Chinese e-commerce giant, Pinduoduo's parent company, yearns significant profit decline - Trump's tariffs ravaging China severely
PDD Holdings, the parent company of e-commerce platform Temu, reveals a 38% profit drop in the recent quarter compared to the previous year, attributable to increased competition in the Chinese e-commerce sector and significant external political pressures, notably U.S. tariffs.
PDD Holdings CEO Lei Chen expressed these concerns during a conference call, stating that the reduction in profits is largely due to intensified competition and alterations in the external environment, such as tariffs, which have put strain on the platform's merchants. This pressure stems from the lack of flexibility for merchants to adapt rapidly to tariffs.
In addition, the company's global ambitions pose additional challenges, as third-party marketplaces like PDD Holdings face difficulties in passing on policy incentives to consumers, thus placing their merchants at a disadvantage compared to competitors with first-party business models.
On the financial front, PDD Holdings reported a 10% increase in revenue, totaling $13.18 billion (€11.6 billion), but the financial strain from tariffs and competition has resulted in reduced operating profit. The ongoing support for merchants through fee reductions has also had an impact on profitability.
The third quarter of 2022 proved particularly challenging for Temu, with direct impact from Trump's tariffs. On May 2, the de-minimis loophole was closed, causing tariffs and import duties for the platform. Trump has been imposing tariffs on China since February, starting at 10% and peaking at 145%. Though temporarily reduced to 30%, this ongoing political pressure contributes to the difficulties faced by PDD Holdings and Temu.
Temu responded by raising prices on April 25, citing changes in global trade rules and tariffs. Despite these challenges, Chen remains optimistic about the company's future, stating, "Regardless of how politics change, we will continue to expand our activities in the markets we serve to help more local merchants grow on our platform and fulfill more orders from local warehouses."
PDD Holdings declined to comment on the situation.
What is the impact of political pressures, specifically U.S. tariffs, on the finance and business sector in the Chinese e-commerce industry, as demonstrated by the case of PDD Holdings and its e-commerce platform Temu? The intensified competition and external pressures, such as tariffs, have led to a 38% profit drop for PDD Holdings and caused a financial strain, resulting in reduced operating profit despite a 10% increase in revenue. Furthermore, policies and incentives are harder to pass on to consumers for third-party marketplaces like Temu, putting them at a disadvantage compared to competitors with first-party business models.
