Regulators in China Crack Down on Temu Owner’s Refund Policy
Breakneck global expansion at one point recently lifted US-listed PDD past Alibaba and JD.com to become China’s most valuable e-commerce company. (Photo: Reuters)
China’s markets watchdog has ordered PDD Holdings, the owner of the hugely popular Pinduoduo and Temu e-commerce platforms, to fix its refunds-first policy, taking aim at a practice that online merchants argue hurts their bottom line. The State Administration of Market Regulation and Ministry of Commerce told PDD executives at a recent meeting that the policy — which lets shoppers claim refunds without returning purchased goods — placed an unfair burden on small merchants.
Regulators asked PDD to fix the issue but stopped short of specific suggestions or outlawing the practice, the people said, asking not to be identified. The discussion in Beijing revolved around the “refunds only” practice that PDD pioneered years ago. Its Pinduoduo online store connects hundreds of thousands of small shops with Chinese consumers, and the company withholds payments to merchants if they are judged to have fallen short of customer expectations — anything from missing delivery deadlines to product mismatches.
That consumer-first approach, instrumental in helping PDD outgrow Alibaba and JD.com, has come under fire as China’s economy slows down. Merchants complain that PDD panders to shoppers’ whims, denying them payment even after delivering products. That backlash peaked over the summer when hundreds of merchants staged a rally at PDD’s offices in southern China.
### Merchants’ Growing Frustration
That protest was the culmination of growing frustration among third-party sellers, who accused PDD of squeezing them for revenue to help bankroll a costly global expansion. In response, PDD has said it is actively working out solutions with their merchants. Company representatives did not respond to messages seeking comment. The ministry and market watchdog didn’t respond to faxed requests for comment.
### Generous Refund Policies
Chinese shoppers have enjoyed some of the world’s most generous refund policies. Conceived years ago by PDD, the industry norm became to allow buyers to request a full refund while keeping products they deem poorly made. Several of PDD’s rivals began adopting the same practice, though some including Kuaishou Technology have since backtracked because of the growing resistance.
### Aggressive Global Expansion
The dispute coincides with an aggressive expansion that has taken Temu around the world. PDD and its Temu platform exploded on the scene in 2023 with expensive Super-Bowl ads in the US. It has since begun to challenge the fellow online shopping giant Shein, and even Amazon.com in certain segments. It launched in Thailand just a few months ago.
That breakneck global expansion at one point helped Nasdaq-listed PDD become China’s most valuable e-commerce company, outstripping Alibaba and JD. It’s unclear whether PDD is making moves to assuage Chinese merchants. Internationally, the company is proving popular with US sellers tired of Amazon’s fees, with Temu proving a more lucrative distribution platform for some. But at home, the danger is that suppliers may migrate to other platforms, disrupting the flow of goods vital for supporting the fledgling service’s growth.
Beijing on various occasions has openly expressed support for what it calls cross-border e-commerce, or the sale of Chinese goods abroad. But this year, reports began circulating about growing dissatisfaction among Temu’s merchants in China, who supply the bulk of the cheap, fast-moving goods that consumers abroad are hoovering up. Indonesia and Vietnam are among a number of countries that have recently suspended Temu operations while looking into its practices.
Around September, Chinese officials from agencies including the SAMR and commerce ministry held closed-door seminars with merchants and e-commerce platforms including Alibaba and PDD about the refund-only policies, two attendees said. Both JD and Alibaba allow refunds without returns. But their policies are stricter and a partial instead of full refund is more often the rule, shoppers and merchants say.
Ahead of the recent Nov 11 Singles’ Day shopping festival, Alibaba and JD executives warned against a take-no-prisoners approach that seemed to prioritize low prices at the expense of quality. JD chief executive officer Xu Ran spoke out against what she called “vicious involution” — meaning a destructive cycle. A few months prior, PDD stunned investors by giving an unusually gloomy outlook, with CEO Chen Lei mentioning at least eight times that revenue and profit must “inevitably” decline. Results for the past quarter also came in below expectations, and executives emphasized they were disadvantaged against competitors, without elaborating.
