The news: The heat on Temu parent PDD Holdings is growing, at home and abroad.

• The company is being investigated by China’s State Administration for Market Regulation (SAMR) over reports of fraudulent deliveries, per Bloomberg.
• Temu’s Dublin headquarters were raided last week by the European Union over concerns that the company breached the bloc’s foreign subsidy rules.

Zoom out: PDD is losing goodwill in many of the markets it operates in—including in China, its most important.

• Employees reportedly got into fistfights with SAMR investigators at the company’s Shanghai offices, leading to multiple arrests, per Bloomberg sources. Such confrontations are highly unlikely to endear PDD to the powerful regulator, which has the ability to instigate sweeping probes into the company’s business practices.
• EU officials are worried that subsidies from Beijing may be giving Temu an unfair advantage over local competitors—fears that have only been heightened as more Chinese businesses look to Europe to offset US trade uncertainty.

Our take: PDD’s ability to navigate an increasingly challenging environment in China and internationally will depend on whether it can improve relationships with governments in the markets it operates, many of which are growing more skeptical of the company’s tactics.

As relations grow increasingly testy, PDD may need to rethink its playbook. Onboarding more local sellers and strengthening its logistical muscle could help mollify some critics and minimize the hit as countries crack down on de minimis loopholes.

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