rom investors on strategy. They have also drawn increased scrutiny from regulators who are worried about a downward price spiral in China, where weak property prices and poor job stability have contributed to persistent consumer malaise, pressuring companies into aggressive pricing and subsidies in an effort to get people to spend. In recent weeks, as e-commerce and food delivery firms reported earnings for the quarter ended June 30, the theme of competition dominated analyst calls and executive commentary. At JD.com, CEO Sandy Xu warned of unsustainable “excessive competition” while Meituan CEO Wang Xing pointed to a “new phase of competition” and PDD Holdings’ co-CEO Zhao Jiazhen flagged industry competition that “has intensified further” throughout the quarter. The first shots were fired earlier this year when JD.com — alarmed by Meituan’s move to sell a wider range of products — opened an app to compete with Meituan’s core food-delivery business. Alibaba, which operates the Ele.me food-delivery app, followed suit, ramping up investment in the segment. All three firms have pledged billions of dollars to win market share. Analysts at Nomura estimate industry-wide cash burn exceeded US$4 billion in the second quarter alone. “The landscape is increasingly challenging, resembling a high-stakes ‘game of chicken,’ where the early investments of whichever player yields first could end up wasted. We expect this intense competition to continue at least through the [Singles’ Day] shopping festival in November,” said Kenneth Fong, UBS Investment Bank’s head of internet research in China. S&P Global analysts forecast Meituan, JD.com and Alibaba will spend at least 160 billion yuan (US$22.37 billion) over the next 12–18 months to defend or grow market share in food delivery and instant retail. They warned of “significant downward revisions” to profits, saying margins are unlikely to recover over the next 12–24 months. Meituan is expected to be hit the hardest, as food delivery contributes most to its revenue. JD.com’s food-delivery losses nearly wiped out its second-quarter profit, while Alibaba is less exposed, with instant retail forming a smaller part of its business, the analysts said. Long-term gain PDD’s domestic platform, Pinduoduo, has largely stayed out of the instant retail fray, but its low-cost advantage is being eroded by rivals’ discounting. “We do not believe this quarter’s profit levels are sustainable and expect fluctuations in profits in future quarters,” said co-CEO Zhao. Contributing to the margin squeeze in the current quarter will be difficulties maintaining e-commerce revenues from the quarter to the end of June, which included a boost from China’s mid-year ‘618’ shopping festival. Still, companies are betting the short-term pain will be worth the long-term gain, with Jiang Fan, chief executive at Alibaba’s e-commerce business group, projecting the instant retail segment could add 1 trillion yuan in annualised incremental gross merchandise volume for Alibaba over the next three years. Key metrics to watch in the second half include those showing instant retail users migrating to core e-commerce platforms. JD.com’s quarterly active customers rose more than 40 per cent year-on-year in Q2, while Alibaba’s Taobao app saw monthly active users jump 25 per cent in the first three weeks of August, helped by food-delivery-user conversion. While the companies seem ready to dig in for a long-term battle, there is also a chance these price wars might be halted by external powers. Regulators have repeatedly warned platforms against a “race to the bottom” price competition, leading Meituan, Alibaba and JD.com to release statements in July pledging to curb price wars. “We expect the companies’ stated commitments to the government’s anti-involution measures to gradually rationalise competitive dynamics,” said Ying Wang, senior analyst at Moody’s Ratings. Reporting by Casey Hall; Editing by Muralikumar Anantharaman of Reuters