Chinese shares rose Friday as the mainland came back online after the holiday.
There was news on the regulatory front. Beijing hit Meituan with a $533 million fine for behavior inconsistent with anti-monopoly regulations. In addition to the 3.44 billion yuan settlement, the company was compelled to return 1.29 billion yuan in deposits associated with exclusivity agreements.
Meituan is beset on at least two fronts. It’s a tech giant, so it’s swept up in the anti-monopoly blitz, but it’s also under pressure to take measures aimed at protecting the rights of gig workers as part of Xi’s “common prosperity” push. Meituan was also instructed to enhance protections for delivery riders. Below is the official (translated) decree:
According to investigations, since 2018, Meituan has abused its dominant position in the service market of online catering take-out platforms in China by implementing differential rates and delaying merchants’ launch, etc., prompting merchants on the platform to sign exclusive cooperation agreements with them, and exclusive cooperation through collections Security deposits, data, algorithms and other technical means, adopted a variety of punitive measures to ensure the implementation of “pick one from two” behavior, eliminated and restricted relevant market competition, hindered the free flow of market resource elements, weakened the innovation power and development vitality of the platform, and damaged the legitimate rights and interests of the merchants and consumers on the platform. This constitutes an abuse of market dominance.
In accordance with Article 47 and Article 49 of the Anti-Monopoly Law, and taking into account the nature, extent and duration of Meituan’s illegal activities, on October 8, 2021, the State Administration for Market Regulation made an administrative penalty decision in accordance with the law. Meituan is ordered to stop illegal activities, fully refund the exclusive cooperation deposit of 1.289 billion yuan, and pay a fine of 3% of its domestic sales of 114.748 billion yuan in 2020, totaling 3.442 billion yuan. At the same time, Meituan is requested to carry out comprehensive rectification around the improvement of the platform commission fee mechanism and algorithm rules, the maintenance of the legitimate interests of small and medium-sized catering businesses on the platform, and the strengthening of the protection of the legitimate rights and interests of delivery riders. The State Administration of Supervision shall submit a self-examination and compliance report to ensure that rectification is in place and achieve healthy and sustainable development of standardized innovation.
Apparently, some market participants expected the fine to be larger. It’s possible the resolution of the probe could spark a relief rally, although I’d gently note there’s no guarantee anything is actually “resolved.” Indeed, Yi Gang reiterated that Beijing intends to step up the crackdown on internet platform companies that exhibit monopolistic behavior. His remarks came during a speech on big tech at a virtual conference hosted by the BIS.
In addition to being a tech giant responsible for the livelihoods of countless everyday Chinese, Meituan also possesses vast stores of data. Beijing isn’t particularly keen on the idea that anyone, even domestic corporates, should have more data on Chinese citizens than the Party has.
In any event, the shares have obviously suffered alongside peers. They’re down 40% from the highs (figure below).
Meituan issued the customary statement expressing gratitude for the Party’s patience and laborious efforts to help the company correct its behavior.
Meituan “sincerely” accepted its penalty and pledged to “resolutely implement” Xi’s instructions, including and especially mandates aimed at ensuring fair competition.
Meanwhile, the PBoC drained a net 330 billion coming off the holiday. The central bank injected just 10 billion yuan (gross), after a stretch of 100 billion+ yuan injections leading up to the week-long break (figure below).
In addition to seasonal liquidity needs, the injections were plainly aimed at calming markets amid the Evergrande drama.
As one analyst put it, “the PBoC is exiting the ‘alert’ mode which was triggered by property default concerns.”
They could be on “alert” again soon, though. According to a report by China Real Estate Information Corp, combined contracted sales by China’s largest developers plunged by more than a third last month. Out of 100 companies, 90 suffered a YoY sales decline. Nearly two-thirds witnessed a drop exceeding 30%.
The Fantasia debacle underscored the market’s contagion concerns and as Bloomberg noted Friday, China’s offshore junk bonds were set for their worst week since March 2020. Yields are near 17%.
Still, analysts are divided on what kind of relief Beijing might offer. Squeezing out excesses in the property sector is a priority and the broader de-leveraging push isn’t dead. “RRR cuts seem too directed at the property market,” Jefferies remarked, in a note. “[That] may be why they’re holding back, preferring to let the property space work out its issues first on its own.”
