Antitrust regulators summon executives to discuss the practice.
China’s top markets watchdog summoned PDD Holdings. executives to order the company to fix its refunds-first policy, taking aim at a practice that a growing number of merchants argue hurts their bottom line.
The State Administration of Market Regulation (SAMR) and Ministry of Commerce told executives at a recent meeting that the policy — which lets shoppers claim refunds without returning purchased goods — placed an unfair burden on small merchants, people familiar with the matter said. Regulators asked PDD to fix the issue but stopped short of specific suggestions or outlawing the practice, the people said, asking not to be identified disclosing private talks.
The discussion in Beijing revolved around the so-called “refunds only” practice that PDD pioneered years ago. PDD’s Pinduoduo online store connects hundreds of thousands of small shops with Chinese consumers, and the company withholds payments to merchants if they’re judged to have fallen short of customer expectations — anything from missing delivery deadlines to product mismatches.
That consumer-first approach, instrumental in helping PDD out-grow Alibaba and JD.com, came under fire during 2024’s economic downturn. Merchants complain that PDD panders to shoppers’ whims, denying them payment even after delivering products. That backlash peaked over the summer, when hundreds of merchants staged a rally at PDD’s offices in southern China.
PDD’s shares fell about 2.5% in premarket trading, while Alibaba slipped 1.5% and JD was down more than 3%.
That protest was the culmination of growing frustration among third-party sellers, who accused PDD of squeezing them for revenue to help bankroll a costly global expansion.
In response, PDD has said it’s actively working out solutions with their merchants.
Chinese shoppers have enjoyed some of the world’s most generous refund policies. Conceived years ago by PDD, the industry norm became to allow buyers to request a full refund, while keeping products they deem poorly made.
Several of PDD’s rivals began adopting the same practice, though some including Kuaishou Technology have since backtracked because of the growing resistance.
The dispute comes amid Temu's rapid global expansion, which began in 2023 with high-profile Super Bowl ads. Since then, Temu has challenged major players like Shein and Amazon, even launching in Thailand. This aggressive growth helped PDD briefly surpass Alibaba and JD to become China's most valuable e-commerce company. However, it remains unclear if PDD is addressing concerns from Chinese merchants. While Temu is gaining traction with US sellers seeking alternatives to Amazon, the risk is that domestic suppliers may shift to other platforms, hindering the growth of the service.
While Beijing has actively supported cross-border e-commerce, this year reports have emerged about growing dissatisfaction among Chinese sellers on Temu, who supply cheap products for overseas consumers.
Around September, Chinese officials from agencies including the SAMR and commerce ministry held closed-door seminars with merchants and e-commerce platforms including Alibaba and PDD about the refund-only polices, two attendees said.
Source: Bloomberg
