Regulator Probes Into Price Wars 发改委调查电商价格战
The electronics price wars of 2 weeks ago are already starting to seem like a distant memory to consumers, but 3 companies at the heart of the wars are still feeling a hangover effect as China’s powerful state planner investigates them for fraud in the matter. A steady stream of headlines this week on the National Development and Reform Commission’s (NDRC) investigation into Jingdong Mall, Suning (Shenzhen: 002024) and Gome (HKEx: 493) is reminiscent of the nonstop headlines that flowed from the original price wars themselves 2 weeks ago. This time, however, the tone is decidedly negative and will undoubtedly hurt all 3 companies in the short term as consumers punish the trio for their deceptive practices.
The investigation could also see the 3 penalized by the NDRC, which is rapidly assuming a new role as China’s consumer watchdog. Let’s take a closer look at some of the reports, which are sure to irk many of China’s already jaded consumers who thought they were getting great deals during the previous price wars started by Jingdong Mall, also known as 360Buy.
The main complaints fall into 2 categories, both involving deceptive and misleading business practices. Perhaps the most serious of those involves price manipulation, with the NDRC investigating claims that the 3 companies raised their prices a day before announcing their price cuts, with the result that so-called “discounted” prices were nearly the same as prices just a few days earlier. (Chinese article; English article)
A second major point of the investigation involves product availability. In this case, the NDRC is looking into allegations that the companies deliberately listed many of their most popular products as “out of stock” during the price wars, allowing them to boast of deep discounts without having to actually deliver any merchandise. The whole investigation raises 2 questions: First, what impact will the investigation have on these 3 companies; and second, what are the broader implications for e-commerce in general?
In answer to the first question, I regret to say the impact on individual companies will probably be minimal. Whereas other issues like food safety can have a huge impact on Chinese companies for years, price manipulation and false advertising have unfortunately become so common in China that many consumers simply accept that most companies will automatically engage in these practices. Accordingly, consumers are likely to shun all 3 of these companies for perhaps the next month or 2 to punish them for their behavior, and then they’ll quietly start to resume their previous shopping patterns.
In terms of punishment, the NDRC is unlikely to treat the companies too severely either, partly because Chinese law sharply limits the size of fines that can be levied in this kind of case.
From the broader perspective, this investigation will certainly shine a bright spotlight on the kinds of deceptive practices that are rampant in not only the e-commerce space, but also in the general retailing. Perhaps the negative publicity will encourage some of China’s more mature companies to change their ways and behave more honestly. But the vast majority of companies, both online and off-line, are more likely to simply continue in their deceptive ways until the government can create a more effective way to police the current unruly system.
Bottom line: A consumer fraud investigation into the recent electronics price wars will create short-term negative publicity but is unlikely to have a long term effect on the e-commerce sector.
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