HONG KONG - JD.com will offer discounts across its online shopping platforms from Monday in a 10 billion yuan (S$2 billion) campaign to capture new users ahead of an anticipated Chinese economic recovery in 2023.
The campaign has spurred concerns that larger rival Alibaba Group Holding or upstart PDD Holdings may retaliate with cuts of their own, igniting a margin-eroding price war. JD announced the launch of the subsidy plan in a statement on its official WeChat account on Saturday.
JD shares tumbled after news of the impending rivalry surfaced in the domestic media last week. Alibaba executives have since dismissed speculation that it would directly engage its long-time rival, warning that a return to the price wars of years past was in nobody’s best interest.
In 2020, Beijing launched a crackdown campaign to rein in what it called the “reckless expansion of capital”, affecting sectors ranging from e-commerce to online education to the sharing economy. The government has begun rolling back restrictions since late 2022, intent on reviving a Covid-19-struck economy.
Moves by Beijing to wind back its bruising crackdown on the tech sector were well received by investors in the back half of 2022, but that optimism is now starting to ebb. Instead, markets are fretting about costly price wars and fresh rounds of cash burn as firms that are struggling to expand internationally intensify rivalries at home.
“With overseas opportunities for Chinese Internet companies drying up, it will be harder for them to do business and make acquisitions overseas going forward,” said Mr Robert Lea, an analyst at Bloomberg Intelligence.
“Hence, they will be more focused on the domestic market for growth, resulting in rising competition, including on pricing.”
It is not just JD’s planned subsidy campaign that is ruffling feathers.
Moves by Meituan to hire 10,000 people on the mainland were seen as an effort to beat back heightened competition from new entrants such as ByteDance’s Douyin in the US$145 billion (S$195 billion) Chinese food delivery arena. Away from online commerce, NetEase and MiHoYo are intensifying their battle against gaming leader Tencent Holdings.
To be sure, analysts are still upbeat, with hardly a “sell” recommendation to be seen for JD or its main peers.
According to Ms Alicia Yap of Citigroup, JD has a track record of spending prudently and can be expected to offer sensible promotions. With its profit margins already among the lowest in the Nasdaq Golden Dragon China Index and expected to slip further, the firm has limited room for manoeuvre.
For some investors, concerns run deeper than the impact of heightened rivalries on companies’ bottom lines and financials.
Wenzhou Jia Yue Investment Management fund manager Wu Yuefeng said: “We still lack clarity on what kind of behaviour is considered acceptable and what is not, for tech giants, and cut-throat competition may drive these firms to do extreme things.
“No one can tell what these firms will do for market share and at what point the authorities will say ‘enough’. That is a source of anxiety.” BLOOMBERG
