Transcript: A look at Temu’s murky business model

This is an audio transcript of the FT News Briefing podcast episode: ‘A look at Temu’s murky business model’

Marc Filippino
Good morning from the Financial Times. Today is Friday, March 8th, and this is your FT News Briefing.

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If you have a hard time stopping yourself from scrolling on Instagram, you’re not the only one. And Vietnam’s major anti-corruption campaign has moved into the private sector. Plus, are you ready to shop like a billionaire? Welcome to Temu.

Dan McCrum
It’s this Chinese ecommerce platform which conquered China in the space of about five or six years, and now it’s taking over the world.

Marc Filippino
I’m Marc Filippino and here’s the news you need to start your day.

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More people downloaded Instagram than TikTok in 2023. The social media app grew 20 per cent last year, making it the most downloaded app in the world. TikTok only saw an increase of 4 per cent. Now, the driving force behind Instagram’s popularity was its reels feature, which allows users to post short video clips, which is an idea that it took from TikTok. I guess imitation truly is the sincerest form of flattery.

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Are you seeing a lot of orange lately? Like a lot of orange . . . 

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Marc Filippino
Or caught yourself humming a tune that really only belongs in a kid’s cartoon?

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Temu is owned by a company called the PDD Holdings. But PDD’s finances are a black box and its operations are a huge secret. Here to talk to me about PDD is the FT’s Dan McCrum. Hey, Dan.

Dan McCrum
Good morning.

Marc Filippino
So first things first. What actually is PDD Holdings and how does it work?

Dan McCrum
So this is the company behind Temu, the online flea market where you can buy just about anything you’d like, flown direct from China extremely cheaply. And the company behind it, PDD Holdings, it’s this Chinese ecommerce platform which conquered China in the space of about five or six years, became one of the biggest shopping sites there and now it’s taking over the world with Temu.

Marc Filippino
Yeah. How is it doing that, Dan?

Dan McCrum
So Temu is spending what seems to be billions of dollars in advertising, and it’s launched this shopping site in 49 countries so far. And what it does is you order something and it gets sent directly from the factory in China by airfreight to wherever you are in the States, in the UK, all over the place. It’s sort of a bit like Amazon’s third-party marketplace or eBay. And their results are unbelievable. They doubled revenues in the last quarter and they’re rapidly gaining ground on Alibaba, which is the biggest Chinese marketplace, which has dominated that market for a very long time. And they might even be about the same size as Amazon now.

Marc Filippino
I mean, that kind of growth and expansion seems incredible. Are there any problems with Temu?

Dan McCrum
Well, it’s a really unusual company because it has a very small number of employees compared to its size. So it has about 13,000 full-time staff controlling this really quite large and consequential business now, which slightly boggles the mind and our assumptions about how you do things like complex logistics. And intriguing thing to my mind is it has very little financial disclosure about all of this stuff, about who its partners are, about what it’s paying them, how many there are. I mean, we don’t even know where its warehouses are. And that’s kind of unusual in a public-listed company on the American stock market, which is valued at more than $150bn.

Marc Filippino
Yeah. So given all of that opacity, why is it so big with US investors?

Dan McCrum
I mean, well, the growth is pretty good. Profits have been going up and up and up for quite some time. Investors are really looking for the next big thing and Temu does appear to be that. And its business model as described, it makes sense. They are getting really cheap prices from these manufacturers all over China and they do seem to be spending a lot of money to take growth.

Marc Filippino
Dan, what’s your main takeaway when it comes to Temu and PDD Holdings?

Dan McCrum
I think one of the reasons why people look at PDD with perhaps a raised eyebrow, is the lesson of investing in American-listed Chinese companies over the last decade or so is that there have been some very good companies, but there have also been quite a number of frauds exposed, and have also been companies who have sort of promised a lot and then fizzled out. There are some legitimate questions around how sustainable is the business, what sort of standards of product safety are applied to the things that it’s selling? Those sorts of questions are quite hard to answer, and they feed into this bigger question about, well, is this a flash in the pan? And what is really happening inside this quite opaque and quite unusual business?

Marc Filippino
Dan McCrum is an investigative reporter at the FT. Thanks, Dan.

Dan McCrum
Thank you.

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Marc Filippino
US President Joe Biden announced on Thursday plans to set up a port on the coast of Gaza. This will allow ships to deliver more food, water and medicine into the strip. Citizens there face a severe humanitarian crisis after months of war between Hamas and Israel. US officials say that the port will include a temporary floating pier and that it will be able to hold hundreds of additional truckloads of aid each day.

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A Vietnamese real estate tycoon went on trial this week. Truong My Lan is accused of embezzling billions of dollars. It’s Vietnam’s biggest fraud case ever.

A. Anantha Lakshmi
If these allegations and the fraud is proven to be true, then it could be one of the biggest financial frauds that we have seen in Asia, perhaps even bigger than the 1MDB scandal in Malaysia, perhaps three times bigger.

Marc Filippino
That’s Anantha Lakshmi who covers Vietnam for the FT. She says the person at the centre of the case comes from one of the richest families in the country.

A. Anantha Lakshmi
Yeah. Truong My Lan is a property tycoon. She’s the chairwoman of Van Thinh Phat, a company that owns some of the most prized properties in Ho Chi Minh City, which is Vietnam’s economic and commercial hub. Lan is accused of misappropriating roughly about $12.5bn, from the Saigon Joint Stock Commercial Bank. She’s also alleged to have used thousands of companies to obtain loans worth a total of $44bn from the bank. So put together they’re like 10 per cent of Vietnam’s GDP. And she was arrested in late 2022 and has since been charged with embezzlement, bribing government officials, abuse of power and violating banking laws.

Marc Filippino
Lan’s fraud case is part of a larger anti-corruption crackdown that Vietnam’s Communist party started a few years ago.

A. Anantha Lakshmi
The crackdown has seen hundreds of high-ranking officials being arrested or ousted even, including two deputy prime ministers and a president in recent years. The campaign has been pretty expansive and exposed graft across all levels of the government. But Lan’s case is the biggest one in the private sector, and it has had a huge impact on the property market and corporate bond market, which have really collapsed since her arrest in 2022.

Marc Filippino
But the anti-corruption campaign might backfire.

A. Anantha Lakshmi
So the campaign has had a chilling effect on some aspects of the economy. Government officials have been hesitant to approve projects or issue licenses, fearing that they could also get caught up in these graft investigations. The concern is Vietnam continues to be one of the biggest beneficiaries of companies diversifying their manufacturing operations outside of China. That will certainly continue. But some analysts have warned that if more and more private companies get entangled in corruption cases, investor confidence could take a hit.

Marc Filippino
Anantha Lakshmi covers Vietnam for the FT.

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One more thing before we go: I have a sabbatical coming up, so you’ll hear a few of my colleagues on the briefing over the next couple of weeks. They’re gonna do a fantastic job filling in, and I hope you enjoy listening to them.

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The FT News Briefing is produced by Kasia Broussalian, Sonja Hutson, Fiona Symon and me, Marc Filippino. Our engineer is Monica Lopez. We had help this week from Persis Love, Zach St Louis, Sam Giovinco, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

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