Five Chinese Group-Buying Platforms Fined 6.5M Yuan ($1M) for Improper Pricing

China’s market regulator has imposed fines totalling 6.5 million yuan ($1 million) on five community group-buying platforms affiliated with leading domestic internet companies, on allegations of price dumping and cheating.

Alibaba-backed start-up Nice Tuan, a platform operated by food delivery giant Meituan called Meituan Select, e-commerce firm Pinduoduo’s Duo Duo Maicai and ride-hailing service Didi’s Chengxin Youxuan were each required to pay a 1.5 million yuan ($232,000) penalty, while Tencent-backed Shixianghui was fined 500,000 yuan ($77,000), according to a statement posted on the State Administration for Market Regulation’s website Wednesday.

After a two month investigation, the regulatory authority determined that these companies unfairly leveraged their capital advantage and sold their goods at below cost, a breach of pricing laws in the People’s Republic of China. “(These acts) disrupted market order and harmed other operators’ lawful rights and interests,” said authorities, adding that these platforms also used fake discounts to lure consumers into purchasing goods.

A spokesman for the market watchdog said during a press conference Thursday that group-buying platforms generally provide basic foodstuffs such as “rice bags” and “vegetable baskets”, and that a surge in these goods’ prices will hurt livelihoods, risking economic turmoil and social upheaval.

Community group buying allows a collection of people, often living in the same residential compound, to obtain discounts by purchasing in bulk. The practice is usually organized by a community leader such as a neighborhood administrator, social ringleader, or convenience store owner. These leaders create and manage WeChat groups, where they coordinate orders and oversee logistics. The entire order will be delivered to a neighborhood spot the next day, where the community leader will sort it into individual residents’ orders for them to pick up. Community leaders are recruited by platforms and can typically win a 10% commission of the total sale.

The pandemic has accelerated this trend as millions of Chinese people relied on a group of community workers to purchase groceries and life essentials on their behalf during the more than two months of lockdowns earlier last year. According to iiMedia research, the community group buying market is expected to reach $15.6 billion by 2022, a threefold increase compared with 2019.

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However, the explosive growth of community group buying has also triggered scrutiny from Chinese authorities. In December, the State Administration for Market Regulation summoned six tech giants engaged in the business, including Alibaba, Tencent and Meituan, and warned them against illegal actions such as predatory pricing, the sale of fraudulent products, and the misuse of consumer data for profit.