(Yicai) June 12 -- Beijing's market regulator has told China's five leading e-commerce platforms, including Alibaba’s Taobao and Tmall Group and JD.Com, to rectify non-compliant practices in their promotional activities for the 618 mid-year shopping festival.

The Beijing Municipal Administration for Market Regulation called in Taobao and Tmall, JD.Com, Pinduoduo, Douyin, and Xiaohongshu (also known as Little Red Book), and demanded corrections after pointing out issues in their 618 campaigns such as false advertising, improper formulation and disclosure of campaign rules, and failure to publicly disclose merchant information, it said in a statement yesterday.

China’s two biggest annual shopping festivals are 618, held in the middle of the year, and Double 11, held toward the end of the year. 618 began as JD.Com’s anniversary sale, but it gradually grew into a month-long promotion in which all major e-commerce platforms now take part.

Taobao and Tmall, JD.Com, and Pinduoduo have each launched “CNY10 billion (USD1.5 billion) subsidy” promotions for this year’s 618, but they were unable to provide documentation proving that the actual amount invested in their respective campaigns would reach that figure, the regulator said.

Douyin and Xiaohongshu also had similar problems, including unclear promotional rules and incomplete information disclosure, which undermines consumers’ right to know, the watchdog added.

The “CNY10 billion subsidy” campaigns could trigger involution-style competition, which would be detrimental to the sector’s healthy development, the regulator said, citing Liu Xiaochun, director of the Internet Law Research Center at the University of Chinese Academy of Social Sciences.

Involution, or neijuan in Chinese, is a self-defeating cycle of ever-intensifying competition in key sectors that results in diminishing returns.

Excessively large and irrational subsidy campaigns not only distort market pricing mechanisms, but also put merchants in a difficult position, Liu pointed out. If they do not cut prices, they lose traffic; if they do cut prices, they incur losses, squeezing profit margins, he said. In addition, platforms often include disclaimers in their rules, which further raises risks for consumers, Liu said.

Market regulators in other provincial-level regions of China, including Zhejiang and Sichuan, have also recently stepped up supervision of 618 e-commerce promotions.

For example, the Zhejiang Provincial Market Supervision Administration held a special administrative guidance session yesterday, requiring all platforms to disclose promotional rules truthfully and prohibiting deceptive practices such as “price increases before discounts” and fake discounts to mislead consumers.

Because of tighter regulation, this year’s 618 sales rules and subsidy formats may change, and price competition is likely to cool noticeably, Zhang Yi, chief executive officer of iiMedia Research, told Yicai.

But the constraints imposed through talks with platforms are relatively limited, and some irregular practices could resurface after the promotion period ends, Zhang warned. He said stronger measures, such as administrative penalties and routine inspections, are needed to address the problem at its root and establish a durable long-term system.

Editors: Dou Shicong, Futura Costaglione