(Yicai) April 20 -- Chinese regulators have fined seven e-commerce and food delivery platforms, including Pinduoduo and Meituan, a total of CNY3.6 billion (USD527.5 million) for failing to prevent so-called ‘ghost takeout’ food vendors, which use fake or borrowed licenses and false addresses to bypass food safety controls.

Pinduoduo was fined CNY1.5 billion, the most among the seven platforms penalized, according to a notice posted on the website of the State Administration for Market Regulation on April 17. Meituan, JD.Com, and Taobao Flash Buy were fined CNY746 million (USD109.4 million), CNY635 million, and CNY558 million, respectively, while Douyin, Taobao, and Tmall were fined a total of about CNY140 million.

Ghost shops subcontract meal and cake orders to other caterers at a lower price and then deliver the items through third-party platforms.

The SAMR cited the case of one customer who bought a CNY252 (USD37) cake from a ghost shop. The shop posted the order on Zhuandanbao, an order-transfer platform, where three cake suppliers bid CNY100, CNY90, and CNY80, respectively, for the order. The ghost shop accepted the lowest bid, earning CNY122 in the process. The actual cake supplier made about CNY77 after paying delivery fees, and Zhuandanbao got CNY55 in service fees.

The SAMR investigation uncovered more than 3.6 million illegal orders processed by 67,604 ghost vendors and fined the platforms involved based on the number of non-compliant outlets that failed to fulfill review obligations. Moreover, the watchdog fined the legal representatives and food safety directors of the seven platforms another CNY19.7 million (USD2.9 million).

The investigation found that each of the platforms fined had signed cooperation deals with order-transfer platforms and, even though they knew or should have known that transferring orders is unlawful, failed to take the necessary measures. The Supervision and Administration Measures for Food Safety of Online Catering Services prohibit catering service providers from entrusting orders to others.

According to Xinhua News Agency, the law enforcement process also encountered obstruction. An SAMR official assigned to investigate Pinduoduo had his left index finger fractured and right ankle bruised after staff deliberately closed a door to deny him entry.

The seven platforms have removed the ghost stores, ceased cooperation with the order-transfer platforms, and issued statements saying that they will take corrective steps and crack down on illegal and non-compliant behavior. The SAMR has ordered them not to add new cake shops for three to nine months.

The order-transfer model evades food safety supervision and infringes consumers’ rights to know and to choose, Xinhua reported Shi Jianzhong, director of the Data Law Lab at China University of Political Science and Law, as saying.

“The application of law is not mechanical,” Xue Jun, director of the E-Commerce Law Research Center at Peking University, told Xinhua. “The penalties this time demonstrate the purpose of law enforcement to maintain the bottom line of food safety and promote the sustained and healthy development of the platform economy.”

Editor: Futura Costaglione