December 10, 2018 / 9:43 AM / a year ago

Breakingviews - Unsavoury disclosure spoils Chinese food delivery

People eat noodles in a restaurant in Shanghai March 2, 2009. China said on Monday food security remains "grim", despite campaigns launched after several health scares, the most recent last year's tainted milk formula which killed at least six toddlers and made almost 300,000 sick. REUTERS/Aly Song

HONG KONG (Reuters Breakingviews) - Distasteful disclosure practices are spoiling some Chinese food delivery. Meituan Dianping, operator of the country’s biggest food delivery app, fired one employee and referred others to police after an internal corruption probe. It only reported the news in Chinese, and didn’t flag it before its initial public offering. Once-reported metrics have also gone missing. Such opacity is unappetising.

Meituan founder Wang Xing is stepping up efforts to crack down on wrongdoing. Since February, the $40 billion company has initiated 29 investigations, typically involving kickbacks from restaurants or other merchants on the app. Of 89 people reported to the police, 16 were Meituan employees. A “senior director” of the firm’s food delivery business was fired, too.

All of this was revealed to local media only on Dec. 3 despite Meituan having opted to list its shares in Hong Kong, where financial filings and other relevant information is made available to investors in English. Corruption in the online services industry is a big problem. Last year, Meituan formed an alliance with gaming giant Tencent, search-engine operator Baidu, e-commerce group JD.com and others to share information.

Although the risk factors in Meituan’s IPO prospectus stretched nearly 50 pages, only one paragraph was devoted to the discovery of “illegal, fraudulent or collusive activities” by employees. The company detailed some of its anti-bribery and corruption policies elsewhere in the document ahead of selling shares in September, but didn’t mention the investigations.

What’s more, Meituan already has clammed up on financial information that it was touting only a few months ago. For example, it no longer states how many food orders it delivers, even as it forked out nearly $2 billion in driver fees in the first half of the year. Whether Meituan is delivering less or more, and at a higher or lower cost per order, is now unclear. Similarly, how much it makes from its hotel-booking service isn’t available any more.

Mounting losses at Meituan and weakening tech valuations broadly have dragged down the company’s shares by quarter since its market debut. Being so squirrelly about important matters will make an investment harder to stomach.

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