Food & Drinks

China’s Anti-Trust Regulator Shifts Focus To Meituan And Investors Cheer

China’s anti-trust regulator has launched an investigation into the business practices of food-delivery giant Meituan much like it did with Alibaba, but this time investors aren’t panicking.

Shares of the Hong Kong-listed company actually jumped as much as 6.3% before paring back some of the gains to close 2.6% higher the day after China’s State Administration for Market Regulation (SAMR) announced the probe via its website.

The agency said that it’s probing Meituan for the alleged monopolistic business practice known as “er xuan yi,” or “choose one of two,” an exclusive arrangement that prevents merchants from doing business with Meituan’s competitors.

A company spokesperson said it will “actively cooperate with the regulators on the investigation,” and “take steps to improve its businesses’ compliance management.” At present, Meituan’s operations remain normal, she added.

Investors’ optimism was said to have stemmed partly from expectations that the penalties imposed on Meituan would be less severe. The company is unlikely to be hit with a fine any higher than the record $2.8 billion penalty slapped on e-commerce giant Alibaba earlier this month, because it has a smaller scale and shorter operation history, says Ke Yan, head of research at Singapore-based DZT Research. Alibaba was fined 4% of its 2019 revenue for engaging in monopolistic behaviors including forcing merchants into exclusivity agreements.

Meituan, which had 114.8 billion yuan ($17.7 billion) in revenue last year, could face a fine of $708 million if the 4% criteria is applied again. Under China’s anti-trust laws, penalties can reach up to 10% of revenue if a company is found to have violated them.

Still, Meituan is expected to retain its dominance in the online take-out market, which usually accounts for more than half of its revenues. Its 511 million paying user are so used to order food deliveries via Meituan, and there probably won’t be a sudden exodus of merchants following the investigation, according to Ke.

“Investors have been expecting Meituan to be next in the line in China’s widening anti-trust probe,” he says. “But they are less worried about Meituan losing merchants because consumers have grown used to place orders there.”

But this year is undoubtedly tough for the company and its billionaire founder Wang Xing. Meituan has lost more than 30% of its market value since its shares peaked in February this year. The company had been found guilty of unfair competition and forcing merchants into exclusive business arrangements in at least two lawsuits this year, local media reports show.

Meanwhile, the 42- year-old Wang, who was ranked No. 16 on China’s wealth rankings last year, has been investing heavily to venture into new markets such as community group-buying.

The result is that Meituan reported a loss of 2.2 billion yuan for the fourth quarter last year, versus a profit of 1.5 billion yuan the same period a year ago. Earlier this month, the company raised $10 billion by selling stocks and convertible bonds to finance Meituan’s push into autonomous deliveries and online groceries.

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