Summary of the Key Points
This article focuses on platform subsidies, first emphasizing the importance of a scientific understanding of their role. It then analyzes the current situation of subsidy practices on foreign e-commerce platforms (such as those used by Temu and Amazon) and the issues they arise. The article discusses international regulatory approaches to controlling these subsidies, shifting from post-event penalties to pre-event restrictions. It outlines the four major harms that long-term, excessive subsidies can have on the economy. Finally, it proposes measures for regulating platform subsidies in China, including legislation, supervision, policy guidance, and increased responsibility by the platforms themselves. The ultimate goal is to encourage platforms to shift from a focus on competitive pricing to competing on product quality.
I. Foreign Platform Subsidies: Spending Money to Gain Market Share, but with Limited Sustainability
Many foreign e-commerce platforms rely on subsidies to attract users and dominate markets, yet this strategy often leads to various problems:
- Temu Leading the Price War: Leveraging its parent company's funding, Temu uses discounts for new users, referral rewards, and free shipping to quickly capture the European and American markets. This has forced Amazon to respond with its “Amazon Haul” low-price section, allowing refunds without returns for products under $3, and it has also adopted Chinese supply chain models to compete on price. TikTok Shop has temporarily waived merchant commissions, enabling sellers to offer deep discounts and compete with Amazon.
- Sellers in a Dilemma: For example, Amazon reduces shipping costs for items under $10, putting sellers of products priced between $10 and $12 in a difficult position: if they don’t lower prices (to $9.99), they lose out on shipping discounts; if they do, their profits are reduced. As a result, sellers end up competing by cutting prices, making it hard for them to invest in product improvement.
- The Indian Instant Delivery Market: Platforms like Amazon and Flipkart have used discounts and cashbacks to gain market share, forcing local players Blinkit and Zepto to follow suit. However, after prolonged subsidization, all parties suffered losses, leading them to reduce subsidies and seek other sources of profit, indicating that a subsidy-driven model is not sustainable.
II. International Regulation: Moving from Post-event Punishments to Proactive Measures
International regulators are no longer tolerating unchecked subsidy practices and are taking proactive actions:
- Closing Tax/Gtariff Loopholes: The EU discovered that Temu and SHEIN were exploiting tax exemptions for parcels under €150 to offer low prices. Starting in July 2026, a temporary tariff of €3 was imposed on such parcels, and the exemption was completely abolished in 2028, ensuring that low-priced products reflect their true costs.
- Severe Penalties for Violations: Regulators link subsidies to product safety and consumer rights. For instance, the EU fined Temu €200 million for selling unsafe, cheap products, while South Korea imposed a fine of 357 million won for creating an illusion of limited-time discounts. France is even more stringent, charging up to €20 per item for “ultra-fast fashion” (frequently updated, low-priced products), deterring platforms from engaging in unfair pricing practices.
III. The Hazards of Long-term Subsidies
While consumers may benefit in the short term, long-term subsidies are detrimental to the economy:
- Distorting Price Signals: Prices should be determined by costs and supply and demand, but subsidies distort this. Small and medium-sized businesses (SMBs) and physical stores cannot afford the losses and often withdraw from the market, leading to monopolies. The focus on low prices stifles innovation in quality and service.
- Reducing Industry Profits: Platforms, merchants, and supply chains all suffer financial losses, preventing investment in research and development, and trapping the industry in a cycle of low competitiveness.
- Wasting Resources: Capital is directed towards price wars rather than technological innovation and supply chain optimization, keeping the e-commerce sector at a lower level. A large amount of capital is wasted on subsidies, deviating from the market economy’s goal of efficient resource allocation.
- Overdrawing Consumption Potential: In industries like dining, merchants may cut wages or lay off employees, reducing consumer spending and hindering domestic demand growth.
IV. How China Can Regulate Subsidies
China needs a comprehensive approach to manage platform subsidies:
- Legislation to Set Clear Limits: Improve laws such as the Anti-Monopoly Law and establish guidelines for platform subsidies, defining predatory practices (e.g., continuous subsidies beyond a certain period or prices below average costs) as unfair competition.
- Coordinated Regulatory Efforts: Multiple agencies (market supervision, development and reform, internet information, taxation) should work together to oversee subsidies, distinguishing between reasonable (e.g., regular promotions) and unreasonable practices.
- Policy Guidance for Innovation: Use fiscal and tax incentives to encourage platforms to shift from price wars to investment in innovation.
- Platform Responsibility: Platforms should establish compliance systems and move away from focusing on prices to competing on quality and integrity. Industry associations should promote self-regulation against short-sighted subsidy practices.
V. E-commerce Cross-border: Complying to Avoid Penalties
Cross-border e-commerce platforms need to comply with international regulations to avoid penalties:
- Domestic Compliance: Platforms must accurately report prices and pay tariffs, avoiding order splitting and underreporting of product values.
- International Compliance: Ensure price transparency, maintain historical price records, and avoid misleading subsidies. Establish overseas compliance teams to handle anti-dumping and anti-subsidy investigations. They should also promote a fair competition image by adhering to high quality standards.
In summary, platform subsidies are not a free benefit; prolonged and unregulated use can harm the economy. Only through proper regulation can platforms transition from competitive pricing to quality-driven growth, protecting consumers and maintaining market fairness.