Meituan shares drop as woes continue

The share price of Chinese food delivery company Meituan fell 5.25 percent on Tuesday to HK$249,($32.07), after the company was summoned by authorities for harming the rights of deliverymen and consumers.

The company's stock price has fallen nearly 45 percent from a peak of HK$460 per share in February this year, which means that the $206 billion company has lost nearly half of its market value.

The plunge came as Meituan faced fresh scrutiny after a Meituan employee said during a conversation with authorities in Beijing that nearly 10 million registered deliverymen on the company's take-away platform are not regulars, but outsourced personnel.

Li Junhui, a senior research fellow at the China University of Political Science and Law, said that to "avoid operating risks and maximize benefits", major food delivery platforms, including Meituan and Ele.me, choose to have no direct employment relationship, or labor contract relationship, with deliverymen.

"But based on the current rules and regulations, employment in online ride-hailing and food delivery platforms is regarded as 'flexible employment', thereby, the legal relationship between related platforms and employees needs to be further set up by authorities," said Li.

On Monday, consumer protection officials from Shanghai hauled in representatives from Meituan and leading e-commerce site Pinduoduo for misleading customers and for other practices.

"The country's internet economy has developed rapidly. Such moves send a clear signal that the overall internet economy has come to a different stage where the business models of different internet companies will be pushed for further improvement and upgrade," said Jiang Han, a senior researcher at Pangoal, a market consultancy.

Last month, China's State Administration for Market Regulation announced an investigation into Meituan after antitrust authorities imposed a record $2.75 billion fine last month on e-commerce giant Alibaba Group Holding Ltd.

The administration said that it is looking into whether Meituan is forcing vendors to use their platform exclusively, a practice known as picking one from two.

Nomura analysts Shi Jialong and Thomas Shen said in a report: "If the fine is based on 4 percent of its prior-year sales, as it was in Alibaba's case, Meituan will likely face a fine of 4.6 billion yuan ($711 million), representing around 4 percent of its net cash balance of $18 billion.

Frank Fine, head of the international antitrust practice at Beijing-based DeHeng Law Offices, said in an interview that this forced "growing up" would help Chinese firms boost their competitiveness globally.

"If they're able to keep their profits going, grow their markets and improve their services in such a way as to offset the antitrust pressure that they're facing, they'll have won," Fine said. "The likelihood of them succeeding globally becomes much greater."