Chinese food delivery giant Meituan shed $26bn in value on Friday after regulators said they would push to lower the fees food platforms can charge restaurants for delivery.
China’s latest crackdown comes amid a flurry of government restrictions added to the country’s tech sector over the past year, which have mainly been aimed at reining in the country’s high-flying consumer tech companies.
The announcement by China’s state planner, the National Development and Reform Commission, and 13 other agencies came in a package of proposals to help the country’s struggling service industry, which has been hit hard by the campaign to suppress Covid-19 infections.
The body said it would “guide” delivery platforms to “take another step to lower the service fees charged to restaurants in order to lower their operating costs”. The NDRC added it would also ask platforms to give discounts to restaurants in areas hit hard by Covid.
The guidelines immediately sent Meituan’s Hong Kong shares tumbling, down 15 per cent for the day, while shares of Alibaba, which controls its main rival Ele.me, shed 2.9 per cent. Hong Kong’s Hang Seng Tech index lost 3 per cent.
Meituan controls about 70 per cent of China’s food delivery market and the segment contributed more than half of its revenue in the third quarter of last year.
“There is a lot of uncertainty about the future policy direction, before this it seemed like [regulators] wanted to slow down the tightening policies, that they didn’t want to add new policies to restrict the internet industry,” said Li Chengdong of Haitun, a tech think-tank.
“But this will directly impact Meituan’s profit model, and maybe even its ability to draw profits from food delivery in the long term,” he said.
China’s antitrust regulators last year fined Meituan Rmb3.4bn ($537mn) for abusing its market position and demanded the company make a number of changes to its operations, including better treatment of its delivery riders who zip meals across cities.
The commissions Meituan earns from each food order have also come under scrutiny before with a number of regional restaurant associations demanding the company lower its fees at the beginning of the pandemic.
The political pressure to lower the commission rate while lifting riders’ pay has made it difficult for Meituan to increase profits. The company in the third quarter reported making an Rmb876m operating profit on Rmb26bn in turnover for its food delivery segment.
Overall, the company reported an Rmb10bn operating loss as it ploughed money into new business lines.