Chinese regulators have directed PDD Holdings Inc. to modify its controversial refund policy that allows shoppers to keep purchased items while receiving full refunds, according to people familiar with the matter who spoke to Bloomberg.
The State Administration of Market Regulation and Ministry of Commerce conveyed their concerns during a recent meeting with PDD executives, stating that the current policy places an excessive burden on small merchants, the people said, requesting anonymity due to the private nature of the discussions.
The policy in question, known as "refunds only," has been a cornerstone of PDD's Pinduoduo online marketplace, which connects hundreds of thousands of small shops with Chinese consumers. Under this practice, PDD withholds payments to merchants if customers report dissatisfaction with their purchases, ranging from late deliveries to product discrepancies.
The regulatory intervention comes as PDD's shares fell about 2.5% in premarket trading, while competitors Alibaba Group Holding Ltd dropped 1.5% and JD.com Inc declined more than 3%.
The scrutiny intensified following a summer protest where hundreds of merchants gathered at PDD's offices in southern China, expressing frustration over what they described as the company's preferential treatment of customer complaints at their expense. Merchants have accused PDD of using their revenue to fund its global expansion efforts.
The practice of allowing refunds without returns has become widespread in Chinese e-commerce since PDD pioneered it. While several competitors adopted similar policies, some, including Kuaishou Technology, have reversed course due to merchant resistance.
This development coincides with PDD's aggressive international expansion through its Temu platform, which gained prominence in 2023 with Super Bowl advertisements. The company has emerged as a competitor to Shein and Amazon.com Inc. in certain market segments, recently launching operations in Thailand.
The regulatory intervention follows reports of growing dissatisfaction among Temu's Chinese merchants, who provide most of the low-cost products sold internationally. Several countries, including Indonesia and Vietnam, have recently suspended Temu operations pending investigations into its practices.
While competitors JD and Alibaba also permit refunds without returns, their policies are generally more restrictive, often providing partial rather than full refunds, according to merchants and customers.
