How Ghost Shops Triggered China’s Biggest Food Scandal | AB Explained

0:00 In July 2025, there was a Chinese man in Beijing only known by his last name,

0:06 Liu, waiting for his delivery.

0:08 You see, he had ordered a birthday cake for himself using an app called— no,

0:12 not Temu, but Jingdong,

0:14 which is better known as JD.com to the English-speaking world.

0:18 We'll get to Temu a little bit later,

0:20 but think of JD.com as China's version of Amazon.

0:24 It's actually China's second-largest e-commerce platform that had

0:27 only entered food delivery in early 2025,

0:30 just months before Liu ordered his cake.

0:33 So when Leo heard the doorbell and realized his cake delivery had arrived,

0:37 he was excited because from the listing photo,

0:40 the cake was supposed to be this beautifully

0:43 decorated cream cake with roses on top.

0:45 Of course, Liu assumed that the roses were edible like any normal cake.

0:50 Then he opened the box, and to his surprise,

0:53 he saw that the roses on his cake were real,

0:57 not the edible food-grade decorative kind,

0:59 like literally actual flowers stuck directly into the cream.

1:04 What would you do if you're in Liu's shoes?

1:07 Some of you might be like, "Okay, this is a bit weird,

1:10 but whatever," and just take out the roses and eat the cake.

1:13 But Liu was not happy because he knew that roses could contain pesticides,

1:18 which shouldn't be anywhere near the food

1:20 you eat let alone stuck directly into it.

1:23 So he contacted the merchant and asked for his money back.

1:27 The merchant said no.

1:28 So Liu filed a complaint,

1:29 like a simple consumer report to his local government office,

1:33 probably expecting a refund or maybe a little fine for the merchant.

1:37 But little did he know that his complaint would

1:40 trigger the biggest food safety investigation in China's recent history.

1:44 When the local regulator went looking for the shop

1:47 that he ordered from, they couldn't find it,

1:50 which didn't make sense because the app listing looked completely legitimate.

1:54 Thousands of orders, glowing reviews, beautiful photos.

1:58 According to the platform, the cake shop named Sweet Words Love Letter

2:03 was a nationwide chain with 378 locations across China.

2:08 But when investigators showed up at the registered address, nothing.

2:12 No kitchen, no staff, not even a sign.

2:16 Turns out, not a single one of those 378 locations existed anywhere in China.

2:22 The business licenses were all forged, and the same fake license number had

2:27 been copy-pasted across 10 different regional listings.

2:30 In other words, the entire brand was a ghost.

2:32 Over the next 10 months,

2:34 what started out as a single consumercomplaint in Beijing escalated

2:38 into one of the most dramatic investigations in Chinese regulatory history.

2:44 7 government task forces, over 200 investigators pulled from across the country.

2:49 We're talking a serious crackdown across

2:51 every major food delivery platform in China

2:54 that exposed a dirty industry practice known as ghost delivery at an epic scale.

3:00 A shadow network of 67,000 fake shops, 3.6 million fraudulent orders.

3:06 The result?

3:08 Around $530 million in fines,

3:09 with the biggest portion of the fine landing on the parent company of Temu,

3:15 which somehow managed to make the whole thing even worse.

3:18 Now, why should you care?

3:20 Because this story isn't really about food.

3:23 It's about something much deeper that most

3:25 of the Western world does not seem to fully understand.

3:29 Remember the whole controversy about lead paint in Chinese toys?

3:33 The contaminated baby formula?

3:35 For years, the West has held this negative

3:38 stereotype about products coming out of China.

3:40 And brands like Temu haven't exactly helped change that perception.

3:45 But what if the real explanation is

3:47 more systemic than just a cultural stereotype?

3:51 What happens when competition and market forces get so brutal

3:55 that somebody starts cutting corners without any regard for consumer safety?

3:59 Because I don't think that's just a China problem,

4:01 it's a global problem right now, and that's what we need to explore.

4:05 But before we dive in, in this age of super convenient delivery services,

4:10 think about how much personal information you

4:12 hand over every time you place an order.

4:14 Your name, your address, your payment details.

4:18 You trust a platform to handle it responsibly, right?

4:21 But as we're about to find out, these platforms might not be able to always

4:25 vet who's on the other end of that transaction.

4:27 And speaking of your personal data ending up in the wrong hands.

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4:47 use it to impersonate you, open credit cards in your name, and steal your money.

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6:01 Now let's get back to the deep dive.

6:07 To truly understand the scale of the competition

6:09 when it comes to delivery services in China,

6:12 I was wondering how far we needed to go back in our research because

6:16 there are just so many players and we obviously cannot cover every one of them.

6:21 But the truth is, for better or worse,

6:24 The most well-known player outside China is Temu,

6:27 which goes by a totally different name in China,

6:30 so I thought this might be an interesting place to start.

6:32 In 2006, a 26-year-old Chinese software engineer sat down

6:37 for a very expensive lunch somewhere in the United States.

6:40 When I say expensive, I mean crazy expensive.

6:43 The lunch cost $620,000.

6:47 In today's money, that would be about $960,000.

6:52 Almost a million dollars for a single meal.

6:54 His name was Colin Huang, and he was brought along by his mentor,

6:59 a Chinese-American billionaire named Duan Yongping,

7:02 who paid for that much money to win a charity

7:05 auction for the privilege of having lunch with a certain individual.

7:08 That certain individual was none other than Warren Buffett,

7:12 one of the richest men in the world and arguably the greatest investor alive.

7:16 Life wasn't supposed to turn out this way for Huang.

7:19 He grew up in Hangzhou, China, as the only son of two factory workers.

7:23 As a kid, he wore hand-me-down clothes from his mother's colleagues.

7:27 But soon, everybody would find out just how academically gifted he was.

7:31 He won a medal in a mathematics Olympiad,

7:34 which earned him a scholarship to Hangzhou Foreign Language School,

7:37 which was one of only 16 schools

7:40 in all of China for academically exceptional kids.

7:43 As a college student, He interned at Microsoft Beijing,

7:47 where his monthly stipend as an intern was already

7:50 more than both of his factory worker parents' earnings combined.

7:54 Then he went on to get his master's degree at the University of Wisconsin

7:58 and joined Google as an engineer the same year Google went public in 2004.

8:03 And now here he was, sitting across from the legendary American billionaire.

8:08 In Huang's own words, he was a phoenix soaring out of a chicken coop.

8:12 A common Chinese expression for someone

8:14 extraordinary rising from the humblest of beginnings.

8:17 And what Buffett told them was so simple and so

8:20 obvious that the lesson sat with him for nearly a decade.

8:24 Buffett's whole thing was, if you apply common sense to a problem,

8:27 the answer is usually staring you right in the face.

8:31 The problem is that most people are too blinded by their own biases,

8:35 too caught up in what everybody else is doing, to see it.

8:38 The lesson would go on to form the very foundation of his vision

8:42 for a startup that Huang started in 2015 when he founded Pinduoduo.

8:47 And in just under 10 years,

8:49 Pinduoduo would go on to briefly surpass even Alibaba

8:53 to become the most valuable Chinese e-commerce company in the world.

8:57 So what's the difference between Pinduoduo and Temu?

9:00 Honestly, not much.

9:02 Temu is the international version of Pinduoduo,

9:05 under the same holding company called PDD Holdings.

9:08 Now, here's something I've always found

9:10 curious about Chinese companies with global presence.

9:13 Why do they always separate

9:15 their international version from their domestic version?

9:18 You see the same thing with TikTok, which is just the international version

9:22 of Douyin under the same parent company ByteDance.

9:25 For video apps like TikTok,

9:27 the reason makes sense— because of China's censorship laws.

9:31 If Douyin started allowing international content in, it would

9:35 be nearly impossible to meet the domestic censorship standards.

9:38 So ByteDance split the app into two versions,

9:41 one for China, one for the rest of the world.

9:43 But for an e-commerce app like Temu, censorship has nothing to do with it.

9:48 One of the reasons is actually geopolitical in nature.

9:51 By 2022, the writing was already on the wall

9:53 for Chinese tech companies in the West.

9:56 Huawei had been blacklisted from U.S.

9:58 networks.

9:59 TikTok was already under fire from U.S.

10:02 lawmakers and regulators.

10:03 So rather than exporting the existing Pinduoduo brand to the West,

10:07 they created a new brand called Temu and incorporated

10:10 it as an American subsidiary in Boston, Massachusetts.

10:14 Multiple analysts have confirmed that this was a deliberate move

10:18 to sidestep geopolitical scrutiny and build

10:21 consumer trust with Western audiences,

10:23 while the operations, supply chain and the ownership remain entirely Chinese.

10:28 But another reason for separating out Temu was that Pinduoduo's

10:31 business model simply does not work outside of China.

10:35 Pinduoduo was built on this concept of group buying,

10:39 meaning instead of shopping alone,

10:40 you would recruit your friends and family to buy the same item together.

10:45 The more people who joined, the lower the price dropped for everybody.

10:48 And the way those deals spread was through WeChat.

10:52 If you don't know what WeChat is, it's China's super app,

10:55 which is like WhatsApp, Facebook, Apple Pay,

10:58 and Amazon all rolled into one single app.

11:01 Over 90% of China's 1.4 billion people use it every single day.

11:06 So deals spread virally through WeChat groups,

11:08 especially among older demographics in smaller cities and rural areas.

11:13 But obviously, WeChat has almost no users outside China,

11:17 so that entire model collapses the moment you cross the border.

11:20 So Temu strips all of that away and replaces

11:23 it with something simpler and more familiar to Western consumers.

11:27 It just ships directly from Chinese factories

11:29 to your doorstep in America or Europe, cutting out the middleman entirely.

11:34 And yet, the name should tell you everything about where this company came from.

11:38 The company says the name Temu comes from the motto "Team up,

11:42 price down," which reflects Pinduoduo's

11:45 original roots of encouraging group buying.

11:48 So to me, it sounds like Temu is an unusual acronym for team up.

11:53 Except when you're shopping on Temu in the U.S.,

11:56 there is no teaming up, there is no group buying.

11:59 So I guess the brand kind of got lost in translation there.

12:02 But the price down or cheap part, that made it over just fine.

12:07 And that obsession with cheap is what led Huang to found Pinduoduo in 2015.

12:12 At the time, he looked at China's digital

12:15 commerce world and saw two distinct categories of players.

12:18 The first category was traditional e-commerce.

12:21 In China, Alibaba was the OG, having been doing this since 1999.

12:27 Think Amazon.

12:28 You can order anything— electronics, clothing, household goods,

12:31 birthday cakes—and it ships right to your door.

12:35 And then in 2004, JD.com entered the market.

12:39 And by 2010, JD.com was already

12:42 offering same-day delivery in China's major cities.

12:46 The dominant players here were Alibaba and JD.com,

12:49 essentially splitting China's urban middle class between them.

12:53 But there was one thing that neither of them offered,

12:56 something we now takefor granted but back then

12:58 didn't even know we needed— hot food delivery.

13:02 This created the second category of hot food delivery,

13:05 think DoorDash or Uber Eat but on a truly giant scale.

13:10 Eleme, which literally means "are you hungry" in Chinese,

13:14 was the first startup to crack this in 2008.

13:17 Meituan followed in 2013.

13:19 You open the app, order hot noodles or bubble tea,

13:23 and a rider on an electric bike shows up at your door in under 30 minutes.

13:27 By 2015, this was already a massive industry with tens

13:32 of millions of daily users across China's major cities,

13:35 and Meituan and Eleme had carved it up almost entirely between them.

13:40 So that was the landscape, okay?

13:43 Traditional e-commerce on one hand, hot food delivery on the other.

13:47 And where Huang thought that Pinduoduo could fill

13:49 a gap was in the first category of e-commerce.

13:53 Alibaba and JD.com were mainly chasing premium brands

13:56 and wealthy urban consumers in tier 1 cities.

14:00 The hundreds of millions of ordinary working

14:02 people in smaller cities and rural areas,

14:05 those who just wanted the lowest possible price on everyday goods,

14:09 had been almost completely ignored.

14:12 That was going to be Pinduoduo's market,

14:14 and it worked beyond anyone's wildest expectations.

14:17 Within its first year of launch,

14:20 Pinduoduo had already crossed 100 million users.

14:23 Within 2 years, it had sold more

14:26 merchandise than JD.com managed in its first decade.

14:29 3 years from founding,

14:31 Pinduoduo went public on the NASDAQ at a valuation of $24 billion,

14:36 one of the fastest-growing companies in internet history.

14:40 And then in 2020, Huang stepped down as CEO and in 2021 as chairman,

14:46 a full year before Temu launched in September 2022.

14:49 So technically Temu was launched under the new group CEO Chen Lei,

14:54 but the philosophy remained the same: cheap above everything.

14:58 Within months of launching, Temu became the most downloaded app in the U.S.

15:02 App Store.

15:04 Americans who had never heard of Pinduoduo suddenly couldn't escape Temu.

15:08 Things were going great except at home.

15:11 Because while Pinduoduo was focused on expanding Temu,

15:14 the second category of food delivery services was exploding.

15:18 The two main players that specialize in hot food delivery,

15:22 Meituan and Eleme were completely dominating

15:25 the delivery market with over 90% market share.

15:28 And they were so successful that they

15:30 started branching out to what's known in China

15:33 as instant retail— basically fast grocery delivery

15:36 on top of their hot food delivery.

15:38 This was Pinduoduo's territory and they started

15:41 feeling pressure to go on the defensive.

15:44 But why were Meituan and Eleme so successful?

15:48 Simple.

15:49 People were opening their food delivery apps not

15:51 just every single day but multiple times a day.

15:55 And now, besides getting takeout,

15:56 they had the option to order groceries as well.

16:00 Compare that to how often people open an e-commerce app to order a product.

16:05 Not that often, right?

16:06 Maybe once a week?

16:07 In other words, this was becoming a battle for attention

16:10 that traditional e-commerce players like Pinduoduo were losing out on.

16:14 And they had to do something about it.

16:16 In fact, other traditional e-commerce players like

16:19 Alibaba had actually seen this coming years earlier,

16:23 acquiring Eleme back in 2018 for $9.5 billion.

16:28 JD.com launched its own hot food delivery service in early 2025.

16:32 And Pinduoduo, feeling the heat on their home turf,

16:36 committed over $1.4 billion to expand and defend

16:40 their grocery delivery business in late 2025.

16:43 So, are you getting the picture of how cutthroat the competition is in China?

16:47 Suddenly, everyone was fighting on everyone else's turf.

16:51 By 2025, the platforms were spending billions of dollars

16:55 subsidizing food orders just to steal customers from each other.

16:59 They were deliberately losing money on every

17:01 single order just to win market share.

17:03 One estimate put the total amount burned on subsidies at over 100 billion RMB,

17:08 that's roughly $14 billion in a single year.

17:12 Restaurants were getting more orders than ever but making less money.

17:16 Riders were delivering more food than ever but earning less per delivery.

17:21 And somewhere in that race to the bottom,

17:23 corners started getting cut systematically,

17:25 at a scale nobody had fully grasped yet— until one

17:29 customer in Beijing filed a complaint about his rose cake.

17:36 If you still haven't fully grasped how

17:39 competitive the e-commerce market is in China,

17:41 let me give you this additional fun fact:

17:43 Amazon itself tried to crack the Chinese market for 15

17:47 years and eventually walked away with less than 1% market share.

17:52 They were beaten by Alibaba and JD.com, and mind you,

17:55 this was long before the current food delivery wars.

17:58 China's e-commerce battlefield was simply too brutal, too fast,

18:03 and too local for even the world's biggest retailer to survive.

18:07 And when competition gets that brutal,

18:09 it can create different incentives for players to try to get an edge.

18:13 In this case, those incentives somehow

18:16 converged on a shadow industry practice known

18:19 in China as "Yuling Waimai" or "ghost

18:22 delivery." It means exactly what it sounds like.

18:24 When you order food on any of these delivery platforms,

18:27 the shop you think you're ordering from may not actually exist.

18:31 The official term for these fake storefronts is "Youling dianpu" or ghost shops.

18:36 You have no idea who made your food,

18:39 where it was made, or under what conditions.

18:42 Now, I have to make this quick

18:44 distinction between ghost shops and ghost kitchens.

18:47 Ghost kitchens, which also exist in many parts of the West,

18:51 including the U.S., are perfectly legal.

18:54 They are delivery-only kitchens with no dining space,

18:57 which is a way for restaurants to save on rent and overhead costs.

19:02 You can track their locations because they have legitimate business licenses.

19:06 Ghost shops, on the other hand,

19:08 are the fraudulent version— fake storefronts with forged licenses,

19:13 rerouting your orders without your knowledge

19:15 to whoever will make the food cheapest.

19:17 And according to our research, in the hot food delivery sector,

19:21 ghost kitchens have also been around for quite some time in China.

19:25 By 2021, Chinese media investigations

19:27 were already reporting that roughly one-third

19:31 of restaurants listed on major delivery platforms had no physical storefront,

19:35 meaning there are a lot of ghost kitchens in China.

19:38 Again, these ghost kitchens themselves are perfectly legal in China as long

19:43 as they have valid food operating licenses and real physical addresses.

19:47 China's food safety laws require this regardless

19:49 of whether a kitchen offers dine-in service or not.

19:53 The problem arises when it comes to non-hot

19:56 food delivery items like cakes and desserts,

19:59 mainly because orders can be placed a few days in advance.

20:03 That gives plenty of time for GoShop to quietly auction

20:06 your order off to the cheapest unlicensed third-party baker nobody's heard of.

20:11 Let me come back to how auctioning someone's order off is even possible

20:15 in the first place because there's a whole another hidden layer to this.

20:19 Anyway, for now, the Go Shop here is the fake storefront that took your order,

20:24 the one with the stolen food photos,

20:27 the forged business license, and no real physical address.

20:31 It never intended to make your cake.

20:33 And the third-party unlicensed baker at the other end?

20:36 Also illegal.

20:38 So by the time your cake arrives, two separate illegal operations have touched

20:42 your order and you had absolutely no idea.

20:46 So who are the people running these ghost shops?

20:48 As a matter of fact,

20:50 who are these unlicensed bakers at the other end of the chain?

20:53 We don't know.

20:54 Based on the investigation reports,

20:56 the ghost shop operators were deliberately designed to be invisible.

21:01 Chinese regulators described them as having no

21:03 fixed abode and untraceable as real persons,

21:07 meaning they were opportunists who had figured out

21:09 how to game the platform system to make money.

21:12 Setting up convincing digital storefronts,

21:14 buying or forging the necessary licenses,

21:17 and essentially running an arbitrage business from behind a screen.

21:21 And the bakers?

21:22 Investigators traced one order to a rundown residential building,

21:26 like someone's apartment, just ordinary people baking out of home ovens,

21:31 and no food safety certifications.

21:33 Getting properly licensed as a cake producer in China,

21:36 requires a dedicated decorating room, commercial refrigeration,

21:40 and passing hygiene inspections— costs

21:43 that these small operators simply could not afford,

21:46 so they operated without licenses.

21:48 And with only about $10 US income they can make,

21:51 after deducting all the platform fees,

21:54 you already know what kind of ingredients they were working with.

21:57 For context, a 6-inch cream cake made with decent ingredients,

22:02 could cost about $8 in materials alone.

22:05 Do the math.

22:06 And here is the thing, we don't have to speculate about what happens,

22:09 when unlicensed operators make your food,

22:12 without proper ingredients or proper refrigeration.

22:16 We have a real example,

22:17 one that happened just weeks before Liu filed his complaint about the rose cake,

22:22 and that shocked all of China.

22:25 On May 20th, 2025, in Anhui Province,

22:28 which is about 4 to 5 hours south of Beijing by high-speed train,

22:32 A local food influencer was selling homemade tiramisu from a street stall.

22:37 She had over 10,000 followers on Douyin,

22:40 where she marketed her tiramisu as pure handmade, no additives.

22:44 People loved it.

22:46 Lines formed.

22:47 On that single day, she sold over 200 portions.

22:51 But within 48 hours,

22:52 nearly 200 of those customers got sick— high fever, vomiting, dehydration.

22:58 The victims included students preparing for high school entrance exams,

23:02 pregnant women in their third trimester, and families hospitalized together.

23:07 One family bought a tiramisu to celebrate a birthday,

23:11 and all ended up in the hospital.

23:13 So, what went wrong here?

23:15 Temperatures that day hit 30°C, which is 86°F,

23:20 and the food influencer had left the tiramisu sitting in the open air,

23:24 for morning till evening.

23:26 Tiramisu apparently need to be kept between 2°C and 8°C,

23:30 or 35°F to 46°F, to be safe.

23:34 She had also used regular unsterilized eggs to cut costs.

23:38 Initial testing found bacterial counts 120 times over the safe limit,

23:43 with a positive test for Salmonella.

23:45 And investigators found she had decorated some of the tiramisu,

23:49 with oleander flowers.

23:51 I didn't know this until I looked it up myself,

23:54 but oleander is apparently toxic to humans.

23:57 After it went viral, the food influencer apologized publicly,

24:01 then deleted her social media accounts and disappeared.

24:04 To be clear, this person was not a ghost shop operator specifically,

24:09 but she's exactly the kind of unlicensed small operator,

24:12 sitting at the bottom of the ghost delivery chain.

24:15 Some cannot afford proper refrigeration or certified ingredients.

24:19 Others don't even know they need them.

24:22 They learned to bake from tutorial videos they found on Chinese social media,

24:26 and they're making your food in conditions,

24:28 that will make you never order delivery again, if you could see them.

24:32 That's why food safety regulations exist.

24:35 But did the delivery platforms, including Pinduoduo,

24:38 really not know what was going on?

24:40 Or were they in many ways incentivized to look the other way?

24:44 None of them ever publicly admitted knowing anything about these practices,

24:48 but one can reasonably infer it all comes down to the competition,

24:52 the cutthroat competition, right?

24:54 Take Meituan first.

24:56 By 2025, even though Meituan held over 50% of China's food delivery market,

25:02 JD.com entered the market with a disruptive strategy,

25:06 offering zero commissions to merchants and rolling out massive subsidies.

25:11 The move immediately shook the industry, and triggered an all-out price war,

25:15 as platforms poured billions into discounts,

25:18 to compete for both users and restaurants.

25:20 In a subsidy war like that, the last thing you want to do,

25:23 is slow down your merchant onboarding to verify licenses.

25:27 More merchants means more listings.

25:30 More listings means more orders.

25:33 More orders means being able to hold off a giant competitor like JD.com.

25:37 JD.com is actually the most problematic,

25:40 because they were caught with the most number of ghost shops,

25:44 of any platform after entering the food

25:46 delivery market— over 43,000 ghost shops.

25:50 Basically, they were the most desperate to catch up,

25:52 because they were starting from zero, in a market dominated by a 50% player.

25:57 In that case, you don't ask too many questions about the merchants,

26:00 knocking on your door.

26:01 And then there's Pinduoduo, and their situation is honestly more troubling,

26:06 because competition alone doesn't fully explain it.

26:10 Turns out, this wasn't their first rodeo with bad actors on their platform.

26:15 Since 2018, Pinduoduo had been repeatedly investigated by Chinese regulators,

26:20 for counterfeit goods, pirated books, and fake quality inspection reports.

26:26 As of 2023, they were still on the U.S.

26:29 Trade Representative's list of notorious markets for counterfeiting and piracy.

26:34 So when ghost shops started popping up on their platform,

26:37 it wasn't a new pattern.

26:39 It was the same pattern playing out in a new category.

26:43 The cheap-above-everything philosophy that made Pinduoduo so powerful.

26:47 Also made it a natural home for anyone willing to cut corners to win on price.

26:51 In case you want to argue that I'm just drawing inferences about,

26:55 deliberate and systematic malpractice on these platforms,

26:58 and that the reality is that there are just bad

27:01 apples they couldn't identify out of hundreds of millions of orders?

27:05 I said that's a fair pushback, but here's where it stops being inference,

27:10 because when investigators looked closely

27:11 at what these platforms had actually done,

27:14 they found something very hard to explain away.

27:17 Remember how I questioned earlier, about how it's possible,

27:21 to just auction off people's orders to unlicensed third-party vendors?

27:25 It has a name.

27:26 It's called "Zhuan Dan Bao," which roughly

27:29 translates to "order transfer package." It was

27:32 actually a third-party app that functioned like

27:34 a hidden stock exchange for food orders,

27:37 running secretly underneath the apps, you thought you were ordering from.

27:41 What that means is that the moment your payment goes through,

27:44 the ghost Shop takes your order and lists

27:46 it as an open auction on Zhuan Dan Bao,

27:48 and all the unlicensed bakers are bidding to fulfill it.

27:52 Whoever offers to make it cheapest wins.

27:55 It's basically a hidden bidding platform that was making a fortune,

27:58 collecting transaction fees.

28:00 Sort of like a hidden B2B platform, if you will.

28:03 And here's the problem.

28:05 Every single player in the delivery space,

28:07 all 7 platforms— Meituan, JD.com, Pinduoduo, Alibaba's Taobao and Tmall,

28:14 ByteDance's Douyin, and Ele.me, now rebranded as Taobao Shango— had

28:20 independently signed formal cooperation agreements with Zhuandanbao.

28:24 In other words, these were deliberate business arrangements,

28:27 with signed contracts.

28:29 The app was then built directly into their platforms,

28:33 so that ghost shop orders, could be automatically rerouted with a single click.

28:38 The official investigation found,

28:40 that all 7 platforms knew or had every reason to know,

28:44 that these arrangements violated consumer rights.

28:47 And chose to do nothing about it.

28:49 That's how we ended up with 3.6

28:52 million fraudulent orders across those 7 platforms,

28:55 and 3.6 billion RMB or roughly $530 million in total fines.

29:02 In the words of a senior official leading the investigation,

29:05 "This was no minor violation.

29:08 This was a new form of illegal

29:10 activity that had become industrialized at scale." Ideally,

29:13 this is where I wish I could just wrap up the video,

29:16 saying everybody learned their lesson,

29:18 cooperated with the government investigation,

29:20 to get to the bottom of the fraud, and accepted their responsibilities.

29:24 I wish it was that simple, because that's not how things played out.

29:32 There's a perception in the West, and I think it's a pretty widely held one,

29:36 that when the Chinese government decides to crack down on a company,

29:40 that's basically the end of the conversation.

29:43 Everybody falls in line.

29:44 No pushback.

29:45 Just compliance.

29:46 Right?

29:47 That's not what happened here.

29:49 On December 3rd, 2025, 6 months after Liu filed his birthday cake complaint,

29:55 a team of investigators from China's State Administration for Market Regulation,

30:00 showed up unannounced at Pinduoduo's Shanghai headquarters.

30:04 Think of them as the FTC and the FDA combined into one powerful agency.

30:10 Their job was to access Pinduoduo's transaction records,

30:14 interview relevant employees, and review internal documents,

30:17 related to merchant verification and ghost shop activities.

30:21 Pinduoduo wasn't even the primary target.

30:23 It was just one of 7 platforms being inspected simultaneously,

30:28 as part of a sweeping national food safety campaign.

30:31 They thought it was going to be another routine inspection.

30:34 But as investigators worked late into the night,

30:37 they discovered a restricted area within the office floor inside the building,

30:42 that employees were quietly leaving as the evening went on.

30:45 When investigators tried to enter, Pinduoduo employees blocked the door.

30:51 One investigator, an official named Guo Hui,

30:54 had his hand crushed against the door by company staff—broken finger.

30:58 The regulators called the police,

31:01 the police showed up, and it still didn't stop.

31:04 The following night, Pinduoduo's own head of security led a group

31:08 that stormed back into the investigation site,

31:10 shoved officers, and knocked Guo Hui to the ground.

31:13 He ended up in the hospital with a head injury.

31:17 In one of the most widely discussed moments of the raid,

31:20 an employee was observed holding up a sign that read Silence and don't speak.

31:26 When questioned, the employee reportedly crumpled the paper,

31:30 and ate it in front of investigators.

31:32 This was late at night on a Wednesday at one of China's biggest tech companies.

31:37 People just randomly eating papers.

31:39 Anyway, following multiple instances of brawls,

31:42 the government responded by stationing a task force,

31:45 of approximately 100 officials at the Pinduoduo headquarters,

31:49 to maintain order and ensure they could access transaction data,

31:53 which Pinduoduo tried to block by claiming system upgrades or missing backups.

31:58 By the end of the week,

31:59 at least 3 Pinduoduo executives had been detained by police.

32:03 Within 2 weeks, the company had fired 30 employees,

32:07 including a co-founder named Fan Jiezhen.

32:10 When the fines were announced in April 2026, Pinduoduo received 1.5 billion RMB,

32:17 roughly $210 million US dollars, the single largest individual fine,

32:22 in the history of Chinese food safety regulation.

32:24 To put that in perspective, their competitor JD.com had over 43,000 ghost shops,

32:30 which is far more than Pinduoduo's 9,463,

32:34 and paid a way smaller fine because they cooperated.

32:38 Pinduoduo, on the other hand, according to the official finding,

32:42 repeatedly refused to provide relevant materials without justification,

32:46 submitted false information,

32:48 and used violent and obstructive tactics to interfere with law enforcement.

32:53 So regulators had no choice but to assume

32:56 that all 9,463 of their problematic shops,

33:00 had completed fraudulent transactions,

33:02 and apply the maximum penalty to every single one.

33:06 That's the math of obstruction.

33:08 So the obvious question is, Why?

33:10 Why would Pinduoduo, one of China's most powerful companies,

33:15 pick a fight with government regulators,

33:17 knowing it would face serious consequences?

33:20 Nobody knows.

33:21 Their share price dropped 6.5% as rumors of the fight began to circulate online,

33:27 but the only public statement the company

33:29 made was via a spokesperson to Nikkei Asia,

33:32 that "this account was false and bore no relation to reality." That's it.

33:38 No explanation, no apology, nothing.

33:40 But one can reasonably speculate what was going on.

33:44 Pinduoduo likely knew that their exposure was significant,

33:48 not just the ghost shops but also

33:51 the signed cooperation agreements with Zhuan Dan Bao,

33:54 the secret auction platform.

33:55 And speaking of Zhuan Dan Bao, they got raided as well.

33:59 After the fines were announced in April 2026,

34:02 all 7 platforms were immediately ordered

34:04 to cut off cooperation with them entirely.

34:07 Strangely enough, Zhuan Dan Bao itself never got formally fined,

34:11 but their app was pulled from official app stores,

34:13 so their entire business model of being a shady middleman is effectively dead.

34:18 Anyway, back to Pinduoduo, because here's the thing,

34:21 this ghost shop scandal wasn't the first time,

34:23 they got caught doing something like this.

34:26 Just days after their IPO in 2018,

34:28 the same government agency that would fine them in 2026,

34:32 launched an investigation into widespread counterfeit goods,

34:35 being sold on the platform.

34:37 We're talking fake TVs, pirated children's books,

34:40 infant formula selling for just $1 when the real thing costs $130.

34:45 State broadcaster CCTV named and shamed them directly,

34:50 warning that selling fake products was a line that no platform could cross.

34:55 China's biggest publishing houses took them to court,

34:58 over pirated books sold at over 50% discounts, falsely labeled as authentic.

35:03 The company's response?

35:05 They said they were being unfairly attacked,

35:08 and maliciously targeted with negative press.

35:11 Then they claimed to have removed 10.7 million suspicious items,

35:15 and shut down 1,128 stores in a single week.

35:19 This was apparently good enough for the regulators,

35:21 because they didn't face a formal fine.

35:24 In other words, they got away with a promise to do better.

35:28 Except they didn't get better,

35:30 and their response to the latest scandal was to obstruct the investigation,

35:34 and receive the biggest fine in Chinese food safety history.

35:37 And yet, even the $210 million fine is barely a rounding error,

35:42 for a company generating $15.4 billion in net profit.

35:47 In other words, the fine represents about 1.4% of their annual profit.

35:52 Just a drop in the bucket, really.

35:54 Clearly, this whole pattern goes beyond simple competitive pressure,

35:59 or wanting to gain market share, although that's a big part of it.

36:02 It's almost like the core philosophy that drives everything they do— being

36:06 the cheapest option no matter what— ends up overriding every other obligation,

36:12 whether that be moral or ethical.

36:14 And I am sure that wasn't the founding vision of the founder Colin Huang,

36:19 who built the company,

36:20 to serve the hundreds of millions of ordinary working Chinese people,

36:24 that Alibaba and JD.com were underserving— the factory workers, the farmers.

36:29 But somewhere between that founding vision,

36:33 and a $54 billion empire after the founders' exit, something got lost.

36:38 By January 2026, Chinese regulators had

36:42 expanded their investigation into separate allegations,

36:45 of fraudulent shipping practices and tax violations.

36:49 Then in early 2026, Pinduoduo was separately fined again,

36:54 this time by tax authorities, for failing to submit quarterly merchant tax data,

36:59 as required under the new 2025 platform regulations.

37:03 But here is what I keep coming back to at the end of this whole thing.

37:07 Putting aside what's actually happening to Pinduoduo,

37:10 you cannot guarantee that more competition,

37:14 and the twisted corporate culture of each of these giant companies,

37:18 in a super crowded market,

37:20 won't produce more illegal practices and more victims.

37:24 The ghost shop problem might have been resolved temporarily,

37:28 but I am sure there will be more shady practices popping up,

37:31 that will go unnoticed until real victims emerge in meaningful numbers.

37:36 They are probably taking place right now as we speak.

37:39 If anything, the economics that created the ghost shops haven't changed,

37:44 and will only get more cutthroat,

37:46 which will encourage more cost-cutting behaviors.

37:49 The consumer expectation of impossibly cheap,

37:52 impossibly fast delivery, will only get higher.

37:56 So what are you supposed to do?

37:58 Let me leave you with one last example,

38:00 of someone who pays the price of cheap every single day: the delivery rider.

38:05 There are approximately 15 million delivery riders in China.

38:09 They are the human infrastructure,

38:10 that makes 150 million daily orders physically possible,

38:14 and the average rider earns about 63 cents per delivery.

38:18 So if you work a 10-hour shift making 30 deliveries, How much do you earn?

38:23 About $18 US dollars.

38:26 That's less than $2 an hour.

38:28 In September 2024, a rider in Hangzhou

38:31 collapsed and died after working 16-hour days.

38:35 His death sparked protests among riders calling

38:37 for a union and an 8-hour workday.

38:41 By most accounts, nothing fundamentally changed.

38:44 And the reason why riders take these risks isn't necessarily recklessness.

38:49 It's math.

38:50 Meituan's algorithm for delivery riders, which the company calls Super Brain,

38:56 keeps tightening delivery windows based on actual completion times.

38:59 If most riders can consistently deliver in 10 minutes,

39:03 the algorithm gradually cuts the standard delivery window,

39:07 from 12 minutes down to 10.

39:08 If certain riders regularly finish in just 8 minutes,

39:12 the system labels them high-efficiency benchmarks,

39:15 and raises overall performance expectations.

39:19 What that means is, if a rider delivers in 8 minutes,

39:22 the next deadline could also become 8 minutes.

39:25 Miss it and face the consequences: negative reviews, reduced income,

39:30 lower priority for profitable orders,

39:33 and potential suspension from the platform entirely.

39:37 One rider describes the system as "racing

39:39 against death." This is what cheap actually costs.

39:44 The bottom line is, the cheap has to come from somewhere.

39:47 It comes from manufacturers running on margins so thin,

39:51 they cannot afford quality control.

39:53 It comes from riders earning 63 cents

39:56 per delivery running red lights in the rain.

39:59 It comes from bakers making your birthday cake for $10,

40:02 in a residential apartment with questionable ingredients,

40:06 and no food safety certification.

40:08 And perhaps most importantly,

40:10 because of these realities and questionable practices,

40:14 it's China's reputation at large that suffers on the global scale.

40:19 We all know the Western stereotypes associated with "Made in China" labels,

40:23 or Temu being the butt of many jokes.

40:25 China's solar panels, which now accounts for over 80% of global supply,

40:30 and its EV batteries are genuinely world-class products,

40:34 that still get overshadowed by past scandals, like cheap fake goods,

40:39 contaminated baby formula, and lead in children's toys.

40:43 When you mess with people's health, that stuff really sticks.

40:47 I'm just saying, if there's anything

40:49 I've learned from researching this industry,

40:52 it's that China's ghost shops and ghost delivery scandal,

40:55 isn't really a story about China's dishonesty, at a national level.

40:59 It's a story about what extreme competition and a misguided corporate culture,

41:04 does to any system when the only measure of success,

41:07 is how cheap you can make something.

41:10 In fact, what was most surprising for me

41:12 was the way these big Chinese tech companies, are increasingly acting in a way,

41:17 that suggests they don't really fear the Chinese government,

41:20 as much as the West makes them out to be.

41:22 How else can you explain Pinduoduo's repeated

41:25 violations of regulations, and in the end, still walking away with a fine,

41:30 that's supposed to be punitive but amounts to barely 1% of their annual profit?

41:36 What's going on there?

41:37 Are they too big to be punished now?

41:39 What does that mean for consumer safety not just for China,

41:43 but for the rest of the world.

41:44 This should make all of us very uncomfortable as consumers,

41:48 especially because it's really hard to figure out,

41:51 how they should be held accountable.

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43:04 Of course, I'm Stephen Park.

43:05 Thank you for watching all the way to the end.

43:08 And as always, stay curious.