SHANGHAI -- China's antitrust watchdog has ramped up its crackdown on internet companies, raising concerns about Beijing's tightening grip on the tech sector ahead of a major online shopping bonanza held every June.
E-tailer Pinduoduo and food-delivery-app operator Meituan were summoned by the Shanghai Consumer Council last week for what it sees as practices "severely damaging the rights of consumers."
The regulators accused the two companies of pressuring partner companies and listing counterfeit products, among other misconduct. The two were ordered to perform internal probes and rectify operations.
"We plan to issue guidance to other platform operators outside of the two enterprises," the Shanghai Consumer Council said in a May 10 notice.
The June 18 shopping festival, which is simply referred to as "618," was originally established by JD.com to mark the day of its founding. The event has grown to become the biggest online sales day after Singles Day. 11.
Eager to outperform competitors on this crucial sales day, net retailers often impose strict quotas on sales managers, which in turn lead to abusive practices toward vendors. The recent regulatory crackdown indicates e-tailers will be under close scrutiny this year.
Following the reports of the crackdown, Pinduoduo's share price tumbled more than 9% on the Nasdaq while Meituan suffered a loss of more than 5% in the Hong Kong market. Currently, the two companies are down more than 40% from their most recent peak.
The downtrend has spilled over to other companies. JD.com, China's second-largest e-commerce group, has retreated nearly 40% from its recent peak, as has video streaming giant Bilibili.
When the e-commerce market was beginning to take off in China, internet companies competed furiously to widen their shares. In the interest of encouraging business growth, government officials "essentially turned a blind eye" to practices that could be in violation of antitrust law, according to an industry source.
Now the tide has turned. Those officials are summoning tech companies left and right for discipline, regardless of whether they are involved in e-commerce, finance, gaming, ride hailing or video streaming.
Beijing's clampdowns on Alibaba Group Holding and Tencent Holdings grabbed headlines, but the trend is wide-spread throughout the industry.
"Major [tech] enterprise have engaged in potentially illegal conduct to a greater or lesser extent," said the industry source. "If the authorities get serious, there are more than enough opportunities to crack down on them."
Two years ago during the 6/18 festival, appliance sellers called out Alibaba on its pressure tactics, accusing the e-commerce giant of pushing merchants to sell exclusively on its platform or lose access.
Regulators look ready to flex their muscles a lot more than this year. How net companies will behave and how regulators will respond will likely tell a lot about the future of the sector, perhaps more than the widely watched turnover.