Shares in Meituan fell sharply for a second consecutive day, after the Chinese food delivery group and ecommerce company Pinduoduo were criticised for their business practices by a government-affiliated consumer protection group.
Meituan stock was down as much as 9 per cent on Tuesday, with shares losing almost 12 per cent of their value this week. The fall began on Monday, when the company’s chief executive posted a poem on social media that investors viewed as a critique of Chinese president Xi Jinping.
The Shanghai Consumer Council said it had called in Meituan and Pinduoduo to “point out” problems with protecting consumer rights and to demand changes to their behaviour.
The rebuke came as Chinese authorities are conducting a broader crackdown on the country’s tech sector after scuppering the $37bn initial public offering of Jack Ma’s Ant Group, the financial technology company, last year. Officials told the tech sector last month to “rectify” anti-competitive practices.
The council criticised Meituan for unclear platform rules and said it needed to “fairly” set the fees it charges restaurants and consumers for deliveries.
Separately, China’s market regulator is investigating Meituan over antitrust concerns.
The council called on Pinduoduo to “correct” some of its tactics for luring in new shoppers and strengthen its processes for introducing new merchants and tackling counterfeits on the platform.
The rebuke of Pinduoduo marked one of the first direct attacks on the company, whose founder resigned as chair of the company in March, the same month the ecommerce group said it had overtaken Alibaba in annual shopper numbers. The company’s New York-listed shares fell more than 9 per cent following the criticism.
Pinduoduo’s site is well known for hosting counterfeits and has been repeatedly listed by US authorities as a “notorious market” for IP infringement, along with other Chinese sites.
The council said some companies had allowed counterfeits to flood on to their platforms as they put increasing consumer traffic above all else.
Pinduoduo agreed to a “self-examination and a rectification” of its problematic practices and pledged to submit a “rectification report”.
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Meituan’s Hong Kong-listed shares pared some of their losses by mid-afternoon to sit 5 per cent down.
Meituan declined to comment.
Xia Hailong of Shanghai Shenlun law firm said the council did not have regulatory power but “the meetings served as a warning to the companies that you better make changes or else you will be punished”.
“It’s a Chinese move to use carrots before the stick,” he said.
Li Chengdong, head of the Haitun ecommerce think-tank, said it was inevitable there would be a regulatory response to the outcry over counterfeits, but the intervention of a local body in Shanghai was preferable to a central government agency. “Actually, to some degree, it’s protecting Pinduoduo from harsher punishment,” he said.