China’s ‘Amazon of services’ says it welcomes Beijing’s stricter oversight
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China’s largest service-on-demand company, Meituan, reported 28.8% revenue growth for the third quarter this year compared to the same period in 2019 as China’s consumer spending stages a post-pandemic return and as it faces a new regulatory threat from Beijing.
“Overall, with COVID-19 well controlled and the economy firmly back on track in China, growth across all of our main businesses accelerated in the quarter on a sequential basis,” Meituan founder and CEO Wang Xing said in a statement Monday. The company’s revenue totaled $5.4 billion in Q3, ahead of analysts’ expectations, according to Refinitiv. It earned roughly $1 billion in profit.
Meituan began life as a Groupon-like firm in 2010, before expanding into food delivery, shared bike rentals, tickets sales, and other services. The company, sometimes dubbed China’s “Amazon of services” for its huge presence and wide range of offerings, still earns the majority of its revenue from food delivery—totaling $3.15 billion in the third quarter.
Having recovered from a virus-induced downturn, the $220 billion Hong Kong–listed services company is now contending with the potentially larger threat of government regulation, which Beijing proposed last month to subdue China’s runaway tech giants.
China’s financial regulator, the State Administration for Market Regulation, issued draft proposals for new rules to regulate the country’s tech giants on Nov. 10. Media reports speculate that Alibaba founder Jack Ma was the catalyst. The bombastic entrepreneur made the mistake of openly criticizing China’s regulators, accusing them of operating with a “pawnshop mentality” on stage at an industry conference.
Ma was soon summoned to a closed-door meeting with the SAMR in early November, days before Alibaba’s financial affiliate, Ant Group, was due to launch the world’s largest IPO, tipped to raise $35 billion. Regulators pulled the plug on the mobile payments provider’s IPO the day before its launch.
Beijing’s new rules on online lending curtailed Ant’s IPO but, a week later, the government released wider-ranging antitrust regulations, tempering the tech sector. Collectively, the threat of new regulations cost China’s tech players over $250 billion in market value in just two days.
Between Nov. 9—the day before Beijing revealed the new draft regulations—and Nov. 11, Meituan’s share price plummeted 20%, from $43 to $35. As of Tuesday, shares were trading at $37.
Since then, China’s leading tech executives have crept forward to laud the effectiveness of regulation. Tencent president Martin Lau told investors in a call last month that stricter regulation does “reflect the new realities” as “technology companies become bigger and more important to the economy.”
Last week Alibaba CEO Daniel Zhang, Jack Ma’s successor, said the regulations were “timely and necessary,” as he spoke at China’s World Internet Conference.
Meituan’s Wang Xing is the latest to welcome more government oversight.
“We think the new antitrust consultation paper is supportive of the healthy development of the Internet….and helps promote fair competition within the industry,” Wang said on a call with analysts Monday. “As Internet platforms become bigger and more important to the economy, regulatory frameworks will also evolve.”