Chinese regulators imposed the maximum penalty of 1.5 million yuan ($235,257) on Alibaba-backed community group-buying platform Nice Tuan and ordered it to suspend operations in Jiangsu province for three days after the company failed to rectify product dumping and pricing fraud.
The State Administration for Market Regulation (SAMR) said in a statement released on Thursday that Nice Tuan “did not fully implement the rectification commitments” after the Beijing-based start-up was fined and directed to cease the illegal practices two months ago.
In March, the SAMR slapped fines totalling 6.5 million yuan ($1 million) on five community group-buying platforms, including Nice Tuan and others backed by the likes of Tencent and Didi, under similar allegations of price dumping and cheating.
The regulatory authority expressed that it had received recent reports that Nice Tuan still engages in “improper pricing behavior,” although the company claimed to have taken steps to deal with the issue. After an investigation, the SAMR determined that the platform sells its goods at below their proper cost and uses fake or misleading discounts to lure consumers into purchasing goods – a breach of pricing laws in the People’s Republic of China.
For example, Nice Tuan sold a type of pear at 0.99 yuan per 250 grams, despite its true value of 3.89 yuan. The market watchdog alleged that these acts had disrupted market order and harmed other operators’ lawful rights and interests.
“We have received the SAMR notice,” Nice Tuan said in a statement. “We will sincerely accept punishment and quickly rectify business behavior.” The firm noted that it has established a special group to conduct self-inspections and fix illegal practices, also calling for supervision from the public.
Community group-buying is one of China’s hottest e-commerce battlegrounds, as the country’s leading internet companies including Alibaba, Meituan and Pinduoduo have all set up their own group-buying platforms. This concept enables a coalition of people, often living in the same residential compound, to place bulk orders on groceries and other daily essentials at a discounted rate.
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 designated 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 came to rely on a group of community workers to purchase fresh produce and life essentials on their behalf during the more than two months of lockdowns in early 2020. According to iiMedia research, China’s community group-buying market is expected to reach a value of $15.6 billion by 2022, a threefold increase compared with 2019.
The community purchasing business has attracted billions in start-up investment. In March, Nice Tuan raised about $750 million in a Series D round of financing led by Alibaba and DST Global. Its rival Xingsheng Youxuan, a grocery app backed by Tencent and Kuaishou Technology, raised about $2 billion in a new funding round that valued the company at $6 billion prior to the fresh capital injection in February, Reuters reported.
Founded in June 2018, Nice Tuan has established a network of service centres in 1,598 Chinese cities and counties across 25 provinces. It has recruited more than a million community leaders, with daily orders rising as high as 15 million, the company said.
The SAMR’s move to penalize Nice Tuan is regarded as part of Beijing’s wide-ranging crackdown on the country’s big tech groups, which picked up steam after the Chinese government abruptly halted Ant Group’s $34.5 billion IPO last November. In April, regulators imposed a record $2.8 billion fine on Alibaba for anti-competitive behavior, demanded its fintech subsidiary Ant Group receive supervision of the central bank – a similar model to the operations of traditional banks, and ordered 34 major Chinese internet companies to publicly promise to follow antitrust regulations.