BEIJING (Reuters) - Hundreds of Chinese sellers on Temu have protested against what they call unbearably high penalties imposed by the firm, one of the merchants involved in the protest told Reuters, a fresh sign of tough price competition with low-cost rival Shein.

Temu, the international online site owned by PDD Holdings ( PDD ), sells a wide variety of products, many of them made in China, for rock-bottom prices. Its popularity has grown since its launch in September 2022, as has competition with e-commerce incumbents such as Shein and Amazon in the Untied States and other markets.

A garment merchant from Guangzhou said Temu introduced new penalties in April which can amount to up to five times of the value of a sale when customers return their purchases for a refund.

"I'm fine if I must refund consumers ... What vendors want is for Temu to stop fining us without a reason," the 25-year-old garment seller from Guangzhou said, adding she went to Temu's headquarters in Guangzhou on Monday to protest.

"To calm things down, Temu told us to register the amount of fines we need to pay, but they did nothing afterwards. So, more vendors gathered on July 29 and there were about 400 to 500 people," she said. She declined to be named due to the sensitivity of the matter.

Videos circulating online of the incident also showed what appeared to be hundreds of protesters outside the building.

Temu said in a statement that most of the protesters were garment sellers who also operate on Shein and it is actively working with the merchants to find a solution.

"These merchants have declined to resolve the disputes through the normal arbitration and legal channels stated in the seller agreements," the statement said, adding the merchants were unhappy with how it handled after-sales issues related to quality and compliance of their products.

The garment merchant said many vendors have gone bankrupt or closed since Temu started the practice, that includes fines on various issues such as wrong clothing sizes.

"I'm a small seller. My estimate was I would need to pay a fine of 110,000 yuan ($15,231), but when I got the number, it was 290,000 yuan," she said, adding her items sell at just 20 or 30 yuan each and she was not yet making enough profit to pay her fines.

Penny, another vendor from Guangzhou who protested on Monday, said she can't still quit Temu.

"I can't simply quit Temu because I have workers to pay and clothes worth several million yuan in the warehouse. I have no way out," she said.

Temu said the majority of its merchants experience success under its guidelines, reporting increased sales and positive customer feedback.

"While penalties are necessary to maintain a high-quality marketplace, we are committed to fair enforcement and dispute resolution," it said.

($1 = 7.2222 Chinese yuan renminbi)