Hundreds of merchants staged a rally at PDD Holdings Inc’s offices in southern China this week, protesting what they called unfair penalties that Temu’s owner is increasingly levying.

The suppliers, mainly smaller outfits that sell Chinese goods to Western shoppers via the fast-growing Temu platform, brandished placards and yelled slogans outside a Guangzhou company outpost Monday, according to attendees and videos circulated on social media. Some managed to get into Temu offices, though they eventually dispersed without meeting senior executives, according to several witnesses who asked not to be identified for fear of retribution.

The protest was the culmination of growing frustration among merchants and third-party sellers, who feel PDD is increasingly squeezing them for revenue as it embarks on a costly global expansion. Their complaints centre on PDD’s practice of withholding payments to merchants who’re judged to have fallen short of customer expectations, the people said. That includes anything from missing delivery deadlines to mismatched product listings.

Those penalties or fines have risen sharply in recent months, often without clear explanation, they said. PDD or Temu typically either withhold payment for products already sold or levy a fine of several times the retail price, the people added.

The dispute coincides with an aggressive expansion that’s taken the Temu brand around the world. PDD and its Temu platform exploded on the scene in 2023 with an expensive Super-Bowl ad. It has since begun to challenge fellow Chinese online shopping giant Shein and even Amazon.com Inc in certain segments. It launched in Thailand just this month.

That breakneck global expansion at one point helped US-listed PDD - which stands for Pinduoduo - become China’s most valuable e-commerce company, outstripping longtime leaders Alibaba Group Holding Ltd and JD.com Inc.

This week’s protest cap at least two rallies since May, according to the people, some of which have been described by local media including Yicai. A Temu representative acknowledged that it’s locked in a dispute about “after-sales issues” with about a dozen sellers involving several million yuan. The spokesperson said several of those merchants recently gathered outside the site of a Temu logistics affiliate but did not provide further details on Monday’s action.

“These merchants have declined to resolve the disputes through the normal arbitration and legal channels stated in the seller agreements,” the company said in a statement. “The situation is stable and the company is actively working with the merchants to find a solution.”

Temu is driving abroad in part because domestic Chinese consumption is flagging, struggling to recover from years of Covid-19-era malaise. But many others including Shein, ByteDance Ltd’s TikTok Shop and Alibaba’s own Aliexpress have the same idea. That’s threatening to squeeze margins and drive up costs.

Beijing on various occasions has openly expressed support for what they call cross-border e-commerce, or the sale of Chinese goods abroad - the driving force behind Shein’s meteoric ascent in the US. But this year, reports began circulating about growing dissatisfaction among Temu’s merchants in China, who supply the bulk of the cheap, fast-moving goods that consumers abroad are hoovering up.

Some analysts say loss-making Temu won’t be able to sustain its mix of low prices and quick delivery for long - the key is whether it can get shoppers to return. 

It’s unclear whether PDD is making moves to assuage merchants. For Temu, the danger is that suppliers and sellers may migrate to other platforms, disrupting the flow of goods vital for supporting the fledgling platform’s growth.

PDD more than doubled revenue in the March quarter. It has expanded to more than 60 countries but that growing profile has raised the risk of regulatory scrutiny in key markets like the US, which barred ByteDance’s ownership of TikTok over data security concerns.

European consumer groups filed a complaint this year with the European Commission that accused Temu of failing to protect consumers and employing manipulative practices.

  - Bloomberg