Beijing orders Meituan, like Alibaba, to shape up—or else

Chinese antitrust regulators are widening their crackdown on monopolistic practices by the nation’s leading Internet companies.

On Monday, the State Administration of Market Regulation announced that it is looking into alleged antitrust violations at Meituan, the food delivery giant that is China’s third-most valuable Internet company.

Word of the Meituan investigation follows a similar probe into misbehavior at Ant Group, the financial-technology giant controlled by billionaire Jack Ma, and its sister company Alibaba Group Holding.

On April 9, regulators hit Alibaba with a record $2.8 billion fine. Days later, they ordered Ant to completely overhaul its business and apply to become a financial holding company overseen by the central bank—an edict that will dramatically reduce Ant’s profitability.

Meituan’s share price gained nearly 3% in Tuesday trading on the Hong Kong Stock Exchange, reversing Monday’s loses. Investors appeared to have taken comfort in a report by analysts at Nomura Securities suggesting regulatory penalties levied on Meituan aren’t likely to exceed $709 million.

At issue at all three companies are forced exclusivity arrangements known as “pick one from two”—POFT for short, or in Chinese er xuan yi (二选一). The government claims the companies used their dominant marketing position to forbid merchants trading on their platforms from doing business on rival platforms.

Merchants have long complained that er xuan yi is among a host of bullying tactics employed by China’s online platforms to squelch competition and squeeze more profit out of the buyers and sellers they claim to serve. (TechNode‘s Weiqi Liu has a first-hand account of how Meituan pressures restaurants in his neighborhood in Beijing.)

Now Beijing is issuing Ant, Alibaba, Meituan and dozens of other Internet giants an ultimatum of its own: “rectify” your bad behavior or suffer regulators’ wrath.

It’s unclear how long the investigation into Meituan will last. In a contrite statement, Meituan promised it would “actively cooperate with the investigation by the regulatory authorities to further improve the level of business compliance management, project the legitimate rights and interests of users and all parties, promote the long-term healthy development of the industry, and earnestly fulfill its social responsibilities.”

Meituan, founded in 2010 by coding guru Wang Xing, has emerged as one of China’s most innovative—and aggressive—e-commerce operators. In 2015, the company combined with arch-rival, Dianping, to become a “super-app” offering food delivery and a host of other services including restaurant reviews, travel and hotel bookings, and movie tickets.

But the alliance was fraught, not least because Meituan had financial backing from Alibaba while Dianping’s main investor was Alibaba nemesis Tencent Holdings. Alibaba refused to put more money into the joint venture because it declined to integrate the venture’s app with Alibaba’s. Instead, Alibaba sold all its shares in Meituan and invested in an upstart rival, Ele.me. Wang turned to funding from Tencent, which chipped in an additional $1 billion, merged its delivery services with the combined venture and allowed it to operate independently.

Meituan’s share of China’s food delivery market grew to 68% last year, while Ele.me’s shrank to 25%, according to research firm Trustdata. In 2020, Meituan reported total sales of nearly $15 billion, an increase of 18% over 2019, with food delivery accounting for more than half of revenue. More broadly, the company competes with other e-commerce giants including JD.com, Pinduoduo, and Ctrip—and Wang has made no secret of his desire to go head-to-head with Alibaba over the next ten years.

Meituan’s shares tripled in 2020 thanks to the pandemic boom in online shopping. The company, which now boasts a market valuation of $220 billion, last week raised $10 billion in a stock and convertible bonds sale. Wang has vowed to use that capital to improve Meituan’s delivery network by investing in autonomous vehicles, drones, and other cutting-edge technologies.

In March, China’s regulators fined Meituan, along with other leading e-commerce players, for offering improper subsidies to accelerate its expansion into the fast-growing community e-commerce market. Last year Meituan and Ele.me drew a storm of online criticism after several couriers were killed or injured while scrambling to meet to daunting delivery deadlines.

Even so, analysts at Nomura say they expect the latest investigation to have “limited impact on Meituan’s business.” They note that while POFT played “a big role in the early days of food delivery,” Meituan’s strong market position has enabled it to “outgrow” the practice.

More Eastworld news below.

Clay Chandler
– clay.chandler@fortune.com

P.S. Fortune launched a new education hub on Monday where we rank MBA and other professional education programs. Check out the platform, Fortune Education, and our ranking of the best online MBAs here.

This edition of Eastworld was curated and produced by Eamon Barrett. Reach him at eamon.barrett@fortune.com

EASTWORLD NEWS

Forever blowing bubbles

Hong Kong and Singapore announced a travel bubble between the two cities—allowing passengers to fly to and fro without undergoing quarantine—will launch on May 26. A previous bid to build a HK-SG bubble burst last November, after Hong Kong entered a “fourth wave” of COVID-19 transmission. The new bubble plan isn’t conditioned on local case numbers. Travelers from Hong Kong to Singapore will be required to be fully vaccinated in advance, while travelers from both cities will need to produce a negative COVID-19 test taken up to 72 hours before their flight. Hong Kong Free Press

Nomadland

Beijing-born director Chloe Zhao became the first woman of color—and the second woman ever—to win an Academy Award for Best Director on Sunday. Zhao claimed the prize for her feature film Nomadland. Beijing is normally keen to promote the triumphs of the Chinese diaspora, but coverage of Zhao’s victory was muted in China. Earlier this year, critical remarks Zhao made about China in 2013 were resurfaced on Chinese social media, prompting authorities to pull the release of Nomadland in Chinese cinemas. Fortune

Wish you were here?

Bloomberg ranked Singapore as the most COVID resilient place this month, as the city-state rose above New Zealand for the first time since Bloomberg began compiling data in November. Singapore’s vaccine rollout, border restrictions, and low daily case numbers helped the city claim the top spot. Thailand has fallen from 6th to 13th place in the ranking; it planned to allow vaccinated tourists quarantine-access to Phuket, starting from July, but a new COVID outbreak threatens those plans. Daily case numbers in Thailand have surged from 58 at the start of April to 2,438 as of Sunday. Bloomberg

Shot in the arm

With India in the midst of a harrowing COVID outbreak, the government has decided to raise the price of vaccines, permitting the nation’s suppliers to sell directly to private hospitals at a market rate. Until now, the Indian government bought domestic vaccines at a fixed price and distributed them to private and public administration sites. New Delhi hopes the new market-oriented approach will incentivize vaccine makers to increase production, but critics fear the policy will grant priority to wealthier citizens. Fortune

Blockchain gang

China e-commerce giant JD.com started paying some staff with cryptocurrency—or, specifically, with China’s fiat digital yuan. The Chinese government has been rolling out its sovereign cryptocoin through small trials, such as in October when the Shenzhen municipal government doled out $12.5 million of digital yuan to 500,000 of its residents. Now the private sector is beginning to experiment too. Consumer services leader Meituan and ride-hailing titan Didi now accept payments in digital yuan, while Ant Group is helping build the infrastructure to support the new currency class. TechCrunch

MARKETS AND MOVERS

Michelin – Sales at French tire-maker Michelin returned to growth in the first quarter, driven by Chinese demand. Q1 sales rose 2.3% with the volume of demand from China surging 80% over last year.

Ant — Bloomberg estimates the value of Ant Group could plummet to as low as $29 billion after the fintech giant finishes restructuring as a financial holdings firm. Ant’s planned IPO, which was scrapped at the last minute in November, aimed to value the group at $320 billion.

SK Innovation — SK IE Technology, a subsidiary of South Korea’s electric vehicle battery maker SK Innovation, raised $2 billion through an IPO on the Korea Exchange on Monday. The listing was the biggest South Korean debut since 2017, when mobile games maker Netmarble raised $2.4 billion.

Three Gorges — China Three Gorges subsidiary China Three Gorges Renewables Group filed for an IPO on the Shanghai stock exchange. Last year, Three Gorges said it was seeking to raise $3.85 billion through an IPO. That dollar figure would mean coal-hungry China’s largest IPO in 2021 is a renewables group, if the unit debuts this year.

Toyota — Uber-rival Lyft is selling its autonomous driving unit to a subsidiary of Toyota Motor for $550 million. The deal, pending regulatory approval, is expected to close in the third quarter.

FINAL FIGURE

$19 billion

A surge of Hong Kong residents moving to the U.K. might release $19 billion worth of real estate onto the Hong Kong market, Bloomberg Intelligence reports, if the emigres sell their Hong Kong homes. Last year, the U.K. opened a new path to citizenship for the roughly 3 million Hong Kong residents eligible to claim a British National Overseas passport (BNO). Some 13,000 to 16,000 households are expected to move to the U.K. this year. Bloomberg