China tech crackdown turns to the food delivery giant

GUANGZHOU, China — Meituan has seen around $38.96 billion wiped off its value in the past two weeks as Beijing turns its regulatory scrutiny on the Chinese food delivery giant.

On April 26, China’s State Administration for Market Regulation (SAMR) opened an investigation into “suspected monopolistic practices” of Meituan. It’s only the second antitrust investigation into a domestic technology firm. Alibaba was the first to fall into the crosshairs and ended up being fined 18.23 billion yuan ($2.8 billion) as a result.

The market regulator is looking at an alleged practice where Meituan forces merchants to choose its platform over rivals or face penalties for listing on both.

Since closing at 305 Hong Kong dollars on April 26, Meituan shares have plunged about 16%. On Wednesday, the stock gained about 2.5% closing at 255.20 Hong Kong dollars, breaking 10 days of selling.

Still, since April 26, around $38.96 billion of value has been wiped off the company.

The Meituan probe highlights a broadening drive to regulate China’s technology sector which has largely grown unencumbered over the past few years. In February, China issued revised antitrust rules for so-called “platform economy” companies, which is a broad-brush term for internet firms operating a variety of services from e-commerce to food delivery.

In response to the SAMR probe, Meituan said it will “actively cooperate with the regulators on the investigation, take steps to improve its businesses’ compliance management, safeguard the legitimate rights and interests of its users and all relevant parties, promote the healthy and long-term development of the industry, and strive to fulfill its social responsibilities.”

A misunderstood poem

While the SAMR investigation — which could result in a multi-billion yuan fine — is certainly the most serious issue for Meituan, a number of incidents since then have piled more pressure on the delivery giant.

Last month, Wang Lin, an official at the Beijing Municipal Human Resources and Social Security Bureau, went undercover as a Meituan driver, earning 41 yuan ($6.37) during a 12 hour shift. He was exploring the working conditions of Meituan drivers.

Meituan said it has held 22 meetings with delivery workers to learn about their ideas to improve their working process. The company said it has initiated plans in terms of drivers’ career development and protection of their rights and interests.

“We know this is far from enough, but we will keep working to improve delivery workers’ working experience,” Meituan said in a statement in Mandarin, translated by CNBC.

Further scrutiny on the company was spurred by an unlikely source — a poem posted online by Meituan CEO Wang Xing on May 6. He founded China’s first Twitter-like service called Fanfou in the late 2000s. While Weibo is the most dominant microblogging platform in China now, Fanfou still has a niche audience. And Wang has a devoted following on the service where he posts several times a day.

The poem told a story of an ancient emperor who burned books to silence intellectuals. But he was eventually overthrown by two uneducated people. It was interpreted as a veiled criticism of Xi Jinping’s government.

Wang deleted the post and issued a clarification on May 9.

He noted the emperor was overthrown by two people who didn’t have much of an education and used it to express a business lesson.

“This reminds me that the most dangerous rivals are usually not those you expect. Alibaba has been watching JD.com for a long time. In the end, it was Pinduoduo who came from nowhere and competed with Taobao,” Wang said in Mandarin, according to a CNBC translation.

Taobao is one of the e-commerce products owned by Alibaba. Pinduoduo is a fast-growing rival.

“Similarly, it looks like Ele.me is Meituan’s biggest rival. But what could overthrow food delivery business could probably be companies or business models that we haven’t paid attention to,” he added.

Ele.me is Alibaba’s food delivery app.

The latest bit of pressure on Meituan came from the Shanghai Consumer Council, a consumer rights group. On Monday, it criticized Meituan for some of its business practices around fees it charges to merchants among other complaints.

The Shanghai Consumer Council is not a regulator.

Meituan declined to comment on the poem and the Shanghai Consumer Council’s post when contacted by CNBC.

— CNBC’s Iris Wang contributed to this report.

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