China’s delivery price war nears inflection: positioning ahead of the turn

However, the year began on a shaky footing. In early February, the sector experienced a sharp bout of volatility due to speculation of a potential increase in value-added tax, rumours that ultimately proved unfounded. Before a meaningful recovery could take hold, markets were hit by geopolitical shocks, most notably the outbreak of the US–Israeli strike on Iran.

The resulting disruption to energy supply and surge in oil prices materially shifted interest rate expectations, dampening growth prospects. Investors rotated away from high-growth technology names into more defensive sectors, triggering a broad-based pullback.

While a rebound followed amid a ceasefire window, the HSTECH index remains down 9.5% year-to-date as of 20 April 2026.

The key question for investors is no longer simply why the index has fallen, but whether the accumulation of headwinds is likely to persist or begin to ease.

Overstated concerns over a Middle East oil shock

Concerns over higher oil prices for HSTECH companies are driven more by sentiment than by direct operating impact. China’s exposure to energy shortages is limited, supported by over 100 days of strategic reserves, a diversified energy mix, and domestic pricing mechanisms that help absorb cost pressures.

While second-order effects could emerge if elevated prices persist in a prolonged conflict scenario, current macro indicators continue to point to resilience. China’s economy expanded by a stronger-than-expected 5.0% in 1Q26, while retail sales rose 2.4% year-on-year, suggesting that domestic demand has yet to show any meaningful deterioration.

Market sentiment has already begun to stabilise, with technology stocks leading the rebound as risk appetite improves. While the oil shock may be structural, China’s efforts to enhance energy security over the years means it is relatively well-positioned to absorb the disruption, and the broader impact on technology fundamentals should remain contained.

Price war: a key pressure point

Beneath the macro noise lies a more fundamental challenge: earnings have not lived up to expectations. Fourth-quarter 2025 results were broadly disappointing, with aggregate earnings across the index declining by 35% year-on-year.

Figure 1: HSTECH Index earnings declined by 35% year-on-year in 4Q25

At the centre of this weakness is the escalating delivery price war. Companies such as Meituan, JD.com, and Alibaba have aggressively deployed subsidies to capture market share, driving a sharp increase in marketing and selling expenses - nearly doubling from pre-price war levels (Figure 2). As a result, their earnings declined by high double-digit percentages during 4Q25 (Table 1).

Figure 2: The three platforms have seen M&S expenses more than double from pre-price war levels

Table 1: Earnings of the three delivery giants

	Weight (%)	EPS as at 31/12/2024	EPS as at 31/12/2025	EPS Growth YoY
Meituan	8.83	1.08	-2.60	N.M.
JD.com Inc	5.41	7.85	0.15	-99%
Alibaba Group Holding Ltd	7.32	12.69	6.67	-47%
*EPS is calculated as diluted EPS from continuous operation Source: Bloomberg. Finance L.P., iFAST Compilations. Data as of 31 Dec 2025.

Sustained subsidy competition is quickly eroding margins and draining cash flow across companies participating in the price war.

A moderation of the price war is therefore critical for earnings recovery. The key question: are we beginning to see that shift in 2026?

The instant commerce price war: is it really moderating?

Skepticism remains warranted. Two rounds of regulatory intervention in 2025 yielded limited results. China’s regulators, including the State Administration for Market Regulation (SAMR), repeatedly urged platforms to curb excessive subsidies and compete rationally. Despite public commitments from companies, competitive intensity remained high, with operating profits hitting trough levels by the 30 September 2025 quarter (Figure 3).

Figure 3: Operating profits fell to lows as of 30 September 2025

What makes 2026 different?

It is not the intensity of regulatory pressure that has changed, but the rising economic cost of inaction. In 2025, calls for moderation were genuine, but the stakes remained relatively low. Platforms continued to compete aggressively, and while the macro impact was visible, it had yet to create real fiscal or political urgency.

That dynamic has now shifted. The government is no longer urging restraint purely on grounds of market fairness, it is doing so because sustained price competition is increasingly at odds with the broader macroeconomic objectives it has committed to.

The clearest evidence is in the inflation data. While core CPI (which excludes food and energy) has trended steadily upward since early 2025, headline CPI weakened noticeably during the peak subsidy months of July, August and September (Figure 4). With food and dining accounting for nearly 30% of China’s CPI basket, intense price competition in this segment has exerted persistent downward pressure on headline inflation. In other words, ultra-cheap meal orders and free delivery may be a win for consumers, but they are actively contributing to deflationary pressure at the macro level.

Figure 4: China’s headline CPI weakened significantly during the peak subsidy period

The broader economic consequences are becoming harder to ignore. What began as a platform-level price war has cascaded across the real economy. Restaurants are increasingly forced to co-fund subsidies, compressing margins and, in many cases, sacrificing quality just to remain competitive. The result is a vicious cycle: deteriorating unit economics, declining profitability, and a sector increasingly operating under financial strain.

At the national level, the impact is also visible. China’s fiscal revenue declined by 1.75% in 2025, the first contraction since 2020, driven not only by property sector weakness but also by the weakening profitability driven by sustained price competition. This adds a powerful fiscal incentive for policymakers to intervene more decisively.

Crucially, financial realities at the corporate level are now driving moderation - independent of regulatory pressure. Companies themselves are beginning to show clear signs of fatigue. Net cash positions at Alibaba and Meituan have deteriorated meaningfully, with current reserves estimated to sustain only around seven and five quarters of continued spending, respectively, at current burn rates (Figure 5). Given elevated subsidy levels and declining net cash, coverage metrics may be overstated. This is evident in Alibaba’s case, where coverage has fallen sharply from 11 quarters to around 7 within just two quarters. At this pace, continued subsidy-driven competition is simply unsustainable.

Figure 5: Alibaba’s coverage for M&S expenses has declined most significantly

More importantly, subsidies have done little to drive sustainable revenue growth. In the December 2025 quarter, revenue rose just 2% year-on-year for Alibaba and JD.com, and 4% for Meituan, well below pre–price war growth rates. Even where gross merchandise value increased, the impact on revenue was muted. Heavy discounting reduced overall order values, while competition shifted toward lower-ticket items such as tea and coffee. As a result, higher volumes were largely offset by weaker monetisation, leaving growth diluted.

Competition will persist - but in a healthier form

While subsidy-driven competition is likely to ease, competitive intensity will remain structurally high.

The price war has reshaped the market from a near-monopoly into a duopoly. According to Chinese research firm Analysys International, Meituan and Alibaba each held roughly 45% market share at the end of 2025, with JD.com a distant third. Both Meituan and Alibaba view instant commerce as a core pillar of their ecosystem, driving user frequency and cross-platform monetisation. Neither has an incentive to exit.

However, the nature of competition is evolving. Management commentary is beginning to reflect this shift. Alibaba CEO Wu Yongming indicated that investment in its Taobao Flash unit will likely decline significantly in the coming quarter, with a renewed focus on improving unit economics. Meituan CEO Wang Xing struck a more disciplined tone, emphasising that while the company will continue to invest to defend its leadership, it “will not engage in a price war,” and will instead reduce exposure to low-quality, loss-making orders. JD.com CEO Xu Ran similarly signalled that total investment in food delivery will decrease in 2026 compared to 2025.

The battleground is shifting to logistics efficiency, supply chain control, ecosystem integration and technology-driven user experience. This is a far healthier dynamic for long-term value creation.

Alibaba is leveraging its AI ecosystem as a key differentiator. In January 2026, it integrated food delivery, e-commerce, and travel services into its Qwen AI app, enabling users to complete transactions directly within the chatbot. With over 300 million monthly active users, this creates a powerful direct-to-transaction funnel, lowering customer acquisition costs and improving conversion efficiency at scale.

Meituan is strengthening both its technology stack and physical infrastructure. While it has launched its own AI-powered agent for ordering and reservations, its edge remains operational. The acquisition of Dingdong Maicai’s China business in February 2026 reinforces its position in fresh produce, a higher-frequency, higher-margin category than the beverage-heavy battleground of 2025.

JD.com, meanwhile, is focusing on differentiation through quality and supply chain control. Its plan to invest CNY 1 billion into 10,000 self-operated “7Fresh Kitchens” reflects a long-term bet on food safety, transparency, and brand trust. Features such as live-streamed kitchen operations and full ingredient disclosure resonate strongly with China’s increasingly quality-conscious consumers. The ecosystem benefits are becoming clearer: nearly half of JD’s food delivery users are converting into broader retail customers, highlighting the strategic value of instant commerce as a traffic and monetisation engine.

Earnings recovery: a clear path emerging

The shift away from subsidies toward per-order profitability is central to the sector’s earnings recovery in 2026.

A key metric to watch is the take rate - the percentage of gross transaction value retained as revenue. This declined sharply in 2025 due to aggressive discounting, particularly for Meituan and Alibaba.

Meituan, despite its scale advantage, saw its take rate fall below 7%. While a full return to pre-price war levels (~15%) is unlikely in a more competitive duopoly, a recovery toward ~10% is achievable.  Even under conservative assumptions, assuming subsidy-driven low-value orders fully normalise and using the lower end of pre-war daily order volume at 70 million, a modest 3% improvement in take rate could translate into roughly RMB 38 billion in additional annual revenue, materially offsetting operating losses.

Alibaba’s recovery is underpinned by a “two-speed engine”: narrowing losses in instant commerce alongside accelerating cloud growth. We expect its take rate to improve from around 4.3% to approximately 7% in 2026, as subsidy intensity eases. With Qwen’s solid user base and double-digit growth in 88 VIP memberships, Alibaba’s engagement base remains structurally strong. While we do not expect daily orders to sustain the peak of 120 million, volumes should remain well above the pre–price war level of roughly 30 million.  At the same time, losses in quick commerce are increasingly being offset by strong cloud momentum, with revenue growing 35% year-on-year in the December 2025 quarter. This growth is set to accelerate further in 2026, driven by rising AI demand, higher token consumption, and improved monetisation of AI workloads.

JD.com enters this phase from a position of relative resilience. Its core retail business maintained a solid operating margin of 3.2% as at 31 December 2025. As it scales back food delivery investments in 2026, losses should decline sharply, supporting meaningful earnings rebound. Additional upside comes from its ability to cross-sell into retail and scale its grocery initiatives.

We acknowledge that the earnings recovery is unlikely to be linear, with residual risks that could intermittently delay or dampen the pace of improvement. While blanket, aggressive subsidies such as “zero-cost meals” and “9.9-yuan deals” have largely been phased out, promotional activity tied to festivals and seasonal campaigns is still ongoing. This suggests that the path to earnings recovery may still be moderated by periodic promotional intensity.

At the macro level, China’s retail environment remains relatively subdued, with retail sales growing only 1.7% year-on-year in March. In addition, geopolitical uncertainty continues to weigh on sentiment, encouraging consumers to remain cautious and defer discretionary spending.

That said, underlying consumption shows pockets of resilience. While big-ticket categories such as property and automobiles remain weak, non-auto consumption rose 3.2% year-on-year in March, indicating stable demand in everyday consumption categories. This implies that while a rapid step-up in order volumes may be constrained in the near term, underlying consumption trends remain broadly intact outside of high-ticket discretionary spending.

China Tech: positioned for earnings recovery and policy support

With the three largest anchor stocks in the HSTECH index expected to see earnings recovery in 2026, the key earnings drag points across the sector are beginning to fade. At the same time, China’s 15th Five-Year Plan has reaffirmed strong policy support for AI development and real-world applications, providing an additional tailwind for the broader technology ecosystem.

Against this backdrop, we expect HSTECH to deliver a modest earnings recovery in 2026, with growth momentum strengthening into 2027 and 2028 as policy support and AI monetisation deepen. This improving earnings trajectory, combined with recently depressed valuations of only 20X forward P/E, supports a constructive outlook.

Based on our estimates, the HSTECH Index could reach HKD 7,760 by FY2028, implying approximately 53% upside from current levels. This would translate into an indicative level of HKD 16.3 for the Hang Seng Tech ETF (HKEX: 3067) and SGD 1.2 for the Lion-OCBC Securities Hang Seng Tech ETF (SGX: HST), offering investors a direct avenue to capture the upside from China’s next phase of technology-driven growth.

Under a more conservative scenario, applying an 18X P/E multiple, one standard deviation below the historical average of 30X, still implies around 23% upside by FY2028. This provides a meaningful margin of safety, suggesting that current depressed valuations already price in much of the downside risk.

Table 2: Projections for the Hang Seng Tech Index

	2025	2026E	2027E	2028E
PE Ratio (X)	20.2	18.7	16.5	14.7
Earnings Growth (YoY%)	4.7%	7.6%	13.8%	12.1%
EPS	251.3	270.4	307.8	345.0
Dividend Yield	1.1%	1.2%	1.2%	1.3%
Target Price (HKD)				7,760
Upside (Based on fair PE ratio of 22.5X)				53.2%
Source: Bloomberg Finance L.P., iFAST estimates Data as of 20 Apr 2026.

Figure 6: Share price vs. EPS chart for Hang Seng Tech Index

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.