Chinese regulators have directed ecommerce platforms to stop requiring merchants to issue refunds without the return of goods.

This directive, aimed at easing financial pressure on merchants, is expected to take effect by July 2025.

Authorities met with companies, including PDD Holdings, to discuss this issue.

Moving forward, the responsibility for initiating refunds will rest solely with merchants.

This decision follows protests in July 2024, when hundreds gathered at a PDD subsidiary office in southern China to oppose the refund policy.

🔗 Source: Reuters

🧠 Food for thought

1️⃣ Returns policies have become a competitive battleground with significant economic consequences

China’s policy reversal highlights how liberal returns policies have become both competitive necessities and financial burdens for e-commerce platforms worldwide.

Pinduoduo pioneered the refund-without-return model in 2021, prompting competitors like JD.com and Alibaba to adopt similar practices to stay competitive in the market 1.

This competitive pressure reflects global trends where e-commerce return rates can exceed 30% in categories like apparel, creating substantial operational costs that can undermine profitability 2.

The situation in China demonstrates the economic consequences of these policies, with merchants of products ranging from clothing to household appliances reporting negative impacts on their bottom line 3.

The merchant backlash culminated in protests, including gatherings at a Temu office in southern China, highlighting how returns policies can become critical issues for sellers 4.

2️⃣ Regulatory pendulum swings between consumer and merchant protection

China’s intervention marks a shift in regulatory priorities, balancing consumer convenience against merchant sustainability during economic challenges.

Chinese authorities’ decision to stop the refund-without-return practice follows growing evidence that the policy, while beneficial to consumers, was creating unsustainable financial pressure on merchants during an economic slowdown 5.