China’s economic landscape is being shaped by the growing influence of e-commerce platforms, with Pinduoduo at the forefront of this transformation, the New York Times reports.
Pinduoduo’s relentless push to lower prices has not only fueled its rise as one of the fastest-growing e-commerce apps in the country, but it has also contributed to a broader deflationary pressure on the Chinese economy.
Pinduoduo has built its success on offering steep discounts, becoming the second-largest online retailer in China. The platform, which caters to over 60% of the country’s consumers, encourages sellers to constantly reduce their prices. This dynamic has been crucial in popularizing “downgraded spending,” a trend where Chinese shoppers opt for more affordable options amidst economic uncertainty. However, for merchants like Lin Yunyun, who sells diapers on the platform, the pressure to continuously lower prices can be overwhelming. She notes that Pinduoduo regularly prompts sellers to cut prices further, leaving little room for profit.
This focus on price reduction reflects a larger trend in China’s economy. As the country grapples with a real estate crisis, sluggish consumer demand, and a weakened job market, deflation is taking hold. Consumers are cutting back on spending and saving more, leading to falling prices across sectors. Companies, uncertain about the future, are reluctant to invest or hire, further dampening economic growth. In response, Beijing has introduced a series of measures, including interest rate cuts, to revive the economy, though the results have been modest thus far.
E-commerce platforms like Pinduoduo have played a key role in exacerbating deflation. With a growing portion of Chinese spending happening online, the price cuts offered by Pinduoduo and its competitors have intensified the downward pressure on prices. According to HSBC, online shopping now accounts for more than one-third of all retail spending in China. Donald Low, a professor of public policy at the Hong Kong University of Science and Technology, describes Pinduoduo as both a cause and consequence of deflation, underscoring its influence on consumer behavior.
Pinduoduo, founded in 2015, has experienced rapid growth, recently expanding overseas with its Temu brand. In its most recent quarter, the company reported an 86% increase in revenue. However, it warned that future profits might be impacted due to plans for heavy investments to support higher-quality merchants. Despite its low-price strategy, Pinduoduo’s founder, Colin Huang, has emphasized that the company’s goal is not to sell cheap products, but to offer customers the perception of better value.
The success of Pinduoduo has not gone unnoticed by its competitors. E-commerce giants like Alibaba and JD.com have also entered the low-price competition, with Alibaba introducing a feature that rates sellers based on their prices compared to other platforms. Meanwhile, JD.com, known for its high-end electronics, has shifted towards offering more affordable options.
This race to the bottom has sparked concerns among Chinese regulators, who introduced new rules in May to prevent online platforms from imposing unreasonable restrictions on merchants’ prices. Still, merchants struggle to make profits under these conditions. For sellers like Lulu Qi, who started selling products on Pinduoduo in 2018, the platform’s price demands are often too low to sustain business, with additional policies like no-return refunds making it even harder to earn a profit.
Despite the challenges for merchants, Pinduoduo remains a popular choice for many Chinese consumers. Gao Ning, a shopper in Beijing, appreciates the platform’s low prices and convenience, regularly purchasing groceries and household items from the site. He, like many others, continues to flock to Pinduoduo for its reputation of delivering value for money.
