China's E-commerce Giants Face Losses in Price War

Post by : Monika

Photo: Reuters

China’s online shopping industry is growing rapidly. Over the last few years, many Chinese consumers have shifted to buying products online instead of going to stores. Platforms like Alibaba, JD.com, and Meituan are competing heavily to get more customers. One area of intense competition is “instant retail”, where items such as groceries, snacks, and everyday essentials are delivered to customers within an hour.

To attract more shoppers, these companies are offering huge discounts, free deliveries, and other promotions. While this strategy helps bring more customers, it also comes with a downside. Companies are spending large amounts of money to maintain these discounts,

which is causing significant financial losses. Analysts warn that the current pricing war may be unsustainable, and companies could face difficulties if the competition continues at this pace.

 Financial Pressure on E-commerce Companies

The latest reports show that China’s e-commerce companies collectively spent over $4 billion on subsidies and discounts in just the second quarter of 2025. These subsidies are designed to attract more customers to their platforms and to encourage people to buy more frequently. However, the heavy spending is putting enormous pressure on their profits.

Some analysts estimate that companies may need to spend as much as 160 billion yuan ($22.37 billion) in the next year or year and a half to maintain their competitive positions. This investment includes both discounts for customers and improvements in delivery infrastructure, such as expanding warehouses, hiring more delivery staff, and improving technology.

• Meituan, known for food delivery, is facing significant financial strain because of its aggressive subsidy program.
• JD.com, which operates a large network of warehouses and delivery services, has seen much of its profit from the second quarter reduced due to high spending.
• Alibaba, the largest e-commerce company in China, also feels the pressure, even though it has a more diversified business model with different revenue streams.

The financial losses are a serious concern because these companies are now investing more than ever to maintain their market share. This spending may affect their ability to invest in other areas, such as technology, new products, and global expansion.

 Understanding the Instant Retail Market

Instant retail is one of the fastest-growing sectors in China’s e-commerce industry. Customers can order items and receive them in as little as one hour. This service is very convenient, especially for urban residents who may not have time to go shopping in stores.

The rapid delivery service relies on a network of warehouses, local stores, and delivery personnel. Companies have invested heavily in building this network. They also use advanced technology systems to manage orders efficiently and track delivery routes.

The one-hour delivery promise is a key selling point. Companies are trying to attract customers by offering lower prices than competitors, free delivery, and even vouchers for future purchases. While this strategy increases the number of orders, it also means that companies are making less profit on each sale or even losing money on some orders.

 Consumer Behavior

The price war is changing how consumers behave. Many shoppers now expect frequent discounts and may wait for promotions instead of buying at regular prices. Some consumers are also shopping on multiple platforms to take advantage of the best deals.

This behavior creates a cycle where companies feel pressured to continue offering discounts to keep customers from leaving. Over time, this can make it difficult for companies to make enough profit to cover their costs.

Some experts warn that consumer expectations may become difficult to manage. If customers get used to constant discounts, it could reduce their willingness to pay full prices, making it harder for companies to achieve sustainable profits in the future.

 Regulatory Concerns

China’s regulators are paying attention to the aggressive competition in the e-commerce market. They are concerned that extreme discounting could have negative effects on the economy.

Some of the regulatory concerns include:

• Deflationary Pressures: Constant price reductions can lower the overall price level in the economy. This could hurt other businesses and slow down economic growth.
• Unsustainable Practices: Companies that spend too much on discounts may struggle to survive in the long term, leading to business failures.
• Market Stability: Intense competition can create uncertainty and instability in the market.

In response, regulators have encouraged companies to adopt rational competition practices, which means competing without causing unnecessary financial losses. Some e-commerce companies have stated that they will moderate their discounting strategies. However, it remains unclear how strictly these guidelines will be enforced or how much impact they will have on the market.

 Long-Term Challenges for Companies

• Even though companies continue to invest heavily, the path to profitability is not easy. To succeed in the long term, they may need to make several strategic changes:
• Operational Efficiency: Companies must find ways to reduce costs in warehouses, delivery, and technology operations.
• Customer Loyalty: Building strong relationships with customers can help companies maintain revenue without relying on constant discounts.
• Revenue Diversification: Exploring other sources of income, such as advertising or subscription services, can reduce dependence on sales discounts.
• Technology Investment: Using technology to optimize delivery routes, predict demand, and manage inventory can help lower costs.
• Without these adjustments, companies may continue to face losses despite their efforts to dominate the market.

 Global Perspective

China’s e-commerce price war is not only a local issue; it has global implications. Many foreign investors have stakes in Chinese e-commerce companies, and financial losses can affect their confidence. Additionally, the aggressive competition may influence e-commerce strategies in other countries, especially where instant delivery services are becoming popular.

The price war also highlights the challenges of rapid growth in digital markets. Companies that expand too quickly without ensuring sustainable profits may encounter problems. Observers note that learning how to balance growth and profitability is essential for long-term success.

 Examples of Company Actions

• Some specific examples of what companies are doing include:
• Meituan: Increasing the number of delivery staff to meet one-hour delivery promises, even if it means spending more on wages and logistics.
• JD.com: Expanding its network of local warehouses to reduce delivery times and ensure orders reach customers quickly.
• Alibaba: Offering discounts, vouchers, and special promotions while investing in AI technology to predict customer demand and improve delivery efficiency.
• These actions show that companies are willing to take short-term losses to gain long-term market share and customer loyalty.

 The Role of Technology

Technology plays a key role in instant retail. Companies use advanced software to manage inventory, optimize delivery routes, and predict customer demand. This technology allows them to provide fast deliveries while keeping costs as low as possible.

However, even with technology, the cost of providing one-hour deliveries is high. Maintaining profitability while offering low prices remains a significant challenge. Companies must continue innovating to reduce costs and improve efficiency.

The price war among China’s e-commerce giants shows both the opportunities and challenges in the instant retail market. On one hand, discounts and fast delivery attract customers and increase sales. On the other hand, these strategies are causing financial losses and attracting regulatory scrutiny.

Moving forward, companies must find a balance between competitive pricing and sustainable business practices. They need to focus on operational efficiency, customer loyalty, and revenue diversification to succeed in the long term.

The Chinese e-commerce market is still growing rapidly, and the potential rewards are large. However, companies must carefully manage their strategies to avoid financial instability and ensure continued success in this highly competitive sector.

China e-commerce