Caixin
Oct 09, 2021 03:44 AM
BUSINESS

China Fines Meituan $533 Million to End Antitrust Probe

Meituan’s 3% penalty was less both in value and percentage than a record 18 billion yuan fine handed to Alibaba in April.
Meituan’s 3% penalty was less both in value and percentage than a record 18 billion yuan fine handed to Alibaba in April.

China’s market regulator levied a 3.44 billion yuan ($533 million) fine on Meituan for anti-competitive practices, ending a months-long probe on the food-delivery giant and lifting the regulatory uncertainty weighing on its stock.

The fine was calculated as 3% of the company’s domestic sales for 2020, a relatively lenient penalty, according to China’s Anti-Monopoly Law, which sets fines on abuse of market dominance at up to 10% of a firm’s revenue for the previous year.

Meituan will also have to return 1.29 billion yuan of merchant deposits which were taken as part of exclusivity agreements that the regulator ruled unlawful.

The firm was also ordered to improve its commission mechanism, protect the interests of businesses on the platform and the rights of delivery drivers, and submit self-inspection and compliance reports to the State Administration for Market Regulation (SAMR) for three consecutive years, according to a post on the SAMR’s official WeChat account.

SAMR in April began investigating Meituan over abuses of its dominance in China’s online food delivery market, including practices known as “picking sides,” in which a platform forces merchants to work exclusively with it and shun competitors.

The regulator found that since 2018, Meituan has abused its dominant market position to implement different rates on merchants, force them to enter exclusivity agreements, and take a range of technical and punitive measures preventing merchants from hawking their food on rival apps.

Meituan has long been criticized by rivals and merchants for forced exclusive arrangements. The firm — which competes against Alibaba Group Holding Ltd.’s Ele.me — had previously been found guilty of unfair competition in at least two legal cases and ordered to pay compensation.

In April 2020, The Guangdong Restaurant Association published an open letter, criticizing Meituan for taking advantage of the coronavirus downturn by charging onerous commissions to restaurants. Meituan eventually reached a settlement with the trade organization.

These practices eliminate and restrict market competition, hinder the free flow of market resources, weaken the platform’s innovation drive and development vitality, damages the legitimate rights and interests of merchants and consumers, SAMR said.

Meituan said in a statement that it accepted the penalty and will implement the regulators’ instructions as well as ensure fair competition.

The company has been anticipating a significant fine since the probe. When announcing its second quarter results August 30, it warned that it may have to make changes to its business practices as a result of the investigation. Its stock has lost nearly one third of its value since April.

The market responded positively Friday after the uncertainty over the probe was cleared. Meituan’s Hong Kong-listed shares climbed 2% following a 9% jump Thursday.

Meituan’s 3% penalty was less both in value and percentage than a record 18 billion yuan fine handed to Alibaba in April, also for anti-competitive behavior. Analysts previously estimated that Meituan could face a fine of just over $700 million based on the Alibaba penalty.

The fine comes amid a spate of regulatory crackdowns on China’s internet businesses which have spanned from financial risk and consumer privacy to data security and unfair business practices.

Days after the Alibaba fine, the Shanghai branch of the SAMR fined Sherpas, a local foreigner-focused food delivery platform, 1.17 million yuan for similar practices.

Zhang Gong, head of the SAMR, said last month that the crackdown on major monopoly cases and various forms of unfair competition aim to "set rules and deter other violators.”

The next step will be continuing to strengthen supervision and law enforcement on anti-monopoly and anti-unfair competition, and prevent disorderly expansion of capital, Zhang said.

Flynn Murphy contributed to the report.

Contact reporter Denise Jia (huijuanjia@caixin.com)

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