Chinese e-commerce giant JD.com (NASDAQ: JD) on Friday announced that it will buy preferred shares of Xingsheng Preference Electronic Business Limited, also known as Xingsheng Youxuan, for approximately USD 700 million. JD expects to create synergies between the companies “in lower-tier cities through close collaboration in technology, supply chain and logistics,” it said in a filing with the US Securities and Exchange Commission.
Xingsheng, which was founded in 2014 and is headquartered in Changsha, in the Hunan province, allows families to group-buy fresh food and daily necessities online in 14 provinces in China and pick it up at a physical location on the same day or one day later. In 2019, general merchandise volumes on its platform reached more than RMB 10 billion (USD 1.5 billion), according to the startup’s website, which indicates that the business has potential to scale up.
The deal, which is subject to customary closing conditions, adds to the large capital inflows into the sector this year. Chinese ride-hailing firm Didi launched Chengxin Youxuan, while Pinduoduo unveiled Duoduo Maicai and Meituan its Meituan Youxuan service. ByteDance and Kuaishou are also reportedly planning to enter the fray.
Beijing, meanwhile, is casting an eye on the industry. “Don’t just think about the consumer traffic flow toward a few bundles of cabbage and a few kilos of fruit,” People’s Daily, the mouthpiece of the party, wrote in an editorial on Friday, mentioning that breakthroughs in cut-throat technologies such as chips should be more of a concern. “Internet giants who hold vast amounts of data and advanced algorithms should have more responsibilities, more pursuits, and more actions in scientific and technological innovation”, it said.
On Friday, a meeting of the Political Bureau of the Communist Party of China Central Committee, which was presided by Xi Jinping, discussed economic priorities for the coming year, mentioning that it plans to “prevent disordered capital investment” and “curb monopolies”, as necessary for a stronger domestic market.
First corruption case
The group-buying sector is also facing headwinds from suppliers. The company Cangzhou Huahai Shunda Grain, Edible Oil & Seasonings warned that platforms including Duoduo Maicai and Meituan Youxuan that they could be deprived of rights to distribute their products if they keep selling at extremely low prices, thereby threatening to hurt the regular market. Meituan Youxuan is currently offering 10 eggs for about RMB 4 (USD 0.60) in Zhengzhou city, the capital of Henan Province, while similar products were sold at nearby supermarkets for about RMB 8.
Meanwhile, Meituan revealed that its executive Ma Jun, who was in charge of the Youxuan business in the Shaanxi province and Ningxia Hui autonomous region, has been arrested on allegations of taking bribes, marking the first internal corruption case in the sector.
