Mango

Pinduoduo passes its profits to farmers — and scores points with the Chinese government

Wednesday, September 1, 2021 by Robinhood Snacks | Disclosures

Potato box delivery... coming in hot. Pinduoduo has surpassed Alibaba — aka: "the Amazon of China" — as China’s most popular ecomm platform by user count. Pindoudou's app connects farmers/distributors with Chinese consumers. The $120B "social ecommerce" platform doesn't really have a US equivalent: shoppers can play games to win prizes, like discounts or boxes of mangoes. Pinduoduo’s sales still trail Alibaba’s, but it’s growing faster — and its stock is up 10% over the past year, while Alibaba’s down 40%.

Mangoes > Louis Vuitton… The ruling Chinese Communist Party (CCP) has increasingly emphasized its goal of achieving “common prosperity” — and alleviating rural poverty. That's partly why it's cracked down on Big Tech this year, from fintech giant Ant Group to video game giant Tencent. Oh, and China fined Alibaba a record $2.8B for "anticompetitive practices." Think: preventing luxury merchants like Louis Vuitton from selling on other platforms.

  • Pinduoduo is on China's "better" side: Its agriculture-friendly biz model is better aligned with China's rural prosperity goals. Its quiet social presence and focus on low-income customers has helped it avoid Alibaba-level fines.
  • Pinduoduo wants to keep it that way: After turning its first profit last quarter, Pinduoduo announced plans last week to donate $1.5B in profits to Chinese farmers.
THE TAKEAWAY

Beijing rewards compliance... China’s crackdown on Alibaba gave Pinduoduo room to grow. To keep growing, Pinduoduo wants to stay in China’s good graces by giving its profits away to farmers and supporting the government’s plans for agricultural development. Companies in other industries are making similar moves to avoid State restrictions. This month, Tencent, which got rocked by China’s gaming restrictions, pledged $7.7B to “common prosperity” initiatives.