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Beijing Plans $1 Billion Fine For Meituan, Didi Mulls Surrendering Data To State-Controlled Entity

Beijing Plans $1 Billion Fine For Meituan, Didi Mulls Surrendering Data To State-Controlled Entity

Since Didi’s disastrous US listing, barely a day goes by without some new development in China’s ongoing crackdown against its biggest tech firms.

On Friday, WSJ reported that Chinese food-delivery giant Meituan is about to be hit with a fine of roughly $1 billion. The fine was described as a penalty for Meituan abusing its dominant market position as China’s go-to food-delivery app in most urban areas. The abuse is tied to Meituan’s policy of forcing restaurants to exclusively deal with Meituan and not its competitors. The practice even has a name in China: “er xuan yi”—literally, “choose one out of two”.

China’s State Administration for Market Regulation, the same entity that fined Alibaba $2.8 billion earlier this year, believes Meituan has abused its dominant position. In addition to selling food and groceries, Meituan also offers hotel bookings and other services.

The probe into Meituan began in April. Under Chinese rules, antitrust fines are capped at 10% of a company’s annual sales. Meituan reported more than $17 billion in sales during 2020. The company is China’s third-largest publicly listed stock after Alibaba and Tencent

Chinese regulators have also criticized Meituan for its poor treatment of delivery workers and other independent contractors. In response, the company has promised to buy insurance for its drivers, while changing the way it pays merchants and restaurants that sell on its platform, by lowering fees and prohibiting exclusivity arrangements.

In other China news, Didi shares climbed in premarket trade on Friday following a Bloomberg report alleging that the company is weighing giving up control of its most valuable data as part of efforts to resolve a Chinese regulatory probe.

The ride-hailing giant has put forth a number of proposals to appease the powerful internet industry overseer, including ceding management of its data to a private third party, the people said, asking not to be identified talking about internal deliberations. Regulators have signaled a preference for that third party to be state-controlled, one of the people said. It’s uncertain how such an arrangement would impact Didi’s access to the data, which is crucial to helping the firm orchestrate 25 million rides a day between some 400 million riders and drivers.

Also unclear is whether the proposals would appease the watchdog. Didi is fighting to ensure its survival after forging ahead with its American float despite objections from officials worried that a foreign listing could leak data and undermine national security. Regulators regarded its decision to go public despite pushback from the Cyberspace Administration of China as a challenge to Beijing’s authority.

They are weighing a range of potential punishments, including a fine, suspension of certain operations or the introduction of a state-owned investor, the people said. One proposal on the table was to bring in a state-owned firm with a larger stake than current top shareholders SoftBank Group Corp. and Uber Technologies Inc., one of the people said. Also possible is a forced privatization and delisting or withdrawal of Didi’s U.S. shares, though it’s unclear how such an option would play out.

To be sure, the company may take weeks or months to decide on its final course of action. Ceding control of its data to a third-party state-controlled entity would likely appease Didi’s CCP overlords, but it likely won’t entirely compensate for Didi’s decision to defy the CCP by moving ahead with its US IPO. Once the smoke clears, Bloomberg says Didi is likely to face a bigger punishment than Alibaba.

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