SAMR Declares Regulatory Redlines on Internet Companies’ Community Group Buying Businesses

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  • SAMR Declares Regulatory Redlines on Internet Companies’ Community Group Buying Businesses

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    State Administration for Market Regulation (SAMR) and the Ministry of Commerce (MOFCOM) held an administrative guidance meeting for the regulation of community group buying businesses on December 22, where Alibaba [BABA:US], Tencent [0700:HK], [JD:US], Meituan [3690:HK], Pinduoduo [PDD:US], and Didi Chuxing participated, according to Yicai on December 23. SAMR asked these companies to obey nine requirements regarding community group buying operations. For instance, these companies shall not abuse their pricing power to conducting price dumping, fraud, etc.; nor set any monopolistic contracts such as limiting production output or sales volumes; not ask merchants to form exclusive partnerships; nor use big data analysis technologies and asymmetric information to infringe consumer rights, such as setting different prices for new and old users; nor use other unfair competitive or illegal practices that will damage market order, the competitive environment, and consumer interests.

    As a new retail model with a focus on selling fresh food in recent years, community group buying allows consumers to order items together online and pick up their products nearby. Moreover, this area has experienced a surge in use amid the pandemic. Over the first half of 2020, the e-commerce transaction amount of fresh food reached RMB182.12bn, soaring 137.6% YoY and exceeding that of the entirety of 2019. In view of this, internet companies rushed into this sector and launched their respective community group buying platforms. They are attracting consumers through extreme subsidies to offer products with much lower prices than supermarkets and traditional food markets, even lower than procurement costs, which adversely impacted small merchants and farmers.

    Thus, SAMR aims to regulate such company practices and could also be regarded as a nudge to remind these large internet giants to comply with the newest antitrust guidelines which SAMR released for comment on November 10. The draft rules include the aforementioned nine basic requirements. The guidelines are designed to protect consumers and medium and small-size innovative companies, and to create a fair competitive environment for the internet industry. In addition to the antitrust guidance, Chinese regulators also issued other regulations and held meetings with large internet companies in November to establish that internet companies should actively carry out anti-monopoly compliance management in the immediate future.