This article first appeared on GuruFocus.
China’s regulators are stepping into the food delivery ring with new draft rules aimed at cooling the subsidy battles that have dominated the market this year. The State Administration for Market Regulation outlined measures to cap restaurant fees and enforce transparency on discount campaigns, a move framed as promoting orderly competition and easing pressure on merchants. Shares of Meituan (MPNGF)kh jumped as much as 3% in Hong Kong on the news, while JD.com (NASDAQ:JD) climbed 2.5%, as investors weighed the possibility that the sector could be moving toward a more sustainable footing.
The backdrop is months of bruising competition that began when JD.com expanded into the space, prompting Meituan and Alibaba’s Ele.me to escalate discounts in defense of market share. Meituan had warned in August that such irrational tactics risked heavy losses, triggering a selloff in internet stocks at the time. The proposed regulations would ban platforms from forcing restaurants to fund promotions, restrict arbitrary fee increases, and strengthen oversight on unlicensed ghost kitchens. They also extend to labor conditions, requiring safeguards for riders such as rest prompts after four consecutive hours and caps on daily order volumes.
Bloomberg Intelligence analysts suggested the rules largely codify understandings the major platforms already reached with regulators over the summer. Yet they flagged that newer entrants like PDD (NASDAQ:PDD), Douyin, and Kuaishou (KUASF) may face tougher adjustments to their quick-commerce strategies under the tighter framework. While still open for public consultation, the proposals could shift the market dynamic away from relentless price wars and toward more measured competition, a scenario investors appear to be betting on.
