang and Yuanfudao, two of the country’s most valuable edtech startups, for unfair competition amid a broader crackdown on its biggest internet companies.

Why it matters: Beijing is expanding its scrutiny of tech firms to the online education sector following extensive fines on various segments from e-commerce to community group-buy platforms.

• The penalty comes on the heels of the fines levied on four major edtech platforms—TAL Education-backed Xueerxi, GSX Techedu, Koolearn Technology, and Gaosi Education—for deceptive pricing practices.

Details: The State Administration for Market Regulation (SAMR) said in a statement (in Chinese) on Monday that it had imposed RMB 2.5 million ($389,000) fines each on Zuoyebang and Yuanfudao. The regulator also issued regulatory warnings to the startups, two of China’s most valuable (in Chinese) online tutoring platforms.

• The investigation showed Zuoyebang fabricated information about its teachers’ work experience, falsified user reviews, and gave misleading details about its services in order to boost orders.
• The Alibaba-backed company fraudulently claimed on its website to be a partner of the United Nations, according to the notice.
• SAMR pointed out that both of the two companies falsely advertised discounted prices to boost orders.
• A Zuoyebang promotional campaign on its own app and official stores on Tmall and JD markets offered a discount of around 21% off of online courses priced up to RMB 3,280 (around $510). Yuanfudao also lured customers with special deals, such as offering RMB 399 package courses for RMB 9. Investigations showed that no transactions at these prices had ever been recorded.
• Zuoyebang confirmed news of the penalty with TechNode, and pledged full compliance with the order and rectification of improper marketing behavior and misleading pricing.
• A Yuanfudao spokeswoman said that the company had already started inspecting various channels and had removed all the improper marketing banners.

Context: Investors have rushed into the online education sector, which has seen a boost during the coronavirus pandemic.

• Yuanfudao, focused on the K-12 age group, raised over $3.5 billion in 2020 from investors including Tencent, DST Global, and Jack Ma-backed Yunfeng Capital.
• Rival Zuoyebang received a combined $2.35 billion funding last year from investors including Alibaba, Tiger Global Management, SoftBank Vision Fund, and Sequoia Capital China.

Chinese ride-hailing giant Didi Chuxing is reportedly gearing up to carve out its grocery delivery unit for a separate listing as early as 2022, a year after a planned listing for its core business slated for this summer, The Information reported on Thursday.

Why it matters: The Beijing-based transportation giant is gearing up its grocery delivery business, a community-based group-buy platform, as a new revenue source amid slowing growth in its core ride-hailing business.

READ MORE: INSIGHTS | As ridesharing market plateaus, Didi tries everything

• Major tech companies, from Alibaba to Meituan, are pushing aggressively into the community group-buy sector despite tightening regulatory control.
• Chinese tech giants often manage different business lines that are too complicated to operate under a single entity, and tend to spin off their non-core businesses via IPOs. JD.com affiliate JD Health debuted on the Hong Kong stock exchange in December, while the bourse just approved JD Logistics for a separate IPO. Fintech arm JD Digits withdrew its application to list on Shanghai’s STAR Market in April.
• The Didi news comes shortly after it reportedly filed confidentially with the US Securities and Exchange Commission for an initial public offering that could raise several billion dollars at a valuation of at least $100 billion.

Details: In a discussion with investors, Didi executives said that they intend to take its community group-buy unit Chengxin Youxuan public sometime between 2022 and 2023 , The Information reported citing people with knowledge of the matter. The exact timing hasn’t been finalized.

• The report said the discussion took place during recent fundraising talks for the unit.
• For the round, existing investors Citic Private Equity and angel investor Wang Gang will contribute $1.2 billion, while Didi purchased $3 billion of Chengxin’s convertible bonds, according to the report.
• The news echoed Bloomberg’s February report of a $4 billion round for the grocery arm, which is intended to boost its growth amid increase demand.
• The report did not specify the location for the potential listing.
• Didi spokeswoman declined to comment on the news when contacted by TechNode on Friday afternoon.

Context: Community group-buying firms, including Tencent-backed Xingsheng Youxuan and MissFresh, have attracted billions in startup investment.

• In March, China’s top market regulator levied fines totaling RMB 6.5 million (around $1 million) on five community group-buy platforms, including Chengxin Youxuan and rival platforms backed by Pinduoduo, Meituan, and Alibaba, for price dumping.

Huang Guangyu, the founder of electronics retail giant GOME Retail, made his first public appearance on Thursday after 12 years in prison, announcing a home furnishings push for the company.

Details: The physical electronics giant introduced a new app offering home furnishing products and solutions at the event.

• Huang, formerly the richest person in China, pledged to return his company to its former glory within 18 months when his parole ended February.
• The company predicts RMB 500 billion ($77 billion) home furnishing revenue within the future three years.

Context: Huang was among the first group of risk-taking businessman to benefit from China’s opening up in the 80s and 90s. He rose to prominence as the man behind home appliance chain GOME Retail since 1990s, an era before China’s business world was dominated by tech giants.

• Huang was sentenced to 14-years’ imprisonment in 2010 for illegal business operations, insider trading, and corporate bribery. He was released from prison last year for good behavior.
• Huang was known as China’s richest man at the time he was imprisoned in 2010, with a net worth of at least RMB 45 billion.
• Huang’s wife Du Juan has been managing GOME’s operation during his imprisonment, when China’s retail market underwent a fundamental change in going online.
• GOME has struggled to adapt to online retail. It has tied up with online retailers including Pinduoduo and JD in an effort to build digital presence.

China’s months-long investigation of Alibaba for anti-competitive practices concluded on Saturday as the e-commerce heavyweight was slapped with a record RMB 18.2 billion ($2.8 billion) fine for violating the Anti-Monopoly Law for a variety practices, most importantly “forced exclusivity.”

The State Administration for Market Regulation (SAMR), China’s top market regulator, defined Alibaba’s dominant market position in a 24-page decision released on April 10. Alibaba’s annual revenue from e-commerce services accounted for more than 70% of the combined revenue from China’s top 10 e-retail platforms, while its overall turnover represents more than 60% of China’s online retail sales during 2015 to 2019, according to SAMR.

The regulator determined that Alibaba had been “abusing” its market dominance by imposing “forced exclusivity” on merchants, a practice in which platforms force merchants to sell their wares on only one company’s platform or services.

“It’s like the platform is collecting taxes from the merchants. There are cases when merchants are recording hundreds of millions of RMB but still can’t make money from their business. That’s unimaginable in the traditional industry,” Song added.

What impact will the penalty and the ban on forced exclusivity have on Alibaba? And what is forced exclusivity—the main violation authorities cited in their decision—and why was forced exclusivity so important that Alibaba kept going despite multiple warning signs?

Record-breaking penalty

The fine Alibaba received is the largest in the history of Chinese antitrust law, breaking a record set by a fine imposed on US chipmaker Qualcomm. In February 2015, Qualcomm agreed to pay a fine of $975 million to settle a 14-month investigation into its anti-competitive practices led by the National Development and Reform Commission of China.

The Alibaba fine is also the second-largest antitrust penalty worldwide for a single company, according to a research note by the law firm Dentons China. The largest fine in history remains the European Union’s EUR 4.34 billion (around $5.2 billion) fine on Google in 2018 for using its Android mobile operating system to illegally “cement its dominant position” in search.

While the RMB 18.2 billion penalty, 4% of the group’s 2019 revenue, is China’s largest for antitrust violations, the sum is small compared to Alibaba’s more than RMB 312 billion in cash and cash equivalents as of 2020. The 4% penalty is also well short of the maximum 10% permitted in the antitrust law.

Alibaba shares in Hong Kong and US both jumped on news of the conclusion of the investigation—regarded as a major source of uncertainty for the e-commerce platform—despite the fact that the penalty was double the rumored sum of $1 billion.

“Determination of the penalty means Alibaba’s antitrust case has come to an end. A series of negative events has dragged Alibaba’s market cap near to a historic low. As long as it is slightly favorable, the stock price will usher in a rebound,” Wang Shan, an analyst at Tiger Brokers, told TechNode (our translation).

Michael Norris, research and strategy manager of Agency China, said that immediate market response to the fine reflects “a belief the regulatory overhang over Alibaba will conclude shortly.”

“It’s highly arguable the regulatory uncertainty over anti-trust investigations has done more damage to Alibaba’s share price than the fine for ‘forced exclusivity’,” he added.

The record-breaking fine against Alibaba is a direct sign that China has become a major antitrust regulator internationally, said Deng Zhisong, a partner at Dentons China.

While pledging full compliance with the administrative decision, the company played down its impact, saying that it expected no material impact on its business from the end of forced exclusivity, according to Chairman Danial Zhang during the Monday briefing. In addition, management said Alibaba will spend billions to lower merchant costs, responding to allegations that they’ve been overcharging merchants.

Forced exclusivity and timeline

Many Chinese tech giants have been accused of different forms of ‘forced exclusivity,” also known as “choose one of two.” Alibaba’s version forces merchants to sell exclusively on its marketplaces, such as Taobao and Tmall. Changing to a multi-platform format means its merchants can now sell on rival platforms like Pinduoduo and JD.com.

Vendors already operating on multiple platforms are prohibited to join rivals’ promotional events, such as the June shopping festival known as “618” and year-end shopping spree Singles Day. Merchants who don’t comply face punishment such as reduced marketing resources, decreased search result rankings, and even bans from Alibaba’s marketplaces.

• September 2010: Fights over forced exclusivity in China’s tech world date back more than a decade ago when Qihoo 360 sued Tencent for forcing hundreds of millions of users to choose between security software offered by Qihoo and Tencent’s QQ. Known as the 3Q war, this landmark case was China’s first first major tech antitrust case and helped to establish jurisdiction for similar cases.
• November 2012: Alibaba, which popularized the annual “Singles Day” sales promotion on Nov. 11, trademarked the shopping festival in an attempt to exclude rivals from holding promotions under the same theme. JD.com and other e-commerce companies launched Singles Day sales anyway, forcing merchants to take sides in a battle between platforms.
• July 2017: JD and flash sale retailer Vipshop released a joint statement, accusing Alibaba’s Tmall marketplace of monopolizing the market by forcing merchants to sign exclusive deals with Alibaba.
• June 2019: Home electronics manufacturer Galanz accused Alibaba’s Tmall of removing its products from search results after the electronics manufacturer refused to remove listings from rival platform Pinduoduo.
• October 2019: Alibaba PR head Wang Shuai dismissed concerns over the matter, stating that “so-called forced exclusivity is a non-issue.”
• November 2019: China’s market regulator during a forum in Hangzhou reminded more than 20 e-commerce players that forcing businesses into exclusive agreements with one marketplace is illegal.
• March 2019: China’s market regulator introduced a set of e-commerce rules, including terms prohibiting practices that facilitate forced exclusivity.
• December 2021: Chinese market regulators launch an anti-monopoly investigation targeting Alibaba.

Forced exclusivity practices exist in other platform industries too. Restaurant owners are also pressured to take sides with food delivery platforms like Meituan and Ele.me. Those willing to list exclusively on one of the food delivery platforms enjoy a lower commission fee. Similarly, drivers on ride-hailing platforms benefit from lower commission rates if they only work using one app.

Why forced exclusivity

Alibaba Chairman Zhang said eliminating forced exclusivity would have no material impact on Alibaba’s business. But if the practice didn’t matter, why did the company keep it so long in the face of lawsuits and pressure from regulators?

Alibaba, China’s top e-commerce platform for decades, had faced intensifying competition from rivals like Pinduoduo, JD, and more recently, mini programs on Tencent’s WeChat and short video apps including Douyin and Kuaishou. Forcing exclusivity on its merchants helped fend off rivals, making it harder for them to offer competitive selections of goods.

“It’s a crucial measure in the early development of online marketplaces, but not so important for a business as big as Alibaba (our translation),” said an analyst who asked to stay anonymous for sensitivity of the matter.

Despite forced exclusivity, the SAMR report showed that Alibaba’s market share has been gradually declining over the years. Its annual revenue accounted for 86.0% of earnings from China’s top 10 e-retail platforms in 2015. The figure has been dropping by single-digit percentages each year ever since to 71.2% in 2019. Its overall sales volume in proportion to China’s online retail sales declined to 61.8% in 2019 from 76.1% in 2015.

In March, Pinduoduo overtook Alibaba as China’s largest online selling platform in terms of number of users. Pinduoduo reported that it reached 788.4 million annual active buyers in 2020 compared with Alibaba’s 779 million annual active buyers during the same period.

Although Alibaba’s core e-commerce business still outperforms Pinduoduo in other key metrics, including revenue, gross merchandise volume, and per-order sales, Pinduoduo’s growth in user base is a warning sign for the tech giant that has dominated China’s e-commerce for decades.

Norris said forced exclusivity may also have been a means to keep Alibaba merchants’ digital marketing spend with Alimama, Alibaba’s digital marketing arm, rather than spread across multiple platforms.

Is it a monopoly?

Before accusing Alibaba of monopolizing the e-commerce market, regulators had to answer a question: Is there any such thing as an e-commerce market? E-commerce giants from Alibaba to Amazon have argued that e-commerce is just one among many forms of retail, and that its biggest companies should be seen as reasonably sized players in a retail market that includes malls and supermarkets.

SAMR rejected this argument on Saturday, finding that e-commerce is a separate market, and for the first time laying out a definition of an online services market and a method to measure the market share of a player in such a market.

While SAMR has been pushing to revise laws and regulations to keep up with its antitrust campaign in tech, it relied on established law dating to 2009 in its Alibaba decision, suggesting that the recent tech antitrust push was possible under the old law.

SAMR’s analysis used an approach familiar from traditional antitrust cases, known as “demand-side substitution analysis.” It said that the functions of online marketplaces, such as Alibaba’s Taobao and Tmall, are “non-interchangeable with offline marketplaces,” and that online marketplaces serve different merchants than offline marketplaces because the scope and costs of their services are different. 

China’s 2008 Anti-Monopoly Law defines a player with more than 50% of a “relevant market” as a “dominant player.” In defining Alibaba as a dominant player in the online marketplace, SAMR cited data about Alibaba’s service revenue from merchants; China’s e-commerce market’s Herfindahl-Hirschman Index, a standard measure of market concentration; analysis of Alibaba’s leverage in negotiations with merchants; as well as Alibaba’s “strong abundant finance resources and advanced technological abilities.

Regulators are working on changes to antitrust law that may make it easier to prove monopoly status in future internet cases. In January 2020, SAMR proposed an amendment to China’s Anti-Monopoly Law, which will take into consideration factors such as network effects—services that rise in value as their user bases grow—as well as company size and data assets when determining whether a company is a dominant player. SAMR also in March finalized a set of guidelines helping regulators define relevant market share in the internet sector.

Going forward

Alibaba clearly seeks to move on from the antitrust investigation. Vice Chairman Joe Tsai said on Monday during the conference call with investors, media, and partners that the company has “put this matter behind us.” Tsai added that he was not aware of any other investigations involving the company relating to the Anti-Monopoly Law, although the regulators continue to conduct a broad review of Chinese tech firms’ investment transactions.

Levying a sizable fine on one of China’s largest internet sites highlighted the state’s increased scrutiny of conglomerates, sending shivers down the spines of many Chinese tech peers. 

Just two days after Alibaba’s fine, regulators announced a $180,000 penalty on Sherpa’s, a Shanghai-based English-language food delivery app targeted toward foreigners.

In the wake of the penalty, regulators summoned on Tuesday 34 of the country’s largest technology companies from various segments, including ByteDance, Baidu, JD, Pinduoduo, Ctrip, Bilibili, and Qihoo 360. The regulator warned every major internet firm in China to heed the Alibaba example.

Beijing gave Chinese online platforms a one-month window to rectify practices that were unfair to competition, such as forced exclusivity, user data leaks, and price discrimination. SAMR said those that failed to comply with regulatory requirements in follow-up checks will be “severely” punished. 

Alibaba is already moving to respond to this pressure. For years, China’s tech giants strived to construct their self-sustained ecosystems in order to lock users in. But in a surprising move since mid-March, Alibaba took a step to open up its ecosystem by bringing Taobao Deal and re-commerce service Xianyu to Tencent’s WeChat. This may be a sign that the thick walls tech companies built against one another are beginning to crack.

Shares in Hong Kong for Alibaba Group jumped 8% after company chairman Daniel Zhang promised on a call with investors on Monday an end to its practice of forced exclusivity following a RMB 18.2 billion ($2.8 billion) penalty for antitrust practices.

Why it matters: The penalty imposed onto Alibaba, a bellwether of China’s tech sector, highlights Beijing’s continued efforts to curb anti-competitive practices at major tech firms, which were seen as practically “immune” to such regulations before.

• The RMB 18.2 billion penalty is equivalent to 4% of the group’s 2019 revenue, and is by far China’s largest for antitrust violations, dwarfing recent punishments levied on peers Tencent and Vipshop.

Details: Alibaba Group does not expect a material impact on its business by ending forced exclusivity, Zhang said during a Monday briefing on the company’s response to the penalty. Forced exclusivity is a practice in which e-commerce companies punish merchants who also sell on competitor platforms, and was the primary reason for the penalty, according to the regulator. Zhang also said the e-commerce giant would spend billions to lower merchant costs.

• The company will report to regulators on its progress in eliminating exclusive arrangements and platform improvements. Zhang promised that the company will keep communication with regulators “open and transparent.” Alibaba was required to submit a self-examination report plan within 15 days of the penalty announcement.
• The company will invest more on improvements in areas like merchant training and development of the merchant back end workstation, Zhang said. “We don’t view this as a one-off cost, but as a necessary investment to enable our merchants to have a better operation on capital,” he added.
• Vice Chairman Joe Tsai said he is not aware of any other investigations involving the company relating to the anti-monopoly law, although the regulators continue to conduct a broad review of Chinese tech firms’ investment transactions.
• CFO Maggie Wu said the penalty will be reflected in the group’s net income in the March quarter results.
• Wu added that the company’s merchant support initiatives will be reflected in both top- and bottom-line growth, with reduced fees and charges to merchants and increased investments in business growth measures. The company has reserved billions of RMB for the expense, she said.

China’s top antitrust regulator has issued a RMB 18.2 billion ($2.8 billion) fine on e-commerce giant Alibaba for antitrust practices including “forced exclusivity.” The fine is the largest antitrust penalty ever issued in China.

Why it matters: The record penalty on Alibaba, a bellwether of China’s tech sector, highlights Beijing’s continued efforts to curb anti-competitive practices at major tech firms.

• The business empire of Jack Ma, the once high-profile billionaire behind Alibaba and financial affiliate Ant Group, has been under heavy scrutiny since Ant’s highly anticipated initial public offering was suspended in November last year.

Details: The State Administration for Market Regulation (SAMR), China’s top market watchdog, said in a Saturday statement (in Chinese) that it has issued a RMB 18.2 million fine on Alibaba, nearly four months after launching an investigation in December last year.

• Regulators said the investigation’s main focus was “forced exclusivity”, a practice in which platforms force merchants to use only one company’s platform or services.
• The penalty is equivalent to 4% of the group’s revenue generated in the calendar year of 2019 in China.
• Under article 47 of China’s Anti-monopoly Law, companies can be fined between 1% to 10% of annual sales for monopolistic practices.
• The regulator also ordered Alibaba to revamp its operations and file self-examination compliance reports to SAMR for three years.
• Alibaba says in a Saturday response that it has “accept the penalty with sincerity and will ensure our compliance with determination.”
• The company added that will hold a public conference call on Monday to discuss the decision.

Context: Alibaba has been in a years-long public spat over the subject of “forced exclusivity” with rivals including Pinduoduo, JD, and Meituan. These companies say Alibaba has used its size to force merchants off their platforms.

• The investigation result comes shortly after Alibaba was overtaken by Pinduoduo as the largest e-commerce platform in China by number of users. Pinduoduo describes itself as a major victim of Alibaba’s forced exclusivity practices.
• Alibaba is not alone. Internet giants including Tencent, Didi, and Baidu have recently been hit with antitrust fines, most for failing to report M&A deals to regulators.

READ MORE: INSIGHTS | Antitrust push in China tech

Holiday economy

• Data from China’s Ministry of Culture and tourism shows that tourist sites received 102 million domestic visitors during the Tomb-Sweeping Day three-day weekend, which ended April 5. This marks a 144.6% year on year increase, and a 94.5% recovery from the same period in pre-pandemic 2019. Domestic tourism revenue during the period increased 228.9% year on year to RMB 27.2 billion ($4.2 billion), or 56.7% from the same period in 2019. (21th Century Business Heard, in Chinese)
• Travel orders made through online travel platform Trip.com surged over 300% year on year during the three-day holiday, on par with figures for the same period in 2019. (Jiemian, in Chinese)
• China’s box office takings topped RMB 821 million during the holiday. (Xinhua)

Community group-buy cash-in

• China’s online grocery delivery platform Dingdong Maicai has secured $700 million D round led by DST Global and Coatue to invest in business expansion, supply chain and team. The other investors joined the round include Tiger Global Management, General Atlantic, CMC Capital Partners, and Sequoia Capital. (International Finance News, in Chinese)
• Dai Shan, a partner of Alibaba Group, says in an internal letter that the core mission of Alibaba’s “MMC” department is to support the digital upgrading of China’s more than 6 million “mom and pop” stores. The newly established unit is widely regarded as the e-commerce platform’s response to the red-hot community group-buy model. The company has not said what, if anything, MMC stands for. While the most popular group-buy businesses rely on “group heads”—usually owners of offline stores, housewives, or white collars workers with a side gig—to promote products to their neighbors, MMC focuses on providing product souring and supply chain management to owners of small stores, according to Dai. (Donews, in Chinese)
• Chinese fresh food chain operator Qiandama is heading for an Hong Kong initial public offering as soon as this year, Bloomberg reported, citing people familiar with the matter. One of the sources says the offering could raise $400 million to $500 million, in addition to a planned pre-IPO round of about RMB 2 billion. (Bloomberg)

Crossing the streams

Alibaba is planning to bring its re-commerce service Xianyu, or Idle Fish, on Tencent’s WeChat mini-app platform, shortly after embedding bargain app Taobao Deals in the rival app. (Jiemian, in Chinese)

Re-commerce platforms

• Zhuanzhuan, the re-commerce platform owned by classifieds giant 58.com, has raised a combined $390 million funding from Greater Bay Area Homeland Development Fund and Qingyue Fund. This is the first funding the firm received since its merger with electronics recycling platform Zhaoliangji in April last year. The company says its revenue has increased over 200% year on year in 2020, making it the third straight year to double its revenue. (Shanghai Morning Post, in Chinese)
• Alibaba-backed re-commerce platform Xianyu expects to record RMB 500 billion gross merchandise volume (GMV) this year, local media reported. That will be a nearly 70% year-on-year surge based on the business’ RMB 200 billion GMV from last year as revealed by Alibaba’s annual earning report. (Lanjing, in Chinese)

READ MORE: China re-commerce faces tug of war between growth and trust

When our power banks combine…

Power bank rental companies Jiedian and Soudian announced a merger Thursday, the same day rival Energy Monster went public on the Nasdaq market. The new company says it will have a combined 360 million users—which is more than Energy Monster’s 219 million. (Ebrun, in Chinese)

Logistics

Alibaba logistics arm Cainiao announced Tuesday an agreement with US-owned air cargo company Atlas Air to launch a flight operation program linking Hong Kong, China to Bogota, Colombia and Lima, Peru, with Santiago, Chile or Sao Paulo, Brazil as the connection point. (Cainiao statement)

E-commerce responds to Xinjiang cotton boycott

• H&M has been removed from China’s e-commerce platforms including Alibaba’s Taobao, JD.com, and Pinduoduo as well as service apps from ride-hailing platform Didi to map apps from Tencent and Baidu. The Swedish fashion brand is facing a backlash over its decision to stop sourcing materials from the Xinjiang Uyghur autonomous region, a major cotton producer and home to China’s Uyghur minority, against which the country’s government is accused of significant human rights violations. (The Wall Street Journal)
• NetEase Yanxuan, the private-label e-commerce brand of Chinese tech firm NetEase, voiced its support for Xinjiang cotton, pledging to continue its use, help farmers to develop more products, and source more raw materials from within the country. (Ebrun, in Chinese)
• A number of international brands such as Nike, Adidas, and Uniqlo are also losing steam in the country for expressing concern about alleged human rights violations in Xinjiang. (SCMP)

IPOs and funding

• Chinese grocery app Nice Tuan has raised a $750 million round led by Alibaba Group and DST Global to bolster its supply chain and fresh produce offerings. Other participating investors include D.E. Shaw & Co., Anatole Investment, Jeneration Capital, and Dragoneer.(Ebrun, in Chinese)
• Chinese social e-commerce platform Xiaohongshu has hired a former Citigroup executive to oversee its financial management amid reports that it is eyeing a public listing in the US, according to a report by The Information. (TechNode)
• Two Shanghai-based venture capitalists have accused Cai Guangyuan, chief executive of power bank rental company Energy Monster, of reneging on a deal to give them a joint 3% stake in the business. The dispute is poorly timed—the company recently filed a prospectus for a US listing. (Reuters)

Growth in logistics

• Alibaba’s Cainiao Smart Logistics Network announced Monday a partnership with Hong Kong Air Cargo, a subsidiary of Hong Kong Airline, to begin cargo flights to Southeast Asia. In the first phase of the cooperation, Hong Kong Air Cargo will operate flights to hubs Manila, Kuala Lumpur, and Bangkok on behalf of Alibaba’s logistics arm. (Ifeng, in Chinese)
• China’s same-city logistics service provider Shansong Express has received RMB 125 million in funding for a Series D2 from Shunwei Capital, N5 Capital, SIG China, Tiantu Capital, Oceanpine Capital, Alpha Square Group, Axiom Asia Private Capital, Qianshan Capital, and CF Capital. SIG China became the company’s largest institutional investor after the round. The Beijing-based firm had upwards of 100 million users as of 2019. (Tencent News, in Chinese)

Meituan losses

Meituan booked net losses of RMB 2.3 billion ($345 million) in fourth quarter of last year as the Chinese food delivery giant ramped up investment in the community-based grocery business. The company warned that investment in grocery services will continue to weigh on its profitability, although growth in its core food delivery and in-store business earned a better-than-expected RMB 37.9 billion in revenue for the reporting period. (Bloomberg)

Xiaohongshu, a Chinese social media and e-commerce platform, has hired a former Citigroup executive to oversee its financial management as the company eyes a public listing in the US, according to a report by The Information.

Why it matters: Xiaohongshu, the $6 billion firm backed by Alibaba and Tencent, may be joining a growing list of Chinese tech firms heading to the public markets.

• An early pioneer of China’s content-driven e-commerce trend, Xiaohongshu, also known in English as Red, faces intensifying competition from short-video platforms like ByteDance’s Douyin and Tencent-backed Kuaishou.

Details: Xiaohongshu has named Yang Ruo, a former Citigroup investment banker, as its chief financial officer overseeing the compilation of financial strategies as well as financial management and internal control, a company spokeswoman told TechNode on Friday.

• The Shanghai-based company is considering a US listing as early as this year, The Information reported citing people familiar with matter. Investors said the IPO could value Xiaohongshu at more than $10 billion, according to the report, up from a valuation of $6 billion in early 2020 according to sources cited by Bloomberg.
• The company is in discussion with several banks, but has not settled on a target raise, according to The Information.
• A Xiaohongshu spokeswoman denied that the company is planning an IPO when contacted by TechNode on Thursday morning.

READ MORE: Xiaohongshu bids to reinvent itself, again

Context: In a similar move, TikTok parent ByteDance hired former Xiaomi executive Shou Zi Chew as chief executive, a sign that has been widely interpreted as preparation for its highly anticipated IPO.

• Founded in 2013 , Xiaohongshu gained popularity among China’s young, middle-class, and mostly female consumers hungry for insight on lifestyle and fashion. Users can also buy products directly through the platform.
• The company defines its model as B2K2C, where key opinion leaders help merchants to promote their product to customers. 
• Xiaohongshu had over 100 million monthly active users as of June, 70% of which were born after 1990, according to company data.
• After surging in popularity early on, the content-driven app has struggled to land on a scalable monetization model while maintaining its community feel. It battled user trust issues and competition for user attention from other platforms.
• The app was reportedly raising a Series D of at least $400 million at a valuation of $6 billion in January last year, following a $300 million round at $3 billion valuation in 2018.

End of an era for Pinduoduo

• The billionaire founder of Pinduoduo, Colin Huang, stepped down as board chairman just as the e-commerce giant overtook its rival Alibaba as China’s largest online selling platform by user size. (TechNode)
• Chen Lei, Pinduoduo CEO and chairman, told the Wall Street Journal that the company will “keep plowing revenue back into subsidies” until it “supplants Alibaba as the default shopping platform for perhaps a billion Chinese consumers.” The firm plans to boost ad income to earn a profit while keeping the hefty subsidy program going. Despite its huge user base, Pinduoduo’s $324 average annual spend per active buyer in 2020 was less than a quarter of Alibaba’s average annual spend per user during the same time period. (Wall Street Journal)

E-commerce giants

• Alibaba Group plans to launch Taobao Deals as a mini program on Tencent’s mega chatting app WeChat, according to a Bloomberg source. Taobao Deals is Alibaba’s response to rival Pinduoduo. Cooperation between Alibaba and Tencent—two of China’s most exclusive technological ecosystems—is a clear indication that Beijing’s anti-monopoly efforts are taking effect. (Bloomberg)
• JD.com said it will invest $800 million in Dada Nexus, giving the Chinese online retailer a total 51% stake in the on-demand delivery company by combining its existing shares. (TechNode)

Power bank rentals

• An online poll conducted by Chinese business newspaper 21st Century Business Herald showed that around 80% of the users said they would stop renting power banks if fees were hiked again. The most recent price increase raised the average per-hour rental fee to RMB 4 ($0.6), up from RMB 1 charged when the service first took off in 2017. Rental fees for devices at high traffic locations like cinemas, tourist spots, and airports are as high as RMB 6 per hour. A Weibo hashtag titled “Power bank rental fee increase from RMB 1 to RMB 4” had attracted 260 million views as of Tuesday morning. In China, a power bank can be purchased for around RMB 50. (21st Century Business Herald）
• One week after filing for a US IPO, Chinese power bank rental firm Energy Monster announced Friday a partnership with food delivery platform Ele.me to cooperate on channel operation resources, merchants, and membership services. Starting April, Ele.me will add Energy Monster’s services to its app. Users will also be able to call Ele.me drivers to pick up the power banks they forget to return. (Tencent Tech)

Content-driven e-commerce

• In the coming year, microblogging platform Weibo plans to support the growth of 10 million merchants who use high-quality content to sell by dedicating RMB 100 million worth of traffic and cash incentives. (Sina Tech, in Chinese)
• Weibo reported net revenue of $513.4 million in the fourth quarter of last year, a 10% year-over-year increase. Advertising and marketing revenues accounted for 88% of total revenue. The company’s monthly active users reached 521 million in December, a net addition of approximately 5 million on a year-over-year basis. (Weibo)
• Sina, operator of the Sina news portal and Weibo’s controlling shareholder, announced the completion of its merger through which the Nasdaq-listed company had planned to go private. The company has filed with SEC for delisting of its shares. (Sina statement)

Chinese e-commerce giant JD.com said it will invest $800 million in Dada Nexus, the company behind on-demand grocery delivery platform JD Daojia and on-demand delivery platform Dada Now.

Why it matters: The investment underscores JD’s commitment to growing its presence in the logistics sector, which has seen rising demand due to shelter-in-place measures during the pandemic.

• Dada Nexus’ core strength in on-demand delivery—completing most deliveries to users within a three-mile radius in under an hour—is highly complementary to JD’s existing logistics operations, which focus on overnight shipment.
• Shares of Dada Nexus surged more than 11% Monday on the news.

READ MORE: Covid-19, an opportunity for e-commerce

Details: JD.com has entered into a share purchase agreement with Dada Nexus to buy $800 million of newly issued ordinary shares, according to a statement (in Chinese) from the company.

• The new shares were priced at $29 apiece, the Dada Nexus share price as of market close on March 19, the last trading day prior to the agreement.
• After the transaction, JD.com will hold approximately 51% of Dada’s shares, taking into account its existing holdings.
• “The company’s increased investment will facilitate both sides to promote the expansion of on-demand retail and delivery, as well as omni-channel collaboration,” Xu Lei, chief executive officer of JD Retail, said in the statement.
• The deal will help the company further diversify its retail services, improve business partners’ operating efficiency, and deliver better services for its customers, JD said.
• Dada Nexus’s total net revenues surged 85.2% year on year to RMB 5.7 billion in 2020, according to the company’s fourth-quarter earnings filed on March 8.

Context: Dada Nexus is an entity created by a merger of on-demand delivery platform Dada Now and JD Daojia, JD Group’s former on-demand local retail arm.

• The company raised $500 million from Walmart Inc. and JD in 2018.
• The Shanghai-based company went public on Nasdaq in June, raising $320 million.
• JD Logistics, the logistics arm of e-commerce giant JD.com, filed on Feb. 16 its prospectus for an initial share offering on the Hong Kong stock exchange.

Like Roman dictators, consumer brands in China have good reason to beware the Ides of March. It’s the date of the national broadcaster’s consumer rights gala, a two-hour festival of exposés famous for undercover sting operations.

The annual broadcast, known as the “3.15 Gala” after its date, is appointment television, promising embarrassing revelations about well-known companies. It can drive consumer outrage and crackdowns from regulators, and it’s often followed by unwelcome attention from other media. 

This year, tech came under heavy fire. Out of nine segments in the broadcast, the first four focused on allegations about misuse of technology. Well-known brands like Qihoo 360 search, UC browser, and the job search sites Zhilian and Liepin came under fire for accusations related to false advertising and poor privacy protection. At least five companies saw their apps kicked off Chinese app stores in the days following the show.

Major state media have repeatedly focused on tech-themed investigations. Renwu Magazine, owned by the People’s Daily group, has been on the warpath over working conditions, with viral investigative work targeting both pressure on delivery drivers and extreme limits on toilet time for white-collar workers. The same magazine was also among outlets that highlighted concerns over invasive use of face recognition. 

CCTV investigates CCTV

The broadcast began by accusing retailers of misusing face recognition to monitor visitors to their stores.

CCTV reported that Kohler, an American bathroom fixture brand, installed closed-circuit cameras in many stores to capture customers’ facial information without user consent. The company installed cameras with face recognition capabilities in thousands of its stores, allowing the company to identify and track consumers across multiple visits to different showrooms without their consent.

In addition to Kohler, CCTV said that more than 20 brands have installed face recognition systems in their stores across the country, including well-known brands like BMW and Max Mara. A manager at a surveillance camera supplier told undercover reporters they have already installed millions in different stores. 

Officially implemented on Jan. 1, 2021, China’s new Civil Code bans processing personal information without consent. 

Resumes for sale

The program also accused three well-known online recruitment platforms for leaking job seekers’ resumes: Zhaopin, 51Job, and Liepin. All three have since been removed from a number of Chinese Android app stores.

Online recruitment platforms are the first choice for most people to seek jobs. However, they are doing a bad job protecting user’s personal information. CCTV’s reporter paid RMB 7 (about $1) to a buyer in a QQ group called “58 Zhilian Fans” for one resume from Zhaopin, including the applicant’s name, gender, age, photo, contact information, work, and education experience. 

It appears that the black market in resumes serves both actual recruiters as well as scammers interested in personal information. 36Kr, which examined the practice following CCTV, reported that for small businesses it can be cheaper to buy a resumes secondhand and contact possibly hires directly than to register an account.

Weak privacy protections make it easy for resume brokers to export resumes in bulk. On Zhaopin, anyone with a corporate account can download an unlimited number of resumes. The registration of corporate accounts is also loosely regulated on these platforms. CCTV found that applications with fake certificates could pass through the application process.

Snake oil

Ads for fake medicine have plagued search since 2016, when a college student named Wei Zexi died after receiving an unproved cancer treatment promoted by ads on Baidu which were not clearly distinguished from search results, prompting a widespread outcry. The case drew wide public attention, forcing the tech giant to change its advertising practices and Chinese regulators to tighten control. 

Three years on, CCTV accused the Alibaba-backed UC Browser and Qihoo’s 360 Search for displaying results that appear organic but are in fact advertisements. 

The broadcast also accused intermediaries of helping unlicensed firms promote medical products. Normally, a company needs authorization to advertise a medical product or treatment. But third-party ad agents for the two companies told undercover reporters that they could use idle accounts that were previously registered by authorized companies.

“No need to fear accounts being blocked after posting questionable information. We can always switch to another one, because we have hundreds of them,” said one agent for 360 Search.

Both of the apps were removed from all major Chinese Android app stores two days after the exposé.

Some of these fake ads are pretty dangerous: The Beijing News found that ads on “a search engine” recommended ineffective treatments for heart attacks.

After searching with the keyword of heart attack, the results display a list of medical advertisements. One of them says the disease could be cured by taking their traditional Chinese medicine without surgery. 

A contact from the recommended hospital told Beijing News over phone that the coronary stents treatment typically used in hospitals could only stretch the blood vessels, rather than dissolve the blood clot. And patients taking such surgery have to take western medicines their whole life. In contrast, their traditional Chinese medicine can dissolve blood clots, and patients don’t have to take medicines after being cured. The medicine will cost about RMB 3,000 ($460) a month depending on different cases.

When chatting with an agent from the hospital through WeChat, the app warned the reporter about the contact and warned to beware of fraud. Doctors at an authorized hospital said “Stents are a standard treatment for heart attack, because blood clots are difficult to remove.”

Malware targeting the elderly

Last in the tech block, the program criticized four malware cleaner apps—Tencent’s Mobile Phone Manager Pro, Memory Optimization Master, APUS’s Superior Cleaning Master, and Smart Cleaner for collecting user information and pushing scam advertisements, suggesting that these scams target the elderly.

The program said some of the cleaners were malware themselves, featuring a 70-year-old woman surnamed Li. Li said that her phone became very slow even though she often cleans viruses and memories in smartphone with cleaner apps. It turned out that these apps are doing the exact opposite of what they say.

A third-party test agency consulted by CCTV found that Mobile Phone Manager Pro read users’ app list more than 800 times, GPS location more than 50 times, smart device code 900 times, and SIM card code 1,300 times within less than 10 seconds. Using this data, CCTV reported, the apps helped target users with vulgar content and scams.

Where’s Elon?

Many Chinese consumers and media were surprised that Tesla was not named at the broadcast. The EV maker has been a popular target online and in Chinese media during the past year, with accusations ranging from sharp sales practices to safety issues. Huxiu commented on the absence, and warned that the company is likely to face more consumer and media pressure.

Skeptical public 

Most of the named companies, including Zhaopin.com, Liepin.com, 51job.com, UC Browser, and 360 search had issued apologies hours after the gala concluded, promising to address the mentioned issues. 

Given previous experience, the public remains skeptical about whether public embarrassment will actually lead companies to solve the issues. Chinese netizens voiced their concerns on Chinese microblogging platform Weibo.

Responding to the Weibo hashtag “Monitoring institutions help to save RMB 4,4 billion consumer costs,” a Weibo user with the handle Fuchenruyi wrote:

“The monitoring institutions could have done a better job. We watch 315 gala every year, yet each year has more shocking cases.” 

Another Weibo user, with an unprintable name, wrote, 

“315 International Consumer Rights Day might as well be renamed “315 Apology Day.” Afflicting customers who wait for 315 to solve their complaints only get perfunctory apologies…”

Rednet, a news outlet backed by Hunan provincial government, cautioned that:

In most cases, the exposure of product quality scandals only brings short-term attention, rather than solving the problems completely. After a short while, the same problems will revive and become even worse. Obviously, it’s impossible to eliminate all of the quality problems with one single show, which is held only once per year and could only cover a few cases.

The billionaire founder and chairman of Pinduoduo, Colin Huang, has stepped down as board chairman and handed responsibilities to company chief executive officer Chen Lei just as the e-commerce giant overtook its rival Alibaba as China’s largest online selling platform.

Why it matters: Chinese workplace culture is to a great extent influenced and shaped by founders’ personalities and management styles. The departure of a leader as notoriously driven as Huang is expected to prompt a significant shift at Pinduoduo.

• The company’s share prices slumped 7.1% Wednesday on the news.  
• Huang’s resignation comes at a time when the company faces criticism for its grueling overtime culture, brought to light after the highly publicized deaths of two employees and complaints from others.

READ MORE: Tech in the five-year-plan

Details: Colin Huang said in a letter sent to shareholders on Wednesday that he had resigned as the company’s chairman. Chen Lei will take over while continuing in his existing role as CEO.

• Huang’s voting rights were passed to the board, but the 1:10 super voting rights attached to his shares will no longer apply. He pledged to hold his 29.4% share of Pinduoduo for the next three years.
• Huang said he is embarking on a new journey exploring food and life sciences.
• Along with shareholder letter, Pinduoduo reported fourth quarter revenue of RMB 26.5 billion ($4.1 billion), climbing 146% year on year from RMB 10.8 billion in the same quarter of 2019. The growth was primarily driven by an increase in ad revenue and contribution from merchandise sales, the company said. Pinduoduo’s revenue beat the high end of analyst estimates compiled by Yahoo Finance.
• The company’s active buyers in 2020 jumped 35% year on year to 788.4 million from 585.2 million in 2019, overtaking rival Alibaba, which reported 779 million annual active users during the same period.
• The e-commerce platform is repositioning itself as China’s largest agriculture platform, according to CEO Chen Lei’s comments during the earnings call held Wednesday evening, as it shifts toward selling agricultural products and offering services to farmers. 
• Chen said Pinduoduo’s gross merchandise volume (GMV) for agricultural products doubled on an annual basis to more than RMB 270 billion in 2020, though it remained a modest share compared with the company’s total GMV of RMB 1.7 trillion for the year.

Context: Serial entrepreneur Huang, 41, has stepped away from the company he founded five years ago to devote himself to the research of food and life science. The areas have significant overlap with Pinduoduo’s new business focus—agriculture. Agritech was mentioned in the 14^th Five-Year Plan an important industry for China, which seeks to shore up agricultural efficiency and innovation.

• Colin Huang handed his CEO role to Chen Lei in July.
• Forbes once listed Huang, a former Google employee, the second-richest man in China, on its Real-Time Billionaires List, though he had fallen to 24th place as of publication.

A few years ago, ByteDance was a media company. Now it’s moving from e-commerce into restaurant coupons.

ByteDance is on its way to building a business empire encompassing nearly every aspect of Chinese consumers’ daily lives. With core competency in content aggregation, the TikTok parent company has already expanded to entertainment, e-commerce, productivity, gaming, education, competing head-on with big names like Tencent, Baidu, and Alibaba. 

The tech giant recently accelerated its foray into local lifestyle, a RMB 1.3 trillion (around $199.9 billion) market that is dominated by long-standing incumbent Meituan, which operates two of China’s largest local lifestyle apps, Meituan and Dianping. Local lifestyle is a catch-all term for in-person services such as restaurants, movies, entertainment, and beauty care. Tech companies engaged in these areas typically adopt the O2O, or online-to-offline model, which entices online consumers to make purchases of goods or services from bricks-and-mortar stores by leveraging location-based features.

ByteDance is pushing into local lifestyle services in order to diversify and boost its revenue stream to support both the company’s rapid pace of development. With an IPO rumored to be coming soon, the company will also want to show strong revenue figures.

ByteDance recorded around RMB 240 billion of revenue in 2020, according to The Information, which cited people with knowledge of the matter. Revenue from its primary advertising business accounted for RMB 175 billion, or 72.9% of the total. The company has decreased its heavy reliance on ad income, which in 2019 accounted for over 90% of revenue. It may still need to improve that balance in order to fend off risk.

By advancing into lifestyle services, ByteDance is taking on a new rival: O2O giant Meituan. It’s a potentially Freudian moment for ByteDance founder Zhang Yiming, who has close connections to Meituan founder Wang Xing. Both men hail from the same town in rural Fujian, and they have a history. When Wang founded social media platform Fanfou in 2007, Zhang was his tech partner. They haven’t worked together since 2009, but the two CEOs appear to remain fond of each other, speaking highly of each other in public.

Deeper discounts, for now

Douyin’s newly launched local lifestyle section consists of four segments: group deals for restaurants and hotels, top lists for scenic spots, hotel reservations, a gourmet guide populated by reviews from social media influencers, and location-based check-in with prizes. The features have some overlap but are all focused on restaurant and accommodation reservations. Participating businesses are currently only located in top-tier cities including Beijing and Shanghai.

For users, Douyin’s local life offerings are largely a Meituan alternative. 

In addition to easy access to user attention, an obvious edge for the service is pricing. A Sichuan noodle restaurant chain in Shanghai is currently offering up to 60% off through campaigns marketed through Douyin’s new feature, while discounts from the same restaurant are only 30% on Meituan and Dianping. 

It’s hard to say how long the company will maintain its pricing edge, but it is an efficient and time-tested way to draw its first round of customers. 

“Meituan and Dianping are my go-to apps for lifestyle services. But if we can get a better bargain on Douyin for the same service, why not?” Deng Shuang, a Shanghai-based housewife who watches e-commerce livestreams on Douyin, told TechNode.

Merchants are also open to the new option thanks to Douyin’s favorable word-of-mouth reputation as an efficient marketing platform. Sandwich shop owner Xiao Yu spent RMB 500 for one promotional video on Douyin in an attempt to draw users to his restaurant which opened just two months ago. The review video, featuring a Douyin social media influencer visiting his Nanjing-based store, tripled daily sales of the store to RMB 3,000, increasing daily orders to more than 200 from around 70 per day. The traffic boost sustained for over a week. He told TechNode that the store’s initial low traffic may have exaggerated the growth rate, but he was satisfied with the results. Given this experience, he’s keen to try out the new group-buy feature if it launches in Nanjing.

At present, merchants with a Douyin enterprise account can use the service for free, partially lowering merchant marketing expenses. The current zero commission policy may be a big attraction for merchants who generally pay steep commission fees to Meituan of around 10%.

What’s ahead

User enthusiasm alone, however, won’t guarantee success for Douyin’s local lifestyle business. There are two difficulties in using Douyin to promote such destinations, according to Michael Norris, research and strategy manager of Agency China.

“The first is a technical challenge—whether Douyin can support the purchase and redemption of coupons as efficiently as Meituan’s Dianping,” he said.

As it gets started with the business, Douyin both cooperates directly with offline stores and acts as a traffic platform that helps to promote services offered by third-party platforms. A server at a Shanghai noodle restaurant told TechNode that she has seen few customers using Douyin group-buy coupons compared with those from Meituan’s apps. In another test, a meal voucher that a TechNode reporter purchased through Douyin could not be found in the restaurant’s ordering system. Restaurant management eventually noticed that the voucher was issued by another local lifestyle platform, Xiangku, and Douyin was only promoting the service. 

“The second is a user journey and experience challenge—in the case of restaurants, users generally search and redeem a discount coupon as they pay for the meal. How Douyin plans to support this behavior is key to whether it can be a credible threat to transactions in Meituan,” Norris says.

Although the products look similar, Douyin’s product is embedded in a different ecosystem—which probably means a different strategy.  

Meituan is all about convenience. People who are looking to buy food or services use Meituan to search for bargains available near their location to purchase immediately, usually for restaurants nearby while shopping or after finishing a meal at a restaurant. In addition, Meituan’s food delivery services, more frequently-used services although lower in margin, help the platform to accumulate merchants users. Meituan’s model relies on both ads and commission to make money.

Douyin appears to be counting on getting people excited enough that they’ll make a special trip to try a new restaurant. Based on its content and “Point Of Interest” feature, Douyin is trying to create demand using content marketing tactics including livestreams, videos, and other media. When a consumer sees that a friend owns an item, or an internet influencer recommends a restaurant, it plants a mental seed.

Another challenge will be very quickly ramping up and capturing a wide offline merchant network. Unlike e-commerce for physical goods, selling local lifestyle services is rooted in recruiting as many offline merchants as possible. The number of participating merchants is a crucial baseline for luring more customers. It is a difficult market to catch up in since such offline recruitment requires big teams and plentiful resources to support heavy offline operations. As a result, it is unlikely that Meituan will lose its first-mover advantage in the near term.

Broader e-commerce push

It’s no secret that Douyin has big plans for e-commerce, a coveted revenue source for tech firms. After earning RMB 500 billion in gross merchandise volume (GMV) in 2020, Douyin set a RMB 1 trillion (in Chinese) GMV goal for its e-commerce business in 2021. The company has launched a number of initiatives to increase sales transacted through Douyin, including shoppable short videos and livestreams. 

ByteDance is broadening its livestreamed e-commerce business to include online sales of services, or the local lifestyle sector.

READ MORE: Bytedance gaming play doesn’t threaten Tencent—yet

“A subset of these shoppable videos include coupons and group-buying deals for tourist attractions and eateries. The group-buying feature gives merchants, whatever they’re selling, new ways to facilitate purchases,” Norris said.

ByteDance has been adjusting internally, shuttering smaller or less successful ventures and investing further in businesses that are mature or seen as proven business models, in preparation for a public listing, according to a number of media reports. It shut down (in Chinese) paid knowledge-sharing services Haohao Xuexi and closed its smartphone business by integrating the Smartisan team into the education hardware unit. Meanwhile, it acquired the Wikipedia-like Baike.com and built an internet of vehicles team.

ByteDance appears to be willing to try anything and everything to power growth and stay ahead. It has been keeping pace with virtually all the bandwagons with huge market potential. Its leadership doesn’t seem to mind failure, only missing out on the next big thing in China’s cutthroat technology race. 

More discipline for China e-commerce

China’s market regulator introduced on Monday a set of e-commerce laws pertaining to recent developments in the ever-evolving sector, including livestreamed sales, user data privacy, and forced exclusivity. (TechNode)

Sharing economy giants head for IPO

• Energy Monster, the Softbank-backed Chinese power bank rental company, has filed for an initial public offering in the US. A February IFR report said the company aims to raise $300 million. The prospectus showed that the firm had received a D round exceeding $200 million led by Alibaba’s Taobao China and CMC Moonlight Holdings, followed by CGI and Hillhouse Capital. The company’s total 2020 revenues increased 38.9% year on year to RMB 2.8 billion ($430.6 million) from RMB 2.0 billion in 2019. However, its net income more than halved to RMB 75.4 million in 2020 from RMB 166.6 million in 2019 as people spent less time in public places during the pandemic. (SEC filing)
• Bike rental firm Hello Inc. filed confidentially with the US Securities and Exchange  Commission for an IPO in the US market, according to sources cited by Bloomberg. (TechNode)

Earnings season

• Chinese online housing firm Beike announced Monday that its fourth quarter revenue rose 57.6% year over year to RMB 22.7 billion, and it booked net profits of RMB 1.1 billion compared with RMB 3.1 billion in losses the same period in 2019. Gross transaction value improved 65.4% year on year for the reporting period. The company posted net income of RMB 2.8 million for the fiscal year ended December, the first profitable year since its public debut in August. (Beike)
• Yatsen Holding Ltd., parent of budget cosmetics brand Perfect Diary, reported a fourth quarter net loss of RMB 1.5 billion compared with net profit of RMB 46.2 million the same period a year earlier, driven by rocketing marketing expenses. Its revenue during the quarter increased 71.7% year on year to RMB 1.9 billion thanks to user base growth. (Caixin)

Livestream e-commerce

The value of China’s livestream e-commerce market jumped 121.5% year on year to RMB 961.0 billion in 2020, up from RMB 433.8 billion in 2019, while growth decelerated from 226.2%. The number of shoppers who make purchases via livestream is expected to rise 8.2% to 635 million in 2021, up from 587 million in 2020.  (Iimedia Research, in Chinese)

China’s market regulator introduced on Monday a set of e-commerce laws pertaining to more recent developments in the sector, including livestreamed sales, user data privacy, and forced exclusivity.

Why it matters: The new rules addressing newer innovations in China’s massive e-commerce industry are an important complement to the E-commerce Law that came to effect in 2019.

Details: The State Administration for Market Regulation, China’s market regulator, unfurled (in Chinese) rules regulating transactions made online at the annual 315 consumer rights protection gala held Monday.

• The rules require platforms which sell via social e-commerce and livestream e-commerce as well as merchants on these platforms to comply with the responsibilities of online transaction marketplaces as described in the law. Selling via livestreams and social media are innovations that have gained popularity since the release of the e-commerce law in 2019.
• Livestream e-commerce platforms are required keep the videos for at least three years after the end date of the live video session.  
• The platforms have to gain user consent for the collection and utilization of personal information including biometric data, medical and health information, and financial accounts.
• The new rules will also ban services that engage in misleading practices such as falsifying selling volume and audience numbers, or promoting favorable reviews over others.
• The guidelines also prohibit practices that facilitate “forced exclusivity,” including suppressing product listing rankings of merchants who decline to sell exclusively on one platform, removing or blocking such online stores, and raising service fees for such sellers.
• The measures are important for “improving the online transaction supervision system, regulating the online transaction space, maintaining fair competition, and creating secure online consumption,” a report from state-backed news agency Xinhua cited the regulator as saying.

READ MORE: New law brings structure, discipline to the willful world of Chinese e-commerce

Context: China has stepped up regulation of the flourishing e-commerce industry over the past few years.

• China’s Electronic Commerce Law came into effect in 2019.
• In June, the China Advertising Association (CAA) issued rules banning false and misleading advertising on livestreams and requiring real-name registration from both merchants and individual livestreamers.

Chinese bike-rental firm Hello Inc has filed for an initial public offering in the US, Bloomberg reported, citing people with knowledge of the matter.

Why it matters: A survivor of China’s bike rental bubble, the Shanghai-based company is among the largest bike-rental firms in the country. If Hello successfully lists, it would be the first US-listed Chinese bike-rental company.

• Hello is signaling with the IPO—including the disclosures and accountability that come with a public listing—a shift to sustainable growth, following a backlash against bike-rental apps for breakneck but reckless expansion in earlier years.
• After multiple rounds of consolidation, China’s bike-rental market is now dominated by firms that are backed by deep-pocketed giants: Ant Group-backed Hello, Didi’s Qingju, and Meituan Bike, formerly Mobike.
• The company also operates electric bike-rental and ride-hailing businesses, all part of the “sharing economy” facing scrutiny as part of a broader regulatory tightening over China’s Big Tech.

READ MORE: INSIGHTS | The bike rental boom is dead. Long live bike rental

Detail: The company chose to file confidentially with the US Securities and Exchange  Commission, according to sources cited by Bloomberg, exercising an option that is becoming popular owing to the flexibility it allows for timing and pricing.

• Hello is working with China International Capital Corp., Credit Suisse Group AG, and Morgan Stanley for the listing, according to the report.
• The size of the targeted raise was not disclosed, though a previous IFR report said that the firm looks to raise as much as $1 billion, according to Bloomberg.
• A company spokesperson declined to comment on the matter when contacted by TechNode on Thursday morning.
• Hello had 400 million registered users as of October for its bike rental business which it operates in more than 460 cities. It rents out electric bikes in 400 cities and offers car ride-hailing services in over 300 cities.
• The company had 300 million registered users in 2019, when it said it was China’s largest two-wheel transportation app.

Context: Hello Inc. launched in 2016, two years after Mobike and Ofo, and quickly gained traction as the first bike-rental app to focus its business on China’s smaller cities.

• The firm, also known as Hellobike, Hello TransTech and Hello Global, merged with  Shanghai-listed competitor Youon Bike in October 2017.
• In addition to Ant Group, the company is backed by top investors including Fosun Group, GGV Capital, and Shenzhen Venture Capital.
• Companies within the broader sharing economy in China earned more than RMB 3.38 trillion ($519.6 billion) in transactions in 2020.

Curbing community group-buy

China’s top market regulator levied fines totaling RMB 6.5 million (around $1 million) on five community group-buy platforms for price dumping, reinforcing Beijing’s efforts to regulate the red hot industry.

The companies subject to the penalty are Didi’s Chengxin Youxuan, Pinduoduo’s Duoduo Maicai, Meituan’s Meituan Youxuan, Alibaba-backed Nicetuan, and Wuhan-based Shixianghui. (TechNode)

Female consumers power growth

• Chinese female shoppers make household purchasing decisions in 75% of homes, according to a report released by online retailer JD.com, and are spending increasingly more on themselves as a proportion to the household. The report was released on International Women’s Day, which falls on March 8. Women are driving growth in a diverse range of categories such as cosmetics, baby products, luxury goods, alcohol, cars, and mobile gaming, the report said citing Meha Verghese, executive at agency MediaCom. (JD)
• A Pinduoduo consumption report identified the same trend, saying that the female users are spending more on products and services to “please themselves.” The sale of lipstick, skincare products, and apparel top the sales growth chart, according to the report. (Tencent Tech, in Chinese)
• A total of 2.72 million female drivers work for Didi across Asia, Latin America, Russia, and Australia, according to a report from the ride-hailing giant. China accounts for 2.37 million of the total. Many women, who are often also caregivers and homemakers, turned to gig economy apps due to economic uncertainty caused by the pandemic, the report said. (Ifeng, in Chinese)

Earnings season

• Chinese online grocer JD Daojia reported RMB 2.02 billion ($308.62 million) in revenue during the fourth quarter, an increase of 69.9% year on year. The revenue missed the $309.18 million average estimate compiled by Yahoo Finance. The company’s full-year net revenues in 2020 amounted to RMB 5.74 billion, a year-over-year increase of 85.2%. Total gross merchandise volume for the year of RMB 25.3 billion more than doubled compared with 2019. (Ebrun, in Chinese)
• Fourth quarter revenue for China’s online travel platform Trip.com dropped 40% year on year to RMB 5 billion, which the company attributed to the pandemic. The decline in revenue slowed compared with 48% year-on-year drop in Q3 and 64% in Q2, signaling a gradual recovery of domestic travel market. (KrAsia)

This week in funding

• Ymatou, the Chinese cross-border e-commerce site backed by microblogging platform Weibo, has closed a Series D Plus worth hundreds of millions of RMB from Prosperity Investment, local media reported. (36kr, in Chinese)
• Chinese beverage chain Manner Coffee received investment from investors including Singapore sovereign wealth fund Temasek Holdings at a valuation of $1.3 billion. The Luckin rival operates more than 100 stores across the country, mostly located in Shanghai. (Ebrun, in Chinese) 

As China’s legislature prepares to meet tomorrow, we’re bringing you a special edition of our Insights column: a preview of tech in the 14th Five-Year Plan. We’ve looked through the last plan, and the documents describing priorities for the new one, to give you our baseline expectations for key tech areas in the new plan.

Greetings from Beijing, where the weather is just turning to spring, the air this week feels like taking a bath in an ashtray, and, across town, about 3,000 people are getting together Friday to kick off the annual meeting of China’s national legislature.

This is one of the big meetings: This year, the National People’s Congress will approve China’s 14th Five-Year Plan, which will set out the government’s economic priorities for the next half-decade. The meeting lasts from March 5 to March 11, and in previous years the plan has come toward the end of the session.

Technology and innovation are sure to play a leading role. “Innovation-driven development” was one of the first topics addressed in the 13th Five-Year Plan, issued in 2016, and the phrase is equally prominent in previews of the new plan.

What is (likely) new is emphasis on another key phrase: “self-sufficiency.” As the US has used its control of key technologies as a weapon, China’s efforts to produce its own have a new urgency.

For people with tech projects, the start of a new plan period means opportunity. The “money spigot” for homegrown tech and innovation is likely to get even more generous, said Uny Cao, vice president at the Zhejiang University Intellectual Property Exchange Center and friend of TechNode.

What are we looking for when the new plan is published next week? What’s likely to get the most attention—and which will get less? Below, you’ll find TechNode’s roundup of key mentions of technologies we expect to see highlighted in the 14th Five-Year Plan.

Data

A new approach to data management will reverberate across tech industries. The next stage of China’s tech policy will shift from an emphasis on developing cybersecurity and big data, to building up the data economy.

Mentions in the 13th Five-Year Plan: The last five-year development plan focused on building up cybersecurity and control over data. But it also set goals to get government offices to share data with each other and industry.

• The 13th plan promised crackdowns on black markets for personal data, and strengthened privacy protection for big datasets, including government credit information systems. The government also aimed at opening up government big data to the public through a digital platform.
• The 2017 Cybersecurity Law was the first big step for reform of China’s information security. Implementation of the Multi-Level Protection Scheme, a key part of the CSL, picked up in the summer of 2020, Carly Ramsey, who leads regulatory and political risk consulting at Control Risks in Shanghai, told TechNode. 

READ MORE: Dust has yet to settle two years after China’s landmark cybersecurity law

Expectations in the 14th Five-Year Plan: In the Fifth Plenum guidelines, data has joined an impressive new crowd: “[We will] advance the marketization and reform of the economic factors of land, labor, capital, technology, and data.” When a Communist Party puts you on the same level as labor and capital, you know you’ve made it big.

The Fifth Plenum guidelines call for the development of a rules-based data economy. Or as they put it: Establish basic systems and standards for data property rights, transactions and circulation, cross-border transmission, and security protection to promote the development and utilization of data resources.

“Ensuring the fluid circulation of data is now an economic imperative,” said Kendra Schaefer, head of tech policy research at Beijing-based strategic advisory firm Trivium. “In practical terms, that means that the overarching theme of China’s data policy over the next five years will focus on allowing data to be shared, transferred, bought, sold, and utilized,” Schaefer said. The plenum’s recommendations called for “systems and standards” in data property rights, market mechanisms for data, as well as cross-border data transfers.

READ MORE: China sets the rules for its new data economy

So what? “The 14th Five-Year Plan will mark the beginning of a new era in China’s approach to data policy,” Schaefer said. China is stepping up from the securitization of data resources to developing a system in which data can be exploited as a resource. In the upcoming plan period, we can expect more support for trade in data alongside a continued crackdown on bad cybersecurity practices and insufficient privacy protections.

Environment

One of the biggest components of the 14th five-year plan deals with action to combat the environmental damage that followed years of rapid industrialization and economic growth. In the wake of a vow to set China on a path to carbon neutrality by 2060, economic planners will be under pressure to come up with big changes. China’s tech sector stands to benefit: To reach the country’s emissions goals, investment in clean technology could reach $16 trillion in the next 40 years.

In the 13th Five-Year Plan: The 2016 plan laid out targets to reduce carbon emissions by cutting the country’s carbon intensity—the amount of carbon dioxide produced for every unit of GDP. Through subsidies, state planners pushed prices in the solar industry so low that it effectively went from being a high-tech sector to a commodity business.

• The document laid out action plans to combat air, water, and soil pollution. By last year, Chinese cities were expected to meet “good” air quality standards for more than 80% of the year. 
• The plan sought to reduce the country’s reliance on coal-fired power plants, and promote environmentally friendly construction and mining. 
• Also included were “improvements in supportive policies” for renewable energy sources.

Expectations: The new plan will likely clarify how China will reach peak carbon emissions by 2030 and carbon net zero by 2060, goals laid out to the UN General Assembly by President Xi Jinping in September.

• The thrust of Xi’s speech has been factored into energy and environmental planning in the new five-year plan.
• The new plan will likely outline ambitious capacity and consumption targets for wind and solar energy production, while placing further caps on coal-fired power plants. 
• Energy storage is also expected to play an important role in the new plan, as China seeks to improve grid and power security. 
• It is unlikely that there will be a move away from carbon intensity caps to hard carbon caps, as the country attempts to balance economic growth and cutting emissions, analysts said. 
• While the last five-year plan placed emphasis on reducing emissions from energy production, the new plan will place increased focus on minimizing pollution from industry, including steel and transportation. 
• Further integration between China tech and energy industries is expected, a goal laid out in the 13th five-year plan. 

So what? The world is waiting to see how China plans to reach its emissions targets by 2060. We expect the plan to create more targets and pressure on local governments to improve carbon emissions, but details on how these will be implemented—and how cleantech investment will be affected—will likely be spelled out in lower-level plans.

Autos

A pillar of China’s economic growth, the automotive sector has long been dominated by well-established foreign brands, which hold more than 60% of the market share, while domestic automakers are concentrated in the low-end segment. But that is changing as China’s strength in electric vehicles is boosting its position on the global industry value chain, thanks to strong policy support over the past five years.

In the 13th Five-Year Plan: When China’s cabinet in 2010 initiated a development plan (in Chinese) for seven strategic emerging industries, new energy vehicles (NEVs) was one of them. In 2016, Beijing set an ambitious target of 5 million sales of NEVs in the coming five years, a number which would mark the beginning of mass adoption. This initiative became part of Beijing’s larger goal of becoming the world’s next innovation powerhouse.

• The central government carried out a series of stimuli to foster a new source of economic growth—by offering subsidies for NEV purchases, especially for all-electrics and plug-in hybrids—in both public and private transport sectors.
• China’s top policymakers also vowed to achieve major breakthroughs in battery technologies, such as a higher energy-density level, which enables a longer driving range as well as better resistance to extreme temperatures.

Expectations: NEVs were briefly mentioned as one of the strategic emerging industries in the fifth plenum guidelines, but with no detail about the growth outlook.

• However, according to a policy paper released by the State Council in November, NEV sales were projected to account for 20% of total new car sales by 2025, up from the 2020 level of just 5.4%.
• Beijing also expected “significant improvement in the competitiveness” of its homegrown players in the fields of battery safety and in-car operating systems, among others, while promoting highly autonomous vehicles for commercial use cases in pilot programs. 

So what? China’s electric vehicle market staged a strong rebound after disruptions caused by the Covid-19 pandemic last year and has remained the world’s biggest market since 2014. However, there have been bumps on the road, including electric car fires and the ongoing auto chip shortages.

China also lags the US in the vehicle autonomy competition, raising calls for more effort put toward core technology advancement. Pledging for quality growth amid rising superpower tensions in the next five years, Beijing would have to stay the course in boosting the sector, while realizing little near-term profit.

Semiconductors

Chinese leaders have long vowed to achieve “self-reliance” in strategic technologies, and semiconductors are one of the priorities. The sector is expected to get major attention as China issues its development blueprint for the next five years.

In the 13th Five-Year Plan: The five-year plan ending in 2020 saw semiconductors, along with other high-tech sectors like robotics, smart transportation, and virtual reality, as “new areas of growth” for the nation’s economy, but didn’t make production of semiconductors a strategic priority.

• Priorities certainly have changed over the past five years as Chinese leaders realized how troublesome it is to rely on foreign imports of semiconductors. Huawei is a brutal example.

Expectations: In 2015, China set a goal to make 70% of the chips it uses by 2025 as part of its “Made in China 2025” initiative. Now the question is how China will achieve that goal. The country only produced 6% of the semiconductors it consumed in 2020.

• The fifth plenum vowed to implement a series of “foresightful and strategic” technology research projects including integrated circuits, quantum information, AI, and neural science.
• Despite the industry’s importance, the National Development and Reform Commission didn’t include semiconductors on a list published last September of “strategic emerging industries.” Electric vehicles and artificial intelligence were on the list.
• The central government will increase investment in the domestic semiconductors industry through vehicles like the National Integrated Circuit Industry Investment Fund.
• More favorable policies towards domestic chip companies are likely such as tax breaks and heavier tariffs on imported electronic components.
• Bloomberg cited sources as saying that Beijing has added in a draft of the 14th five-year plan “a suite of measures to bolster research, education, and financing” for the semiconductors industry. 

E-commerce

E-commerce falls under the broader concept of the digital economy, a major theme in the plan that also covers 5G, artificial intelligence, and big data. E-commerce is expected to play a greater role in driving China’s economic growth in the next plan period.

In the 13th Five-Year Plan: The development plan that ended in 2020 set out to expand the e-commerce sector by facilitating its deep integration with traditional industries and prioritizing its governance. China sought to integrate e-commerce into various areas including education, healthcare, culture, and tourism to drive innovation.

• The 13th five-year plan set out expectations for China’s e-commerce transactions to exceed RMB 40 trillion ($6.19 trillion) in 2020, the last year of the plan—double the transaction value in 2015. The figure includes RMB 10 trillion from online retail businesses. The sector was projected to employ more than 50 million people by the end of 2020.
• The period of the 13th plan showed mixed results for e-commerce. The country missed the plan’s goal of RMB 37.21 trillion in e-commerce transactions in 2020. Online retail sales hit their target, however, totaling RMB 11.76 trillion in 2020, data from the National Bureau of Statistics showed.

Expectations: China expects online commerce to continue supporting its macro strategies, notably poverty alleviation and the One Belt One Road initiative. E-commerce has become an important means for China’s rural dwellers to sell their agricultural products. With more free trade zones on the horizon, China looks to expand its cross-border e-commerce market in the next five years.

• As a booster for both domestic and international commerce, the industry plays a central role in goals set for the “dual circulation” concept, which refers to spurring domestic as well as global demand, creating circumstances where the two boost each other’s growth. The idea featured predominantly in recent policy statements, although the term has been a policy meme for several years.
• Chinese regulators are stepping up monitoring for unfair competition and monopolistic practices.
• Consulting agency Jiuhou Zongheng has forecast that China’s e-commerce transactions will reach RMB 50 trillion by 2024.

Blockchain

Blockchain could be a new item in the 14th plan. It’s had plenty of attention at top levels in the past year.

In the 13th Five-Year Plan: Zilch. Blockchain was not on top policymakers’ agenda back in 2016.

Push from the top: The technology had its breakout moment in Chinese policy in October 2019, when President Xi Jinping praised the technology at a Politburo study session.

• Since then, local governments have embraced blockchain governance projects and tried to spur innovation in the field.
• The National Development and Reform Commission is supporting the development of the Blockchain Services Network, an “internet of blockchains.”

No crypto: Chinese regulators are not big fans of one of the technology’s most popular applications: cryptocurrencies. The past year’s clampdown on unregulated cryptocurrencies “is meant to clear a path to regulated forms of digital assets, starting first with DCEP [the central bank’s R&D project that includes the digital RMB],” said Michael Sung, co-director of the Fintech Research Center at the Fanhai International School of Finance at Fudan University, told TechNode.

Expectations: The technology was not mentioned in the 14th plan guidelines issued after the Fifth Plenum.

• The cryptocurrency mining industry might be negatively affected by financial de-risking campaigns and sustainability goals. The industry consumes vast amounts of electricity and is dependent on volatile crypto assets. 

READ MORE: Inner Mongolia may ban crypto mining: Blockheads

So what? China is already very interested in blockchain, but has not given the technology the same level of support as, say, electric vehicles. A name-check in the 14th plan would seal its status as a key technology and could pave the way for a national blockchain roadmap.

Antitrust

China has recently tightened antitrust regulations on tech companies. Regulators started at the end of last year to look at tech giants’ market dominance and to use anti-monopoly tools to limit them. The country also changed antitrust laws and rules to better rein in big tech. As top leaders of China repeatedly vow to “strengthen anti-monopoly” and “rein in disorderly capital expansion,” what has affected tech companies so far seems to be just the start of severer crackdowns.

In the 13th Five-Year Plan: The 13th development plan mentioned breaking industry monopolies and rooting out market barriers. It also intended to establish an “efficient antitrust law enforcement system,” deepen international antitrust law enforcement cooperation, and check administrative monopolies.

• In 2018, China created the State Administration for Market Regulation (SAMR), a  trustbuster that centralized antitrust power previously dispersed among  four market regulators.

Expectations: China is already on the move to rein in big tech with anti-monopoly tools. If the new plan pushes government agencies to impose stricter antitrust regulations and break monopolies, tech giants like Tencent, Alibaba, and Bytedance may feel a lot more pain.

• China’s antitrust regulator drafted an amendment to the Anti-Monopoly Law in January 2020; China may push to finalize the law during the period of the 14th five-year plan.
• The fifth plenum also called for the establishment of an “efficient antitrust law enforcement system” and to “break industry monopoly.”
• SAMR has said tightening antitrust regulations leads the 2021 agenda for the agency.
• While companies like Tencent and Alibaba are already under the spotlight, SAMR may launch more antitrust investigations into big tech companies. 
• A few antitrust lawsuits between tech companies are set for court hearings this year. Among them are the Douyin vs. WeChat, and JD.com vs. Alibaba cases. The results of cases will provide precedents for how the antitrust rules that took effect in February will be interpreted by the courts.

Rural areas and agriculture

Agriculture, the foundation for feeding China’s 1.4 billion population, is facing a new round of restructuring and modernization. The countryside is a growing focus for tech companies because it is home to a group of maturing consumers as well as being a lower-cost manufacturing hub. That makes aligning with rural developments a big goal for these internet firms.

In the 13th Five-Year Plan: The last plan placed a high priority on continuous modernization of rural areas and the agricultural sector. The plan promoted integration of agriculture and e-commerce and encouraged the application of big data and internet of things tech in agriculture.

• President Xi Jinping announced China’s “complete victory” in eliminating “absolute poverty” at a grand gathering held February 25 in Beijing. In the past eight years, nearly 100 million rural residents were lifted from poverty, Xi says.
• Tech giants including Alibaba, Pinduoduo, and Didi Chuxing were rewarded for contributions in the poverty alleviation initiative.

Expectations: China is expected to continue to focus on improving the quality, safety, and profitability of the sector, goals that require technological assistance.

• The focus of China’s agricultural development will shift from increasing production to improving quality, according to The China Agriculture Outlook (2020-2019) released this past April.

Policymakers are counting on tech in a plan to improve both farmers’ output and their incomes, said Even Pay, an associate director at Trivium:

“Policymakers are preparing for a future where there are fewer farmers. Some of them may be older, and in need of equipment to make their jobs easier. They also hope to attract some young people back into farming by making the work easier and more interesting—like operating ag machinery or flying drones.”

“Another big reason the government is supporting agtech is the “dual circulation strategy”—which looks to make domestic consumption the main driver of China’s macroeconomic growth. Right now China’s rural areas have the greatest growth potential of anywhere in the country—provided farmers’ incomes go up.”

Fintech + digital yuan

Fintech and the digital yuan might get a direct mention in the 14th plan.

In the 13th Five-Year Plan: Fintech was directly mentioned only once in the last plan. That plan called for a risk monitoring and crisis management system for all financial activity, including “internet finance.”

• “Microfinance,” “inclusive finance,” and “green finance” were included in the plan, but these categories also refer to traditional financial tools, said Jonas Short, head of the Beijing office at Everbright Sun Hung Kai.
• The plan called for microfinance to be made more “transparent” and regulated, while “Internet+inclusive finance” was to be promoted, and a green finance system was to be set up.
• The 13th plan also mentioned the development of “multilayered” and “non-cash” “payment systems,” although it didn’t mention digital payments specifically.

Fintech development: Since the release of the 2016-2020 plan, the use of fintech has skyrocketed, and an overwhelming majority of Chinese citizens now make use of some sort of digital finance, whether that’s for lending, investment, or insurance.

• The Ministry of Commerce released a fintech development plan in 2017, focused on cybersecurity, digital payments, and risk prevention.  
• As big tech came to play an increasingly important role in China’s finance, especially with regards to consumers and SMEs, authorities started laying down the rules: In 2020, Chinese regulators ramped up their efforts to regulate fintech companies, especially after Ant Group’s IPO was suspended in November 2020. Rules for microlending, antitrust, and digital payments have been released since.

Digital yuan: China’s central bank has been working on a digital form of cash, the digital yuan, since 2014. If implemented, it will be the first state-backed digital currency by a major economy. The central bank appears to have accelerated the development of the currency in 2019 after Facebook announced its Libra project. Trials for the e-CNY started in late 2020 in four Chinese cities: Chengdu, Shenzhen, Suzhou, and Xiong’an.

Expectations: The guidelines directly called for the improvement of “the level of financial technology.” They also included language similar to the previous plan’s regarding inclusive and green finance, as well as on financial risk prevention and monitoring.

• The guidelines called for continuing R&D on digital currency.

So what? China’s fintech industry will continue to grow, especially given a lift in the 14th plan. But incumbents will face more competition as a result of antitrust regulations and the opening up of payments systems that DCEP will bring. Tech companies dabbling in finance will also be increasingly brought under the fold of financial regulation.

China has imposed fines totaling RMB 6.5 million (around $1 million) on five community group-buy platforms for irregular pricing.

Why it matters: Beijing is moving to regulate the red hot community group-buy industry as part of a recent campaign to curb the power of China’s internet giants.

• Fines targeting the growing sector comes as the state has stepped up regulation of internet giants over the past few months. China has extended various degrees of penalties on tech majors including Alibaba, Tencent, JD.com, and Vipshop.

READ MORE: Friendly neighbors are the key to China’s community group-buying craze

Details: The State Administration of Market Regulation (SAMR) said Wednesday that it decided to levy fines on five community group-buy companies after more than two months of investigation. The platforms are some of the biggest in the sector, and hold “a large share of the group-buy market,” according to regulator.

• Didi’s Chengxin Youxuan, Pinduoduo’s Duoduo Maicai, Meituan’s Meituan Youxuan, and Alibaba-backed Nicetuan are each subject to a fine of RMB 1.5 million. Wuhan-based Shixianghui was fined RMB 500,000, according to the notice.
• The investigation showed Chengxin Youxuan, Duoduo Maicai, Meituan Youxuan, and Nicetuan leverage their capital advantage to compete for market share by selling products at prices lower than cost, according to SAMR. All of the five falsely advertised discounted prices to boost orders.
• The companies were fined the maximum penalties due to the negative impact of their practices, a SAMR spokesperson said in a press conference (in Chinese) on Wednesday.
• The spokesperson said that using irregular measures to squeeze offline community economies will create market disorder and lead to social instability. At the same time, unfair competition among the tech firms will hurt consumer interests in the long run.

Context: The government summoned representatives from tech majors including Alibaba, JD.com, Meituan, Tencent, Pinduoduo, and Didi for a meeting in December to discuss oversight of the group-buy sector.

• Regulators issued a list of restrictions on group-buy businesses, forbidding predatory pricing to beat out competition as well as falsely advertising discounted prices and posting misleading product information.
• The state-run People’s Daily said in a commentary that tech companies should focus on innovation for bigger benefits instead of “thinking about the traffic of a few bundles of cabbage and a few pounds of fruits” (our translation).

Home appliance titans

• Suning.com, the Chinese household appliance and electronics online seller, sold a 23% stake to Shenzhen-based state-owned companies in a deal worth RMB 14.82 billion ($2.28 billion). (TechNode)
• Franchise partners that run stores under Suning.com’s “Retail Cloud” platform plan to add 300 more new locations to its existing 8,000 outlets. (Ebrun, in Chinese)
• Suning archrival Gome Retail announced Tuesday that it raised HK$4.5 billion through private placement to bankroll its online and offline expansion. The firm said on Monday it had redeemed RMB 484 million in bonds issued in 2018. (Donews, in Chinese)
• Youzan Technology, a subsidiary of loss-making e-commerce service provider Youzan, filed its paperwork for a public listing on the main board of the Hong Kong stock exchange via introduction. Shares for its other arm, Tencent- and Baidu-backed Youzan China, will be taken private after the share transfer from Hong Kong’s growth enterprise market, where it listed in 2018. (Lanjing, in Chinese)

Coffee craze continues

• Tencent participated in a round of funding for the Chinese arm of Canadian coffee and snack chain Tim Hortons. The amount raised was not disclosed. (TechCrunch)
• Genki Forest, a popular Chinese beverage firm, has become the biggest shareholder of Never Coffee. After the deal, Genki Forest will hold a 51% stake in the specialty coffee and e-commerce platform. (Pandaily)

Poverty alleviation

• Chinese e-commerce heavyweights Alibaba and Pinduoduo are listed among 1,500 outstanding institutions awarded for their contributions to the state’s efforts to fight poverty. The award were extended to commemorate China’s “complete victory” over “absolute poverty” as announced by Chinese President Xi Jinping on Thursday. Meanwhile, Cheng Wei, founder of ride-hailing app Didi Chuxing, was recognized individually for efforts to support the initiative. (KrAsia)
• Alibaba and New Hope Group, an agricultural products manufacturing company, are discussing collaboration on an e-commerce project that aims to solve key problems in the agricultural industry. The program will train 200,000 farmers in the next three years. (Ifeng, in Chinese)

Ed tech

• Chinese online tutoring platform Vipkid said that it expects to reach profitability this year. (TechNode)
• Chinese online education platform GSX Techedu said that an internal investigation it initiated in response to accusations of fraud from a group of US short sellers in 2020 discovered no evidence of financial misdoing. (GSX statement)

Market metrics

• Market value for 74 listed Chinese e-commerce companies reached RMB 10.94 trillion in 2020, a jump from 2019 when 66 which were valued at RMB 6.45 trillion, according to a report from research and intelligence agency 100ec.cn. The market cap of Alibaba, Meituan, and Pinduoduo totaled RMB 6.99 trillion in 2020, accounting for more than 60% of the overall figure. (Ebrun, in Chinese)
• The market size of China’s business-to-business cross-border e-commerce sector reached RMB 3.7 trillion in 2019, according to Monday report by research agency iResearch. The sector accounts for 74.1% of China’s cross-border e-commerce market. The figure is expected to hit RMB 4.5 trillion in 2020, and further jump to RMB 5.7 billion in 2021. (iResearch, in Chinese)

Chinese household appliance online seller Suning.com said on Sunday that it sold a 23% stake to state-owned investors in a deal worth RMB 14.82 billion ($2.28 billion).

Why it matters: The sale comes as Suning.com and its parent company Suning Appliance Group scramble to pull together cash to repay debts.

Details: Suning.com sold a 23% stake to state-owned investors, according to a statement shared to TechNode on Sunday.

• Shenzhen-listed Suning.com had announced in a filing on Thursday that shareholders of the company are planning to sell a 20% to 25% stake in the retailer.
• A 25% stake in the company could be worth around RMB 16 billion ($2.5 billion) based on Suning.com’s latest share price, according to Bloomberg.
• Shenzhen International Holdings Ltd., a logistics infrastructure developer, acquired 8% and Shenzhen municipality-backed Kunpeng Capital bought a 15% stake.
• According to the statement, former actual controller and Suning.com founder Zhang Jindong and Suning Holdings together hold a 16.38% stake in the company. Kunpeng Capital holds 15%, Shenzhen International Holdings owns an 8% stake, and Suning Appliance holds 5.45%.
• Zhang and his affiliated companies combined hold a more than 21% stake in the company, a company spokesperson told TechNode.
• The company now has no controlling shareholder and no actual controller, according to the statement.
• The company’s shares were suspended on Thursday for five trading days to avoid price fluctuations resulting from the change.

Context: Suning.com and its parent company are on the hook for a combined RMB 15.8 billion of bonds payable this year, Bloomberg reported citing data from rating firm China Chengxin International Rating Company.

• As of January, Suning.com’s billionaire founder Zhang was the largest shareholder with a 20.96% stake, followed by Alibaba-backed Taobao’s 19.99%, and Suning Appliance’s 19.88%.
• The company began in 2018 selling its shares in Alibaba, which had been acquired through a strategic alliance in 2015.
• The online retailer’s newly established e-commerce unit Yunwang Wandian received RMB 6 billion in December from its Series A.
• Suning.com acquired 80% equity interest in Carrefour China, paying RMB 4.8 billion in June 2019.

Updated: added detail on the size of the share sold, the investors, and the new ownership stakes, and updated headline to reflect changes.

Chinese online tutoring platform Vipkid said that it expects to reach profitability this year after making a number of internal changes, following a flood of investment in the market in 2020 which skipped over one of its largest players.

Why it matters: The news could boost investor confidence in the company’s outlook. Observers and shareholders have criticized Vipkid for prioritizing growth over sustainability and pushing sales rather than addressing core needs such as technology.

• Investors turned cold on the company in 2019 as its customer acquisition and other costs rocketed, and after what many viewed as overextension into different class models.
• The company received its last round of funding in 2019, missing out on a surge in edtech investments in 2020.
• Vipkid now faces intensified competition from a host of deep-pocketed rivals like Yuanfudao and Zuoyebang.

READ MORE: CHINA VOICES | Can VIPKID make a profit?

Details: Zhang Yuejia, co-founder of Vipshop, said to Chinese media outlet Late Post that the company expects to achieve corporate profitability in the second half of this year at the latest.

• The company has undergone a raft of internal adjustments beginning in 2019, the report said. It reduced employee headcount to 7,000 from 12,000 last year and lowered its rent by RMB 30 million ($4.7 million), moving its office out of pricy downtown real estate.
• The company will lay off an additional 10% to 30% of its employees before the end of this year, according to the report.
• Company CEO Mi Wenjuan said in a letter that the company will streamline its offerings to one-on-one online classes, courses combining live English tutors with artificial intelligence-powered online assistants, as well as AI English and math classes for kids.
• Vipkid will reduce its K-12 “dual-teacher big class” offerings, in which a foreign teacher instructs large classes and a Chinese teacher coaches smaller groups, an area dominated by rivals Yuanfudao and Zuoyebang.
• After a year of adjustment, the company said in August that it had reached per customer profitability for two consecutive quarters.

READ MORE: Edtech and Covid-19: It’s complicated

Context: Vipkid received its Series E led by Tencent in 2019 without specifying the size of the round.

• With an initial aim of raising $500 million, the company struggled to secure the funding and was forced to lower its goal to around $150 million, Reuters cited a source as saying.

JD Logistics IPO

• JD Logistics, the logistics arm of e-commerce giant JD.com, filed on Feb. 16 its prospectus for an initial share offering on the Hong Kong market. It could be the online retailer’s third publicly traded unit after its healthcare arm went public in December. JD.com will continue to hold more than 50% of the stock in JD Logistics. (SCMP)
• JD Logistic’s delivery hubs in Germany, the UK, and the Netherlands are expected to begin testing operations by the end of May. Chinese companies including Huawei will be among the first batch of firms using its services in the countries. (Blue Technology, in Chinese)

IPOs on the way

• Chinese grocery app Dingdong Maicai is reportedly gearing up for a US listing that may come as soon as this year. (Bloomberg)
• Online retailer Dmall E-commerce Co. is planning a $500 million US IPO that that could come the second half of the year, Bloomberg reported. Chinese supermarket chain Wumart Group, which backs Dmall, is also weighing a Hong Kong listing. (Bloomberg)

Big tech blunders

• Food delivery giant Eleme apologized in a Weibo post for poor judgment in an incentive plan to keep delivery drivers working through the Spring Festival holiday. Eleme rolled out a reward system that promises up to RMB 8,200 ($710) in financial incentives. To get the bonuses, drivers were required to reach weekly delivery targets from Jan. 11 to Feb. 28. The threshold for first three periods was around 250 orders, but jumped to more than 380 orders in the fourth week, a target some drivers said was impossible as many stores remained closed during the holiday. The company said in the statement that it will add more incentives and adjust the targets accordingly. (Pandaily)

READ MORE: Delivery drivers brace for low-pay Chinese New Year away from home

• A Chinese consumer in a public WeChat account accused e-commerce platforms like Taobao of accessing and reading unsent user messages to customer service members. A screenshot of a dialog between the buyer and a Taobao service agent showed that an answer was given before the question was sent. A Taobao employee denied the accusation and explained that it could be caused by a network delay. (The Paper, in Chinese）

Management change

• Chinese online travel giant Trip.com rolled out an executive rotation program, according to which each term lasts one to two years. Senior executive Xiong Xing was appointed the first acting CEO under the program.  (China Travel News)
• Meicai, the Chinese app that enables farmers to sell their produce directly to restaurants, announced Friday the departure of its chief financial officer Wang Can whose appointment in July was widely translated by local media as a sign that the company was accelerating its IPO process. Wang’s departure could potentially affect Meicai’s plans to list during which it reportedly seeks to raise around $300 million. (Bloomberg)
• Zhang Wei, public relations director of Alibaba’s digital media and entertainment business, passed away at his home before the Spring Festival holiday, which began Feb. 12. The news didn’t catch much public attention until a viral post alleging that Zhang committed suicide by jumping from Alibaba’s Beijing headquarters, hinting that work pressure caused his depression. Zhang’s family denied the rumors in a Wednesday statement, saying that they are “extremely distressed by the untrue remarks” and “only wish him peace and tranquility.” (Southern Metropolis Daily, in Chinese)

Veronica Zhang uses re-commerce, or secondhand selling, platforms regularly, but she’s always careful about the people she’s dealing with. The one time she let her guard down, she was nearly defrauded.

The mom of a five-year-old uses the platforms both to buy and sell. Although she uses them less frequently than mainstream shopping apps like Taobao and JD.com, she says they are good places to find bargains on certain products like baby strollers and picture books. Children her son’s age tend to outgrow clothes and toys very quickly, she explained to TechNode, and selling lightly used kids stuff is good for both her wallet and her home, so why not?

“Baby exercise mats in very good shape are up to 50% cheaper than the retail price of a brand new one,” Zhang said (our translation). To close a good bargain or make a sale, however, requires lots of research. “I normally spend hours or a few days checking the sales history of the seller or buyers, comments from previous buyers, as well as their credit scores, before finding a potential candidate to proceed for payment,” Zhang added.

After a few satisfactory deals, Zhang was feeling safe. Then, in December 2018, she listed for sale a RMB 2,000 ($309) prepaid card for online retailer JD.com on Alibaba-backed secondhand platform Idle Fish, known as Xianyu. The card was a gift from her company.

She sold the card without her usual background research. After Zhang sent the buyer the gift card account number and password online, however, the buyer claimed the prepaid card was invalid and requested reimbursement. Zhang still had the physical card as proof, and immediately called the police, who told JD.com to freeze the account. It turned out the buyer used the gift card immediately upon receiving the codes from Zhang. Finally, after Idle Fish customer service ruled in Zhang’s favor when settling the dispute, she got the payment. But it took her a whole week to resolve the issue, dealing with the police, the buyer, JD, and Idle Fish.

“I may continue to use the platform, but will be even more cautious in choosing the people I’m dealing with,” Zhang said.

Secondhand e-commerce on the rise

Product brands, consumers, and even the government have called upon major Chinese e-commerce platforms to halt the sale of fake goods for as long as the marketplaces have operated. More recently, e-commerce giants have made an effort to weed out various illicit products, and have gained some ground thanks to the development of newer technologies. The potential to list on global stock markets has also provided stronger motivation to operate an above-board business.

However, problems with fraud and counterfeits are still rife in the relatively new secondhand market, a smaller industry with players that have little budget for additional operational costs and less motivation to go through the trouble.

In China, secondhand e-commerce generally refers to markets for lower-value used goods, excluding expensive items such as cars and houses. The sector gained momentum in China as an environmentally friendly lifestyle choice, embraced by a younger generation of consumers. Moreover, selling and exchanging “idle” stuff has become a necessity for more affluent consumers who need the room in their homes.

China’s secondhand e-commerce market increased 53.2% year on year to RMB 248.69 billion in 2019, and is expected to grow 44.2% to RMB 373.55 billion in 2020, according to a report from e-commerce database EBT published in July. The market size increased more than eight-fold compared with its RMB 4.5 billion value in 2015, although its annual rate of growth slowed to double digits in 2018 after more than 600% year-on-year growth in 2016.

The biggest platforms include Alibaba’s Taobao spin-off, Idle Fish, and Tencent-backed Zhuanzhuan, which were each valued over RMB 20 billion in 2019. Trailing these two sites are a series of smaller vertical players, including JD-backed secondhand electronics platform Aihuishou, fashion and luxury reselling app Plum, and book resale platforms Duozhuayu and Yuelin.

However, these marketplaces are increasingly earning a reputation as a wild west in which real bargains come mixed with fraud, counterfeits, bait-and-switch pricing, and illegal products such as salacious comics and wild animals.

READ MORE: Second-hand shopping takes off on Chinese apps

Market chaos

Zhang is far from alone. A January report released by the state-backed consumer rights protection organization of eastern Jiangsu province showed that more than 90% of the 10,615 users surveyed have had negative experiences on secondhand shopping apps. User complaints involved a variety of illicit practices, including counterfeits, pirated online courses, pirated video and audio content, lewd comics, and more.

The complaints name 12 platforms including Idle Fish, Zhuanzhuan, Paipai, 58.com, Plum, and Aihuishou. In the same month, the authority summoned the platforms and called on them to rectify their business practices.

Some consumers mistakenly purchase knockoffs, but a significant number of consumers do so intentionally, and shop on secondhand platforms largely because the monitoring is more relaxed. Such apps contain products labeled as a “quality fake” or “fake.”

TechNode found a merchant on Idle Fish advertising a pirated video replay of lectures for an English training course from Zebra AI for RMB 18. When TechNode asked about buying the product, the seller sent a WeChat account name, and asked to make a deal off the platform. Via WeChat, she told TechNode the real price was RMB 35—still a savings compared to the RMB 2,000 Zebra AI charges for the course. 

In order to leverage user traffic, professional sellers, who stock loads of brand new products, flood the secondhand platforms designed for amateur sellers selling their own unused stuff.

Users who click into a product entry tagged at super low price on Idle Fish are likely to be redirected to a professional Taobao seller’s storefront, only to find the item priced at going market rates.

Empty bottles, packaging, and receipts of expensive cosmetics are also for sale on secondhand sites, indicating a gray market for counterfeit product sales. One Idle fish user sells packaging of luxury skincare brand SK-II for RMB 70, while another sells empty bottles of La Mer for RMB 50. These could be used by counterfeiters, but some Chinese consumers collect packaging from luxury brands for their own use.

Secondhand platforms have a history of providing a home for such gray markets. Users in recent years have been caught selling unlicensed medicine and cigarettes, used underwear, wild animals, as well as listing services from prostitutes.

Grow big, then grow up

Sales of counterfeits and other illegal goods and practices are nothing new in China’s e-commerce industry, but established platforms have taken steps to regulate their marketplaces. Monitoring secondhand e-commerce is more difficult because the majority of sellers are individuals, rather than professional merchants or enterprise retailers concerned with credibility, according to local media reports.

In some cases, transactions are not carried out on the platform. The Jiangsu consumer council survey showed that around half of the transactions are completed within the app, while the rest are directed to other social apps to avoid monitoring.

When TechNode contacted the ZebraAI video seller, she immediately shifted the conversation to WeChat, making it difficult for Idle Fish to monitor the transaction and any payment.

Monitoring is still optional for platforms, according to Song Peijian, professor at the Business School of Nanjing University.

In its early days, Taobao was known as a safe haven for sellers hawking fakes and low-quality goods, but it has developed systems to regulate its marketplace. 

“Taobao started to invest heavily in addressing the dark side of e-commerce as a super-sized marketplace that faced public and regulatory scrutiny,” Song said. Secondhand platforms have less motivation to do so when the market is still relatively small, he added.

Despite its growth, the secondhand market is still at an early stage and the size is too small for serious regulation, said Song. Idle Fish, a clear leader in the market with over 70% market share, is the largest player with approximately RMB 200 billion gross merchandise value (GMV) sold in fiscal year 2020, a small fraction of RMB 7.05 trillion ($1 trillion) GMV earned in the wider Alibaba ecosystem during the same period.

In other words, the companies are ignoring trust issues as they work to survive and grow. 

Platforms run the risk of losing users to rivals if rigorous rules barring fakes and other illicit products are implemented. “In spite of the legal concerns, there certainly is user demand for illegal products and they will go to other platforms,” Song said.

Plus, Song said, monitoring costs money. 

To some extent, the platforms are not all to blame, Song said. Weak enforcement of e-commerce laws laws, in place since 2019, has left space for illegal products and practices to flourish. Local governments can also be reluctant to push too hard on major taxpayers like Alibaba and Pinduoduo. It’s easy even for more mature platforms to backslide when constraints become lax, he said.As a Chinese idiom says, when the water is clean, fish cannot survive. Similarly, a market won’t get a chance to grow big if too much regulation is in place when it’s young, Song said.

In Zhangjiagang, in eastern Jiangsu province, an often unsung profession is in high demand this Lunar New Year season; delivery drivers.

The city, home to one of the many ports along the Yangtze river, emerged from the pandemic’s first year mostly unscathed with few reported COVID-19 cases. 

But like the rest of China, following a resurgence of infections in January in several parts of the country, the city’s 1.2 million residents have been subject to economic and transport controls leading up to the year’s biggest holiday, designed to discourage travel.

While many residents, determined to reunite with family, have skipped town early in order to avoid being snared by transport restrictions, a large portion of China’s population has chosen to refrain from going home for the week-long holiday, which begins Feb. 11.

In a normal year, the holiday is a peak time for brick and mortar stores, as consumers rush to snag gifts after returning home. But this year, much of that demand is shifting online. E-commerce and logistics are left scrambling to retain a labor force.

What sounds like a golden opportunity for delivery workers who stayed on the job, however, may be playing out differently in practice.

New year’s surprise

It was 8:15 p.m. in Shanghai. Kuang was sitting on his electric scooter outside the Grand Gateway in Xujiahui, a commercial district in the city. He looked down at his phone. There was only one order in his Ele.me food delivery app. 

Compared with January, he said, orders have plummeted. 

For delivery drivers who did not go home, the volume of work has been a far cry from what they were promised by delivery platforms. With drivers paid per delivery, slow days mean little pay. 

In nearby Zhangjiagang, Wang, a manager of the downtown area of rival delivery platform Meituan, told TechNode that he expected a shortage of drivers during this Chinese New Year. Many had already gone home, he said, and wouldn’t be returning until after the week-long holiday, which falls between Feb. 11 and 17 this year.

After a resurgence of COVID-19 infections in parts of China in January, central and local authorities have called for people to “spend the holidays where you are.” People who travel home, especially to rural areas, face a variety of barriers ranging from mandatory quarantine to regular testing. Meanwhile, some urban companies are offering workers bonuses to stay on through the holiday.

The Spring Festival is China’s most important holiday, and in a normal year almost everyone would spend it with family. Transport authorities project the number of trips to be made during this period to drop from 3 billion in 2019 to 1.7 billion. 

Delivery drivers won’t stop during CNY

With many people choosing to spend their holidays away from their hometowns, Spring Festival shopping has posed a new challenge to delivery and logistics, which have become a part of China’s economic backbone. 

During the first wave of lockdowns in 2020, logistics companies were caught with only a holiday-period skeleton crew, struggling to get staff back to work while focusing on relief deliveries to the then-epicenter of Hubei province. 

Online retailers have witnessed an explosion in purchases during what is normally a slack season. Data from shopping platform JD.com shows a whopping 55% year-on-year increase in orders destined for other cities during the last 13 days prior to the Lunar New Year, while for its grocery spinoff JD Daojia, the volume was twice that of the comparable period last year. 

Even China’s own State Post Bureau marked a growth in online purchases in the period leading up to the festival, in contrast with previous years when orders experience a steep drop in the week prior to the holiday. Its numbers indicate the amount of parcels being sent nationwide increased 28.94% year-on-year between Jan. 20 and Feb. 3, although lockdowns had swept China by this time in 2020, creating what could be a low base for comparison.

Deliveries during the holiday season are normally handled by JD Logistics, SF Express, and the state-backed China Post, the few companies that accept orders in this period. Much of the industry, which employs fleets of delivery workers and machines outside the national holiday, cease operations during what is normally a seven-day break.

Nearly all delivery platforms announced they will continue to operate during the Spring Festival. 

“Last year the pandemic didn’t really break out until the holiday [was underway] and the stores were all closed already.” Wang said. “This year is different. As per state policy, many stores will stay open during the holiday so there will be more orders.” 

The government’s call to “spend the holidays where you are” will fuel growth in the delivery market during the Lunar New Year, said Zhao Guojun, director of the Post Development and Research Center of Beijing University of Post and Telecommunications.

Bidding war or nice little gesture?

More than previous years, delivery companies have raised their financial incentives from previous years in an attempt to attract couriers to work for their platforms during the holiday.

• Cainiao, the logistics arm of e-commerce giant Alibaba,, is earmarking RMB 200 million ($31 million) in financial incentives for delivery staff who work during the holiday.
• JD Logistics will increase its budget for frontline employees, such as couriers and warehouse staff, doing holiday overtime to RMB 200 million, doubling the RMB 100 million first announced in January.
• SF Express plans to distribute a total of more than RMB 620 million in additional pay and incentives during the holiday.
• Delivery drivers who work between Feb. 4 to 26 on Meituan were offered up to RMB 2,610 in bonuses, with requirements such as signing into the order app on a regular basis and fulfilling a certain number of orders.

But while platforms are touting bonuses, several delivery drivers who spoke to TechNode said they were uncertain how much extra cash they would actually make. 

Li, an Ele.me driver in Zhangjiagang, expects the bonuses to be offset by slow business. In normal times, he says, he can make up to 90 deliveries on a good day, but when asked if this was likely during the new year holiday, he said he couldn’t be sure. His normal pay is RMB 3 to 5 per order, rising to RMB 15 each after 20 orders have been fulfilled. 

“The number of orders will change every day during the holiday,” he said. “I’m not expecting to get too much money from the platform.”

Yet for many workers, it’s travel restrictions, not cash incentives, that are keeping them away from family, especially given that some already forewent reunions in 2020 due to an escalating epidemic.

Tang, a Meituan driver, told TechNode that he would be quarantined for an entire month in total if he went back to his hometown in Sichuan province then came back to Shanghai, the city where he works. 

Still, the bonuses were better than nothing.

“Most of my non-Shanghainese colleagues won’t go back to their hometown,” he said, checking his phone for incoming orders. “The pay isn’t a lot, but it’s handsome enough given the circumstances. I will go back home after the holiday, when quarantine policies are removed.”

TikTok bets on social shopping

TikTok, Beijing-based ByteDance’s short video app, is reportedly planning several new features for its e-commerce expansion in the US. The move builds on the success of a similar push from its Chinese version Douyin, now a major player in China’s livestream e-commerce market.

Livestream shopping has become widely popular in China. Another features allows TikTok users to share links to products and automatically earn a commission. The viral short video app piloted a shoppable experience with Walmart in December. (Financial Times)

Luckin bankruptcy

Luckin Coffee filed for bankruptcy protection in the US on Friday to fend off US creditors during a liquidation process that is already underway in the Cayman Islands, where it is registered. The company will continue its China operations, “including paying suppliers, vendors, and employees.” The filing comes almost a year after the company admitted falsifying RMB 2.2 billion ($310 million) in 2019 sales. (TechNode)

Regulator scrutiny

Beijing has imposed a RMB 3 million fine on the operator of Vipshop.com for unfair competition, just a month after the flash sale online retailer was penalized RMB 500,000 for irregular pricing. (TechNode)

Didi boosts group-buy unit

Ride-hailing giant Didi Chuxing is planning to raise $4 billion for its community group-buying unit, doubling down on the rising sector to diversify its revenue streams amid slowing growth in its core business. Didi could chip in $3 billion while seeking about $1 billion from external investors. (Bloomberg)

READ MORE: Friendly neighbors are the key to China’s community group-buying craze

Fresh produce e-commerce

Suning Logistics, part of omni-channel retailer Suning Group, rolled out Su Xian Da, a new fully linked cold chain solution from warehousing to distribution. The service offers cold-chain delivery service to consumers within 48 hours. Suning, along with a group of online sellers and delivery services, will continue its logistics and delivery services during the weeklong Spring Festival holiday, generally a low season for China’s logistics industry. (Tencent, in Chinese)

Beijing has imposed a RMB 3 million fine on the operator of Chinese flash sale online retailer Vipshop.com for unfair competition.

Why it matters: Coupled with a RMB 500,000 penalty for irregular pricing dealt out in December, regulation pressure is rising as Tencent-backed Vipshop’s share prices reach historical highs after doubling over 2020.

• How the government addresses Vipshop, a major Chinese e-commerce player, could signal what’s ahead in the ongoing anti-monopoly investigation of its bigger peer, Alibaba.

Details: China’s State Administration for Market Regulation, the country’s antitrust watchdog, announced Monday it will fine Vipshop RMB 3 million (around $464,000) for unfair competition.

• In order to gain a competitive advantage, Vipshop had developed and utilized a system to obtain information about brands that sell through its and competitor’s platforms from August to December last year, according to the announcement.
• The data collected were referenced for monopolistic practices such as pressuring brands or merchants to only sell on its platform, a practice called “forced exclusivity.” It would throttle traffic, block, or even remove from the platform products from merchants that sell on multiple platforms, and boost traffic to sellers that sold exclusively on Vipshop.

READ MORE: Forcing sellers into exclusivity deals on marketplaces is illegal: regulator

• The company confirmed the news in a Weibo post, saying that it did not object to the facts in the ruling, and that it will comply and “rectify and reform” to maintain market order.

Context: China has stepped up regulation of internet giants over the past few months.

• In December, Beijing issued antitrust-related fines for three acquisition deals involving Alibaba, Tencent-backed China Literature, and an SF Express subsidiary. Each of the companies was fined about RMB 500,000.
• China’s market regulator fined JD.com, Alibaba’s Tmall, and Vipshop RMB 500,000 each for irregular pricing in the same month.
• Vipshop is reportedly considering a secondary listing in Hong Kong. The Beijing-based company went public on the New York Stock Exchange in 2012, raising a total of $71.5 million.

Kuaishou IPO risk factors

Stricter regulation of e-commerce livestreams, a potential revenue growth engine for short video app Kuaishou, brings uncertainty to the Douyin rival’s imminent Hong Kong listing. Analysts have said increased regulation from Beijing could slow the booming market’s momentum and harm the profitability potential of involved companies. (SCMP)

Alibaba earnings

Alibaba Group topped market revenue expectations for the December quarter and reported first-ever profits for its cloud computing business. The company’s revenue in the December quarter grew 37% year on year to RMB 221.08 billion ($33.88 billion), while non-GAAP diluted earnings per share was RMB 22.03, an increase of 21% year over year. (TechNode)

Singles Economy

The Singles Economy, involving the production and consumption of goods and services aimed at singles or people who live alone, is on the rise in China, according to reports from Pinduoduo and Nielsen. Beijing’s call for people to limit travel during the upcoming weeklong Spring Festival holiday to prevent another coronavirus surge has proved a boost to the trend, which involves marketing petite home appliances such as rice cookers and refrigerators and smaller food portions. Market segmentation is on the rise in China as the silver economy for senior citizens and the “small town youth economy” for youngsters in lower-tier cities and towns gain recognition. (Pandaily)

Job board IPO

Chinese online job listing site Boss Zhipin, also known as Zhipin.com, has chosen Goldman Sachs and UBS as underwriters for its US stock market debut through which it aims to raise $300 million. The company plans to go public this year. CEO Zhao Peng said in July 2019 that the company is already profitable. (IPO Zaozhidao, in Chinese)

Holiday online spending surge

Parcels for Spring Festival purchases processed by Alibaba’s Cainiao Logistics network from Jan. 20 to 31 surged 50% compared with the corresponding time period preceding last year’s holiday (Jan. 6 to 17), highlighting an increase in online purchases for the holiday. (Sina, in Chinese)

Online travel regains investor interest

Hong Kong-based online travel platform Klook announced the completion of a $200 million Series E led by Aspex Management and followed by existing investors including Sequoia Capital China, SoftBank Vision Fund 1, Matrix Partners China, and Boyu Capital. (Caixin Global)

Chinese retail conglomerate Alibaba posted better-than-expected revenue growth for the quarter ended December and first-ever profits for its cloud-computing business.

Why it matters: The e-commerce giant has had a rocky past few months. An anti-monopoly investigation, the suspension of the public listing for its financial affiliate Ant Group, and speculation about the location of its once high-profile founder Jack Ma after a months-long disappearance from the public spotlight have pressured the company, once seen as a darling of China’s tech sector.

• Profitability and robust momentum from its non-core cloud-computing and logistics businesses could help build investor confidence at a time when the company faces increasing regulatory scrutiny.

Details: December quarter revenue grew 37% year on year to RMB 221.08 billion ($33.88 billion), beating the $33.35 billion average analyst estimate compiled by Yahoo Finance. 

• The company attributed revenue momentum to growth in its core commerce business boosted by the Singles Day promotion held in November, as well as strong growth in its cloud-computing business.
• However, growth excluding revenue from Sun Art, a supermarket chain the company acquired in October, rose 27% during the quarter, signaling a deceleration from the 30% seen in the September quarter and 34% year-on-year growth in the June quarter.
• Core commerce revenue jumped 38% year on year to RMB 196 billion ($30.3 billion), accounting for 88% of total company revenue, thanks to a recovery in consumer spending in China.
• Cloud computing income reached RMB 16.1 billion, up 50% year on year and representing 7% of total revenue, primarily driven by robust growth from customers in the internet and retail industries, as well as the public sector. 
• “The cloud division is one-fifth the size of AWS, but it already has many advanced cloud services addressing the needs of key verticals, and it is growing twice as fast as AWS,” Martin Garner, chief operating officer at market information and intelligence agency CCS Insight, wrote in an email to TechNode on Wednesday.
• Net income attributable to ordinary shareholders rose 52% to RMB 79.43 billion during the quarter compared with RMB 52.31 billion from the same quarter in 2019. Alibaba’s equity investments in public companies recorded big increases in value, boosting the bottom line.
• Monthly active users of Alibaba’s China marketplaces reached 902 million, an increase of 21 million from the previous quarter. Taobao Deals, Alibaba’s Pinduoduo counterpart, surpassed 100 million monthly active users as the company continues to focus on budget buyers in lower-tier markets.
• Cainiao, Alibaba’s logistics arm, finished the quarter for the first time with positive cash flow. It earned RMB 11.4 billion ($1.8 billion) during the time period, up 51% over the same period a year ago.
• Alibaba chairman Daniel Zhang offered few updates on the ongoing anti-monopoly investigation during the earnings call held Tuesday night, but reiterated that the company’s “cooperative, receptive and open mindset” toward the investigation.
• Regulator scrutiny of Ant Group has raised concerns that a potential reduction in consumer credit services such as Huabei would impact consumer spending on Alibaba’s e-commerce market places. Zhang said Alibaba attracts buyers with “comprehensive and high-quality product and service offerings” and that payment using Huabei represents “a very small percentage” of total credit granted under Huabei. He added that the vast majority of Alibaba buyers “have linked their payment accounts to multiple funding sources, including credit cards.”
• Alibaba shares fell 3.9% on Tuesday in New York, while its Hong Kong-listed shares declined 3.9% in morning trading on Wednesday.

READ MORE: Singles Day 2020—bigger, longer, and more live

Mimi Tao walked outside of her residential compound at seven in the morning as usual, but found that the driver had already dropped off the products at the front gate and left. After checking her order list and confirming all the products were accounted for, she hauled them all back to her garage and began the deliveries to residents on her list. There were cherries, apples, imported snacks, rice, and even handmade wontons from a local store in Suzhou. It usually takes Tao about two hours to complete the deliveries. 

Tao is the organizer of the group-buying platform Linxuanhaohuo for her residential development in Zhangjiagang, Suzhou in eastern Jiangsu province. She started the job in August 2018, after a friend’s recommendation. Tao works full time as an accountant as well. She says she usually spends four to five hours every day coordinating the orders and posting products on the WeChat group of 219 people she manages. 

“I am busier on Mondays, Wednesdays, and Fridays because I need to deliver products on these days,” Tao said (our translation). 

Tao is not the only person in the apartment complex who manages a community-buying group. She has a competitor in the compound—Maggie Xu, who works for another platform, the name of which roughly translates to Tongcheng Life. Xu’s group is double the size of Tao’s and the platform offers a wider variety of products. 

Group-buying platforms have their own mini programs on WeChat which customers use to place their orders. Each day, organizers post links in the chat group to products that are popular or are on sale. Xu usually starts putting product links in the group chat around 9 a.m. She first posts links for products on promotion, and then fruits. In the afternoon she posts links for snacks such as yogurt, sweets, and nuts, and then sometimes eggs. As Spring Festival approaches, gift boxes are also popular in the group. 

Resurgence of online fresh groceries

China’s grocery market is large—it is expected to be worth RMB 11 trillion ($1.8 trillion), the world’s largest, in 2023, according to research agency IGD. But it’s complicated—rather than a weekly trip to the supermarket, most Chinese consumers visit a variety of stores and marketplaces to stock their pantries.

Chinese companies from small to large have been trying to figure out how to sell groceries online for years. Venture capitalists fueled the craze by injecting hundreds of billions of yuan in the sector since its first boom around 2013.

The earliest attempts included asset-heavy approaches like Dingdong Maicai, which ran its own warehouses and logistics systems, and marketplace operators like Meituan and JD Daojia that offered delivery support for offline vendors.

However, within the broader online grocery category, selling fresh produce online has proven a hauntingly difficult task. Selling highly perishable goods with significant logistics requirements has driven more than a few fresh produce platforms out of business, from Amazon-backed Yummy77 to Xianpinhui. The most recent example is the collapse of Dailuobo, a grocery upstart that burned $92 billion in five months. 

China’s community-buying trend can be traced back to the early days on platforms like Meituan and Dianping, which offered Groupon-like deals. Community-based group-buying emerged around 2016 within chat groups on ubiquitous messaging app WeChat. The model gained momentum around 2018, especially in second-and lower-tier cities after WeChat launched its mini program ecosystem.

The Covid-19 outbreak changed Chinese consumers’ daily routine of shopping for fresh food and daily necessities offline. Although the behavioral shift boosted all businesses in the grocery delivery sector, community group-buying has taken off. One platform, Xingsheng Youxuan, has attracted investment from a number of tech giants, and was valued at $5 billion as of its latest round of funding led by Tencent. 

The group-buying model addresses the pain points of online grocery deliveries. Many group leaders themselves operate small mom-and-pop stores, which become informal hubs for such platforms. This saves on overhead costs such as running an offline storefront and expensive last-mile deliveries. Pre-ordering and overnight deliveries lower the attrition rate for fresh food compared with storing big piles of inventory at a nearby location to sell. Meanwhile, group leaders, motivated to acquire users through their own social networks for higher commission, help the platform save on user acquisition costs. 

The community group buy platforms are popular in second- and lower-tier cities in China, often outside of service areas for big-name online platforms such as Alibaba’s Freshippo. Some 85% of group leads for the community-based group-shopping model platforms are based in second-or lower-tier cities, according to a report (in Chinese) from Kaiyuan Securities.

Lower-tier cities and rural areas are also powering the next stage of overall e-commerce growth in China. Its shoppers are viewed as being more inclined toward social shopping experiences, given the quick rise of social e-commerce site Pinduoduo.

Bargain-hunting buyers

Unlike other sectors in China’s tech industry, there’s no big player monopolizing the community group-buy market. It’s more like a collection of stores, where customers place orders on different platforms according to what kind of products they want, such as fruit, seafood, or snacks. Some residents will buy eggs on one platform and cherries on another. 

For most of the buyers, finding a good deal is the main reason to join a community-buying group. Some residents in Zhangjiagang told TechNode that they have joined more than one group-buying platforms to compare prices. Customers aren’t loyal to a platform; what matters is the price of the product and how well the platform handles the order fulfillment.

Partially due to platform competition and partially because of consumer demand, group leaders have started to promote products from multiple platforms (in Chinese) within the WeChat groups they manage, and offline pickup centers serve several platforms.

Xu said her mother-in-law had used Duo Duo Maicai exactly twice to take advantage of the platform’s free gifts for new shoppers. Unlike many group-buying platforms that deliver products to customers’ front doors, Duo Duo Maicai opened offline stores outside of compounds for customers to pick up. 

“She hasn’t bought anything since then because there are fewer products on their platform and they don’t support home delivery service,” she said.

The community aspect