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

Four words — shop like a billionaire — and a catchy tune were enough for millions of Americans to download Temu during the Super Bowl final in February. In less than a year, the e-commerce marketplace’s infinite catalog of products at ridiculously low prices has conquered the North American market, 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, 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 e-commerce platform Pinduoduo, which in 2020 managed to surpass the titan Alibaba in registered customers in China, a milestone that, although temporary, consolidated its indisputable position as one of the most important players in the industry in that country.

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 industry leaders, Pinduoduo opted to expand in small cities and rural areas of China, a market that until then had been neglected because it did not generate as many profits, but made up of millions of potential users. Its 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 billion on the Nasdaq, where it has been listed since 2018. In the first quarter of 2023, its revenue grew 58.17%, exceeding $5.4 billion.

The company, immersed since last September in the expansion of its international market with Temu, recently decided to transfer the “management of its main executive offices” from Shanghai to Dublin, in a move that many analysts have interpreted as a step to avoid geopolitical risks at a time when mistrust between Beijing and Washington is high.

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 U.S.-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, has removed mentions of its parent PDD Holdings from its website, as Financial Times columnist Ivy Yang noted 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 specialized in advising Chinese companies listed abroad. “[Ireland] It’s a logical decision. The corporate tax is low [12.5%] and the country belongs to the EU, which would facilitate the coordination of tax matters,” he points out. Large American technology companies such as Apple, Twitter, Meta or Alphabet have all 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 stated that the application has the ability to monitor the activity of other apps, 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 operating system and develop ways to exploit them to generate profit. Thanks to the collection of massive amounts of data, the app’s machine learning model 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 had 600 million, according to the Chinese economic digital publication Ishijie.

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

Applications under scrutiny

The Pinduoduo case has drawn 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 prohibiting actions that endanger cybersecurity. However, Pinduoduo has never appeared on the lists of bad actors regularly published by the Ministry of Industry and Information Technology.

For the moment, the suspicions around Pinduoduo have not been an obstacle for Temu, which in nine months of existence has accumulated 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 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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