In a move seen as an intervention, the Chinese government has ended the enforcement of customer refunds by Chinese e-commerce operators. Moving forward, only merchants will have the authority to initiate refunds, thereby giving them more control over transactions with buyers.
Previously, e-commerce platforms could initiate refunds without approval from merchants, allowing customers to receive reimbursements without returning purchased goods. The move, which reportedly started in 2021 with PDD Holdings taking the lead, was designed to boost customer satisfaction and make dispute resolutions seamless.
However, the practice led to substantial financial losses for merchants, who often had to forfeit both the product and the revenue.
Merchants protest Chinese e-commerce return policy
Last July, a PDD Holdings office received hundreds of people protesting against their refund policy, an act which led the market regulator and the commerce ministry to order the company to revise its policy.
Government authorities met with the stakeholders, one of which is PDD, the parent company of global e-commerce platform, Temu, and set July as the date when this practice must come to an end.
The bodies regulating the market, the National Development and Reform Commission and the market regulator, have been vocal in their criticism of the refund policies, tagging it as an “involution style” competition. At the annual parliamentary session in March this year, the bodies incorporated what it dubbed as “comprehensive rectification of ‘involution-style’ competition” into the Government Work Report, highlighting measures to correct course.
While PDD and JD.com have declined to comment on the directive, the move underscores the government’s commitment to addressing merchant concerns.
A slow economy tightens the noose on merchants
This development occurs against the backdrop of a broader economic slowdown in China, with various sectors such as e-commerce and housing impacted. The e-commerce scene was characterized by increased growth and aggressive sales campaigns, and a customer base happy to spend. However, the market has recently been forced to grapple with increased competition and reduced consumer spending.
Given the pace of sales in the past, vendors could handle the “refund and no return policy.” Now, many of them are facing a combination of challenges such as thin profit margins, high return rates, and the financial strain of participating in price wars and influencer-led sales. These factors have contributed to a more precarious operating environment for merchants.
US tariffs add to merchant struggles
According to those close to the matter, a major reason the government is siding with the merchants is due to the current economic slowdown, which may not be unrelated to President Trump’s tariffs, and the need to alleviate the challenges merchants continue to face.
Trump raised tariffs on Chinese imports as high as 145%. This move, coupled with the impending termination of the “de minimis” exemption, which allows goods under $800 to enter the US duty-free, has significantly impacted Chinese e-commerce platforms like Temu and Shein, with extensive repercussions on merchants who have no say on the no-return policy on those platforms.
The termination of the refund-without-return policy is expected to provide relief to merchants by reducing unnecessary losses and promoting a more balanced e-commerce ecosystem.
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