China’s market regulator has released draft guidelines to regulate fees charged by online platforms to third-party merchants. This move impacts major companies such as JD.com, Meituan, and PDD Holdings Inc.

The State Administration for Market Regulation (SAMR) said that platforms should charge reasonable fees, taking into account the operational conditions of merchants.

The draft encourages flexible pricing strategies for commissions, memberships, and service fees to help reduce financial burdens on businesses. The deadline for public feedback on the draft is June 3.

The guidelines follow complaints from merchants regarding opaque and complex fee structures on these platforms. SAMR noted that the initiative aims to enhance compliance frameworks and promote healthy industry growth.

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🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ Fee regulation reflects China’s evolving approach to platform governance

China’s new draft guidelines on platform fees continue a regulatory pattern that began intensifying in recent years, signaling a shift away from the government’s previously lighter touch on tech platforms.

The State Administration for Market Regulation (SAMR) has been systematically addressing market power imbalances, with the current fee regulation targeting a critical revenue stream for major platforms like JD.com and Meituan 1.

This approach aligns with China’s broader internet regulatory framework that integrates technical, legal, and administrative measures to shape digital market behavior, leveraging its comprehensive oversight capabilities 2.

By requiring platforms to consider merchants’ “operational status” when setting fees, regulators are intervening directly in the business model of platforms rather than just addressing specific violations, showing a more structural approach to regulation.

The June 3 feedback deadline reflects China’s increasingly consultative approach to tech regulation, allowing stakeholders to provide input while still maintaining the government’s authority to set market rules 1.

2️⃣ Platform fee caps show mixed results globally for merchant protection

Research on similar fee regulations internationally suggests complex outcomes that don’t always benefit the small businesses they aim to protect.

Studies of delivery platform fee caps found that after implementation, independent restaurants experienced a 2.5% decrease in takeout orders while chain restaurants saw a 4.5% increase—the opposite of the intended effect 3.

Platforms often respond to fee restrictions by adjusting other business levers, including shifting consumer demand patterns through promotional changes or introducing new fees in unregulated categories 3.

The financial impact of platform fees on small businesses is substantial, with many small merchants reporting that transaction fees significantly erode their profit margins in an environment where 70% of small businesses now accept electronic payments 4.

This pattern suggests Chinese regulators may need to carefully monitor how platforms respond to new fee guidelines to ensure the benefits reach the intended beneficiaries, particularly smaller merchants facing economic pressure.

3️⃣ Merchant fee concerns intensify amid broader economic pressures

The timing of China’s platform fee regulation coincides with multiple economic challenges facing small merchants, creating a perfect storm of pressures that amplify the significance of platform costs.

Chinese merchants are simultaneously dealing with a sluggish domestic economy, trade tensions with the US, and the recent elimination of the US “De Minimis” shipping exemption that had previously allowed tariff-free small package exports to American consumers.

Platform fees represent a particularly critical cost component for small businesses, with the global e-payment market reaching $6.7 trillion in 2023 and a growing percentage of all consumer transactions happening through digital platforms 4.

Merchant complaints about “complicated and non-transparent” charges cited by regulators mirror similar concerns globally, where 51% of small businesses report that regulatory compliance and operational costs hinder their growth 5.

The guidelines’ emphasis on flexible pricing and support for smaller businesses directly addresses this economic vulnerability, recognizing that platform fees can determine survival for merchants operating on thin margins in challenging market conditions.

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