Is Zhong Shanshan targeting Huang Zheng and Zhang Yiming, signaling a time to reflect on algorithms?

Zhong Shanshan, the founder of Nongfu Spring, is one of the representative entrepreneurs of the real economy. His criticism of Pinduoduo and Toutiao is seen as a bombardment of platforms by the real economy.

In the past year, Zhang Yiming, Zhong Shanshan, and Huang Zheng have all reached the pinnacle of China's richest individuals.

On August 9, according to the Bloomberg Billionaires Index, Huang Zheng, the founder of Pinduoduo, briefly topped the list of China's richest individuals. In the "2024 Hurun China Rich List" released on October 29, Zhang Yiming became China's richest person for the first time with a wealth of RMB 350 billion, while Zhong Shanshan relinquished his position as the richest person for three consecutive years, ranking second.

With three of China's richest individuals involved, when the economy slows down, contradictions between the real economy, e-commerce platforms, and public opinion platforms intensify.

01 What did Zhong Shanshan say? Platforms should not do evil

On November 19, Zhong Shanshan, the founder of Nongfu Spring, criticized platforms like Toutiao and Pinduoduo during an event in Ganzhou, Jiangxi Province.

In Zhong Shanshan's view, "much evil is man-made, especially when scientific and technological means and capabilities are used. This kind of evil is greater than that caused by ordinary people. It is a great evil."

Zhong Shanshan stated, "A pricing system like Pinduoduo is a huge harm to Chinese brands and industries." Pinduoduo has driven down the entire pricing system, causing inferior products to drive out superior ones. Over the years, Nongfu Spring has been supporting the pricing system. "We are supporting the price, and we try our best to raise it.""

He also publicly addressed Zhang Yiming (founder of ByteDance), "Please, Toutiao and Douyin, do not use any so-called 'safe harbor' principle as an excuse. Immediately remove the defamatory statements and images infringing upon my personal reputation and apologize to me and my family. It has been quite some time." Zhong Shanshan believes that Douyin and Toutiao platforms are part of the "rumor" spread and should abide by civilized norms, constrain themselves, and provide fairness and justice for everyone.

On November 24, according to the official Weibo account of the Cyberspace Administration of China, the Secretariat of the Central Cyberspace Affairs Commission Office and three other departments issued a notice on launching a special action to address typical issues related to online platform algorithms as part of the "Clear and Bright" campaign. This special action, running from the date of issuance to February 14, 2025, will focus on internet users' concerns, prioritizing the rectification of key issues such as homogenized content push creating "information cocoons," manipulating rankings to hype hot topics in violation of regulations, blindly pursuing profits at the expense of new employment forms and workers' rights, using algorithms to implement big data "price discrimination," and the lack of upward and benevolent algorithm services infringing upon users' legitimate rights and interests. Enterprises will be urged to conduct self-examinations and rectifications to further enhance their algorithm security capabilities.

02 Battle history of Nongfu Spring

At the end of February this year, following the passing of Zong Qinghou, the founder of Wahaha, various opinions about Zhong Shanshan and Nongfu Spring emerged online. His mother also passed away during this tumultuous period.

When mentioning his mother, Zhong Shanshan said, "My mother was a very healthy person. On New Year's Eve, we were all together, and I said she was the only one in our family who could live to be a hundred. But when I went to Japan to participate in an exhibition on March 5, I received a call from my sister on March 11. Her first words were that my mother had passed away." "If she were still alive, I would have somewhere to rely on. At that moment, I felt completely alone.""

Meanwhile, Nongfu Spring also suffered heavily from public opinion. The mid-year report revealed that in the first half of this year, Nongfu Spring's packaged water business sold RMB 1.9 billion less than the same period last year.

In April, to regain market share, Nongfu Spring strategically launched green bottle purified water. Speaking about Nongfu Spring resuming production of green bottle water, Zhong Shanshan said, "To be honest, it was out of anger at that time, but I still don't want everyone to drink green bottle water. I want to tell people that red bottle water (natural water) is worth the price, while green bottle water is not worth it and is not suitable for long-term consumption.""

This is not the first time Zhong Shanshan has "bombarded" criticism. The combativeness of Nongfu Spring cannot be underestimated.

In April 2000, the nascent Nongfu Spring announced that it would "stop producing purified water." Wahaha then joined forces with 69 industry enterprises to hold a press conference, accusing Nongfu Spring of being the "public enemy" of the industry. Since then, there has been no authoritative conclusion on whether drinking purified water or mineral water is better.

In 2013, Zhong Shanshan had a severe conflict with the media. The core of the controversy at that time was the debate between purified water and natural water. That year, the Beijing News published 76 consecutive articles pointing out problems with Nongfu Spring, claiming that the latter did not comply with national standards and that its standards were inferior to those of tap water. Nongfu Spring sued the Beijing News for infringement. The lawsuit lasted four years and ended with Nongfu Spring withdrawing the case.

03 Aiming to reverse the public opinion field and restore vitality

According to third-party research data, at the beginning of January 2024, Nongfu Spring's red bottle natural water accounted for more than 39.7% of the entire bottled water market. By mid-March, this share (mainly red bottle natural water) dropped to the range of 25% to 27%.

After launching green bottle water in April, as of mid-October, the combined sales of Nongfu Spring's red bottle natural water and green bottle purified water exceeded 30% of the total market share, still ranking first in the bottled water market but not returning to its historical peak. This means that some market share is being taken by other brands.

Image description: Nongfu Spring water source

To address declining performance, Nongfu Spring has focused its strategy on water and tea products. Externally, Nongfu Spring has also strengthened the management and regulation of terminal channels. However, Zhong Shanshan still needs time to restore market trust in the Nongfu Spring brand.

04 Is Pinduoduo's low-price system backfiring?

Zhong Shanshan criticized Toutiao's discourse power, while his criticism of Pinduoduo mainly focused on its pricing system.

Zhong Shanshan believes that the continuous price war among e-commerce platforms will lead to various negative consequences. "The decline in the pricing system is related to internet platforms, especially a pricing system like Pinduoduo, which is a huge harm to Chinese brands and industries.""

Pinduoduo stands out with its extreme low-price strategy, and other e-commerce platforms have begun to follow suit. However, behind this strategy, Pinduoduo also faces criticism for forcing merchants to lower prices, confiscating merchants' payments, and selling counterfeit products. The market seems to have doubts about Pinduoduo's prospects. On November 26, 2024, Pinduoduo (PDD) fell 1.37% to USD 99.31. The stock has fallen 15.61% in the past five trading days, 17.65% in November, 32.12% year-to-date, and 15.64% in the past 52 weeks.

Pinduoduo released its third-quarter 2024 financial report on November 21. The report showed that Pinduoduo's total revenue in Q3 2024 was RMB 99.35 billion, a year-on-year increase of 44%. Why has the stock price fallen despite continuous revenue growth?

In the previous four quarters, Pinduoduo's revenue growth rates were 94%, 123%, 131%, and 86%, respectively. On a quarter-on-quarter basis, Pinduoduo's revenue growth rate in the third quarter slowed down compared to the previous quarter, while its net profit fell 22% from the previous quarter.

From the perspective of industrial upgrading, inward-looking low prices can indeed harm the industry. Extremely low prices are likely to reduce product quality and lower users' consumption experience, which in turn negatively impacts the supply side. Therefore, for e-commerce platforms, it is essential to strike a balance between quality and efficiency, balancing the interests of consumers, platforms, and merchants. Pinduoduo urgently needs to strengthen communication and cooperation with brand owners to build a more stable and mutually beneficial partnership.