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Meituan crushed by technological crackdown and Xi’s prosperity

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SHANGHAI – From a potential $ 1 billion fine to Xi Jinping’s campaign for “common prosperity,” Meituan, the operator of China’s leading food delivery app, faces increasing pressure from the government on a business model that has made it one of the country’s most valuable technologies. actions.

Meituan’s predicament parallels that of e-commerce leader Alibaba Group Holding, whose market value was hit by Beijing’s crackdown on the data-rich giant after outspoken founder Jack Ma allegedly put Xi in anger in criticizing the Chinese financial system.

Meituan chairman and chief executive Wang Xing, known for not mince words, adopted a conciliatory tone during a call for results last month. He vowed that Meituan would stop pressuring traders and pay more attention to the working conditions of delivery staff.

Hong Kong-listed Meituan has come under scrutiny by Chinese authorities on several occasions this year. After an antitrust investigation in April, Wang posted a Tang Dynasty poem on social media the following month about an emperor’s attempt to suppress dissent, which has been widely interpreted as criticism of Xi’s leadership.

Wang also spoke out against Alibaba, which had helped Meituan take off. The e-commerce group was an early investor in Meituan, which Wang founded in 2010 after studying online business and services in the United States.

Wang’s confidence stems from Meituan’s meteoric rise. China’s growing online industry has pushed the business to expand beyond food deliveries and travel reservations, online reviews and more. It received an investment from Alibaba rival Tencent in 2015 and raised HK $ 32.5 billion ($ 4.14 billion at the time) when it debuted on the stock exchange. of Hong Kong in 2018.

Meituan now has over 600 million users. Although it recorded an operating loss of 3.2 billion yuan ($ 496 million) in April-June, profits from its food delivery and travel services nearly doubled during the year. . The company had warned in March that it could stay in the red for some time as it invests in future growth.

But the company now faces a trio of unexpected challenges.

Meituan would face a billion dollar antitrust fine for pressuring traders not to do business with rival platforms. The company “could be required to change its business practices and / or be liable to a significant amount of fines,” she said when the results were announced from April to June.

Meituan held 71.3 billion yuan in cash and cash equivalents at the end of June, meaning that even a fine of this size is unlikely to trigger a cash shortage. Nonetheless, its competitiveness could suffer if popular traders turn to competing delivery services.

Xi’s call for “common prosperity” – closing the wealth gap for a fairer and more prosperous society – is also creating headwinds for Chinese tech giants like Meituan. Many food deliverers are not entitled to workers’ compensation insurance or a guaranteed minimum wage. Regulators on Friday asked Meituan, Alibaba and eight other online service companies to protect the rights of concert workers.

“Common prosperity is in Meituan’s genes,” Wang said in August, describing plans to improve conditions for delivery people. But doing so for its entire fleet, which totaled 9.5 million workers at the end of 2020, would be a drain on Meituan’s revenue. Alibaba rival JD.com suffered a roughly 90% drop in net profit for the year in the April-June quarter after improving wages and benefits for its delivery people.

Meanwhile, regulatory walls are closing in the areas Meituan is looking for new growth.

Community group buying, where entire communities come together to buy groceries and other bulk goods at low prices, has taken off in China during the coronavirus pandemic. Like other Internet companies, Meituan has invested heavily in this area.

But Chinese authorities fined the company and other players in March for unfair prices, fearing that cheaper prices made possible by the community model would force small conventional grocers.

Even with such regulations, Meituan remains confident in the long-term growth prospects of community e-commerce, Wang said. But some companies operating in this service have suffered layoffs and bankruptcies this year, Chinese media report.

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2/ https://asia.nikkei.com/Business/China-tech/Meituan-squeezed-by-Xi-s-tech-crackdown-and-prosperity-drive

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