JD.com plans US$1.5 billion offensive against Pinduoduo in budget segment as e-commerce competition heats up in China

Chinese e-commerce giant JD.com is hammering out details of a multibillion-yuan subsidy campaign to be launched next month, sources said
The move marks JD’s first major business initiative by founder Richard Liu since taking back the reins of his empire after settling a rape case in the US

E-commerce

Ben Jiangin Beijing

Published: 9:00pm, 20 Feb 2023

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Chinese e-commerce giant JD.com is launching a 10 billion yuan (US$1.5 billion) subsidy campaign in early March to compete against rival PDD Holdings, whose budget shopping app Pinduoduo has been on a meteoric rise, according to two people with knowledge of the matter, as China’s e-commerce market slows down.

The subsidies will cover both JD.com’s self-operated online shops, and storefronts set up by third parties on its platform. The company is still in the process of hammering out the details and readying its system before the campaign begins next month, one of the sources said.

JD.com did not immediately respond to a request for comment on Monday.

JD.com founder Richard Liu Qiangdong emerges from a business meeting in Beijing in January 2018. . Photo: AFP

The planned move comes after company founder Richard Liu Qiangdong in December criticised his lieutenants for diverging from a low-price strategy and other strategic missteps, the Post reported earlier.

“Losing the low-price reputation will roil the foundation of our existence,” Liu warned in an internal email at the time, adding that “low prices were the most important weapons responsible for our past success, and they will be essential in the future.”

JD.com’s offensive in the budget segment, a stronghold of Pinduoduo, marks its first major business initiative after billionaire founder Liu settled a civil rape case in the US in October and returned to Beijing to reassert control at the e-commerce empire he founded more than a decade ago.

Pinduoduo has solidified its position in China’s smaller towns, where consumers tend to be more budget-conscious. Photo: Xinhua

Shanghai-based Pinduoduo first rolled out its multibillion-yuan subsidy programme in mid-2019, a move that has helped the latecomer solidify its position in China’s small towns, where consumers tend to be more price-sensitive.

While JD.com enjoys a firm footing in higher-tier cities, its network is not as extensive as Pinduoduo’s in lower-income regions, according to Zhuang Shuai, founder and chief analyst at e-commerce consultancy Bailian.

The new subsidies could help JD.com shake up the market.

“JD.com’s future growth will be driven by its performance in lower-tier markets,” said Mo Daiqing, research director at internet consultancy 100ec.cn, adding that “the subsidies, at the end of the day, are intended at grabbing more users [in those markets].”

Employees check packages a logistics centre of JD.com in Beijing on January 10. Photo: Reuters

As JD.com and Pinduoduo compete with cut-to-the-bone prices, however, it could hurt both companies, Bailian’s Zhuang said.

While Chinese consumers are often attracted to cheap merchandise, budget pricing is a double-edged sword that could lead to costly battles and red balance sheets, especially when growth in China’s e-commerce sector has stagnated, he said. “We’ve seen Pinduoduo make significant losses in its early days.”

At least 89 e-commerce platforms closed in China last year, as three years of strict pandemic controls and supply chain disruptions took a toll on the industry.