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Jefferies explains why China internet stocks fell on Wednesday

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The Chinese internet sector saw share price volatility Wednesday as the market reacted to a draft from the State Administration for Market Regulation (SAMR) focused on strengthening the business environment.

Alibaba (NYSE:BABA) shares fell 3.4% in Hong Kong, while JD (NASDAQ:JD).com and Meituan fell 3.2% and 5.3%, respectively.

The draft, which includes 10 sections and 40 measures, has drawn particular attention to two key areas: monitoring platform fee structures to reduce enterprise burdens and supporting the healthy development of the platform economy.

The latter, according to Jefferies analysts, includes measures for monitoring livestreaming e-commerce and ensuring merchants have the autonomy to set prices on platforms.

“We believe internet companies have been providing merchants with support and transparency in fee structure,” analysts said in a note.

For instance, Meituan strengthened its fee structure back in 2021, implementing a fixed technology service fee and a variable delivery service fee based on distance, order size, and time of day.

“It provides merchants with better understanding of their services with details. The fee structure enhances transparency and addresses the pain points for merchants,” analysts added.

For Alibaba (BABA), Jefferies said the e-commerce giant has been consistently providing various support to merchants, including traffic generation, tools, subsidies, and capital, to help them grow their businesses.

Meanwhile, JD.com (JD) has been building a fast-growing third-party ecosystem by waiving commissions for new merchants and reducing commissions in certain categories, fostering an environment conducive to merchant growth.

On the other hand, merchant consent is needed on automatic pricing adjustment, Jefferies highlighted.

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