Chinese e-commerce company Pinduoduo’s cross-border platform Temu is expanding rapidly worldwide, especially in the U.S. market. However, Temu’s future is uncertain in the United States due to security concerns and growing tension between Washington and Beijing.
Last year, Pinduoduo continued to grow at a strong pace, with four quarters of year-over-year revenue increases at 58 percent, 66 percent, 93.9 percent, and 123 percent, respectively. Its annual operating revenue reached 247.6 billion yuan (about $34.3 billion), up 90 percent from the previous year.
Pinduoduo is now one of the top three internet companies in China, along with Tencent and Ali. At the end of November last year, Pinduoduo’s market capitalization surpassed Ali’s to become the largest Chinese stock in the U.S. by market capitalization.
Pinduoduo’s high growth is mainly due to the expansion of its overseas business, Temu. Since its launch in September 2022, Temu has expanded to 50 countries and has become the world’s second-most-visited retail website.
Predatory Pricing
So far this year, Temu has spent a lot of money on advertising in the United States. It ran six 30-second ads in early February during the Super Bowl game. Each ad costs about $7 million, or $230,000 per second.
On the day of the Super Bowl, global visits to Temu’s website increased by nearly a quarter from the previous Sunday, with 8.2 million people visiting the site and app, according to SimilarWeb.
However, Temu has yet to turn a profit. David Liu, the company’s chief financial officer, has repeatedly said that Temu’s primary focus is to develop the market, not to make a profit.
Analysts at Goldman Sachs estimated that Temu lost an average of $7 per order last year.
Temu’s parent company, PDD Holdings, used the same strategy in China—first using low prices to dominate the market and then turning a profit six years later.
Security Threat
The U.S. government is now acutely concerned with data security, emphasizing threats from adversary countries.On Feb. 28, President Joe Biden signed Executive Order 14117 on “Preventing Access to Americans’ Bulk Sensitive Data and United States Government-Related Data by Countries of Concern.”
“The President’s Executive Order focuses on Americans’ most personal and sensitive information, including genomic data, biometric data, personal health data, geolocation data, financial data, and certain kinds of personally identifiable information. Bad actors can use this data to track Americans (including military service members), pry into their personal lives, and pass that data on to other data brokers and foreign intelligence services. This data can enable intrusive surveillance, scams, blackmail, and other violations of privacy,” the White House stated in its press release.
The day after the executive order was signed, the United States began investigating whether China’s auto imports posed a national security risk.
“These cars are connected to our phones, to navigation systems, to critical infrastructure, and to the companies that made them. Connected vehicles from China could collect sensitive data about our citizens and our infrastructure and send this data back to the People’s Republic of China,” President Biden said in a statement.
TikTok is also a concern for security threats. Recent legislation introduced in the House of Representatives identified three potential dangers of the app. First, TikTok could serve as a tool in a malicious campaign by the Chinese regime to influence American politics. Second, TikTok could collect personal information on U.S. citizens. Lastly, downloading TikTok could allow the regime to plant malicious software on users’ phones or devices.
Lin Tsungnan, a professor of electrical engineering at National Taiwan University, told The Epoch Times on March 27 that Temu poses the same security threats as TikTok.
According to Mr. Lin, when people make purchases on e-commerce platforms, they provide personal details such as their names, addresses, cell phone numbers, credit card information, and data about their shopping habits. If only a small number of people use it, it could result in personal data leakage, he said, adding that the situation would become a national security issue if many users allow the platform to collect their personal information.
“Even if Temu’s data is stored on servers overseas, its parent company in China can access it because its algorithms are based in China. So it’s very easy for the Chinese regime to get that data. The CCP’s anti-espionage laws are so broad that any Chinese citizen or Chinese company is obligated to provide the authorities with the information they need, and there’s really no such thing as a private company in China,” Mr. Lin said.
Moreover, he added that if the shopping app on your cell phone has a backdoor, that could lead to even more information leaks.
“Temu can promote viral marketing that undercuts competitors with below-market-cost products. It can thus selectively target American manufacturers, drive them out of business with low-priced products, and then raise prices to monopolistic levels, or leverage supply for political purposes. Beijing has used that playbook before,” wrote Mr. Corr, who also contributes to The Epoch Times.
Trade Law Loopholes
There is an exemption in U.S. trade law called the De Minimis Tax Exemption to allow U.S. travelers to take their souvenirs home without having to report them to customs. This provision allows merchandise valued at less than $800 to enter the United States without inspection or taxation.China has a much stricter rule. For items shipped from the United States to China, only those valued at less than $7 are not subject to taxes.
Critics argue that Temu and its larger Chinese competitor, Shein, have exploited de minimis regulations to evade paying significant sums, granting them an unfair advantage over domestic businesses and enabling them to bypass laws prohibiting imports produced by forced labor.
“Major retailers are hurting because of this,” Kim Glas, CEO of the National Council of Textile Organizations, told Forbes in an interview in December 2023.
The issue has also caught the attention of U.S. lawmakers.
Last June, Reps. Earl Blumenauer (D-Ore.) and Neal Dunn (R-Fla.), and Sens. Sherrod Brown (D-Ohio) and Marco Rubio (R-Fla.) introduced the Import Security and Fairness Act to stop non-market economies from exploiting the de minimis threshold and require the Customs and Border Protection (CBP) to collect more information on de minimis shipments.
According to Ms. Glas, whether Congress will eventually pass legislation to close the loophole “is the bajillion-dollar question.”
As many as 1 billion packages entered the United States through the de minimis loophole in 2023, a significant increase from the 685 million packages in the previous year, according to CBP data.
