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Chinese food-delivery giant Meituan’s $530 million fine is a relief for investors

Meituan
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China’s biggest provider of food-delivery services was hit with a 3.4 billion yuan ($528 million) fine by China’s antitrust watchdog last week for monopolistic practices, making it the latest firm to be caught up in Beijing’s ongoing crackdown on big tech. Investors may not mind.

The State Administration for Market Regulation (SAMR) ordered Meituan to end its “pick one from two” practice, a common tactic for Chinese tech companies to force merchants to enter into exclusive partnerships. The watchdog asked the firm to return around 1.29 billion yuan worth of deposit fees, which were part of its exclusivity arrangements, to the merchants. It also required it to enhance its protection of delivery workers and submit a compliance report to regulators for three consecutive years, according to a SAMR notice.

“Meituan accepts the penalty with sincerity and are determined to ensure our compliance with the decision and its terms,” the company said in a statement.  The company will “take this lesson to heart, operate in accordance with the law, and consciously work to ensure fair competition in the industries we operate in,” it said.

Shares of Meituan surged 8.4% in Hong Kong following the news today, alongside rallies in other Chinese tech stocks including Alibaba and search engine giant Baidu.

Meituan’s fine clears some concerns

Investors have several reasons to cheer the outcome of Meituan’s tangle with Chinese authorities. For one, the amount of the fine is not as much as many had feared. It comes to around 3% of its domestic revenue last year—that’s a little less than the $2.8 billion antitrust fine SAMR imposed on Alibaba in April, which amounted to around 4% of the e-commerce giant’s 2019 revenue.

More importantly, the SAMR decision removed lingering worries about Meituan’s relationship with the authorities, as the penalty stopped short of serious administrative punishments against the firm.

Meituan CEO Wang Xing was reportedly told by Beijing to “lie low” after he posted an ancient poem in May suspected by many to be a veiled criticism of the government (Wang claimed it was actually a reference to the competitive market pressures the company is facing). Given Beijing’s harsh treatment of Alibaba founder Jack Ma, whose fintech company Ant Group had its monster IPO suspended last year, reportedly over Ma’s criticism of regulators, many worried Wang and his company could face a similar fate.

The fine removes regulatory “overhang,” and the long-term outlook for the company is “bright,” analysts at Jeffries wrote in a note. “We believe the SAMR decision addresses market concerns and Meituan has been communicating with authorities and upgrading its business operations,” the investment bank said

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