A single customer complaint regarding a subpar cake triggered a massive investigation, exposing thousands of 'ghost' food vendors and revealing systemic issues within China's online food delivery sector.
The Origin of the Investigation
The probe began last summer after a Beijing resident, identified as Liu, received a birthday cake adorned with an inedible flower. After reporting the unsatisfactory purchase to local authorities, regulators launched a comprehensive investigation.
What authorities uncovered was a fraudulent cake chain boasting nearly 400 locations, operating without verifiable physical storefronts and using forged business licenses.
Unmasking the Shadow Supply Chain
The incident exposed a sophisticated, underground food supply chain. In this system:
- A merchant would take a customer's order.
- They would then list the order on an intermediary platform.
- Other producers would bid on the order, with the lowest bidder fulfilling it.
- This process severely compromised both food quality and safety.
State news agency Xinhua reported that over 67,000 such 'ghost' vendors were discovered, having sold more than 3.6 million cakes.
Regulatory Action and Record Fines
China’s State Administration for Market Regulation (SAMR) concluded that seven major delivery platforms—including PDD (owner of Temu), Alibaba, ByteDance’s Douyin, Meituan, and JD.com—failed to adequately protect consumers or properly verify vendor licenses.
- Total Penalty: The platforms were collectively fined a record 3.6 billion yuan ($528 million). This is the largest penalty since the amendment of the country’s food security law in 2015.
- Investigation Scope: The 10-month inquiry highlights Beijing's efforts to curb intense price competition, which had driven businesses into a cycle where lower prices were achieved at the expense of food safety.
One disclosed example showed a consumer paying 252 yuan for a cake, which was then resold via an intermediary platform where vendors bid, with the lowest bidder winning. The original merchant pocketed nearly half the consumer's payment, while the platform took a 20% fee, leaving the actual baker with only a thin margin.
Resistance and Enforcement Challenges
Regulators faced significant resistance while mapping the illegal supply chain. Reports detailed instances of obstruction, including:
- Employees passing notes instructing others to "stay silent."
- Security personnel physically confronting and shoving law enforcement officers.
- An executive feigning collapse during questioning, which was later found to be medically unfounded.
SAMR cited these acts of resistance when imposing the heaviest penalty on PDD Holdings Inc.—1.5 billion yuan ($221 million)—due to repeated refusal to provide relevant information and submitting false materials.
In response, all penalized companies issued statements accepting the fines and pledging to improve compliance and governance to eliminate malpractice.
