China is doubling down on antitrust regulations. While memories of Jack Ma’s pre-IPO speech remain fresh, the probes have much more to do with global economic forces than the Ant IPO debacle.
China’s ongoing antitrust crackdown starts with Alibaba, and its beleaguered fintech spinoff Ant Group.
Ant Group’s blockbuster IPO was called off late last year following friction between founder Jack Ma and Chinese regulators. Soon after, China market regulator State Administration for Market Regulation (SAMR) announced new anti-monopoly guidelines.
Announced in November last year, the new rules expanded the scope of antitrust regulation to internet businesses. China has a profusion of internet businesses which were previously outside the scope of existing antitrust rules.
The new guidelines barred internet companies from price fixing activities, market manipulation using data and algorithms, and more importantly, forcing sellers to do business exclusively with one platform.
Chinese tech companies lost over US$200 million in the market after the announcement, and share prices of Alibaba, Tencent, and Meituan dropped by at least 8%. But this was just the start of their worries. In December, the SAMR launched the first of what would become a series of antitrust investigations into China’s big tech companies.
Alibaba’s antitrust woes
A month after the new antitrust framework was announced, a brief statement from the SAMR confirmed that they had launched an investigation into Alibaba for “suspected monopolistic conduct.”
The statement highlighted Alibaba’s offense — forcing merchants to “choose one out of two,” referring to a long-standing strategy by internet companies in China of forcing merchants to deal with one distribution partner exclusively. In the same month, the SAMR also fined Alibaba for failing to submit details of its acquisition of Intime in 2017 for antitrust review.
In a double blow, a consortium of Chinese financial authorities also summoned Ant Group to discuss issues with compliance. Rules pertaining to financial services regulation had been changed around the same time as Ant Group’s IPO, leading to its suspension.
Alibaba was eventually slapped with a record fine of $2.8 billion in April this year for abusing market dominance since 2015, the SAMR said. The fine led to the company’s first ever quarterly net loss since the company went public.
The fine could be an indication that Alibaba has tided over its regulatory woes for now. At the same time, with China taking steps to finalize data regulation in the country, Alibaba’s troubles with regulatory bodies are far from over.
Next in line: Tencent
In March this year, the SAMR announced a probe into monopolistic practices by Tencent’s WeChat against smaller rivals. Tencent had been fined for its 2018 investment in edtech startup Yuanfudao just days before. It had also fined a Tencent affiliate in December 2020 for failing to report past acquisition deals for an antitrust review.
This is the second time Tencent is running into trouble with the SAMR. A previous antitrust probe into Tencent’s licensing deals, launched in January 2019 (a year after the SAMR was founded) was dropped last year. The SAMR did not confirm why it was suspending the probe, but a Bloomberg report noted that the probe was dropped around the same time as a licensing deal between Tencent and Bytedance.
Interestingly, Tencent is currently embroiled in an antitrust skirmish with Bytedance. The latter filed a lawsuit against Tencent in February this year for restricting WeChat and QQ users from sharing content from its short video content platform Douyin. Douyin, TikTok’s Chinese counterpart, faces stark competition from Tencent’s Kuaishou, which went public in the same month.
Adding fuel to fire, the SAMR also launched an investigation into Tencent’s real estate platform KE Holdings this month for violating antitrust rules (specifically, the “choose one from two” policy). The SAMR announced that it would be going after Tencent-backed food delivery platform Meituan as well, once again for the ‘my way or the highway’ policy.
Put together, Tencent is looking at a probable fine of $1.5 billion at least, not counting fines for its affiliates.
34 companies pulled up
In April 2021, the SAMR gave 34 internet companies in China, including Tencent, ByteDance, Meituan, Alibaba, and JD.Com, a month to ensure that they were fully compliant with antitrust rules in the country. At a meeting with the companies, the regulator warned them about “severe punishment,” setting an example with the Alibaba fine.
In addition to committing to antitrust regulations in the country, the companies will have to conduct internal checks and self-inspections. Follow-on inspections from regulators can be expected, Bloomberg reported.
While the antitrust crackdown is often pinpointed to Jack Ma’s infamous speech prior to the Ant IPO, experts point out that antitrust laws are also a tool for the Chinese government to control inflation, stabilize prices, and even out the effects of sanctions arising out of the U.S.-China trade war.
This is in addition to its attempts to foolproof the economy from the pervasive business models of Chinese big tech. By going after big tech companies, which have much less leverage over the government in China than they do in the U.S., what the Chinese government is truly reaching for is self-sufficiency and competitiveness in the global economy, as it competes head on with the U.S. to become a tech superpower. In other words, China is laying down the groundwork for decoupling of the two largest economies.
The SAMR so far is showing no signs of relenting on its antitrust pursuit. In April, a Reuters report suggested that the regulator was shoring up budgets, manpower, and daily operations and research projects. It also made moves to expand to bureaus outside of Beijing.
This tryst with antitrust regulations has become a reckoning of sorts for China’s big tech. With President Xi Jinping making it clear that antitrust powers in the country will only become stronger, those at the helm of big tech in China will be looking over their shoulders for quite a while to come.
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