The Chinese company that wants you to buy like a billionaire is juggling to avoid the US ban

Four words (shop like a billionaire, shop like a billionaire) and one catchy song were enough to send millions of Americans rushing to download Temu, the new internet shopping phenomenon, during the Super Bowl final in February. Its infinite catalog at ridiculous prices has conquered the North American market in less than a year, where it has more than 30 million users, and, since April, it has occupied the podium of the most popular applications in the six European countries in which it operates ( including Spain), according to data from the digital intelligence firm Sensor Tower. Behind this new revolution in consumerism is the Chinese firm PDD Holdings, also owner of the electronic commerce platform Pinduoduo, which in 2020 managed to surpass the titan Alibaba in the number of registered customers on its homeland, a milestone that, although temporary, consolidated its indisputable position as one of the most important players in the industry in the Asian giant.

PDD Holdings was born in 2015 as Pinduoduo, a digital sales platform aimed at connecting buyers with manufacturers and suppliers (mainly farmers) without the need for intermediaries. Unlike the leaders in the sector, Pinduoduo opted to expand in small cities and rural areas of China, a market until then neglected because it did not generate so many benefits, but made up of millions of potential users. His rise was meteoric. In little more than five years, Pinduoduo has become the second largest e-commerce company in the country, second only to Alibaba, and its market capitalization exceeds 96,000 million dollars on the Nasdaq, where it has been listed since 2018. first quarter of 2023, its revenue soared 58.17%, exceeding 5.4 billion dollars.

The company, immersed since last September in expanding to the international market with Temu, has recently decided to transfer the “management of its main executive offices” from Shanghai to Dublin, an action that many analysts have interpreted as a step to avoid geopolitical risks in a moment in which the mistrust between Beijing and Washington is through the roof.

Google’s decision

In March, the White House forced federal government employees to remove the short video app TikTok from their devices, fearing that China could use it to access user data and further its own interests. That same month, Google suspended Pinduoduo from the Play Store after finding that some versions of the app (although not those available on its store) contained malware. In April, the US-China Economic and Security Review Commission published a report accusing Temu, Shein and other Chinese platforms of possible data risks and intellectual property infringements. Against this backdrop, Temu, which is based in Boston (Massachusetts, USA), has removed mentions of its parent company PDD Holdings from its website, as Financial Times columnist Ivy Yang detailed on Twitter.

“Establishing a new Irish company, with a very clear corporate structure, and independent of Pinduoduo, could pave the way for Temu to go public alone,” says Eugene Weng, a lawyer at Wintell & Co who specializes in advising Chinese companies that are listed abroad. “[Irlanda] It is a logical decision. Corporate tax is low [12,5%] and the country belongs to the EU, which would facilitate the coordination of tax issues”, he points out. Large American technology companies such as Apple, Twitter, Meta or Alphabet have moved their European headquarters to Dublin in recent years.

Although Pinduoduo denied the accusations of espionage launched by Google, in an extensive report on the American television network CNN, several cybersecurity researchers ensure that the application has the ability to monitor the activity of other programs, read messages, change settings and, even prevent it from being uninstalled. A Pinduoduo worker confirmed to CNN that, in 2020, a team of engineers was created to search for vulnerabilities in the Android system and develop ways to exploit them to generate profit. Thanks to the collection of massive data, the machine learning model of the app was improved to offer more personalized notifications and ads. It was precisely in the fourth quarter of 2020 that Pinduoduo temporarily surpassed Alibaba in the number of active users. As of 2022, Pinduoduo had nearly 900 million annual customers in China, while Alibaba exceeded 1 billion and JD.com 600 million, according to the Chinese economic digital Ishijie.

The popularity of Pinduoduo increased in the Asian giant after the outbreak of the pandemic, when consumers across the country were looking for alternatives to receive fresh food and basic necessities, while acquiring products that traditionally generated more sales through the internet (such as electronics or textiles) faded into the background. Pinduoduo generated a strong sense of community thanks to its social commerce model. From the app, users are incentivized to recruit others to buy products in bulk for deep discounts from sellers, who receive requests as bulk orders.

Applications under magnifying glass

The Pinduoduo case draws attention for having dodged the Chinese government’s regulatory campaign against big technology. In 2020, Beijing launched a crusade against apps that illegally collect and use personal data (the most high-profile case being the ride-sharing company Didi Chuxing) and, in 2021, enacted its first Personal Data Protection Law, stipulating that no entity should illegally collect, process or transmit personal information and prohibits actions that endanger cybersecurity. However, Pinduoduo has never appeared on the lists regularly published by the Ministry of Industry and Information Technology to denounce applications that violate users’ privacy or on the list of applications that are removed from download stores for not complying with the regulations.

For the moment, the suspicions around Pinduoduo have not been an obstacle for Temu, which in nine months of existence has more than 50 million downloads; by comparison, it took Shein three years to break that mark. Despite the positive data, lawyer Eugene Weng warns: “Frustrating times are ahead for Chinese tech companies, especially when seeking funding abroad.” Weng believes that while PDD Holdings’ expansion abroad is a sensible move, as it “doesn’t have much room for growth within China”, “the next few years will be difficult. The US is using the fear of national security as a political weapon and I don’t think that strategy will change in the short term”, he concludes.

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