After $1 billion fine, will Meituan suffer more regulatory crack downs in China?

This afternoon (6 August 2021), Wall Street Journal published an exclusive story saying that China’s antitrust regulators have already set the fine for Meituan at around $1 billion.

The fine is related to Meituan forcing exclusivity onto its merchant partners, the same issue for which Alibaba was fined US$2.8 billion earlier in April.

Our investor friends have been looking forward to the actual announcement of this fine – which means that a big uncertainty will be lifted. After call, Alibaba’s market cap rose U$40billion on the day of announcement of their fine.

WSJ article says the Meituan announcement will happen ‘within weeks’.

Rights of gig workers

Will that be the end of the regulatory uncertainties covering the company? There is, in fact, another issue that remains unclear: the treatment of its delivery riders, who are mostly contracted from third party companies.

On 26 July, State Administration for Market Regulation (SAMR – by now everyone should be very familiar with this acronym) published “Guidelines on implementation of responsibilities of internet based food platforms to protect delivery riders’ rights”.

Before that on 22 July, Ministry of Human Resources and Social Security issued joint guidelines (with 7 other ministries/departments) to protect rights of workers in “new employment practices”:

Key points of the joint guidelines:

1. The document covers food delivery riders, ride hailing drivers, truckers, internet-based promotional professionals and others working under the ‘new employment practices”. i.e. it focuses on the entire “gig economy”
2. It classifies such workers into three categories:
   1. Those fitting traditional employment practices – relevant employment contracts should be in place;
   2. Those not fitting traditional employment practices but the workers are managed by the respectively employing company – most delivery drivers will fit into this category;
   3. Those who leverage platforms/marketplaces to manage their own businesses – they should have some contractual arrangements to ensure the rights and obligations of both parties.

Flexible, but protected

No mandatory rules are imposed on the second category, but the guidelines mandates companies to “encourage and guide workers to participate in relevant social security according to their own circumstances”.

In our opinion, the guidelines put the rights of the ‘gig workers’ in a framework, and the classification makes sure that the rules reflect the market circumstances.

In no way it means that Meituan will need to shoulder social security for its entire fleet of close to 5 million delivery riders.

With such guidelines in place, the boundaries are set, which is healthy for the growth of the industry.

Lessons for regulators

The lessons, however, are really for regulators in other countries: do you want to regulate an industry early, or watch it grow and come in later to shock the market?

Because at later stage, regulators in most countries will not have the powers that Chinese regulators are having now.