Consumer Staples Author: Sasha Chen Feb 23, 2022 11:54 PM (GMT+8)

On February 18, 2022, China’s National Development and Reform Commission (NDRC), issued a set of rules to help struggling restaurants to recover from the pandemic. The online food delivery platforms have been hammered and over-reacted in response to lower service fees of restaurants.

Meituan

China's state planner is known to govern the fate of many existing industries. These rules are set to promote faster recovery from the COVID-19 pandemic in nationwide services and provide tax incentives to the catering, retail, tourism, and aviation industries.

China's dominant food-delivery platform Meituan faces a serious cost in light of these new rules. According to a Financial Times report, the company controls 70% of the country's market making it a dominant player in the space. 

The Wall Street Journal reported that Meituan’s shares dropped 15% last Friday afternoon trading in Hong Kong to their lowest close since July 2020. The company also has wiped as much as USD 26 billion off its market capitalization.

China's market sheriff, the State Administration for Market Regulation (SAMR) stated that since 2018 Meituan had forced merchants into exclusivity agreements by charging higher commissions to those who did not comply with this rule and slowing down their approval rates to list on its food delivery app.

But referring to the Economic Daily's commentary, Meituan's shares jumped more than 7% on Wednesday morning. The policy guidance attempted to urge companies to shoulder more responsibility and industries face a regulatory crackdown.

The state planner also listed a suggestion for an online food delivery platform to offer preferences to areas hit by recent COVID-19 outbreaks. In the specific rule, it said that “give preferential service fees to food companies in county-level administrative regions that are high-risks areas in terms of the pandemic.”