In Depth: PDD’s Bare-Knuckle Tactics Upend E-Commerce Landscape

Temu, widely recognized outside China as an online marketplace for cheap goods, has gained notoriety for its aggressive marketing campaigns, even featuring ads in high-profile events like the Superbowl. In the U.S., Temu and its counterpart Shein face potential regulatory crackdowns given their cheap Chinese textile imports, which lawmakers and labor unions argue exploit loopholes to avoid U.S. import taxes. [para. 1][para. 2]

In China, Temu became the focus of protests in Guangzhou, where frustrated merchants accused the platform of imposing unwarranted "after-sales fines" without evidence of product defects. [para. 3] Temu's parent company, PDD Holdings Inc., (formerly Pinduoduo) has seen rapid growth, even surpassing Alibaba in market capitalization briefly. In the first quarter of this year, PDD reported a 131% revenue increase to 86.8 billion yuan ($12 billion). [para. 4][para. 5]

Critics argue that PDD's aggressive pricing strategies and controversial penalty system have harmed merchants, forcing them to comply with unfair practices. According to data obtained by Caixin, fines imposed on a group of 100 Temu sellers amounted to 142 million yuan. Merchants also claim the platform encourages intellectual property infringement through its recommendation system. [para. 7]

In response to Temu's aggressive strategies, competitors like Alibaba and JD.com have altered their tactics, highlighting low prices and direct-from-factory products to compete in an oversupplied market. This shift is attributed to the economic pressures and downgraded consumption post-COVID. China’s consumer confidence index was 86.2 in June, remaining below 100 for over two years, indicative of weak domestic demand and a struggling property market. [para. 8][para. 9][para. 10]

PDD’s model capitalizes on the forced sale of excess inventory accumulated during the COVID-19 pandemic. The company's Co-CEO Zhao Jiazhen advocates for a consumer-first approach—offering refunds without item returns and fostering price wars among merchants. This model has been adopted by rivals like Taobao, JD.com, and Douyin. [para. 11][para. 12][para. 13]

These price wars have pressured both small and large businesses. For example, in May, over 40 Chinese book publishers boycotted JD.com due to its drastic price cuts. Temu's protests have followed a pattern since last year, ignited by the company publishing lists of fined sellers without transparent reasons. Temu's full consignment model further presses merchants into impossibly low pricing, often leading to large financial losses due to penalties. [para. 17][para. 18][para. 21][para. 23][para. 25]

In some cases, merchants like Lin He faced heavy fines amounting to 1.8 million yuan without prior risk disclosures. Temu’s non-transparent fine system adds to merchant grievances, with many, like a merchant group chat of 83 members, collectively faced with fines exceeding 36 million yuan. [para. 19][para. 20][para. 30][para. 31]

Temu's practices and ultra-low pricing strategy have discouraged innovation and led to an influx of low-quality knock-offs, harming those selling original products. Merchants like Qian Yong found themselves unable to compete with knock-offs, leading to further financial losses and exit from the platform. [para. 37][para. 39]

Despite PDD’s explosive growth, skepticism about its sustainability and consumer shift toward branded products have emerged. During a recent mid-year sale, branded product sales surprisingly increased by around 10% year-over-year. Alibaba also emphasizes product variety and service over mere low pricing. [para. 42][para. 45][para. 46]

In conclusion, Temu and PDD Holdings have driven aggressive market strategies leading to both rapid growth and significant merchant unrest. The long-term viability and ethical implications of their business practices remain points of contention. [para. 47][para. 48]