Hundreds of Chinese merchants staged a protest rally at PDD Holdings' offices in Guangzhou this week, escalating tensions between suppliers and the parent company of rapidly expanding ecommerce platform Temu.

The demonstration, which took place on Monday, saw suppliers brandishing placards and chanting slogans outside the company's southern China outpost. Some protesters managed to enter Temu offices, though they eventually dispersed without meeting senior executives, according to witnesses who requested anonymity.

The protest marks the culmination of growing frustration among merchants who feel squeezed by Temu's aggressive business practices. The primary grievance centres on what suppliers describe as unfair penalties and fines levied by the platform.

"They take a fine from you if there is a customer complaint, even if it's not your fault. If there is a fault with one item in the batch, then they will fine you for the whole batch," one seller told the Financial Times.

Protesters claim that Temu has sharply increased these penalties in recent months, often without clear explanation. The platform typically either withholds payment for products already sold or imposes fines several times the retail price of the items in question.

This week's demonstration follows at least two similar rallies since May, underscoring the deepening rift between Temu and its supplier base. A Temu representative acknowledged an ongoing dispute with about a dozen sellers over "after-sales issues" involving several million yuan, but did not provide specifics about Monday's protest.

The unrest comes at a critical juncture for Temu, as it seeks to reshape its business model in response to potential regulatory changes. The platform is pushing to recruit merchants who can store goods in US and EU warehouses, a move designed to protect against the closure of tax loopholes and reduce delivery times.

However, this pivot has met resistance from suppliers who are reluctant to shoulder the additional risks and costs. "Most of us sold on Temu because the company handled the logistics and warehouse costs. A lot of us can't afford this," said Mr Hong, a leggings manufacturer in Haizhu told the FT.

Despite the backlash, Temu's growth trajectory remains impressive. Bernstein analysts project the platform will generate $54 billion in gross merchandise revenue this year, up from an estimated $17 billion in 2023.

The company stated it is "actively working with the merchants to find a solution," but the protest underscores the urgency of addressing supplier concerns as Temu pursues its ambitious global growth plans.

A spokesperson for Temu told Retail Systems: "Recently, a group of merchants gathered at the office of a Temu logistics affiliate in Guangzhou. This group included about a dozen sellers, most of whom are clothing sellers who also operate on Shein. They were unhappy with how Temu handled after-sales issues related to the quality and compliance of their products, disputing an amount worth several million yuan.

"These merchants have declined to resolve the disputes through the normal arbitration and legal channels stated in the seller agreements. The situation is stable, and the company is actively working with the merchants to find a solution."

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