How fake ‘ghost kitchens’ fooled millions in China with a hidden food-order auction system

China’s market regulator has slapped a combined 3.6 billion yuan (about $528 million) in fines on seven of the country’s biggest e-commerce and food delivery platforms after uncovering a “ghost delivery” scheme.

The State Administration for Market Regulation (SAMR) concluded that seven major delivery platforms, including Temu’s owner PDD, Alibaba, ByteDance’s Douyin, Meituan and JD.com, failed to properly vet food vendors and allowing unlicensed operators to flourish.

“Investigations found that the seven platforms failed to strictly review the licenses of online food vendors and did not fulfill their legal obligations for qualification checks,” the regulator said.

“They also entered into cooperation agreements with order-transfer platforms, and knowingly—or should have known—that such practices infringed upon consumers’ lawful rights and interests, yet failed to take necessary measures,” it added.

In addition to the corporate fines, regulators imposed nearly 19.7 million yuan in penalties on company executives responsible for food safety oversight.

How the “ghost delivery” scheme worked

The case dates back to a 2025 consumer complaint about a birthday cake purchased online that raised safety concerns.

Investigators found that many online food listings that appeared to be legitimate bakeries or restaurants were entirely fake.

A nationwide probe involving more than 200 officers revealed a vast network of so-called “ghost shops”.

These ghost shops created polished storefronts on major apps, often claiming to have dozens or even hundreds of outlets, displaying attractive food photos and uploading forged business licenses to appear authentic.

In reality, they had no physical kitchens.

The ghost shops outsourced preparation to unknown third parties, often operating out of residential buildings.

Chinese authorities uncovered more than 67,000 such ghost stores and traced over 3.6 million illegally subcontracted cake orders across multiple platforms.

When a customer placed an order, the process unfolded behind the scenes like a hidden auction.

The fake shop received the order and payment through a major platform. It then transferred the order to a separate “order-transfer” platform.

Multiple real, small-scale food makers bid to fulfill the order at the lowest price and the lowest bidder produced and delivered the food, often with slim margins.

In one example cited by state-run Xinhua news agency, a cake sold to a customer for 252 yuan was effectively auctioned off through an order-transfer system.

The actual producer received as little as 76.8 yuan after intermediaries and platforms took large cuts.

“This discovery is by no means a minor violation, but a new type of illegal model, an industrialised and large-scale disorder," Xinhua quoted Han Bing, a senior official involved in the investigation, as saying.

He noted that consumers were paying premium prices for potentially substandard food.

The investigation also exposed an organised ecosystem producing fake business licenses and identity documents.

The regulator has ordered the platforms to suspend onboarding new cake vendors for up to nine months and overhaul their verification systems.

All seven companies have since removed unverified vendors and cut ties with the order-transfer platforms involved.