Original first release | Jinjiao Finance (ID: F-Jinjiao)

Author | Ying Bao

JD.comIt was a big deal, so big that no one in the industry dared to get involved.

JD CoinChain Technology (Hong Kong), a subsidiary of JD.com, announced that it will issue a stablecoin pegged 1:1 to the Hong Kong dollar in Hong Kong. It has now been included in the first batch of "Stablecoin Issuer Sandbox" list announced by the Hong Kong Monetary Authority.

Stablecoins are a type of cryptocurrency that aims to maintain a relatively stable value relative to real currencies.Stablecoins are known as "online money printing machines". The quarterly transfer volume has increased 17 times in the past four years, reaching 4 trillion US dollars in the second quarter of 2024.

However, in the mainland market, major companies are avoiding stablecoins. Even those that were involved in crypto projects in the early years have now withdrawn completely.There is money to be made but no one is making it because the risks of this business go beyond the commercial scope and also involve regulatory red lines.In recent years, regulators have repeatedly named stablecoins, warning against financial security issues that may arise from the "interoperability" between stablecoins and legal tender.

What’s wrong with JD.com that it dares to touch sensitive businesses that are on the edge of regulation?

Risks of playing with fire

No matter what the outside world thinks, JD.com is very serious about issuing "stablecoins".

From the perspective of the industry background, Hong Kong released a discussion document on stablecoins in 2022 and announced that it would formulate relevant regulatory policies. In March 2024, the sandbox policy for stablecoin issuers was announced, which called for a group of testers to explore the feasibility of issuing stablecoins; in July of the same year, JD CoinChain Technology became an "issuer" together with Standard Chartered Bank, Hong Kong Telecom and other companies.

JD.com has not been idle in the two years from the conception to the testing of the policy. Although JD.com CoinChain Technology (Hong Kong) was only established in March 2024, it has complete qualifications and already has No. 1 and No. 4 licenses for securities trading, as well as No. 9 licenses for asset management. At the same time, Liu Peng, CEO of JD.com CoinChain Technology (Hong Kong), has a great background. On LinkedIn, he calls himself the co-founder and product director of WeChat Pay, and as a core product personnel, he launched the phenomenal product "WeChat Red Packet". Later, he joined Huawei as the head of global mobile payment product operations. It can be said that he has unparalleled payment experience.

JD.com has already laid the groundwork for both the issuance and circulation of stablecoins, naturally in order to gain “money power”. According to the financial report of Tether, the issuer of Tether, its net profit in the first quarter of 2024 was as high as US$4.52 billion (approximately RMB 32.7 billion). It should be noted that during the same reporting period, the Chinese liquor giantKweichow MoutaiThe net profit of the communication giant is only 24.065 billion yuan.China MobileThe net profit was "only" 29.609 billion yuan.

Even if it cannot become the second Tether, facing such a huge and tempting cake, being able to take a big bite will also be a huge profit, which may be the biggest motivation for JD.com to enter the market.

But behind the temptation lies unspoken risks.

The most acute problem is thatJD Stablecoin is pegged to the Hong Kong dollar, which is in turn pegged to the US dollar, which means that JD Stablecoin will have a close relationship with the US dollar. And since the exchange rate between JD Stablecoin and Hong Kong dollar is 1:1, is JD Stablecoin another form of Hong Kong dollar?

The positive side of this arrangement is that it simplifies the shopping channels for overseas consumers on JD.com, improves JD.com's commercial position and value in the global market, and provides a new and convenient solution for the entire cross-border payment industry. JD.com also stated that it will cooperate with the work of global regulators.

On the other hand, although mainland China’s attitude towards stablecoins has eased, it is still wary of them, especially stablecoins that have a sensitive relationship with the US dollar.

The JD Coin Chain official website states that JD Stablecoin has the characteristics of "full redemption, full transparency, and full compliance." What does "full redemption" mean?If we convert RMB into Hong Kong dollars, and then convert Hong Kong dollars into JD Stablecoin at a 1:1 ratio, then does JD Stablecoin become a disguised channel for exchanging for US dollars?Of course, this also depends on how the "full compliance" mentioned on JD.com's official website is implemented.

As early as September 2021, the People's Bank of China issued the "Notice on Further Preventing and Dealing with the Risks of Virtual Currency Trading Speculation". It mentioned the boundary between legal currency and virtual currency, "Virtual currency does not have the same legal status as legal currency... It is not legal tender.It should not and cannot be circulated and used as currency in the market."

The gray areas in the circulation process are also worrying. The United Nations once pointed out in a report thatStablecoins such as Tether have become one of the most commonly used payment methods for money laundering and fraud in Southeast Asia.The data given in the "White Paper on Global Virtual Currency Crime Situation and Security Governance" is that more than 50% of virtual asset risk events are related to stablecoins. After the release of the "Sandbox List", the Hong Kong Monetary Authority also stated in the consultation summary thatWe have realized the importance of stablecoin security issues and will take more targeted measures.

Although JD.com's stablecoin has not yet officially entered the issuance stage, this project is full of risks no matter how you look at it. After all, some money cannot be earned just because you want to.

The low-price transformation is getting slower and slower

JD.com has been losing ground in the e-commerce war for a long time.Urgently need capital to turn things around.

In the early years, when the e-commerce industry was still dominated by Tmall and JD.com, the competition was not as fierce as it is now. JD.com, with its quality advantage in 3C digital products, captured the consumption minds of the middle class, and its average customer spending was much higher than that of its peers. A Fujian rosewood furniture manufacturer once said in an interview that a chair sold for 200-300 yuan on other e-commerce platforms, but when it was put on JD.com, and keywords such as "imported raw materials" and "hundred-year-old rosewood" were added, the price could be doubled immediately.

With the low-price consumption trend coming, JD.com showed discomfort.Reforms are always a step slower than those of our competitors.

This "slowness" stems from the internal friction caused by JD.com when implementing its low-price strategy.

There are two types of products on JD.com. One is self-operated products, which are purchased and sold on the platform; the other is third-party products, which means that merchants settle in the platform to manage their business themselves and only need to pay commissions and advertising fees to JD.com.

Liu Qiangdong initially planned to implement the low-price strategy starting with third-party products, because if he forced down the prices of self-operated products, it would be like cutting his own flesh. Besides, it is very easy to persuade merchants to lower prices. As long as they are given a little incentive, they will roll up.

This move should be feasible, because Taobao,PinduoduoThat's how it's done.But JD.com overlooked one point: the volume of its third-party products is relatively small.China Merchants SecuritiesData shows that the number of merchants on Taobao, Pinduoduo, and JD.com are respectively over 100 million, over 40 million, and over 1 million, and the three are not at the same level.

Looking at the proportion of JD.com's internal merchandise revenue, the financial report shows that service revenue in 2022 only accounted for 19.1% of JD.com's total revenue (the fees paid by merchants to JD.com are included in service revenue).

at the same time,The third-party commodity business is also suppressed by the self-operated business—— Liu Qiangdong sometimes cannot control too much the competition between front-line departments. A JD employee once said in an interview that the self-operated business has always been strong in the spirit of "our own family", and in the past, there have been behaviors of deliberately not giving traffic to third-party product businesses and not doing promotions.

At the beginning of 2023, JD.com launched the "Spring Dawn Plan" to boost the performance of third-party products, including lowering the entry threshold for merchants, simplifying the entry process, and providing "zero-yuan trial operation" for new merchants. The tilt of the company's resources caused the revenue of its self-operated business to fall by 24.4% in the first quarter of 2023 compared with the previous quarter.

The self-operated business was not happy and started to engage in live broadcasting of purchases and sales to compete for traffic. During the 2023 JD.com 11.11 Shopping Festival, the total number of viewers of JD.com's purchase and sales live broadcasts exceeded 380 million, and the sales of more than 60 brands exceeded 1 billion yuan. The third-party product business had made some progress, but it was "taken back" again.

The struggle between business departments has weakened the effectiveness of JD.com's low-price reform.From 2020 to 2023, JD.com's revenue growth rate was 29.28%, 27.59%, 9.95% and 3.7% respectively. During the same period, Pinduoduo's revenue growth rate was 97.37%, 57.92%, 38.97% and 89.68% respectively. JD.com was dozens of percentage points slower than its competitors, so much so that in June 2024, Liu Qiangdong could not help but shout: "If you don't work hard, you are not my brother."

Recently,As the backlash of the price war becomes apparent, the direction of the e-commerce industry changes again - companies are withdrawing from the price war one after another.

Media reports show that on July 24, 2024, Douyin E-commerce adjusted the priority of its business objectives and no longer put "price power" first. In the second half of the year, it will focus on pursuing GMV (transaction volume) growth; Alibaba's Taotian Group publicly stated that in the second half of 2024, it will reduce its reliance on "five-star price power", weaken the strategy of absolute low prices, and return to the GMV traffic distribution logic.

But this time,JD.com has not kept up with the changes.In mid-July this year, JD.com launched a new low-price marketing IP "JD Super 18", and will subsequently launch promotional activities every month to buy products worth thousands or tens of thousands of yuan for 18 yuan, aiming to normalize low prices.

JD.com’s market position has been declining.

Remote control number one

Whether it is the issuance of stablecoins or the normalization of low prices, such a major transformation strategy is definitely related to Liu Qiangdong, who lives far away overseas.

Because "JD.com has no No. 2 person", this rumor started circulating as early as 2018. In the same year, Liu Qiangdong experimented with a rotation system for senior executives and promoted Xu Lei to the top.Jingdong MallLiu Qiangdong's words "Whoever disobeys Xu Lei disobeys me" confirmed the public's speculation.

But just 13 months after taking over, Xu Lei announced his retirement for personal reasons, and JD.com once again had no "number two". Xu Ran, who later took over as CEO, was not recognized as the "number two" by the outside world. A person close to the company once told the media: "Xu Ran is an executor who ensures that things stay within the budget."

Xu Lei was appointed CEO during the pandemic, so it is understandable that JD.com's retail performance was sluggish. In the first quarter of 2023, revenue still had a meager year-on-year growth rate of 1.4%. He was not a credit, but he was not a fault either. Moreover, Xu Lei founded the "618" promotion at JD.com, completed the innovation of the JD.com PLUS membership system, and was appointed to take charge of the overall situation in 2018.

The cause of this situation,The bottom line is that Liu Qiangdong "will not tolerate two tigers".

Between 2007 and 2018, Liu Qiangdong tried to delegate power three times. In 2007, he realized that if the company wanted to be formalized, it must first abandon the "one person under one person" structure, so he recruited a group of senior executives including Xu Lei, Wang Xiaosong, and Chen Shengqiang. In 2013, he said he wanted to take a break and prepare for marriage. The third time was after the turmoil in 2018, when he pushed Xu Lei to the forefront.

But each time he delegated power, Liu Qiangdong took it back shortly afterwards.

For example, around 2013, he said he was going to study in the United States for a period of time, but in fact, all matters of JD.com were still reported to him and decided by him; Xu Lei retired 13 months after taking office; and according to the Financial Times, although Liu Qiangdong had resigned as CEO and lived overseas (mainly in London), his direct subordinates were required to meet with him overseas regularly. After the "not brothers incident", Liu Qiangdong was exposed to frequently send 60-second voice messages in the business group, and many C1/C2 level executives had to fly to Dubai to report directly to him.

The China-Europe Business Review even used the word "contempt" in an article in 2023, "How to describe Liu Qiangdong's attitude towards management? The author is at a loss for words and cannot find a more vivid and descriptive word than 'contempt'."

Liu Qiangdong's strong position over the years has resulted in no one daring to object even if he makes a wrong decision. No one even thinks about whether he is right.An interviewee who once worked in JD.com’s management described the company’s internal affairs in this way: “In JD.com, none of the many executives have ever really thought about it. I have made countless presentations with these executives, and all they think about is, how will Lao Liu view this matter?”

In April 2023, when JD.com’s low-price strategy was in full swing, independent consultant Mao Qian wrote in “JD.com’s Dilemma”:“Behind every business dilemma are organizational dilemmas.”

Today, as JD.com plays with stablecoins, this statement still applies.

References:

Gyro Finance: Behind JD.com's Stablecoin Issuance

Leifeng.com "No War on JD"

Yuanchuan Research Institute: "JD.com is trapped in low prices"

Daily Economic News "From "fighting furiously" to "putting on the brakes", is the e-commerce low-price strategy no longer effective? Douyin and Taobao intend to return to the GMV distribution logic, and JD.com will fight to the end"

Pintu Business Review: "JD.com's "No. 2" Debate: Xu Lei's Ups and Downs and Farewell, Liu Qiangdong's Decentralization and Reinstatement"